2022 (2) TMI 503 - HC - Income Tax

Exemption u/s 11 denied - dissemination of knowledge through a museum or a science park - assessee is a company registered under Section 25 of the Companies Act - Whether the activity of the petitioner of setting up of museums, science parks, planetariums, interactive galleries, exhibits and other forms of dissemination of knowledge through informal means, at the behest of other public bodies or entities, be regarded as commercial in nature and within the periphery of the proviso to Section 2(15) of the Income Tax Act, 1961? - objects sought to be achieved by establishing such a museum or a science park - who is the keeper of the museums established by the assessee company? - HELD THAT - In the case on hand, the RBI proposed to establish a museum and financial literary center in Kolkata to explain the development of the monetary system and to exhibit its collection of arte facts . Therefore, a building contractor can hardly be said to be equipped to establish a museum for a specified purpose. Therefore, technical expertise is required, research has to be done and the project has to be conceived in such a manner, it brings about the purpose for which the concept was evolved by RBI. The same would be also for the project which was conceived by the Surat Municipal Corporation. Therefore, to state that the assessee was only a contractor is to belittle their status and the purpose for which they were established by the Ministry of Culture, Government of India. The authorities as well as the tribunal were of the view that it is the RBI which is engaged in the educational activities and not the assessee. This finding is also erroneous as the museum is conceptualised by the assessee and all necessary inputs including training of personnel who are to man the museum or to function as a curator are all the task assigned to the assessee. All these would clearly fall within the objects of the assessee company. Thus, the message and information which will be disseminated through the museum which will be in the nature of a non-formal education is based upon the material which has been evolved by the assessee and implemented for and on behalf of the Reserve Bank of India. The responsibility for museums is on the collection curator, a museum curator or a keeper of the heritage of the institution. The curator is a specialized person/organisation who has been entrusted with the onerous duty of taking charge of the content and interpretation of the heritage value. The role of the curator is a specialist work, they have the expertise to develop as to how the archives could be interpreted through various events. Neither RBI nor Surat Municipal Corporation had the expertise within them to establish the museum. They took a policy decision to do the same, realizing that it required the assistance of experts, awarded the work to the assessee. Thus the role of the assessee in conceptuating, developing and establishing the museum is that of a museum curator who develops interprets and explains the significance of the collections for the study and education of the public. Thus the assessing officer, CIT(A) and the tribunal erred in not addressing the larger perspective of the matter. It needs to be emphasized that museums play a very important and significant role in preserving culture and heritage to be recorded and remembered regardless of its future. Museums function as places for conservation research, education and entertainment for the general public. Thus, indisputably a museum is a place of informal and free choice education and learning. Museums offer educational experience in diverse fields, to be cherished and enjoyed. To reduce the appellant assessee, a Master curator to that of a contractor, is to belittle their role in preserving heritage. The role of the assessee cannot be divested from the project rather it is the project of the assessee which is being manned by the recipient namely RBI and Surat Municipal Corporation. In our considered view this will be the proper manner in which the work assigned to the assessee and completed by them has to be interpreted. Hence, we have no hesitation to hold that the assessee has disseminated knowledge in the process of establishing the facilities for the RBI and the Surat Municipal Corporation. The assessing officer, the CIT(A) and the tribunal did not examine as to the effect of incorporation of the assessee as a company under Section 25 of the Companies Act. This issue was considered in Investor Financial Education Academy where also the assessee was registered under Section 25 of the Companies Act. Whether every company registered under Section 25 would be automatically entitled for registration under Section 12A ? - The Court noted that the Income Tax department has been consistently granting registration to all companies registered under Section 25 of the Act. The Court took note of the decision in ICAI Accounting Research Foundation 2009 (8) TMI 61 - HIGH COURT OF DELHI wherein it is pointed out that the fact that the assessee therein was a company registered under Section 25 of the Act was ignored by the tribunal as the status which has been granted by the Government of India itself is the recognition of the fact that foundation is essentially established for the purpose of education and/or for the advancement of any other project of general public utility. The Court also considered as to whether when one limb of the Government has granted a benefit whether another limb of the Government can ignore the same. Registration under Section 25 of the Companies Act is undoubtedly a relevant factor to be noted while considering an application for registration under Section 12AA of the Act as registration under Section 25 of the Companies Act recognises the main objectives of the company as a non-profit organisation. As noted above, this aspect of the matter has not been dealt with by the tribunal which in our opinion ought to have been and if taken into consideration the decision should lean in favour of the assessee Whether the assessee company was engaged in educational activities? - Merely, because a certain amount has been generated as surplus cannot take away the activities of the assessee as not being charitable for the purpose of imparting education or for general public utility. As could be seen from the memorandum of association, the incumbent profit of the assessee has to be utilised for the promotion of the objects which have been set forth in the memorandum. No portion of the income or property shall be paid or transferred directly or indirectly by way of dividend, bonus etc. Therefore, the finding of the tribunal on this aspect is also not tenable. Thus, when the assessee has not been established for the purpose of earning profit and the income it generates has to be applied for promoting the objects as spelt out in the memorandum and no portion of the income can be directly or indirectly paid by way of dividend or bonus etc, it has to be necessarily held that the assessee is a not for profit organisation but public utility company and the activities of the company for which it has been established would undoubtedly show that the company by establishing knowledge parks, engaged in imparting education and also undertakes advancement of other aspects of general public utility to fall within the definition of charitable purpose as defined under Section 2 (15) - Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the exemption under Section 11 of the Income Tax Act, 1961 can be denied based on the objectives of the petitioner entity when these objectives were accepted as charitable during registration under Section 12A / 12AA of the Act?
2. Whether the petitioner's activities of setting up museums, science parks, planetariums, etc., can be regarded as commercial in nature under the proviso to Section 2(15) of the Income Tax Act, 1961?
3. Whether the Tribunal was justified in denying the exemption under Section 11 of the Act and in its findings that the objects and activities of the petitioner are commercial in nature and/or done with the intent of earning profits?

