2009 (6) TMI 651 - AT - Income Tax

Assessee Denied Registration Under Section 12A as Primary Object Is Profit-Making, Not Charitable Under Section 2(15)

ITAT AMRITSAR - AT held that the assessee is not entitled to registration under s.12A because its primary object is profit-making, not charitable ... Denial of registration under Section 12A - activity of advancement of any other object of general public utility​​​​​​​ - requirement for charitable purposes under Section 2(15) - Jalandhar Development Authority is an authority brought into existence by the order of the Government of Punjab, Department of Housing and Urban Development vide its Notification No. 13/31/2004-1HG2/5370, dt. 16th July, 2007 - HELD THAT:- In our opinion, the assessee is not engaged in the activities of relief to the poor, education of medical relief, and advancement of any other object of general public utility as defined in s. 2(15) of the Act and the condition is not fulfilled and the activity of the profit is not carried on in the course of actually carrying out of the primary purpose of the assessee's activity of advancement of any other object of general public utility considered to be 'charitable purpose' only when the above purpose does not involve the carrying on of any activity of profit. But in the present case, the primary object of assessee's profit motive and it cannot be said that the assessee is engaged for the purpose of carrying out the activities of the general public utility. The activities of the assessee is to carry on business and there is no restriction in its object of making profit. There is no evidence to suggest that the assessee is not engaged in the activity of the profits and as such the assessee is not entitled for registration under s. 12A of the Act. Further, profit making by the assessee is not mere incidental or by-product of the activity of the assessee. The main predominant purpose of assessee is making profit, it is real object of the assessee and also there is no spending of the income exclusively for the purpose of charitable activities and profit of the assessee not used for charitable purpose under the terms of the object clause of notification under which it was formed i.e., Punjab Regional and Town Planning and Development Act, 1995 and there is no obligation on the part of the assessee to spend on 'charitable purpose' only and the learned CIT(A) was justified in rejecting the claim of the assessee. Even if the assessee is a local authority, it is not entitled for registration under s. 12A of the Act, since it has not fulfilled the required conditions for grant of registration under s. 12A. The assessee is not engaged in the activities as enumerated in s. 2(15) of the Act as we have already observed that main predominant object of assessee is profit making and as such is not entitled for registration under s. 12A of the Act. The order of the learned CIT to be read in whole and not sentence by sentence. The learned CIT has taken all the relevant facts and decided the issue against the assessee on merit. We do not find any infirmity in the order of the learned CIT and the same is upheld. In the result, the appeal filed by the assessee is dismissed. Issues Involved:1. Justification for denial of registration under Section 12A.2. Interpretation of the charitable nature of the trust's objectives under Section 2(15).3. Jurisdiction and application of presumptions by the CIT.4. Applicability of the Supreme Court's judgments and legal precedents.5. Assessment of the trust as a local authority versus a charitable trust.Detailed Analysis:1. Justification for Denial of Registration under Section 12A:The primary issue is whether the CIT was justified in denying the registration under Section 12A to the appellant trust. The CIT's refusal was based on the belief that the trust's activities were aimed at earning profit, which contradicts the requirement for charitable purposes under Section 2(15) of the IT Act. The CIT observed that the trust's income was generated from selling developed lands, which was seen as a profit-driven activity rather than a charitable one.2. Interpretation of the Charitable Nature of the Trust's Objectives under Section 2(15):The assessee argued that their objectives fell under the definition of 'charitable purposes' as per Section 2(15) of the IT Act. They cited various judgments, including the Supreme Court's ruling in Addl. CIT vs. Surat Art Silk Cloth Manufacturers Association, which stated that business income could be exempt if it was incidental to achieving the trust's charitable objectives. However, the CIT held that the trust's activities were commercial in nature and did not align with the charitable purposes defined in Section 2(15).3. Jurisdiction and Application of Presumptions by the CIT:The assessee contended that the CIT exceeded his jurisdiction by applying presumptions and assumptions about the proposed income of the trust. They argued that the CIT failed to appreciate the charitable nature of their objectives and instead focused on the profit motive. The CIT's decision was influenced by the judgment in Indian Chamber of Commerce vs. CIT, which was later overruled by the Supreme Court in the case of Addl. CIT vs. Surat Art Silk Cloth Manufacturers Association.4. Applicability of the Supreme Court's Judgments and Legal Precedents:The assessee relied heavily on various Supreme Court judgments to support their claim for registration under Section 12A. They cited cases like CIT vs. Gujarat Maritime Board and Asstt. CIT vs. Thanthi Trust, which recognized the exemption of business income if it was incidental to charitable purposes. The Tribunal, however, distinguished these cases, noting that the primary object of the assessee was profit-making, and the charitable activities were not the predominant purpose.5. Assessment of the Trust as a Local Authority versus a Charitable Trust:The CIT also denied registration on the grounds that the assessee was a local authority and not a trust or institution. The assessee countered this by referring to judgments from the Punjab & Haryana High Court, which held that legal obligations should be treated as a trust for the purpose of Section 12A. However, the Tribunal upheld the CIT's view, stating that the assessee's activities were more commercial than charitable, and thus, did not qualify for registration under Section 12A.Conclusion:The Tribunal concluded that the assessee's activities were primarily aimed at profit-making and did not meet the criteria for charitable purposes under Section 2(15) of the IT Act. The CIT's decision to deny registration under Section 12A was upheld, as the assessee failed to demonstrate that their activities were genuinely charitable and not driven by profit motives. The appeal filed by the assessee was dismissed.