2013 (10) TMI 1126 - AT - Income Tax

Eligibility of registration u/s 12AA of the Income Tax Act - The Director of Income Tax (Exemptions) has held that the activities of the Society are not restricted to India alone Held that - Director of Income Tax (Exemptions) has erred in taking such a view. In rule 1.4 of the Rules and Regulations of the Society, it has been specifically mentioned that the Society shall function under the jurisdiction of the Registrar of Societies, Chennai Central. Thus, the activities of the Society cannot extend beyond the State of Tamil Nadu. A further perusal of Rule 4.1 of the Rules makes it clear that the membership is open to Japanese Corporations and their subsidiaries & joint venture companies and Indian individuals in Chennai. With these rules, it is highly improbable to say that the benefit of the activities would extend to Japan. It is abundantly clear that the view of Director of Income Tax (Exemptions) that the benefits of the activities of the assessee-society would flow outside India is misconceived. Aims and objects of the society are not hit by the newly introduced proviso to sub-section (15) of Section 2 of the Act. The assessee is charging admission fee and monthly subscription fee from its Members. Apart from this, the assessee is also accepting grants and special contributions, admission/registration fee for seminars/conferences conducted by the Society. The assessee is not charging any fee for the services rendered by it. The fees charged by way of admission fee, monthly subscription, admission and registration fee etc., are utilized only for the promotion of the aims and objects of the Society. Clause-1 of the aims and objects put complete embargo on earning profit from any of the activities of the Society. Profit is the essence of trade, commerce or business. When services are rendered without profit motive, the element of trade, commerce or business disappears from such activities. Therefore, it can be safely construed that the activities of the assessee are not hit by the newly added proviso to Section 2(15) of the Act - Assessee deserves to be registered under the provisions of Section 12AA of the Act Decided in favor of Assessee.

Issues Involved:
1. Whether the activities of the Trust extend beyond India.
2. Whether the benefits of the Trust are confined only to the Members of the Society.
3. Whether the Society is engaged in trade, commerce, or business activities under the proviso to Section 2(15) of the Income Tax Act, 1961.

Detailed Analysis:

Issue 1: Activities of the Trust Extending Beyond India
The Director of Income Tax (Exemptions) rejected the application for registration under Section 12AA on the grounds that the activities of the Trust would extend to Japan. The Tribunal examined Rule 1.4 of the Rules and Regulations of the Society, which specifies that the Society shall function under the jurisdiction of the Registrar of Societies, Chennai Central. Additionally, Rule 4.1 indicates that membership is open to Japanese corporations, their subsidiaries, joint venture companies, and Indian individuals in Chennai. The Tribunal found that it is highly improbable for the benefits of the activities to extend to Japan and deemed the Director's view as misconceived. The Tribunal concluded that the activities of the Society are restricted to the State of Tamil Nadu and are subject to scrutiny under the Act.

Issue 2: Benefits Confined to Members
The Director of Income Tax (Exemptions) contended that the benefits of the Trust would not be available to the general public but only to the Members of the Society. The Tribunal referred to the Delhi Bench of the Tribunal's decision in a similar case, which held that promoting trade and commerce between India and Japan would benefit the Indian public at large. The Tribunal agreed with this view, stating that the benefits of the activities of the Trust are not confined to a select segment but would flow to a larger section of society.

Issue 3: Engagement in Trade, Commerce, or Business
The Director of Income Tax (Exemptions) argued that the Society is charging fees for services related to trade, commerce, or business, which falls under the proviso to Section 2(15) of the Act. The Tribunal, however, noted that the Society charges admission fees, monthly subscriptions, and registration fees for seminars and conferences, which are utilized solely for the promotion of the Society's aims and objects. The Tribunal emphasized that Clause-1 of the aims and objects puts a complete embargo on earning profit from any activities. The Tribunal cited the CBDT Circular No. 11 of 2008, which clarifies that the proviso to Section 2(15) applies where the object of 'general public utility' is a mask for trade, commerce, or business. The Tribunal concluded that the activities of the Society are not hit by the newly added proviso to Section 2(15) as they are conducted without profit motive.

Conclusion:
The Tribunal set aside the impugned order dated 28-02-2013 and directed the Director of Income Tax (Exemptions) to grant exemption to the assessee under Section 12AA of the Income Tax Act, 1961. The Tribunal found that the activities of the Society are restricted to India, benefit the larger public, and are not engaged in trade, commerce, or business. The appeal of the assessee was allowed, and the order was pronounced on 17th September 2013 at Chennai.

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