2019 (10) TMI 774 - AT - Income Tax

Application for registration u/s 12AA rejected - CIT held that the charitable nature of the objectives and genuineness of the activities of the institution could not be established and accordingly, he rejected the registration of the assessee company under section 12AA - HELD THAT - As the sole issue of granting registration under section 12AA of the Act precipitate on whether the assessee was engaged in imparting education, which has not been examined properly by the CIT, we feel it appropriate to set aside the order of the learnedCIT(E) and remit the matter back to him for deciding the issue of granting registration afresh in accordance with law. Alternatively, CIT(E) may also examine eligibility of the assessee for registration under the fourth limb of charitable purpose, i.e., advancement of general public utility in accordance with law, if raised so by the assessee. It is needless to mention that the assessee shall be afforded adequate opportunity of being heard. The grounds raised by the assessee are accordingly allowed for the statistical purposes. Appeal of the assessee is allowed for statistical purposes.

Summary

Issues:
Registration under section 12AA of the Income-tax Act, 1961.

Detailed Analysis:

1. Background and Facts:
The appeal concerns the rejection of the assessee's application for registration under section 12AA of the Income-tax Act, 1961. The assessee, a non-profit organization incorporated under section 8 of the Companies Act, 2013, sought registration based on its activities as a Registered Valuers Organization. The Commissioner of Income Tax (Exemption) rejected the application, citing commercial activity and lack of charitable nature in the assessee's objectives and activities.

2. Observations of the Commissioner:
The Commissioner noted that the assessee operated from premises owned by another institution, with significant expenses directed towards instructors and rent. Income was primarily derived from fees received from students aspiring for the Insolvency and Bankruptcy Board of India (IBBI) exams. The Commissioner concluded that the assessee's activities were commercial in nature, lacking charitable intent, and therefore, not eligible for registration under section 12AA.

3. Arguments Before the Tribunal:
The assessee's counsel argued that the organization's objective was charitable, focusing on education as per section 2(15) of the Act. Referring to the Memorandum of Association and relevant case laws, the counsel emphasized the charitable nature of the organization's activities. In contrast, the Departmental Representative contended that the assessee's activities were limited to coaching classes without formal education accreditation.

4. Tribunal's Analysis and Decision:
The Tribunal examined the conditions for registration under section 12AA, emphasizing charitable objectives and genuine activities. Discussing the definition of charitable purposes and the exclusion of commercial activities, the Tribunal reviewed the Supreme Court's interpretation of "education" in a charitable context. It noted discrepancies in the Commissioner's assessment, especially regarding the formal schooling aspect of education provided by the assessee.

5. Conclusion and Order:
The Tribunal found that the Commissioner had not adequately assessed whether the assessee's educational activities aligned with formal schooling, a crucial aspect for charitable classification. Consequently, the Tribunal set aside the Commissioner's order and remanded the matter for a fresh decision. The Tribunal directed a reevaluation of the assessee's eligibility for registration under the charitable purpose clause, ensuring due process. The appeal was allowed for statistical purposes, emphasizing the need for a comprehensive review of the assessee's educational activities.

In conclusion, the Tribunal's decision highlighted the importance of aligning an organization's activities with charitable objectives, especially concerning educational endeavors, for registration under section 12AA of the Income-tax Act, 1961.