2016 (9) TMI 1064 - AT - Income Tax

Registration u/s.12AA rejected - trust has mixed objects - Held that - There is no dispute that the assessee has mixed objects thereof charitable as well as religious. But the fact is that the CIT(E) has refused to grant registration because he has analysed only three initial objects of the society and came to the conclusion that the objects are not ascertainable and going further he observed that assessee had received certain donations and met some expenditure, which are purely religious. He observed that this trust is established mainly for promoting a particular religion. In the present case, CIT(E) has not disputed the fact that the trust can have mixed objects. CIT(E) has objected to the objects which are not ascertainable. Otherwise also, the concept of mixed objects are already settled issue, as held in the case of ACIT Vs. Surat Art Silk Cloth Manufacturers Association 1979 (11) TMI 1 - SUPREME Court wherein held that if the primary purpose and predominant object of a trust are to promote welfare of the general public, the purpose would be charitable purpose, any other object which might not be charitable, but which is ancillary or incidental to the dominant purpose, would not prevent trust or institution from being a charitable trust. In the given case, no doubt the trust has mixed objects but what is important, can it be distinguishable. Ld. CIT(E) himself observed that the trust has incurred expenditure towards charitable as well as religion. He even distinguished the income as well as relevant expenditure. Coming to the ascertainability of the object, in our view, we have gone through the objects and found that certain institutions formulate their objects in such a fashion that they try to address in global level, then comes down to their main objects. In the given case also, it appears unascertainable but they try to cover overall general objects, which may not look ascertainable. But in our considered view, CIT(E) should have looked at the whole objects and appreciated the overall aspects are charitable purpose in the creation of the trust. As long as it is beneficial to the society, it should be appreciated. With regard to objects of the religious purpose, wherever the objects or activities which are contravening the provisions of section 13(1)(b), the relevant income and expenditure can be eliminated at the stage of assessment, it should not be considered at the stage of granting registration. At this stage, CIT(E) should appreciate the purpose and objects relevant for charitable purpose. Mere presence of certain religious objects should not preclude the officer to doubt the functions of the trust. As explained above, CIT(E) should be considering only the charitable side of the institution and grant the registration. Of course, he chooses or expects the trust will misuse the registration, he is at absolute liberty to grant conditional registration by imposing conditions like, it is eligible to claim the exemption only on charitable activities, separate books to be maintained, both books be subject to audit etc. With the above observations, we remit the issue back to the file of CIT(E) with a direction to grant registration. - Decided in favour of assessee.

Issues Involved:
1. Rejection of application for registration u/s 12AA of the Income Tax Act, 1961.
2. Dominant objects of the society not ascertainable.
3. Society's activities perceived as religious rather than charitable.
4. Verification of the society's main objects.
5. Nature of expenses considered by CIT(E).
6. Mixed objects of the society and eligibility for registration.

Issue-wise Detailed Analysis:

1. Rejection of Application for Registration u/s 12AA:
The assessee, a society, filed an application in Form No.10A seeking registration u/s 12AA of the Income Tax Act, 1961. The CIT(E) rejected the application, stating that the dominant objects of the society were not ascertainable and the activities were primarily religious, not charitable.

2. Dominant Objects of the Society Not Ascertainable:
The CIT(E) noted that the society had 16 objects in its Memorandum of Association (MoA). Upon review, the CIT(E) found that the dominant objects were not ascertainable, particularly the first three objects, which did not conform to the definition of charitable purposes under Section 2(15) of the Act. The CIT(E) concluded that the objects were too vague and not clearly defined as charitable.

3. Society's Activities Perceived as Religious Rather Than Charitable:
The CIT(E) observed that the society's activities, as evidenced by its income and expenditure accounts, were predominantly religious. The society had incurred expenses on 'wine & charity' and received donations for a church, indicating religious activities. The society's report on activities also highlighted its focus on spreading Christianity, reinforcing the perception that the society's primary purpose was religious.

4. Verification of the Society's Main Objects:
The CIT(E) stated that the main objects of the society were not verifiable. The assessee argued that the society had mixed objects, including charitable, religious, and general public utility. The CIT(E) did not find this explanation satisfactory and maintained that the society's dominant objects were not ascertainable and primarily religious.

5. Nature of Expenses Considered by CIT(E):
The CIT(E) scrutinized the society's expenses and questioned how certain expenditures, such as those on 'wine & charity,' could be considered charitable. The assessee acknowledged that these expenses were religious rather than charitable but argued that the society had other charitable activities, such as medical help to the poor and educational support.

6. Mixed Objects of the Society and Eligibility for Registration:
The assessee contended that the society's mixed objects made it eligible for registration u/s 12AA. The AR cited various case laws to support the argument that a society with mixed objects (charitable and religious) is eligible for registration. The tribunal agreed with this view, noting that the CIT(E) should consider only the charitable aspects of the society when granting registration. The tribunal emphasized that the presence of religious objects should not preclude the society from registration if it also engages in charitable activities.

Conclusion:
The tribunal concluded that the CIT(E) should have considered the overall charitable purpose of the society and not focused solely on the religious aspects. The tribunal remitted the issue back to the CIT(E) with a direction to grant registration, considering the charitable activities of the society and imposing conditions if necessary. The appeal of the assessee was allowed.

← Previous Next →