2015 (5) TMI 919 - AT - Income Tax

Registration under section 12AA denied - rejection of application in Form 10A - Held that - It has been clearly established by various decisions that when the main object of the institution was charitable in nature the activities carried out towards the achievement of the said being incidental or ancillary to the main object even if resulting in profit and even if it is carried out with non-members were all held to be charitable in nature . The basic principle underlined the definition of charitable purposes remains unaltered even by amendment to section 2(15) of the Act with effect from April 1 2009 though the restrictive first proviso was inserted therein. In the given facts of the case the assessee s association s primary purpose was to give focus on areas of education environment and engagement (community and employee). It has through constant and well monitored support aimed towards community sustainability. Therefore they have focused on areas of education and environment watershed management women empowerment through skill development initiatives provision of drinking water youth empowerment medical health camps environmental conservation program and promotion of sports and a host of extracurricular activities at local levels aimed towards community sustainability. Hence the assessee association primary purpose was advancement of objective general public utility and it would remain charitable even if an incidental or ancillary activity or purpose of achieving the main purpose was profitable in nature. Hence the finding of the Director of Income-tax (Exemptions) has mentioned in the object clause 17 under the said incidental objects under Part B of the memorandum of association at paragraph 5 of his order stating it to be non-charitable does not disentitle the assessee for availing of exemption under section 12 of the Income-tax Act. - Decided in favour of assessee.

Issues Involved:
1. Rejection of application for registration under section 12AA of the Income-tax Act, 1961.
2. Whether the objects of the applicant-company are charitable in nature.
3. Ambiguity in the winding-up clause of the applicant-company.

Detailed Analysis:

1. Rejection of Application for Registration under Section 12AA:
The primary issue is the rejection of the assessee's application in Form 10A for registration under section 12AA of the Income-tax Act, 1961. The Director of Income-tax (Exemptions) held that the assessee-company's objects included promoting business activities, which do not fall under "charitable in nature" as defined under section 2(15) of the Act. The Director cited object clause No. 2, which aims to promote environmentally and socially responsible business practices for sustainable economic growth, and object clause No. 3, which involves letting out buildings and infrastructural facilities. These activities were deemed non-charitable.

2. Charitable Nature of the Applicant-Company's Objects:
The Director of Income-tax (Exemptions) observed that the applicant-company's objects included both charitable and non-charitable activities. Object clause No. 11 involves litigation to safeguard the rights and interests of citizens, which was not considered charitable. Additionally, object clauses 1 and 18, which involve creating awareness on social issues and obtaining rights and privileges from the Government, were also deemed non-charitable. The Director referenced the Supreme Court decision in Yogiraj Charity Trust v. CIT, which states that if a trust has both charitable and non-charitable objects, it cannot be granted exemption.

3. Ambiguity in the Winding-Up Clause:
The Director noted ambiguity in the winding-up clause of the applicant-company. Article X of the memorandum of association states that upon winding up, any remaining property should be transferred to another company with similar objects. However, Article 86 of the articles of association mentions that the remaining assets should be distributed among the shareholders. This contradiction led to the conclusion that the applicant-company could not be granted registration under section 12AA.

Tribunal's Decision:
The Income-tax Appellate Tribunal (ITAT) heard both parties. The Tribunal noted that the primary purpose of the assessee's association was charitable, focusing on education, environment, and community engagement. The Tribunal referenced the Kolkata Bench decision in Indian Chamber of Commerce v. ITO (Exemption-I), which established that activities incidental or ancillary to the main charitable object, even if profitable, do not disqualify an organization from being considered charitable. The Tribunal emphasized that the basic principle underlying the definition of "charitable purpose" remains unchanged even after the amendment to section 2(15) of the Act.

The Tribunal concluded that the Director of Income-tax (Exemptions) erred in rejecting the application based on the incidental objects. The assessee's primary purpose was the advancement of objects of general public utility, which remains charitable even if some activities are profitable. Therefore, the Tribunal allowed the assessee's appeal and granted registration under section 12AA.

Conclusion:
In conclusion, the Tribunal found that the assessee's primary objects were charitable, and the incidental or ancillary activities did not disqualify it from registration under section 12AA. The appeal filed by the assessee was allowed, and the order pronounced in the open court on January 30, 2015.

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