2021 (12) TMI 452 - AT - Income Tax

Eligibility of registration u/s 12AA - Charitable activity u/s 2(15) - assessee submitted that it has registered u/s. 25 of the Companies Act, 1956 as a non-profit organization - HELD THAT - On perusal of main objects of the assessee, there is no doubt whatsoever with regard to nature of objects of the assessee, because main object of the assessee is to conserve and enhance the natural environment and biodiversity so as to derive sustainable benefits for human kind from the mother nature, and said objects are falls under 5th limb of definition of charitable purpose, preservation of environment as defined u/s. 2(15) - As regard other observations of the ld. CIT(E) with regard to extending activities of the trust outside India, we find that there is no restriction under the Act to carry out charitable activities beyond the boundaries of India, but such activities can be carried out with special or general approval of the CBDT. Since, the assessee has not started its activities, the question of looking into the violation of section 11(1)(a) and necessary approval, if any required for that purpose does not arise. If at all any violation is reported, then the AO is very much empowered to reject exemption claimed u/s. 11 of the Act. As regards other observations made with regard to ancillary objects and they are in commercial nature, we find that predominant objects of the assessee is preservation of environment. The ancillary objects are provided to achieve the main objects and no commercial stamp shall be made, if such objects are achieved by carrying out certain activities. If at all the assessee carry out some objects which are commercial in nature, then the AO shall verify such activities in light of provisions of section 2(15) of the Act and examine entitlement of benefit of exemption u/s. 11A of the Act. But, for this reason registration u/s. 12AA cannot be denied to the assessee. Once, the objects of the assessee are charitable in nature, and it is proposed to carry out its activities in accordance to its objects, then the CIT(E) cannot reject application filed by the assessee for registration of the trust u/s. 12AA of the Act. we are of the considered view that objects of the assessee are charitable in nature and the assessee is proposed to carry out its activities in accordance with its objects and thus, the assessee is entitled for registration u/s. 12AA of the Act. Hence, we direct the CIT(E) to grant registration u/s. 12AA of the Act, to the assessee. - Decided in favour of assessee.

Summary

Issues:
1. Registration under section 12AA of the Income Tax Act, 1961 for a company incorporated under section 25 of the Companies Act, 1956.
2. Classification of objects of the company as charitable or commercial.
3. Extending activities outside India in violation of provisions of section 11(1)(a) and 13(1)(c) of the Act.

Issue 1: Registration under section 12AA of the Income Tax Act, 1961 for a company incorporated under section 25 of the Companies Act, 1956:
The appeal was filed against the order passed by the Commissioner of Income Tax (Exemptions), Chennai, rejecting the application for registration under section 12AA of the Income Tax Act, 1961. The company was incorporated under section 25 of the Companies Act, 1956, with objects related to environmental preservation and collaborative research programs. The Commissioner observed that certain ancillary objects were commercial in nature, leading to the rejection of the registration application.

Issue 2: Classification of objects of the company as charitable or commercial:
The Commissioner noted that while the main objects of the company were charitable, several ancillary objects were commercial in nature. The Commissioner raised concerns about the company's intention to carry out activities outside India without the necessary approvals, violating provisions of the Act. The rejection was based on the view that the trust's objects were not purely charitable and its activities were predominantly commercial, contravening sections 13(1)(c) and 11(1)(a) of the Act.

Issue 3: Extending activities outside India in violation of provisions of section 11(1)(a) and 13(1)(c) of the Act:
The Commissioner highlighted the company's plan to extend activities outside India without obtaining the required approval, which was deemed a violation of the Act. The rejection of registration under section 12AA was also influenced by the perception that the trust's activities were not genuinely charitable and could lead to violations of relevant sections of the Act.

Analysis:
The Appellate Tribunal considered the arguments presented by both parties. It emphasized that the Commissioner, while granting registration under section 12AA, should focus on verifying the genuineness of the trust's activities and alignment with its charitable objects. The Tribunal referred to relevant court decisions emphasizing the importance of assessing the trust's activities' genuineness rather than the nature of income generation. It was clarified that the Commissioner's role was not to verify potential violations but to ensure the trust's charitable nature and genuine activities.

The Tribunal found that the company's main objects were indeed charitable, falling under the preservation of the environment as defined in the Act. Regarding concerns about extending activities outside India, the Tribunal noted that such activities could be conducted with appropriate approvals. Since the company had not yet commenced its activities, issues related to violations of specific sections were premature and could be addressed by the Assessing Officer if necessary.

In conclusion, the Tribunal held that the company was eligible for registration under section 12AA of the Act as its objects were charitable, and it intended to carry out activities in line with its objectives. The Commissioner was directed to grant registration to the company under section 12AA.

Outcome:
The appeal filed by the company was allowed, and the Commissioner was instructed to grant registration under section 12AA of the Income Tax Act, 1961.