2021 (11) TMI 326 - AT - Income Tax

Tribunal grants Section 8 company approval under Income Tax Act for charitable activities

IISU Incubation Centre Versus Vs. CIT (Exemption), Jaipur

IISU Incubation Centre Versus Vs. CIT (Exemption), Jaipur - TMI 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 commercial/business nature of the assessee’s activities.4. Compliance with the requirements of other laws for achieving the assessee’s objectives.Detailed Analysis:1. Delay in Filing the Appeal:The assessee filed the appeal 27 days late due to the COVID-19 pandemic and consequent lockdown. The Supreme Court’s decision dated 27.04.2021 extended the period of limitation for filing appeals from 14th March 2021 until further orders. The Tribunal found the delay reasonable and condoned it, 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, applied for registration under section 12AA. The CIT(E) rejected the application on 30.03.2021, citing that certain objects in the memorandum of association had elements of commercial/business nature. The assessee argued that these activities were charitable under the 'general public utility' clause of section 2(15) of the Act and not carried out on a commercial basis. The Tribunal found that the CIT(E) ignored the fact that the appellant was a Section 8 company, which inherently prohibits commercial activities and profit distribution.3. Examination of the Commercial/Business Nature of the Assessee’s Activities:The CIT(E) based the rejection on specific objects in the memorandum that appeared commercial. The assessee countered by highlighting clauses in the memorandum ensuring no commercial activities and that profits would be used solely for promoting its objects. The Tribunal noted that the objects were interconnected and aimed at public utility, fostering an entrepreneurial culture without commercial intent. The Tribunal emphasized that the CIT(E) failed to consider the explanation provided by the assessee.4. Compliance with Requirements of Other Laws:The Tribunal pointed out that the CIT(E) should have considered the Section 8 registration under the Companies Act, which mandates non-commercial activities and profit application for charitable purposes. The Tribunal clarified that while Section 8 registration does not automatically qualify for 12AA registration, it provides significant assurance regarding the assessee's charitable intent and compliance with relevant laws.Conclusion:The Tribunal concluded that the assessee’s objects fall within the 'general public utility' clause of section 2(15) and directed the CIT(E) to grant registration under section 12AA. The Tribunal also noted that the allowability of benefits under sections 11 and 12 can be examined annually by the Assessing Officer during regular assessments.Order:The appeal of the assessee company was allowed, and the CIT(E) was directed to grant approval under section 12AA of the Act. The order was pronounced in the open Court on 02/11/2021.