Detailed Analysis:

Issue 1: Exemption under Section 11 based on Objectives
The assessee, a company registered under Section 25 of the Companies Act, 1956, was established by the National Council of Science Museums, Ministry of Culture, Government of India, for the purpose of disseminating scientific knowledge and developing scientific temperament. The assessee had been granted registration under Section 12AA of the Income Tax Act, which implies that its objectives were accepted as charitable. The Tribunal failed to consider the main objects of the assessee, focusing instead on incidental or ancillary objects. The main objects include setting up museums, science centers, and other educational facilities, which are inherently charitable in nature. The Tribunal's failure to recognize the primary objectives led to a flawed decision.

Issue 2: Nature of Activities under Proviso to Section 2(15)
The assessee's activities included setting up museums and science centers for entities like the Reserve Bank of India (RBI) and Surat Municipal Corporation. The Tribunal erroneously categorized these activities as commercial, likening the assessee to a contractor. However, the court emphasized that establishing a museum involves conceptualization, research, and development, which are educational activities. The court highlighted that museums play a significant role in preserving culture and heritage, offering informal education to the public. Thus, the assessee's activities align with the definition of "education" under Section 2(15) and are not commercial.

Issue 3: Tribunal's Justification for Denying Exemption
The Tribunal's decision to deny exemption under Section 11 was based on the perception that the assessee's activities were commercial and profit-oriented. However, the court noted that any surplus generated by the assessee was ploughed back into the organization for furthering its charitable objectives. The assessee's incorporation under Section 25 of the Companies Act, which mandates non-profit operations, further supports its charitable status. The court also referenced previous judgments, including Thanthi Trust and Investor Financial Education Academy, which supported a broader interpretation of "education" and recognized the charitable nature of organizations registered under Section 25. Therefore, the Tribunal's findings were deemed erroneous and arbitrary.

Conclusion:
The court concluded that the assessee's activities are charitable in nature, focusing on education and general public utility. The Tribunal's decision to deny exemption under Section 11 was based on a misinterpretation of the assessee's objectives and activities. The appeal was allowed, and the substantial questions of law were answered in favor of the assessee.