2021 (6) TMI 811 - AT - Income Tax

Exemption u/s 11 - grant of registration u/s. 12AA - appellant company made an application in Form No. 10A for grant of registration u/s. 12A - HELD THAT - As carefully gone through the MOA, we found that the appellant company is formed to provide reemployment to ex-servicemen etc. On perusal of clause set out in Memorandum of Association, we are unable to discern clause creating an interest in property in favour of the public for any of the object listed u/s. 2(15) which is sine qua non for creation of charity - we may point out that covenant in the MOA does permit the appellant company to distribute the profits in the form of dividend amongst its members and does not set out a condition that the income earned by the appellant company shall be deployed for the objects of the company. - This would make the appellant company a commercial organization. However, the view of the ld. CIT (Exemption) that the appellant company is a commercial organization merely because it is generating huge revenue from year to year with mark-up on the cost of 10% to 12% cannot be upheld. CIT (Exemption) had not considered the matter in proper perspective. The matter should be remanded back to the file of the ld. CIT (E) for de-novo consideration of application on the touchstone of law laid down by in the case of Ananda Social and Educational Trust 2020 (2) TMI 1293 - SUPREME COURT after giving due opportunity of being heard to the appellant. Grounds of appeal raised by the assessee are partly allowed for statistical purposes.

Summary

Issues:
Grant of registration u/s. 12AA of the Income Tax Act, 1961.

Detailed Analysis:

1. Grounds of Appeal:
The appellant contested the denial of registration u/s. 12AA of the Act by the CIT (Exemption), Pune. The grounds of appeal included contentions on erroneous analogies made by the CIT, denial of natural justice, and incorrect observations leading to the refusal of registration.

2. Facts of the Case:
The appellant, a company formed for re-settlement of ex-servicemen, applied for registration u/s. 12A of the Act. The CIT (Exemption) raised concerns regarding the commercial nature of the appellant company, its revenue generation, mark-up percentages, and provision for distribution of profits to members, leading to the denial of registration.

3. Arguments and Counter-arguments:
The appellant argued that its primary purpose was charitable, emphasizing its formation by the Government of Maharashtra for ex-servicemen's welfare. The appellant highlighted its non-distribution of dividends and government control. In contrast, the Senior DR contended that the company operated commercially, citing clauses related to share allotment and dividend distribution.

4. Judgment and Analysis:
The ITAT Pune analyzed the Memorandum of Association (MOA) and observed the absence of clauses creating a charitable interest for the public, indicating a commercial orientation. However, the ITAT disagreed with the CIT's view solely based on revenue and mark-up percentages. Citing legal precedent, the ITAT remanded the matter for a fresh consideration by the CIT, emphasizing the need for a proper perspective and adherence to legal principles.

5. Conclusion:
The ITAT partially allowed the appellant's appeal for statistical purposes, directing a reevaluation by the CIT in line with legal standards. The judgment highlighted the importance of a charitable purpose in determining registration under section 12AA of the Act, emphasizing the need for a thorough and fair assessment based on established legal principles.

This detailed analysis encapsulates the issues, arguments, judgment, and implications of the legal judgment regarding the grant of registration under section 12AA of the Income Tax Act, 1961 by the ITAT Pune.