2018 (9) TMI 963 - AT - Income Tax

Benefit of section 11 - grant of registration u/s 12AA is pending decision before the Hon ble Allahabad High Court and as such, status of the assessee corporation was held as company - Held that - Hon ble Allahabad High Court 2017 (7) TMI 1228 - ALLAHABAD HIGH COURT has affirmed the order passed by the Tribunal affirming the registration accorded to the assessee company by the Commissioner. So, since the issue as to the registration granted to the assessee company u/s 12AA has been decided, we deem it necessary to set aside these cases to the file of the AO to decide afresh in the light of the fact that the assessee is registered under non-profit making entity under section 25 of the Companies Act and has been providing artificial limbs to the needy persons without earning any profit. AO shall provide an opportunity of being heard to the assessee before deciding the issue.

Summary

Issues:
1. Denial of exemption under section 11 of the Income Tax Act based on activities carried out by the appellant.
2. Disagreement with the findings of the CIT (Appeals) regarding the appellant's claim for exemption.
3. Applicability of proviso to section 2(15) of the Act.
4. Surplus arising from appellant's activities and its utilization for specific objectives.
5. Impact of the appellant being a company wholly owned by the Central Government.
6. Contradiction in the order appealed against with facts, law, and principles of natural justice.

Analysis:
1. The appellant, engaged in manufacturing artificial limbs and related services, sought to set aside the order denying exemption under section 11 for the assessment years 2013-14 & 2014-15. The main contention was that the activities aimed at providing relief to the poor, medical relief, and education, falling outside the proviso to section 2(15) of the Act. The appellant emphasized that the surplus generated was directed towards specific objectives, justifying exemption under section 11.

2. The appellant disagreed with the CIT (Appeals) on the grounds that the activities did not fall within the scope of the proviso to section 2(15). The appellant highlighted the importance of the Circular no.11 of 2008 issued by CBDT, which excluded the applicability of the proviso in their case. The appellant also argued that being a non-profit entity under section 25 of the Companies Act, the activities were not motivated by consideration as per the proviso to section 2(15).

3. The judgment addressed the applicability of the proviso to section 2(15) and the exclusion of the same based on the Circular no.11 of 2008. It emphasized that the activities carried out by the appellant were aligned with the objectives of providing relief to the poor, medical relief, and education, thereby justifying the claim for exemption under section 11.

4. The judgment highlighted the utilization of surplus arising from the appellant's activities for specific purposes such as providing relief to the poor, medical relief, and education. This utilization was considered as a factor in determining the eligibility for exemption under section 11.

5. The appellant's status as a company wholly owned by the Central Government was a point of contention. The judgment emphasized that being a non-profit entity under section 25 of the Companies Act, the activities were not driven by profit motives, supporting the claim for exemption under section 11.

6. The judgment concluded that the order denying exemption was contrary to facts, law, and principles of natural justice. It highlighted the decision of the Hon'ble Allahabad High Court affirming the registration granted to the appellant under section 12AA. The matter was remanded to the AO for fresh consideration in light of the registration and the nature of the appellant's activities, ultimately allowing both appeals for statistical purposes.