2025 (1) TMI 186 - HC - Income Tax

Grant of registration u/s 12AA - charitable activity - as per CIT (E) that the activities of the trust is in the nature of trade, commerce or business and covered by proviso to Section 2 (15) - HELD THAT - Principal Commissioner or the Commissioner has to satisfy himself about the objects of the trust or institution and the genuineness of its activities as required under sub-clause (i) of clause (a) and compliance of the requirements under sub-clause (ii) of the said clause, and has to pass an order in writing registering the trust or institution and a copy of the order so passed will be sent to the applicant. Reverting to the facts of the present case in light of the order passed by this Court in Chhattisgarh Urology Society s case 2018 (2) TMI 1156 - CHHATTISGARH HIGH COURT and in view of the finding of the learned ITAT, it is quite vivid that the activities of the assessee Society are for charitable purpose for public at large and in that view of the matter, the learned ITAT is absolutely justified in directing the CIT(E) to grant registration under Section 12AA of the IT Act by setting aside the order of the CIT(E), as such, the order impugned passed by the ITAT is in accordance with law. Accordingly, the finding recorded by the CIT(E) that the activities of the respondent assessee Society is in the nature of trade, commerce or business and covered by proviso to Section 2 (15) of the IT Act was not the correct finding. Decided in favour of assessee.

1. ISSUES PRESENTED and CONSIDERED

The core legal question addressed in this judgment is whether the Income Tax Appellate Tribunal (ITAT) was correct in directing the Commissioner of Income Tax (Exemption) [CIT(E)] to grant registration under Section 12AA of the Income Tax Act, 1961, to the respondent assessee Society, despite the CIT(E)'s findings that the activities of the Society were in the nature of trade, commerce, or business and thus covered by the proviso to Section 2(15) of the Act.

2. ISSUE-WISE DETAILED ANALYSIS

Relevant Legal Framework and Precedents

The legal framework primarily involves Section 12AA of the Income Tax Act, which outlines the procedure for the registration of a trust or institution. The provision requires the Principal Commissioner or Commissioner to satisfy themselves about the objects of the trust or institution and the genuineness of its activities. Additionally, Section 2(15) defines "charitable purpose" and includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility, with a proviso excluding activities in the nature of trade, commerce, or business.

The judgment references the case of Commissioner of Income Tax v. Chhattisgarh Urology Society, where it was held that the Commissioner at the stage of Section 12A is not to assess the application of income but to verify if the application is made in accordance with the requirements of Section 12A and whether the objects are charitable.

Court's Interpretation and Reasoning

The court examined whether the activities of the respondent Society were genuinely charitable or if they fell within the ambit of trade, commerce, or business. The court noted that the CIT(E)'s role is limited to assessing the genuineness of the activities and the charitable nature of the objects, not the application of income or potential benefits to the members of the society.

Key Evidence and Findings

The ITAT found that the respondent Society was a Special Purpose Vehicle (SPV) supported by state government grants aimed at fostering economic activities and entrepreneurship, which are inherently charitable. The ITAT emphasized that the Society's activities are primarily funded by the government and are intended to develop and improve economic activities, thus aligning with charitable purposes.

Application of Law to Facts

The court applied the legal principles from the Chhattisgarh Urology Society case, determining that the activities of the respondent Society were charitable in nature. The ITAT's decision was based on the assessment that the Society fulfilled all conditions for registration under Section 12AA, and the CIT(E)'s objections were not in accordance with the law.

Treatment of Competing Arguments

The Revenue argued that the Society's activities were commercial, thus not qualifying for charitable status. However, the court found these arguments unpersuasive, noting that the Society's objectives and activities were aligned with charitable purposes as defined under the Act.

Conclusions

The court concluded that the ITAT was justified in directing the CIT(E) to grant registration under Section 12AA, as the activities of the respondent Society were charitable and not in the nature of trade or business.

3. SIGNIFICANT HOLDINGS

The court upheld the ITAT's decision, emphasizing that:

"The reasons based on which the recognition denied are not in accordance with the law when this special purpose vehicle created in the name of the society and funded it by way of grant to develop and improve the economic activities by the state government and it helps start-up entrepreneurship. This is an activity of charitable in nature..."

The court established the principle that the assessment of a trust's or society's application for registration under Section 12AA should focus on the genuineness of its activities and the charitable nature of its objectives, rather than potential commercial benefits.

The final determination on the issue was that the activities of the respondent Society were indeed charitable, and the ITAT's directive to grant registration was affirmed. The appeal by the Revenue was dismissed, and the substantial question of law was answered in favor of the assessee.

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