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2020 (9) TMI 290 - AT - Income TaxExemption u/s 11 - application of Rajasthan Nursing Council seeking registration U/s 12AA denied - observation of CIT is that, applicant society cannot be held as charitable within the meaning of Sec.2(15) of the Income -tax Act, 1961 - a per CIT- A Council is not engaged in the charitable purpose of education, and that its activities fall under General Public Utility thereby attracting proviso to Sec. 2(15) - dominant purpose test - determine the dominant objectives and purpose of the assessee Council - HELD THAT - The assessee Council has been established by the Rajasthan Government under the Rajasthan Nursing Council Act, 1964 for the purpose of carrying out the provisions as so stated in the said Act. The preamble to the Act provides that the Act has been enacted by the Rajasthan State Legislature in the 50th year of Republic of India to provide for the registration of nurses, midwives, health visitors and auxiliary nurse-midwives in the state of Rajasthan. Rajasthan Nursing Council is a statutory authority established under the Rajasthan Nursing Council Act, 1964 consisting of ex-officio members who are officials of the health department Activities carried out by the applicant council have been reflected in its Income Expenditure accounts of various years - applicant council has shown receipt of direct income comprising of registration fees, counselling fees, examination fees, Inspection fees, revaluation fees etc and there are corresponding expenditure of councelling charges, examination charges, inspection charges, etc - such income receipts and expenditure describes its activities which are in the nature of General public Utility (GPU) - same income receipts (100%) are of nature of Business/commercial receipts and thus, in contravention of 20% limit as provided in the proviso to section 2(15) and also are not incidental but pre-dominant activities of the institution. How can the same activity qualify and falls in both the categories i.e, an activity in the nature of general public utility and at the same time, qualify as business activity. Merely because the assessee council has charged certain fees as part of rendering its statutory function and to meet its administrative/operative expenses, the same cannot be said to be done for the purpose of profit. It is not even the case of the Revenue that such activities are carried out for the purposes of profit and the fees so charged are exorbitant and not commensurate with the activities so undertaken by the assessee council. The test of carrying out the activities in the nature of trade, commerce or business is not satisfied in the instant case. As we have held above, the primary or dominant purpose of the assessee council is to regulate the medical profession of registered nurses, midwives, health visitors and auxiliary nurse midwives in the state of Rajasthan and to ensure that these persons have undergone requisite training and have passed the qualifying examination and hold the necessary degrees/certificates and thus eligible to practice as nurses, midwives, health visitors and auxiliary nurse midwives in their respective domains and services of such persons are thus available to the hospitals, nursing homes and public at large. Where as part of rendering of such activities, it recovers certain nominal fees to meet its operational and administrative expenses, the same will not disqualify it from being involved in activities of general public utility as the Courts have held that the proviso to section 2(15) does not seek to disqualify charitable organization covered by the last limb, when certain reasonable/nominal fee is collected from the beneficiaries in the course of activity which is not a business but clearly charity for which they are established and they undertake. Once it is held that the whole of the activities are in nature of general public utility and there are no separate business activities and no separate revenue streams from such business activities, the proviso to section 2(15) doesn t apply in the instant case and has been wrongly invoked by the ld CIT(E) - order passed by the ld CIT(E) is hereby set-aside and he is directed to grant registration to the assessee Council u/s 12AA as so applied. - Decided in favour of assessee.
Issues Involved:
1. Rejection of application for registration under Section 12AA of the Income Tax Act, 1961. 2. Determination of whether the activities of the Council qualify as "charitable" under Section 2(15) of the Income Tax Act. 3. Applicability of the proviso to Section 2(15) regarding activities in the nature of trade, commerce, or business. 4. Adequacy of the opportunity of being heard provided to the appellant before passing the order. Detailed Analysis: Issue 1: Rejection of Application for Registration under Section 12AA The appellant, a Council established under the Rajasthan Nursing Council Act, 1964, applied for registration under Section 12AA of the Income Tax Act, 1961. The Commissioner of Income Tax (Exemptions) [CIT(E)], Jaipur, rejected the application, arguing that the Council's activities are not charitable within the meaning of Section 2(15) of the Act. The CIT(E) held that the Council's activities fall under "General Public Utility" and attract the proviso to Section 2(15), which disqualifies entities involved in trade, commerce, or business from being considered charitable. Issue 2: Determination of Charitable Activities under Section 2(15) The Council argued that its primary purpose is educational and thus qualifies as charitable. The CIT(E) acknowledged that the Council performs regulatory functions, such as registering nurses and laying down training courses, but contended that these activities do not amount to "education" as defined under Section 2(15). The CIT(E) relied on various judgments, including the Supreme Court's decision in Sole Trustee Lok Shikshana Trust vs. CIT, to assert that the term "education" implies systematic instruction by way of normal schooling, which the Council does not provide. Issue 3: Applicability of the Proviso to Section 2(15) The CIT(E) argued that the Council's income from registration fees, counseling fees, examination fees, etc., constitutes business receipts, forming a predominant part of its total income. This, according to the CIT(E), violates the proviso to Section 2(15), which limits the aggregate receipts from activities in the nature of trade, commerce, or business to 20% of the total receipts. The CIT(E) concluded that the Council's activities are predominantly commercial and not incidental to its charitable objectives. Issue 4: Adequacy of Opportunity of Being Heard The Council contended that it was not provided a proper opportunity to present its case before the CIT(E) passed the order. The Tribunal did not specifically address this issue in detail, focusing instead on the substantive arguments regarding the nature of the Council's activities. Tribunal's Findings: On Charitable Nature of Activities The Tribunal examined the statutory framework governing the Council and its functions, noting that the Council is a statutory body established by the state government to regulate the nursing profession in Rajasthan. The Tribunal found that the Council's primary purpose is to ensure that nurses, midwives, health visitors, and auxiliary nurse-midwives are properly trained and qualified, which falls under the category of "general public utility" and thus qualifies as charitable under Section 2(15). On the Proviso to Section 2(15) The Tribunal held that the proviso to Section 2(15) does not apply to the Council's activities. It reasoned that the Council's fees for registration, counseling, examination, etc., are not commercial receipts but are charged to cover operational expenses. The Tribunal emphasized that the Council's activities are not carried out with a profit motive and are incidental to its primary objective of regulating the nursing profession. On Opportunity of Being Heard While the Tribunal did not delve deeply into this issue, it implicitly addressed it by thoroughly examining the Council's arguments and the CIT(E)'s findings, thereby providing a de facto opportunity for the Council to be heard. Conclusion The Tribunal set aside the CIT(E)'s order, directing the CIT(E) to grant registration to the Council under Section 12AA. The Tribunal concluded that the Council's activities are charitable in nature, falling under "general public utility," and that the proviso to Section 2(15) does not apply as the Council's activities are not in the nature of trade, commerce, or business. Order The appeal filed by the assessee is allowed, and the CIT(E) is directed to grant registration under Section 12AA.
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