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2024 (11) TMI 1259 - AT - Income TaxDenial of registration u/s 12AB - the fund raising programme carried out by the assessee trust by way of coupon sales and mega lucky draw were in the nature of business activities which is not identical to carry out the object of the trust and violation of conditions specified in Section 12AB(4) - HELD THAT - As undisputed fact that the assessee trust made the fund raising programme Adbhut Hungama by selling donation coupon for Rs. 500/- each and also given prices worth of Cars to Tea Mugs. The surplus out of this fund raising programme were utilized for buying Six Dialysis machines, CT Scan machines, 4 Catract operating equipments and establishing Blood Bank, Skin Bank at various places at Gujarat and Rajasthan. Ld. CIT(E) has elaborately considered fund raising programme in his impugned order, but to failed address the activities carried out by the assessee trust and thereby denied registration u/s. 12AB of the Act which is in our considered opinion is against the provisions of law. The Ld. CIT(E) is not disputing the Medical Equipments, Machines donated to various institutions to carry out medical relief to the needy and poor. Hon ble High Court in UNITED WAY OF BARODA 2020 (3) TMI 233 - GUJARAT HIGH COURT on an identical issue wherein the trust organizing Garba event at Baroda during Navratri period by selling tickets and the surplus out of that Garba event is used for charitable purposes which was held to be not in the nature of trade commerce or business. The Hon ble High Court confirmed the Coordinate Bench decision of this Tribunal and dismissed the appeal filed by the Revenue stating the object of introducing the first proviso is to exclude the organizations which are carrying on regular business from the scope of charitable purpose . An activity would be considered 'business' if it is undertaken with a profit motive, but in some cases, this may not be determinative. Normally, the profit motive test should be satisfied, but in a given case the activity may be regarded as a business even when the profit motive cannot be established/ proved. In such cases, there should be evidence and material to show that the activity has continued on sound and recognized business principles and pursued with reasonable continuity. There should be facts and other circumstances which justify and show that the activity undertaken is in fact in the nature of business. We have no hesitation in holding that the one-time fund raising programme carried out by the assessee trust is not an organized activities in the nature of business akin to selling of lottery tickets. Since the surplus were been invested in buying medical equipment and establishing Blood Bank and Skin Bank at various parts of Gujarat and Rajasthan. There is no question of violation of Section 12AB(4) of the Act. Thus we hereby set aside the order passed by the Ld. CIT(E) and direct him to grant exemption u/s. 12AB of the Act. Application of provisions of Section 13 at the stage of registration - The provisions of Section 13 of the Act can be invoked only at the time of assessment and not at the time of grant of registration under Section 12A of the Act. Our view is further supported by the decision of Bayath Kutchhi Dasha Oswal Jain Mahajan Trust 2016 (9) TMI 8 - GUJARAT HIGH COURT wherein on the issue of denial of grant of registration us 12A of the Act by invoking Section 13(1)(b) of the Act, it was categorically held that the provisions of Section 13 would be attracted only at the time of assessment and not at the time of grant of registration. In the case of United Way of Baroda 2020 (3) TMI 233 - GUJARAT HIGH COURT the Hon ble High Court held that sales of tickets for Garba events during Navratri period does not amount to trade , commerce and business as occurring in the first Proviso to Section 2(15) of the Act and cannot be interpreted to mean any activity which is carried on in an organized manner. The purpose and the dominant object for which an institution carries on its activities is material to determine whether the same is business or not. Thus the Hon ble High Court held that denial of exemption u/s. 11 during the assessment proceedings is also held to be not correct on sales of tickets for Garba events. Thus the assessee cannot be denied registration u/s. 12AB of the Act. Assessee appeal allowed.
Issues Involved:
1. Denial of registration under Section 12AB of the Income Tax Act, 1961. 2. Alleged violation of conditions specified in Section 12AB(4) of the Act. 3. Consideration of fund-raising activities as business activities. 4. Application of provisions of Section 13 at the stage of registration. Issue-wise Detailed Analysis: 1. Denial of Registration under Section 12AB: The core issue was the denial of registration under Section 12AB of the Income Tax Act, 1961, by the Commissioner of Income Tax (Exemption) [CIT(E)]. The assessee, a public charitable trust, initially received provisional registration but was denied final registration. The denial was based on the CIT(E)'s view that the trust's fund-raising activities, such as coupon sales and a mega lucky draw, constituted business activities. The Tribunal found that the CIT(E) failed to appreciate the trust's charitable activities and the utilization of funds for medical projects, thus setting aside the CIT(E)'s order and directing the grant of registration under Section 12AB. 2. Alleged Violation of Section 12AB(4): The CIT(E) alleged that the trust violated conditions under Section 12AB(4), which include the application of income for non-charitable purposes and not maintaining separate books of accounts. The Tribunal, however, found no such violations. The trust demonstrated that all income was applied towards charitable projects, such as establishing medical facilities, and that the income was incidental to its objectives. Consequently, the Tribunal held that there was no infringement of Section 12AB(4). 3. Consideration of Fund-Raising Activities as Business Activities: The CIT(E) considered the fund-raising activities as business activities, which led to the denial of registration. The Tribunal, referencing a similar case from the Jurisdictional High Court, noted that activities like organizing events for fund-raising do not constitute business if the surplus is used for charitable purposes. In the cited case, organizing a Garba event was not considered a business as the proceeds were used for charity. Similarly, the Tribunal concluded that the trust's activities were not business activities since the surplus was used for charitable medical projects. 4. Application of Section 13 Provisions at Registration Stage: The Tribunal addressed the CIT(E)'s application of Section 13 provisions at the registration stage, stating that these provisions should only be invoked during assessment, not during registration. Citing several precedents, the Tribunal emphasized that the assessment of compliance with Section 13 should occur during the assessment proceedings. The Tribunal reinforced that the CIT(E) erred in applying these provisions at the registration stage, supporting the trust's claim for registration under Section 12AB. In conclusion, the Tribunal allowed the appeal, setting aside the CIT(E)'s order and directing the grant of registration under Section 12AB, emphasizing that the trust's activities were charitable and not in violation of the Act.
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