2013 (12) TMI 947 - AT - Income Tax

Successful appeal grants charitable status under Income Tax Act; profit-making not disqualifying.

The appeal was successful as the Tribunal directed the DIT(E) to grant registration under section 12AA of the Income Tax Act. The rejection by the DIT(E) ... Registration u/s 12AA - Held that:- The activities conducted by the assessee are basically aimed at improving the knowledge and competence of its members - Income from programme revenue derived by the society during each year, is not as per the objects of the society - The DIT(E) didnot carried out any enquiry into the objects of the society - Where no activity is commenced, the question of making any enquiry regarding any activity by the DIT(E) would not arise. The nature of enquiry would depend on the facts of each case. As per the amendment by Finance Act, 1983 w.e.f. 1st April, 1983 - The clause 'not involving carrying any activities of profit' were omitted from this definition by the Legislature - Therefore, after such omission, the element of profit cannot be excluded from the definition 'charitable purposes' u/s 2(15) of the Act - As per section 10(22) - Income of any activities cannot be exempted unconditionally if such institution also exists for deriving of profit - Such institution can claim exemption u/ss. 11 and 12 as element of profit is not excluded by the Legislature - As per Section 11 in order to claim exemption such institution must apply 75% of its income for charitable purposes. The surplus if any has to be invested in specified bonds - Because some profit has been earned by an assessee trust registration u/s. 12AA cannot be denied so long as provisions of sections 11, 12 and 12AA are complied with. - Decided in favour of assessee. Issues Involved:1. Rejection of registration u/s 12AA of the Income Tax Act, 1961 by the DIT(E).2. Scope of enquiry by the DIT(E) u/s. 12AA of the Act.3. Interpretation of 'charitable purpose' under section 2(15) of the Act.4. Compliance with sections 11, 12, and 12AA for registration.Issue 1: Rejection of Registration u/s 12AA:The appeal was against the order of the DIT(E) rejecting the application for registration u/s 12AA. The DIT(E) refused registration based on the society deriving income under 'programme revenue,' which was deemed inconsistent with the society's stated objects in its Memorandum of Association. The DIT(E) held that such activity did not align with the charitable purpose defined in the Act, leading to the denial of registration.Issue 2: Scope of Enquiry by DIT(E) u/s. 12AA:The Tribunal clarified that the DIT(E) has the authority to inquire into the activities of the trust before granting registration under section 12AA. The nature and extent of the enquiry would vary based on the circumstances of each case. The Tribunal rejected the argument that the DIT(E) is limited to verifying the charitable nature of the objects and emphasized the need for a comprehensive examination of the activities.Issue 3: Interpretation of 'Charitable Purpose':The Tribunal referred to the definition of 'charitable purpose' under section 2(15) of the Act, which includes relief of the poor, education, medical relief, and other activities of general public utility. The Tribunal cited precedents to highlight that the omission of 'not involving carrying any activities of profit' from the definition implies that profit-making activities do not disqualify an entity from charitable status, as long as the profits are applied for charitable purposes.Issue 4: Compliance with Sections 11, 12, and 12AA for Registration:The Tribunal emphasized that as long as the income of the society is applied for charitable activities in accordance with sections 11 and 13, and there is no violation of the relevant provisions, the society is entitled to registration u/s 12AA. The Tribunal found no fault in the activities of the society and directed the DIT(E) to grant the registration, allowing the appeal of the assessee.This judgment highlights the importance of aligning organizational activities with stated objectives for securing registration under the Income Tax Act. It emphasizes the need for thorough scrutiny by tax authorities to ensure compliance with charitable purpose definitions and relevant provisions, ultimately safeguarding the eligibility for tax benefits.