2021 (10) TMI 1252 - AT - Income Tax

Exemption u/s 11 - denial of registration u/s 12AA - Proof of charitable activities u/s 2(15) - main/ primary object of the trust/ institution - whether activities undertaken by the assessee do not fall within the definition of Section 2(15) of the Act? - HELD THAT - It is evident that the objects of the assessee trust meant for benefit of pharma dealers would undoubtedly fall within the fourth limb of Section 2(15) of the Act i.e. the advancement of any other object of general public utility which has been held to be very wide in its connotation in several judicial pronouncements noted above. The assessee society in the instant case is stated to be engaged in promotion of trade and commerce related to pharma business, protecting the rights and interests of its members, making its members aware about their duties, conducting seminars and workshops and organizing awareness camps and educating them about health and safety, cleanliness and also creating awareness about the legal provisions and duties and obligations under Income Tax Act and other laws to help them becoming a law abiding citizens. In this background, we are of the opinion that endeavors of the assessee society tantamounts to advancement of public utility and hence making such objects charitable in nature and susceptible to s.2(15). The object beneficial to a section of the public is also an object of general public utility. Hence, the case of the assessee gets covered in the fourth limb of Section 2(15) of the Act i.e. the advancement of any other object of general public utility . This being so, the assessee would be entitled to the benefit meant for charitable trust as contemplated in the scheme of the Act. Other objection of the CIT(E) that assessee society has purchased the land and distributed the same to its members by way of 99 years of lease - merely leasing of developed plots to its members on the basis of their respective contributions does not make the assessee ineligible for registration as a charitable entity per se. No merit in the contention of the CIT(E) that land purchased by the society is not appearing in the balance sheet. As pointed out on behalf of the assessee, the land purchased by the assessee society has been duly disclosed in the Schedule A Land and Land Development of the balance sheet and thus disclosed in a particular manner. While the assessee is a mutual concern and operating on the principles of mutuality, this by itself would not place any embargo for registration under s.12AA of the Act and to avail associated benefits under s.11 s.12 of the Act having regard to CBDT Circular No. 11/2008 dated 19.12.2008 coupled with the decision of All India Rubber Industries Association vs. Addl.CIT Ors. 2018 (10) TMI 1172 - ITAT MUMBAI The objects of the assessee society when read in the light of judicial precedents expounding the law in this regard, the conclusion is inescapable that the objects of the assessee is for charitable purpose within the meaning of Section 2(15) of the Act and the assessee is entitled in law for registration under s.12AA - Decided in favour of assessee.

Summary

Issues Involved:
1. Denial of registration under Section 12AA of the Income Tax Act, 1961.
2. Interpretation of the term "charitable activities" under Section 2(15) of the Act.
3. Applicability of the principles of mutuality.
4. Proper disclosure of land in the balance sheet.

Issue-wise Analysis:

1. Denial of Registration under Section 12AA of the Income Tax Act, 1961:
The assessee, a trade association for pharma dealers, filed an appeal against the denial of registration under Section 12AA by the Commissioner of Income Tax (Exemption) (CIT(E)). The CIT(E) rejected the application on the grounds that the activities of the assessee did not fall within the definition of "charitable activities" under Section 2(15) of the Act and that the benefits were limited to its members, thereby operating on the principles of mutuality.

2. Interpretation of the Term "Charitable Activities" under Section 2(15) of the Act:
The assessee argued that its activities fell within the ambit of "the advancement of any other object of general public utility" under Section 2(15). The Tribunal observed that the primary or dominant purpose of the institution should be charitable, and any ancillary or incidental non-charitable object would not prevent the institution from being recognized as a charity. The Tribunal cited several judicial precedents, including the Supreme Court's judgment in DIT vs. Bharat Diamond Bourse, to support this interpretation.

3. Applicability of the Principles of Mutuality:
The CIT(E) contended that the assessee operated on the principles of mutuality, benefiting only its members and not the public at large. However, the Tribunal noted that the term "public" in Section 2(15) includes a "section of the public," and therefore, the assessee's activities aimed at pharma dealers could still be considered charitable. The Tribunal referred to various case laws, including the Supreme Court's decision in CIT vs. Andhra Chamber of Commerce, which held that promoting the interests of a particular trade or industry is an object of public utility.

4. Proper Disclosure of Land in the Balance Sheet:
The CIT(E) also noted that the land purchased by the assessee was not disclosed in the balance sheet. The assessee clarified that the land was purchased out of contributions from members and was recorded in the books of accounts. The Tribunal found that the land was indeed disclosed under "Land and Land Development" in the balance sheet, and thus, the CIT(E)'s observation was incorrect.

Conclusion:
The Tribunal concluded that the objects of the assessee society were charitable in nature and fell within the meaning of Section 2(15) of the Act. The Tribunal also held that operating on the principles of mutuality does not debar the assessee from claiming exemption under Sections 11 and 12 of the Act. Consequently, the Tribunal set aside the CIT(E)'s order and directed the CIT(E) to grant registration under Section 12AA. The appeal of the assessee was allowed.