2021 (4) TMI 57 - AT - Income Tax

Exemption u/s 11 - Grant of registration u/s 12AA - charitable society for the purposes of claiming exemption of its income u/s 11 12 - n denied registration for the reason that its incidental and ancillary objects included carrying out the activities outside the India - HELD THAT - The provisions of section 11 (1)(c) of the Act, which the Ld.CIT(E) has relied upon for holding that only activities carried out in India will qualify as charitable for grant of registration, is only for the purpose of determining the income which qualifies for exemption u/s 11 of the Act. The said section comes into operation only once registration is granted u/s 12A of the Act and therefore cannot be relevant for the purposes of granting registration u/s 12A of the Act. The scheme of the Act is that all entities carrying out charitable activities, as defined in section 2 (15) of the Act, qualify to be registered as charitable entities subject to satisfaction of the concerned officer vis a vis their objects and activities, but the exemption is provided/restricted only to the extent of income which is applied for charitable purpose in India. The issue we find, is squarely covered in favour of the assessee by the decisions relied upon by the Ld. Counsel for the assessee before us. In the case of MK Nambyar SAARC Law Charitable Trust 2004 (5) TMI 51 - DELHI HIGH COURT , we find, the application for grant of registration was rejected on the ground that the applicant itself had admitted that the scholarship could be paid to members even outside India. The Hon' ble High Court held that the application of income outside India is not a relevant criteria for rejecting the application for grant of registration u/s 12 AA of the Act and the officer has to only restrict himself to the satisfaction about the objects and genuineness of the activities of the trust while granting registration with no restriction on the activities being carried out inside or outside India. The aforesaid decision of the Hon'ble Delhi High Court has been followed by the Coordinate Benches of the Tribunal in the case of National Informatics Centre Services Inc. 2017 (6) TMI 872 - ITAT DELHI . The order passed by the Ld.CIT(E) denying registration u/s 12 A of the Act is set aside and the Ld. CIT(E) is directed to grant registration as applied for by the assessee. Appeal of assessee allowed.

Summary

Issues Involved:
1. Denial of registration under section 12A of the Income Tax Act.
2. Interpretation of charitable activities and their geographical scope under the Income Tax Act.
3. Relevance of section 11(1)(c) in the context of granting registration under section 12A.

Detailed Analysis:

1. Denial of Registration under Section 12A:
The appeal was filed by the assessee against the order of the Commissioner of Income Tax (Exemptions) [CIT(E)], Chandigarh, dated 18.05.2020, which denied the grant of registration under section 12A of the Income Tax Act, 1961, as a charitable society. The CIT(E) reasoned that the trust’s objectives included operations outside India, which disqualified it from being considered charitable under the Act.

2. Interpretation of Charitable Activities and Their Geographical Scope:
The CIT(E) observed that the Income Tax Act rules out the exemption of incomes applied for charitable purposes outside India, except under limited circumstances approved by the Central Board of Direct Taxes (CBDT). The trust deed mentioned opening branches both in India and abroad, leading the CIT(E) to conclude that the trust's activities could not be treated as charitable if its income was applied outside India. The assessee argued that the CIT(E) should only consider the genuineness of the trust's objects and activities for registration purposes, as defined under section 2(15) of the Act, which does not restrict charitable activities to within India.

3. Relevance of Section 11(1)(c) in Granting Registration:
The primary argument from the assessee was that section 11(1)(c), which restricts the exemption to incomes applied within India, is relevant only when determining the exempt income, not for granting registration under section 12A. The assessee contended that the possibility of carrying out activities outside India should not lead to the denial of registration. Several judicial decisions supported this view, emphasizing that the law does not impose geographical limitations on charitable activities for the purpose of registration.

Judgment Analysis:
The Tribunal examined the relevant provisions of the Act, including sections 11, 12, 12A, 12AA, and 2(15). It noted that while section 11 restricts the exemption to incomes applied within India, it does not completely rule out exemptions for incomes applied outside India, subject to approval by the Board. The Tribunal agreed with the assessee that section 11(1)(c) is applicable only for determining the extent of income eligible for exemption and not for granting registration.

The Tribunal cited the case of MK Nambyar SAARC Law Charitable Trust vs. Union of India, where the Delhi High Court held that the application of income outside India is not a relevant criterion for rejecting registration under section 12A. The High Court emphasized that the Commissioner should focus on the genuineness of the trust's activities and objects, without geographical restrictions.

Following this precedent, the Tribunal concluded that the CIT(E)'s denial of registration based on the incidental object of applying income outside India was not in accordance with the law. It directed the CIT(E) to grant registration to the assessee as applied.

Conclusion:
The Tribunal set aside the CIT(E)'s order and allowed the appeal, directing the CIT(E) to grant registration under section 12A. The judgment clarified that the geographical scope of charitable activities is not a valid ground for denying registration, and section 11(1)(c) should only be considered when determining the extent of income eligible for exemption.