2019 (12) TMI 306 - AT - Income Tax

Tribunal grants charitable status to society, overturns rejection of registration.

Hyderabad Battery Association, Hyderabad Versus Commissioner of Income Tax (Exemptions) Hyderabad

The Tribunal allowed the appeal, determining that the society's objectives qualified as charitable in nature under section 2(15) of the Income Tax Act. ... Exemption u/s 11 - application for registration u/s 12AA rejected - Charitable activity u/s 2(15) - HELD THAT:- We find that the “object of general public utility” is one of the facts of “charitable purposes” as defined in the Income Tax Act and the Hon'ble Supreme Court in the case of CIT vs. Andhra Chamber of Commerce [1964 (10) TMI 19 - SUPREME COURT] has explained the object of general public utility as contained in section 2(15) As regards the objectives of the assessee, we find that they fall under the category of “object of general public utility” and are not restricted to specified individual/persons. Therefore, following the decision of the Hon'ble Supreme Court (cited Supra), the objectives of the assessee society are to be considered as charitable in nature and registration u/s 12A is to be granted. Another reason for denial of registration is that the objects do not restrict the spending of the funds only for charitable purposes. U/s 11, only such expenditure which is for charitable purposes, is allowable and the AO, during the assessment proceedings, can examine if the funds were utilized for the purposes for which the society has been formed. Since the CIT (E) has not pointed out any particular objective which is not for charitable purposes, and since the objectives are not restricted to any single or specified person/or persons, we are of the opinion that the assessee is eligible for registration u/s 12AA of the Act. In view of the same, we remand the issue to the file of the CIT (E) with a direction to grant registration u/s 12A of the Act. Assessee’s appeal is allowed. Issues:1. Rejection of registration u/s 12AA of the Act for the assessee's society.2. Interpretation of the term 'object of general public utility' under section 2(15) of the I.T. Act.3. Comparison of case laws presented by the assessee and the revenue.4. Assessment of whether the society's objectives qualify as charitable in nature.5. Consideration of spending funds only for charitable purposes for registration u/s 12AA.Issue 1: Rejection of Registration u/s 12AA:The appeal was against the rejection of the assessee's application for registration under section 12AA of the Act by the CIT (Exemption), Hyderabad. The CIT observed that the society's membership was restricted to traders in batteries and allied business, leading to the conclusion that the society did not fall under the ambit of section 2(15) of the I.T. Act. Consequently, the application in Form 10A was rejected by the CIT (Exemption), prompting the appeal.Issue 2: Interpretation of 'Object of General Public Utility':The Tribunal referred to the Hon'ble Supreme Court's interpretation of the term 'object of general public utility' in the case of CIT vs. Andhra Chamber of Commerce. The Court clarified that an object beneficial to a section of the public qualifies as an object of general public utility, not restricted to benefiting the whole of mankind. The Tribunal applied this principle to the society's objectives, determining that they fall under the category of 'object of general public utility' and are charitable in nature.Issue 3: Comparison of Case Laws:The learned Counsel for the assessee presented various case laws to support the contention that the society's objectives should be considered charitable. These included cases such as CIT vs. Riding Club and DIT vs. PHD Chamber of Commerce & Industry. In contrast, the revenue relied on the decision of the Hon'ble Kerala High Court in CIT vs. Ernakulam Distt. Cement Dealers Association. However, the Tribunal found that the Kerala High Court decision was not directly applicable to the current case.Issue 4: Assessment of Charitable Nature of Objectives:The Tribunal analyzed the primary objectives of the assessee's society, emphasizing the promotion and protection of trade, commerce, and industries as charitable purposes. It was noted that the objectives were not vague or indefinite and did not solely focus on urging or opposing legislative measures. The Tribunal concluded that the objectives qualified as charitable in nature, aligning with the Hon'ble Supreme Court's interpretation of 'object of general public utility.'Issue 5: Spending Funds for Charitable Purposes:Another reason for the denial of registration was the concern that the society's objectives did not restrict spending funds only for charitable purposes. However, since the objectives were deemed charitable and not limited to specific individuals, the Tribunal held that the society was eligible for registration under section 12AA of the Act. Consequently, the issue was remanded to the file of the CIT (Exemption) with a direction to grant registration u/s 12A of the Act.In conclusion, the Tribunal allowed the assessee's appeal, emphasizing that the society's objectives aligned with the concept of 'object of general public utility' and were considered charitable in nature. The decision was based on a thorough analysis of relevant case laws and statutory provisions, ensuring compliance with the legal framework governing registration under section 12AA of the Income Tax Act.