2016 (8) TMI 260 - AT - Income Tax

Tribunal Overturns Commissioner's Decision, Orders Reconsideration

The Tribunal set aside the Commissioner's order refusing registration under S.12AA and approval under S.80G, directing reconsideration of the ... Registration under section 12AA - approval under section 80G - dissolution clause - transfer of assets on winding up to similar institution - incidental/ancillary objects indicating foreign activity - application of section 11(1)(a) regarding activities outside India - remand for fresh considerationRegistration under section 12AA - dissolution clause - transfer of assets on winding up to similar institution - Validity of refusal to grant registration under section 12AA based on the dissolution clause in the Memorandum of Association - HELD THAT: - The Tribunal held that the dissolution clause, which provides that on winding up any surplus shall not be distributed among members but shall be given or transferred to other institutions pursuing similar objects, does not demonstrate an intention to withhold transfer to a section 12AA-registered institution and is not a valid ground to deny registration. The Tribunal relied on the coordinate decision in Smt. Sulochanadevi Educational Foundation, which treated an identical winding-up clause as conforming with statutory conditions and found the Revenue's objection unsustainable. Consequently, the Tribunal concluded there is no rationale in the CIT(Exemption)'s objection founded on the dissolution clause and set aside that part of the order, directing reconsideration. [Paras 7, 9]The objection based on the dissolution clause is not sustainable; the order is set aside and the matter remanded to the CIT(Exemption) for fresh consideration.Registration under section 12AA - incidental/ancillary objects indicating foreign activity - application of section 11(1)(a) regarding activities outside India - Sustainability of refusal to grant registration on the ground that incidental objects indicate intention to carry out activities outside India in violation of section 11(1)(a) - HELD THAT: - The Tribunal found the CIT(Exemption)'s conclusion-that an incidental clause enabling assistance to enterprises 'within India and abroad' shows an intention to carry out activities outside India and therefore disqualifies the assessee-unsustainable. The incidental clause was held to primarily permit fundraising to attain the main objects and does not necessarily indicate an intention to operate outside India so as to bar registration. The Tribunal observed that coordinate decisions (Critical Art and Media Practices and International Bhakti Vedanta Institute Trust) support the view that registration cannot be denied merely because activities may extend outside India; any computation of exempt income under section 11 must address application of income abroad as a separate matter. On this basis the Tribunal rejected the second objection and directed reconsideration. [Paras 8, 9]The objection based on incidental objects suggesting foreign activity is not sustainable; the order is set aside and the matter remanded to the CIT(Exemption) for fresh consideration.Final Conclusion: The Tribunal set aside the Commissioner of Income-tax (Exemption)'s order refusing registration under section 12AA and denial of approval under section 80G, and restored the matter to the file of the CIT(Exemption) with directions to reconsider both applications afresh in accordance with law after giving the assessee a reasonable opportunity of hearing. Issues:Refusal of registration under S.12AA and approval under S.80G by the Commissioner of Income-tax (Exemption).Analysis:The appeal was filed against the Commissioner's order refusing registration under S.12AA and approval under S.80G of the Income Tax Act,1961. The assessee company was incorporated for charitable objects as per its Memorandum of Association (MOA). The Commissioner refused registration under S.12AA and approval under S.80G based on the dissolution clause indicating no intention to transfer assets to another institution registered under S.12AA and on the grounds of incidental objects indicating activities outside India. The Commissioner's order highlighted these objections, leading to the appeal before the Tribunal.The Tribunal analyzed the objections raised by the Commissioner. Regarding the dissolution clause, the Tribunal found no rationale in the objection as the clause specified transferring surplus assets to institutions with similar objectives. The Tribunal cited a similar case where such an objection was found unsustainable, emphasizing the conformity of the dissolution clause with legal requirements. On the issue of incidental objects suggesting activities outside India, the Tribunal noted that the clause primarily focused on raising funds for the main objectives without indicating operation outside India. Referring to precedents, the Tribunal concluded that denial of registration based on activities extended outside India was not justified, aligning with legal provisions and previous decisions.In light of the above analysis, the Tribunal set aside the Commissioner's order and directed a reconsideration of the applications for registration under S.12AA and approval under S.80G. The Tribunal emphasized granting a reasonable opportunity for the assessee to present their case. Consequently, the assessee's appeal was treated as allowed for statistical purposes, providing relief from the Commissioner's objections and ordering a fresh review of the registration and approval applications in accordance with the law.