2017 (5) TMI 1607 - HC - Income Tax

High Court clarifies charitable status criteria under IT Act, allows commercial activities

The High Court addressed appeals challenging the Tribunal's decision to grant registration under Section 12AA of the IT Act for charitable activities ... Grant of registration u/s 12AA - proof of charitable activities - work of the assessee cannot be termed as charitable within the meaning of section 2(15) as the work was being done on commercial lines - Held that:- Now the issue is squarely covered by the decision of this Court in Commissioner of Income Tax Vs. Jodhpur Development Authority (2016 (7) TMI 1277 - RAJASTHAN HIGH COURT) as held the entire funds of the JDA is mandatorily required to be utilised for discharging the functions to achieve the object of integrated development of Jodhpur Region. Thus, predominant object of the JDA being to secure the integrated development of the Jodhpur Region which is undoubtedly falls within the expression 'advancement of any other objects of general public utility' within the definition of Section 2(15) of the Act of 1961 and therefore, on account of profit being earned by it through some of the activities, undertaken by it, which are ancillary or incidental to the main object of general public utility, it does not cease to be charitable in character so as to render it ineligible to claim registration under Section 12A read with Section 12AA of the Act of 1961 - decided in favour of assessee. Issues:Appeals challenging Tribunal's judgment allowing registration u/s 12AA of IT Act for charitable activities conducted on commercial lines.Analysis:1. The High Court addressed the common legal and factual issues in both appeals through a single judgment.2. The appellant contested the Tribunal's decision granting registration to the assessee under the IT Act.3. The Court framed the substantial question of law regarding the legality of granting registration u/s 12AA despite commercial activities not meeting charitable criteria.4. The Court relied on a previous decision involving the Jodhpur Development Authority to establish that earning income through ancillary activities does not disqualify an entity from being considered charitable under Section 2(15) of the IT Act.5. Another judgment involving the JDA, Jaipur, further supported the view that activities conducted without a profit motive for the welfare of the public fall within the definition of charitable purpose.6. The Court referenced decisions from Allahabad and Jammu & Kashmir High Courts to emphasize that the intention and nature of activities are crucial in determining the applicability of the proviso to Section 2(15).7. Ultimately, the Court ruled in favor of the assessee, dismissing the appeals and upholding the Tribunal's decision to grant registration under Section 12AA.8. The judgment was to be included in the relevant files for future reference.