Tribunal grants charitable status to society despite receiving income

The Tribunal allowed the assessee's appeal, directing the Director of Income Tax (Exemptions) to grant registration under section 12AA. It emphasized that the society's primary objectives were charitable, and receiving incidental income did not disqualify it from charitable status. The Tribunal clarified that the proviso to section 2(15) should be considered during assessment, not at the registration stage. The decision was based on the finding that the Director of Income Tax (Exemptions) denied registration without sufficient reasons and that the society's activities were genuinely charitable in nature.

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Issues Involved:
1. Refusal to grant registration under section 12AA of the Income Tax Act.
2. Determination of whether the activities of the assessee society are charitable in nature.
3. Application of the proviso to section 2(15) of the Income Tax Act.

Detailed Analysis:

Issue 1: Refusal to grant registration under section 12AA of the Income Tax Act
The assessee filed an application for registration under section 12AA on 18/07/2013, which was refused by the Director of Income Tax (Exemptions) [DIT(E)] on 29/01/2014. The DIT(E) noted that the assessee's activities, which involved training farmers for scientific horticulture and receiving fees from government departments, were commercial and not charitable. Consequently, the application for registration was rejected.

Issue 2: Determination of whether the activities of the assessee society are charitable in nature
The assessee contended that the activities should be considered charitable as per section 2(15) of the Income Tax Act. The Memorandum of the society listed several objectives aimed at improving the rural economy, literacy, aesthetic value, employment, and technology transfer among others. The Tribunal observed that the primary object of the society was improving the rural economy through afforestation and reforestation, which are charitable in nature. The Tribunal noted that the DIT(E) did not dispute the genuineness of these objectives.

Issue 3: Application of the proviso to section 2(15) of the Income Tax Act
The assessee argued that the proviso to section 2(15) should not affect the registration under section 12AA, as it applies on a year-to-year basis and not in absolute terms. The Tribunal agreed, stating that the proviso restricts only the last limb of section 2(15) related to the advancement of any other object of general public utility. The Tribunal emphasized that the primary or dominant purpose of the assessee should be charitable, and any incidental income from fees does not negate the charitable nature if it is used to further the charitable objectives.

The Tribunal referred to the Supreme Court's ruling in Addl. CIT v. Surat Art Silk Cloth Manufacturers’ Association, which held that the predominant object must be charitable, and incidental profit does not disqualify the entity from being charitable. The Tribunal also cited the Delhi High Court's interpretation in Institute of Chartered Accountants Of India v. DGIT (Exemptions), stating that an activity is considered business if undertaken with a profit motive, which was not the case here.

The Tribunal concluded that the DIT(E)'s role is limited to verifying the genuineness of the objectives and activities, not assessing the applicability of the proviso to section 2(15) at the registration stage. The Tribunal found that the DIT(E) denied registration without cogent reasons and directed the DIT(E) to grant registration under section 12AA.

Conclusion:
The appeal of the assessee was allowed, and the Tribunal directed the DIT(E) to grant registration under section 12AA, emphasizing that the primary objectives were charitable, and incidental income did not disqualify the society from being considered charitable. The Tribunal highlighted that the proviso to section 2(15) should be examined during assessment, not at the registration stage.

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