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2020 (4) TMI 368 - AT - Income TaxExemption u/s 11 - application for registration u/s.12AA rejected - Activities of the trust was not carried out with charitable object but with profit motive as activities of imparting education with primary object of earning profit cannot be said to be charitable activity and Building is being constructed in leasehold land which is owned by one of the Managing Trustee - whether or not the ld. CIT was justified in rejecting registration u/s.12AA of the Act by applying the proviso to Section 2(15) ? - HELD THAT - Poviso to Section 2(15) of the Act is applicable only to organization which is for advancement of any other object of general public utility. The proviso cannot be applied to an organization which is engaged in the first three limbs of the definition of charitable activity i.e. Relief to the poor, education and medical relief. Admittedly, assessee before us is perusing activity of education. Therefore proviso to Section 2(15) of the Act cannot be applied to the assessee trust.This position is made clear even by the CBDT Circular No.11/2008,dated 19.12.2008 Reliance placed by the ld. CIT in the case of Queens Educational Society 2007 (9) TMI 347 - UTTARAKHAND HIGH COURT was over ruled by Hon'ble Supreme Court 2015 (3) TMI 619 - SUPREME COURT - In the light of this factual position, we are of the considered opinion that the proviso to Section 2(15) of the Act is not applicable to trust. In the circumstances, we direct the ld. CIT to grant registration u/s.12AA of the Act. - Decided in favour of assessee.
Issues Involved:
1. Registration under Section 12AA of the Income Tax Act, 1961 - rejection by CIT. 2. Applicability of the proviso to Section 2(15) of the Act in granting registration to a charitable trust. Analysis: Issue 1: Registration under Section 12AA - rejection by CIT The case involved M/s. Arvinth Charitable Trust seeking registration under Section 12AA of the Income Tax Act, 1961. The trust, formed with objectives including patient care, education, and medical research, had its application rejected by the CIT on grounds of alleged profit motives and construction on leasehold land owned by a trustee. The Tribunal initially directed the CIT to grant registration, emphasizing the charitable nature of the trust's objects. However, the High Court remanded the case back to the Tribunal, noting the failure to consider the CIT's reasoning. The High Court highlighted the proviso to Section 2(15) of the Act, indicating that activities involving trade, commerce, or business may not qualify as charitable purposes. The Tribunal was instructed to re-examine the trust's activities to determine their charitable nature. Issue 2: Applicability of the proviso to Section 2(15) of the Act The central question revolved around whether the proviso to Section 2(15) applied to the trust seeking registration. The Tribunal clarified that the proviso is relevant only for organizations advancing objects of general public utility, not those engaged in relief to the poor, education, or medical relief. Citing a CBDT Circular, it emphasized that commercial activities incidental to relief, education, or medical purposes do not disqualify an entity from charitable status. The Tribunal differentiated the trust's educational activities from profit-seeking ventures, overturning the CIT's decision. It noted the Supreme Court's ruling on a similar case, highlighting that the proviso does not apply to trusts primarily focused on relief, education, or medical care. Consequently, the Tribunal directed the CIT to grant registration under Section 12AA of the Act, affirming the charitable nature of the trust's activities. In conclusion, the Tribunal allowed the appeal, emphasizing the trust's eligibility for registration under Section 12AA and underscoring the distinction between charitable activities and profit-driven endeavors.
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