2015 (11) TMI 1278 - AT - Income Tax

Profit-making activities not a barrier for charitable status. Dominant objective key.

The appeal by the assessee is allowed, recognizing that the primary purpose of the association is charitable, and incidental profit-making activities do ... Registration u/s 12A denied - Held that:- The basic principle underlined the definition of charitable purposes remains unaltered even by amendment to section 2(15) of the Act w.e.f. 1.4.2009, though the restrictive first proviso was inserted therein. In the given facts of the case, the assessee’s association’s primary purpose was to give focus o areas of education, environment and engagement (community and employee). It has through constant and well monitored support aimed towards community sustainability. Therefore, they have focused on areas of education and environment, watershed management, women empowerment through skill development initiatives, provision of drinking water, youth empowerment, medical health amps, environmental conservation program and promotion of sports and a host of extracurricular activities at local levels aimed towards community sustainability. Hence, the assessee association primary purpose was advancement of objective general public utility and it would remain charitable even if an incidental or ancillary activity or purpose of achieving the main purpose was profitable in nature. Hence the finding of the Director of Income-tax (Exemption) has mentioned in the object clause-17 under the said Incidental Objects under Part-B of the MOA at para-5 of his order stating it to be non-charitable does not disentitle the assessee for availing exemption u/s 12 of the IT Act. See India Trade Promotion Organization Vs Director General of Income-tax [2015 (1) TMI 928 - DELHI HIGH COURT] - Decided in favour of assessee. Issues Involved:1. Whether the objects of the trust/society created for the advancement of general public utility must benefit the public at large or can benefit a section of the public to qualify as a charitable purpose under section 2(15) of the IT Act, 1961.2. Whether the DIT(E) can examine the genuineness of the activities of the trust at the time of granting registration under section 12A.3. Whether a society not driven primarily by profit motives but aimed at advancing general public utility should be regarded as an institution established for charitable purposes.Issue-wise Detailed Analysis:1. Objects Benefiting a Section of Public as Charitable Purpose:The judgment references the Apex Court's decisions in *Ahmedabad Rana Caste Association Vs CIT* and *CIT Vs Ahmedabad Rana Caste Association*, which clarify that a purpose must benefit the community or a section of the community to be considered charitable. The term 'object of general public utility' is not restricted to benefiting the entire public but can include a defined and identifiable section of the public. The society in this case aims to benefit members engaged in printing and related activities, thus qualifying as an object of general public utility under section 2(15) of the IT Act, 1961.2. Examination of Genuineness of Activities for 12A Registration:The jurisdictional High Court's decision in *DIT(E) Vs Meenakshi Amma Endowment Trust* states that when a trust applies for registration under section 12A, the authority should examine the objects of the trust rather than the genuineness of its activities. Despite the society being incorporated in 2009 and applying for registration in 2014, its activities align with its objects. Therefore, the genuineness of activities is not a criterion for granting registration under section 12A, as long as the objects are for general public utility as defined under section 2(15) of the IT Act, 1961.3. Profit Motive and Charitable Purpose:The judgment discusses Circular No.11 of 2008 and the amendment to section 2(15) of the IT Act, which limits the scope of 'advancement of any other object of general public utility' if it involves trade, commerce, or business activities. However, it is established that if the primary purpose of an institution is charitable, incidental activities resulting in profit do not disqualify it from being considered charitable. The assessee's association focuses on education, environment, and community engagement, which are charitable purposes even if some activities are profitable. The Kolkata Bench of the ITAT in *Indian Chambers of Commerce* supports this view, stating that an institution remains charitable if its primary purpose is the advancement of objects of general public utility.Conclusion:The appeal by the assessee is allowed, recognizing that the primary purpose of the association is charitable, and incidental profit-making activities do not disqualify it from being considered an institution established for charitable purposes. The judgment emphasizes that the dominant objective of the institution, rather than incidental profit-making activities, determines its charitable status.Order Pronounced:The appeal of the assessee is allowed, and the order was pronounced in the open court on 30-09-2015.