2021 (11) TMI 222 - AT - Income Tax

Appeal granted for charity status under Income Tax Act - Non-commercial activities recognized

The Tribunal allowed the appeal of the appellant company, directing the CIT(E) to grant approval for registration under Section 12AA of the Income Tax ... Registration under section 12AA - charitable purpose - definition of charitable purpose under section 2(15) - company registered under section 8 of the Companies Act, 2013 - compliance of other law as material under section 12AA(a)(ii) - commercial/business element and its relevance to registration - assessment stage examination of applicability of sections 11, 12 and 13 (including section 13(8)) - condonation of delay due to COVID-19 pandemicCondonation of delay due to COVID-19 pandemic - Admission of the appeal despite a 27-day delay in filing - HELD THAT: - The Tribunal examined the explanation that the delay in filing the appeal resulted from restrictions and lockdown arising from the second wave of the COVID-19 pandemic and relied on the Supreme Court direction extending limitation from 14 March 2021. The Revenue raised no specific objection. On the material on record the Bench found the cause of delay to be reasonable and beyond the control of the assessee and therefore condoned the delay and admitted the appeal for adjudication on merits. [Paras 4]Delay of 27 days is condoned and the appeal is admitted for hearing on merits.Registration under section 12AA - charitable purpose - definition of charitable purpose under section 2(15) - commercial/business element and its relevance to registration - company registered under section 8 of the Companies Act, 2013 - compliance of other law as material under section 12AA(a)(ii) - assessment stage examination of applicability of sections 11, 12 and 13 (including section 13(8)) - Whether the assessee's objects qualify as charitable under section 2(15) and whether the CIT(E) erred in rejecting registration under section 12AA on the ground of alleged commercial/business elements - HELD THAT: - The Tribunal considered the memorandum of association read as a whole, noting objects to set up training and research centres for skill development in the garment and textile industry, business incubators, testing laboratories, conference/meeting halls to promote trade and preservation/promotion of traditional techniques. The MOA contains express prohibitions against carrying on objects on a commercial basis, application of income to objects, prohibition on distribution of profits and restrictions on alteration and winding up, reflecting the commitments attendant to registration as a section 8 company. The Bench held that the objects, read harmoniously, fall within 'advancement of any other object of general public utility' under section 2(15) and that the CIT(E) failed to take into account the explanation filed by the assessee and the assurances inherent in section 8 registration. The Tribunal emphasised that registration under section 8 of the Companies Act is a material compliance under section 12AA(a)(ii) which the CIT(E) ought to have considered. It also clarified that allegations of commercial/business character or the question of allowability of benefits under sections 11 and 12 and consequences under section 13(8) can be examined by the Assessing Officer in year-to-year assessments and do not justify refusal of registration under section 12AA where the objects prima facie constitute charitable purpose. [Paras 15, 16, 17, 18, 19]The assessee's objects are charitable in nature within section 2(15); the rejection of registration under section 12AA is set aside and the CIT(E) is directed to grant registration. Questions of commercial activity and entitlement to exemptions under sections 11, 12 and 13 are left open for examination in regular assessment proceedings.Final Conclusion: The Tribunal condoned the delay and allowed the appeal on merits, directing grant of registration under section 12AA on the ground that the assessee's objects, read in entirety and having the safeguards in its memorandum as a section 8 company, qualify as charitable under section 2(15); issues relating to commercial character and entitlement to exemptions under sections 11, 12 and 13 are to be examined, if necessary, by the Assessing Officer during assessments. Issues Involved:1. Delay in filing the appeal.2. Rejection of application seeking registration under Section 12AA of the Income Tax Act.3. Examination of the objects of the appellant company for elements of commercial/business nature.Detailed Analysis:1. Delay in Filing the Appeal:The appellant acknowledged a 27-day delay in filing the appeal, attributing it to the second wave of the COVID-19 pandemic and consequent lockdowns. The appellant cited a Supreme Court decision extending the limitation period due to the pandemic. The Revenue did not object to the delay, and the Tribunal found a reasonable cause for the delay due to the pandemic, thus condoning the delay and admitting the appeal for adjudication on merits.2. Rejection of Application Seeking Registration under Section 12AA:The appellant, a company incorporated under Section 8 of the Companies Act, 2013, sought registration under Section 12AA of the Income Tax Act. The CIT(E) rejected the application, citing that certain objects in the Memorandum of Association had elements of commercial/business nature. The appellant argued that the main object was skill development in the garment and textile industry, which falls under 'charitable purpose' as per Section 2(15) of the Act. The appellant further contended that the company, being a Section 8 company, was prohibited from carrying out activities on a commercial basis and thus should qualify for registration under Section 12AA.3. Examination of the Objects of the Appellant Company:The Tribunal examined the objects of the appellant company, which included setting up training and research centers, business incubators, testing laboratories, conference halls, and promoting traditional garment techniques. The Tribunal found that these objects were interconnected and aimed at general public utility. The Tribunal also noted that the company's Memorandum of Association explicitly stated that the activities would not be carried out on a commercial basis. The Tribunal emphasized that the registration under Section 8 of the Companies Act provided an additional level of comfort regarding the company's intent and objectives. The Tribunal concluded that the CIT(E) failed to consider the explanations provided by the appellant and the commitment to non-commercial activities as per the Memorandum of Association.Conclusion:The Tribunal directed the CIT(E) to grant approval to the appellant company under Section 12AA of the Income Tax Act, recognizing the objects as falling within the purview of 'charitable purpose' under Section 2(15) of the Act. The Tribunal clarified that the allowability of benefits under Sections 11 and 12, read with Section 13, could be examined by the Assessing Officer on a year-to-year basis during regular assessment proceedings. The appeal of the appellant company was allowed.