2012 (5) TMI 252 - AT - Income Tax

Charitable Purpose - Section 2(15) Registration granted earlier u/s 12A has been cancelled - The appellant is a company formed and registered on 14th January, 1999 under section 25 of the companies Act, 1956 - On examination of accounts of the assessee, the ld. DIT(E) had taken a view that the assessee has been doing professional activities specially in accounting areas - held that - the DIT, without examining the concept of business, has wrongly held that the institute was carrying on business as coaching and programmes were held by them and a fee was being charged for the same - assessee foundation is established for charitable purposes having regard to the objects of the foundation and its importance throughout India or throughout any State or States - Decided in favor of the assessee

Issues Involved:
1. Legality of the cancellation of registration under Section 12AA(3) read with Section 12A of the Income Tax Act, 1961.
2. Classification of the appellant's activities as business or commercial activities versus charitable activities.
3. Compliance with the objectives set out in the appellant's Memorandum of Association.
4. Determination of whether the appellant subsists for profit or for advancing objects of general public utility.
5. Requirement to maintain separate books of accounts for specific projects.
6. Sustainability and legality of the order passed by the Director of Income Tax (Exemptions).

Issue-wise Detailed Analysis:

1. Legality of the Cancellation of Registration:
The appellant contested the order dated 14.07.2011, passed by the Director of Income Tax (Exemptions) (DIT(E)), which canceled the registration granted under Section 12A since the assessment year (A.Y.) 2009-2010. The appellant argued that the conditions for canceling the registration under Section 12AA(3) were not violated. The Tribunal noted that the registration was initially granted with effect from 14.01.1999, and the appellant was recognized as a Scientific and Industrial Research Organization (SIRO).

2. Classification of Activities:
The DIT(E) alleged that the appellant's activities, particularly its work with the Municipal Corporation of Delhi (MCD) and Kolkata Municipal Corporation (KMC), were professional services in the field of accounting, thus constituting business or commercial activities. The appellant argued that these were research projects and fell within the purview of "charitable purpose" as defined in Section 2(15) of the Income Tax Act. The Tribunal referred to a previous judgment by the Hon'ble Delhi High Court, which recognized these activities as research projects and charitable in nature.

3. Compliance with Objectives:
The appellant maintained that its activities were incidental to its objectives as set out in its Memorandum of Association. The Tribunal noted that the appellant's main object was to establish an academy of international standards for promoting knowledge in various fields related to accounting and management. The Hon'ble Delhi High Court had previously observed that the appellant's objectives fell within the definition of "education" under Section 2(15).

4. Profit Motive vs. Charitable Purpose:
The DIT(E) rejected the appellant's claim that it did not subsist for profit, arguing that the activities were intended to advance "objects of general public utility." The Tribunal highlighted that the Hon'ble Delhi High Court had previously ruled that the appellant's activities, including various research projects, were charitable and educational in nature, thus not constituting business or commercial activities.

5. Maintenance of Separate Books of Accounts:
The DIT(E) argued that the appellant did not maintain separate books of accounts for its work with MCD and KMC. The Tribunal noted that the Hon'ble Delhi High Court had found that the appellant's primary activities were educational and charitable, and the projects undertaken were ancillary to its main objectives. Therefore, maintaining separate books of accounts was not necessary.

6. Sustainability and Legality of the DIT(E)'s Order:
The Tribunal concluded that the DIT(E)'s order canceling the registration under Section 12A was not justified. The Tribunal referred to the Hon'ble Delhi High Court's decision, which had already established that the appellant's activities were charitable and educational. The Tribunal canceled the DIT(E)'s order dated 14.07.2011 and allowed the appeal.

Conclusion:
The Tribunal found that the appellant's activities were charitable and educational, falling within the definition of "charitable purpose" under Section 2(15) of the Income Tax Act. The DIT(E)'s order canceling the registration under Section 12A was deemed unjustified and was canceled. The appellant's appeal was allowed, and it was noted that the DIT(E) had subsequently granted approval for exemption under Section 10(23C)(iv), recognizing the appellant's charitable status.

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