2021 (11) TMI 222 - AT - Income Tax

Exemption u/s 11 - rejection of application seeking registration u/s 12AA - profit of charitable object u/s 2(15) - HELD THAT - Merely because the assessee company has been registered u/s 8 of the Companies Act, we are not saying that the same by default mean that it shall be eligible for grant of registration u/s 12AA of the Act as the legislation is currently not worded to support the said proposition. Where another arm of the government administering the company law legislation has examined the objects and intended application of profits and has granted the registration as section 8 company, the said registration allows the assessee company to take necessary steps to seek separate and independent registration u/s 12AA and where such an approval is placed on record, as part of assessee s application u/s 12AA and supporting documentation as required under law, it shall provide an additional level of comfort to the ld CIT(E) in terms of examining the true intent behind its objects of setting up/incorporation and also for the purposes of examining compliance of other laws material for achievement of its objectives under section 12AA(a)(ii) Appellant company s application seeking registration u/s 12AA for undertaking the aforesaid objects of general public utility deserve to be accepted as falling within the purview of charitable purpose u/s 2(15) of the Act. In terms of examining the allowability of benefit u/s 11, 12 r/w section 13, it is a settled position that the same can be examined on year to year basis by the Assessing officer and he shall be free to take action, as per law including under section 13(8) as so provided in the statue, during the course of regular assessment proceedings. We accordingly direct the ld CIT(E) to grant approval to the assessee company u/s 12AA of the Act. - Decided in favour of assessee.

Summary

Issues Involved:
1. Delay in filing the appeal.
2. Rejection of application seeking registration under Section 12AA of the Income Tax Act.
3. Examination of the objects of the appellant company for elements of commercial/business nature.

Detailed Analysis:

1. Delay in Filing the Appeal:
The appellant acknowledged a 27-day delay in filing the appeal, attributing it to the second wave of the COVID-19 pandemic and consequent lockdowns. The appellant cited a Supreme Court decision extending the limitation period due to the pandemic. The Revenue did not object to the delay, and the Tribunal found a reasonable cause for the delay due to the pandemic, thus condoning the delay and admitting the appeal for adjudication on merits.

2. Rejection of Application Seeking Registration under Section 12AA:
The appellant, a company incorporated under Section 8 of the Companies Act, 2013, sought registration under Section 12AA of the Income Tax Act. The CIT(E) rejected the application, citing that certain objects in the Memorandum of Association had elements of commercial/business nature. The appellant argued that the main object was skill development in the garment and textile industry, which falls under "charitable purpose" as per Section 2(15) of the Act. The appellant further contended that the company, being a Section 8 company, was prohibited from carrying out activities on a commercial basis and thus should qualify for registration under Section 12AA.

3. Examination of the Objects of the Appellant Company:
The Tribunal examined the objects of the appellant company, which included setting up training and research centers, business incubators, testing laboratories, conference halls, and promoting traditional garment techniques. The Tribunal found that these objects were interconnected and aimed at general public utility. The Tribunal also noted that the company's Memorandum of Association explicitly stated that the activities would not be carried out on a commercial basis. The Tribunal emphasized that the registration under Section 8 of the Companies Act provided an additional level of comfort regarding the company's intent and objectives. The Tribunal concluded that the CIT(E) failed to consider the explanations provided by the appellant and the commitment to non-commercial activities as per the Memorandum of Association.

Conclusion:
The Tribunal directed the CIT(E) to grant approval to the appellant company under Section 12AA of the Income Tax Act, recognizing the objects as falling within the purview of "charitable purpose" under Section 2(15) of the Act. The Tribunal clarified that the allowability of benefits under Sections 11 and 12, read with Section 13, could be examined by the Assessing Officer on a year-to-year basis during regular assessment proceedings. The appeal of the appellant company was allowed.