2015 (7) TMI 531 - AT - Income Tax

Entitlement for registration u/s 12AA - DIT(E) observed that a trust or society having both charitable and non-charitable objects is not eligible for exemption of its income, is, not entitled for registration u/s 12A of the Act - Held that - If the predominant object of a trust or institution is charitable and in the process of achieving that object some activity of commercial nature generating income is carried out, which again is utilized for charitable object, it cannot be said that the trust or institution is not established for charitable purpose. Moreover, the application of proviso to section 2(15), as rightly pointed out by ld. AR, has to be looked into at the stage of assessment while examining assessee s claim of exemption u/s 11 of the Act and not at the time granting registration u/s 12AA. This is because, though, the first proviso to section 2(15) of the Act excludes any activity of the nature of trade, commerce or business from being considered to be a charitable purpose, but, the second proviso to section 2(15) restricts the application of first proviso only to such trusts and institutions having receipts from commercial activity exceeding a prescribed limit in a particular previous year. Therefore, application of proviso to section 2(15) has to be looked into in every assessment year. Further, ld. AR has demonstrated before us, receipts from sales of finished goods and royalty forms only a small percentage of total receipts of the assessee. Therefore, it cannot be said that assessee is mainly engaged in commercial activity. Another important aspect worth mentioning is, in course of hearing ld. AR brought to our notice, that similar institutions established in other parts of the country have been granted registration u/s 12AA of the Act. To substantiate such claim, he submitted registration certificates granted to similar institutions at Bhubaneswar, Indore and Aurangabad. Though, ld. AR submitted that this fact was also placed before ld. DIT(E), but, the order of ld. DIT(E) is totally silent on the issue. Be that as it may, if similar institutions established by central govt. in other states having similar object have been granted registration u/s 12AA, as is the case in Bhubaneswar, Indore and Aurangabad, we do not find any justifiable reason why assessee should be deprived from availing such benefit. In the aforesaid facts and circumstances, we set aside the impugned order of ld. DIT(E) and remit the matter back to him to verify this aspect and if it is found that institutions in other places having similar object have been granted registration u/s 12AA, he may consider granting registration u/s 12AA of the Act to assessee. - Decided in favour of assessee for statistical purposes.

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Eligibility for registration under Section 12AA of the Income Tax Act.
3. Nature of activities undertaken by the assessee and their classification as charitable or commercial.
4. Comparison with similar institutions granted registration under Section 12AA.

Issue-wise Detailed Analysis:

1. Condonation of Delay in Filing the Appeal:
The appeal was delayed by 769 days. The assessee filed a petition for condonation of delay, supported by an affidavit explaining the reasons. The delay was attributed to the advice of an income-tax professional and subsequent audit observations. The Tribunal, considering the reasons provided and the fact that the assessee is a central government institution, condoned the delay and admitted the appeal for hearing on merit.

2. Eligibility for Registration under Section 12AA of the Income Tax Act:
The assessee, established by the Government of India under the Ministry of Small, Micro, and Medium Industries, applied for registration under Section 12A. The initial application was rejected due to non-compliance with a notice. Upon remand by the ITAT, the DIT(E) again rejected the application, citing that the assessee engaged in commercial activities, thus not qualifying as a charitable institution. The Tribunal noted that the primary object of the assessee was to impart technical training, which qualifies as education, a recognized charitable purpose under Section 2(15) of the Act.

3. Nature of Activities Undertaken by the Assessee:
The DIT(E) observed that the assessee had receipts from the sale of finished products and royalty, indicating commercial activities. The Tribunal, however, highlighted that the primary purpose of the assessee was educational, and the commercial activities were incidental and ancillary to this main object. The Tribunal referred to judicial precedents, emphasizing that incidental commercial activities do not disqualify an institution from being considered charitable if the primary purpose remains charitable.

4. Comparison with Similar Institutions Granted Registration:
The assessee argued that similar institutions in other states had been granted registration under Section 12AA. The Tribunal directed the DIT(E) to verify this claim and consider granting registration if it was found that similar institutions with the same objectives had been granted registration. The Tribunal emphasized the need for consistency in granting registration to institutions with similar objectives.

Conclusion:
The Tribunal set aside the order of the DIT(E) and remitted the matter back for reconsideration, directing the DIT(E) to verify the claim regarding similar institutions and to afford a reasonable opportunity of being heard to the assessee. The appeal was allowed for statistical purposes, ensuring that the assessee's eligibility for registration under Section 12AA would be reassessed in light of the Tribunal's observations and directions.

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