2015 (1) TMI 1367 - AT - Income Tax

Tribunal Emphasizes Trust's Objects Over Activities for Income Tax Registration

The Tribunal overturned the Commissioner of Income Tax's decision and directed registration under section 12A of the Income Tax Act, emphasizing that the ... Declining registration u/s 12AA(1)(b)(ii) - appellant is a society engaged in imparting education - Held that:- The relevant determinative factor for conferring registration is the object of the society and the quantum of profits/ surplus is an irrelevant factor. In the present case, admittedly and undisputedly appellant society is imparting education. And education per-se is a charitable object u/s 2(15) of the Act. The basis of impugned action to regard the society as commercial at the stage of registration on the basis of expenditure incurred on advertisement and publicity is unwarranted and against the settled interpretation of the statute. As held by the Apex Court in American Hotel & Lodging Association Educational Institute (2008 (5) TMI 17 - SUPREME COURT OF INDIA) the character of the recipient of the income must have the character of educational institution is to be determined irrespective of the profits. In view of the above we reverse the order of the CIT and direct it to grant registration u/s 12A of the Act. - Decided in favour of assessee Issues:- Registration u/s 12AA(1)(b)(ii) of the Income Tax Act, 1961 denied based on commercial nature of activities.Analysis:Issue 1: Denial of Registration based on Commercial Nature of ActivitiesThe appellant, a registered society primarily engaged in imparting education, applied for registration u/s 12A(a) of the Act. The Commissioner of Income Tax declined registration citing commercial activities due to significant expenditure on advertisement, publicity, and capital expansion. The appellant argued that education is a charitable purpose under u/s 2(15) of the Act and emphasized that the expenditure in question was minimal, ranging from 5% to 7% of total receipts. The Tribunal considered the Allahabad High Court judgment in CIT Vs. Red School, emphasizing that registration inquiry should focus on the trust's objects, not activities not yet initiated. The Tribunal clarified that the genuineness of activities should be tested against the trust's objectives, not profits. The Supreme Court's decision in Americal Hotel and Lodging Association Educational Institute further supported that the nature of activities determines the character of the recipient, not the profits. The Tribunal concluded that the appellant society's primary objective of imparting education qualifies as a charitable purpose, and the expenditure on advertisement and publicity does not alter this charitable nature. The Tribunal overturned the CIT's decision and directed registration u/s 12A of the Act, emphasizing that the examination at the registration stage should focus on the trust's objects, not activities or profits. The Tribunal also noted that reliance on a different High Court judgment was misplaced, as the character of the recipient must align with educational institution criteria, irrespective of profits.This detailed analysis of the judgment provides a comprehensive overview of the issues involved and the Tribunal's decision regarding the denial of registration based on the commercial nature of activities.