2021 (11) TMI 326 - AT - Income Tax

Rejection of application seeking registration u/s 12AA - AR submitted that the appellant is a company incorporated under the provisions of Section 8 of the Companies Act, 2013 and promoted by IIS (Deemed to be University) Trust which is also solely engaged in imparting education having necessary approvals u/s 12AA - main object of the appellant company is to set up high class incubation facility to foster entrepreneurial culture - 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 through its designated authority the objects and intended application of profits and has granted the registration to the assessee company 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) of the Act. The 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 - Appeal of the assessee company is allowed.

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 commercial/business nature of the assessee’s activities.
4. Compliance with the requirements of other laws for achieving the assessee’s objectives.

Detailed Analysis:

1. Delay in Filing the Appeal:
The assessee filed the appeal 27 days late due to the COVID-19 pandemic and consequent lockdown. The Supreme Court’s decision dated 27.04.2021 extended the period of limitation for filing appeals from 14th March 2021 until further orders. The Tribunal found the delay reasonable and condoned it, 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, applied for registration under section 12AA. The CIT(E) rejected the application on 30.03.2021, citing that certain objects in the memorandum of association had elements of commercial/business nature. The assessee argued that these activities were charitable under the "general public utility" clause of section 2(15) of the Act and not carried out on a commercial basis. The Tribunal found that the CIT(E) ignored the fact that the appellant was a Section 8 company, which inherently prohibits commercial activities and profit distribution.

3. Examination of the Commercial/Business Nature of the Assessee’s Activities:
The CIT(E) based the rejection on specific objects in the memorandum that appeared commercial. The assessee countered by highlighting clauses in the memorandum ensuring no commercial activities and that profits would be used solely for promoting its objects. The Tribunal noted that the objects were interconnected and aimed at public utility, fostering an entrepreneurial culture without commercial intent. The Tribunal emphasized that the CIT(E) failed to consider the explanation provided by the assessee.

4. Compliance with Requirements of Other Laws:
The Tribunal pointed out that the CIT(E) should have considered the Section 8 registration under the Companies Act, which mandates non-commercial activities and profit application for charitable purposes. The Tribunal clarified that while Section 8 registration does not automatically qualify for 12AA registration, it provides significant assurance regarding the assessee's charitable intent and compliance with relevant laws.

Conclusion:
The Tribunal concluded that the assessee’s objects fall within the "general public utility" clause of section 2(15) and directed the CIT(E) to grant registration under section 12AA. The Tribunal also noted that the allowability of benefits under sections 11 and 12 can be examined annually by the Assessing Officer during regular assessments.

Order:
The appeal of the assessee company was allowed, and the CIT(E) was directed to grant approval under section 12AA of the Act. The order was pronounced in the open Court on 02/11/2021.