2020 (2) TMI 1149 - HC - Income Tax

Exemption u/s 11 - benefit of registration u/s 12AA denied - Object Clause 3.3(e) of the Trust Deed provides for development of new drugs or medicines, Object Clause 3.6(g) speaks about printing, publishing and selling journals, periodicals, books etc., Object Clause 3.8(f) mentions about establishing financial institutions etc., and therefore the learned Commissioner felt that the Assessee Trust might itself engage in business activities and therefore not entitled to registration under Section 12AA - HELD THAT - Mere apprehension on the part of the Revenue authorities that the Object Clause of the Trust Deed provided for development of new drugs / publication of journals etc., cannot per se amount to any business or trading activity on the part of the respondent Trust. These activities are prima facie incidental to the charitable activity of providing good health and medical relief to the affected persons. The learned Tribunal however has made it clear in its order that it is even otherwise open to the Revenue authorities under the provisions of the Act to consider the factual aspects of the matter as to whether the Trust is engaged in any business activity or not upon granting annual renewal of such registration under Section 12AA of the Act and therefore unless the Charitable Trust is found to be engaged in the business or trading activity apart from the charitable purposes for which the Trust is incorporated, the benefit of registration under Section 12AA of the Act cannot be denied to the Trust. Therefore Tribunal was perfectly justified in allowing the appeal filed by the Assessee and directing the Revenue authorities to grant registration under Section 12AA of the act to the applicant / Assessee. - Decided against revenue.

Summary

Issues:
- Appeal against the order of the Income Tax Appellate Tribunal allowing registration under Section 12AA of the Act to a Trust engaged in various activities including development of new drugs, publishing journals, and establishing financial institutions.
- Interpretation of the definition of 'Charitable Purposes' under Section 2(15) in light of the Finance Act amendments.
- Determination of whether the activities of the Trust, such as research and development of new medicines, fall under 'Charitable Purposes' or constitute business activities.

Analysis:
The appeal before the High Court of Madras involved the Revenue challenging the order of the Income Tax Appellate Tribunal granting registration under Section 12AA of the Act to a Trust engaged in activities like developing new drugs, publishing journals, and establishing financial institutions. The Revenue contended that the Trust's activities, falling under certain clauses of the Trust Deed, could be considered business activities, thus justifying the rejection of registration. The Revenue highlighted the amendments to the definition of 'Charitable Purposes' under Section 2(15) introduced by the Finance Acts of 2008 and 2015, excluding activities resembling trade, commerce, or business.

In response, the Assessee argued that its activities, particularly research and development of new medicines, were aligned with 'Charitable Purposes', including medical relief and yoga, as per the amended definition. The High Court analyzed the Trust's activities and emphasized that the mere presence of clauses related to new drug development or journal publication in the Trust Deed did not automatically indicate engagement in business or trading. The Court noted that such activities were incidental to the charitable objective of providing health and medical relief, thus not constituting business activities per se.

The High Court upheld the Tribunal's decision, stating that the Revenue could examine the Trust's activities during annual renewal of registration under Section 12AA to verify any business engagement. Unless the Trust was found to be involved in business or trading activities beyond its charitable purposes, registration under Section 12AA could not be denied. Consequently, the High Court dismissed the Revenue's appeal, deeming it meritless, and ruled in favor of the Assessee. The judgment emphasized that the Trust was entitled to registration under Section 12AA of the Act, and the Revenue's concerns did not warrant denial of registration.