2009 (11) TMI 79 - AT - Income Tax

Appeal granted, registration restored under Income Tax Act. Activities deemed charitable not business.

The Tribunal allowed the appeal and restored the registration granted to the assessee under section 12AA of the Income Tax Act. It held that the ... Exemption u/s 11 - withdrawal of registration granted u/s 12AA - charitable activities u/s 2(15) - assessee is carrying on any commercial activities or that it renders any service in relation to trade, commerce or business for a cess or fees - HELD THAT:- In the present case it is seen that the assessee does not have any power to levy contribution from sugar factories and cane growers' co-operative societies. The contributions are levied under the Uttar Pradesh Sugar Cane (Regulation of Supply & Purchase) Act, though payable to the assessee council. Therefore, it cannot be said that the assessee carries on any activity in the nature of trading, commerce or business or renders any services in relation to trade, commerce or business for a cess or fee. When the assessee undertakes its object, it does not charge any levy or fee for rendering services. Thus, it is incorrect to hold that the assessee is carrying on any commercial activities or that it renders any service in relation to trade, commerce or business for a cess or fees. The assessee receives grants and contribution which may include cess levied by the UP Government under Uttar Pradesh Sugar Cane (Regulation of Supply & Purchase) Act but such amount is not levied under any authority available to the council itself. We, therefore, hold that the registration granted to the assessee could not have been withdrawn. Apart from the services if any to the sugar mills, the assessee also performed various other functions like development of the zone, execution of development plan in all its essential like cane varieties, cane seeds, sowing programme, fertilizers and manures, development of irrigation and agricultural facilities, imparting technical training to cultivators etc. In respect of these functions, the assessee does not render services for a cess or fee. Therefore, these functions will still remain 'charitable purposes' as defined in s. 2(15). Therefore, in respect of other activities the exemption as granted u/s. 11(1), 11(2) and 11(3) will still be allowable. In the same manner, if one of the objects is not 'charitable purposes' within the meaning of s. 2(15), in view of the proviso thereof, the other objects if they are 'charitable purposes' within the meaning of s. 2(15), the exemption as available u/s. 11 and 12 will still be available. Therefore, whether in view of the proviso to s. 2(15), the assessee is to be denied exemption u/s11(1) will be looked into at the time of computation of income and not at the time of granting registration u/s 12AA where the objects are 'charitable purposes' as defined and (sic-not) in the nature of exception to s. 2(15) by way of proviso to s. 2(15). Therefore, the CIT was in error in outrightly rejecting or rather withdrawing the registration already granted u/s 12AA. Such facts are required to be examined at the time of framing assessment and not solely at the time of granting registration u/s 12AA. Since in the present case we have held that the assessee does not carry on any object which involves carrying on an activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business for cess or fee, the assessee council is entitled to registration u/s 12AA. The registration granted to council shall be restored. Assessee appeal is allowed. Issues Involved:1. Withdrawal of registration under section 12AA(3) of the Income Tax Act.2. Definition and applicability of 'charitable purposes' under section 2(15) of the Income Tax Act.3. Interpretation of the proviso to section 2(15) introduced by the Finance Act, 2008.4. Assessment of whether the assessee's activities constitute trade, commerce, or business.5. Examination of the assessee's functions and sources of funds.Detailed Analysis:1. Withdrawal of Registration under Section 12AA(3):The primary issue in this appeal is the withdrawal of the registration granted to the assessee under section 12AA of the Income Tax Act. The CIT, Meerut, had withdrawn this registration based on the amended definition of 'charitable purposes' under section 2(15) of the Act, effective from April 1, 2009.2. Definition and Applicability of 'Charitable Purposes' under Section 2(15):The assessee, Cane Development Council, was initially granted registration under section 12AA on November 15, 2007. The CIT noted that the Finance Act, 2008, had amended the definition of 'charitable purposes' to exclude activities related to trade, commerce, or business, if they involve a fee or consideration. The CIT argued that the assessee's activities, funded through contributions and grants, did not qualify as 'charitable purposes' under the amended section 2(15).3. Interpretation of the Proviso to Section 2(15):The proviso to section 2(15) stipulates that activities involving trade, commerce, or business, or any service related to these for a fee, do not qualify as 'charitable purposes.' The CBDT Circular No. 11, dated December 19, 2008, clarifies that this proviso applies to entities whose purpose is the advancement of any other object of general public utility. The circular emphasizes that whether an entity's activities constitute trade, commerce, or business is a factual determination based on the nature, scope, extent, and frequency of the activity.4. Assessment of Whether the Assessee's Activities Constitute Trade, Commerce, or Business:The Tribunal examined whether the assessee's activities could be classified as trade, commerce, or business. It was noted that the contributions received by the assessee were levied under the Uttar Pradesh Sugar Cane (Regulation of Supply & Purchase) Act and not by the assessee itself. The Tribunal concluded that the assessee did not engage in any activity in the nature of trade, commerce, or business, nor did it render services related to these for a fee.5. Examination of the Assessee's Functions and Sources of Funds:The Tribunal reviewed the functions and sources of funds of the assessee. The assessee's functions included development activities, technical training, and administration of funds for development schemes. The funds were sourced from grants and contributions, primarily from government schemes and sugar mills. The Tribunal found that these activities were charitable in nature and did not involve any commercial aspect.Conclusion:The Tribunal held that the functions performed by the assessee were charitable purposes under section 2(15) of the Act. The insertion of the proviso to section 2(15) did not alter the charitable nature of the assessee's activities, as they did not involve trade, commerce, or business. The Tribunal emphasized that the assessment of whether the assessee's activities fall under the proviso should be made during the computation of income, not at the time of granting registration under section 12AA. Consequently, the Tribunal restored the registration under section 12AA, allowing the appeal in favor of the assessee.Judgment:The appeal is allowed, and the registration granted to the assessee under section 12AA is restored.