AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2016 (9) TMI 920
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....s the CIT in his order u/s 12AA dated 21.12.2009 of the Income Tax Act, 1961 has given a detailed finding that the nature of the income derived or derivable would not be exempt u/s 11 & 12 of the Income Tax Act, 1961 ?" After traversing the record, the relevant facts which have emerged, are that the assessee, which is a Company incorporated under Section 25 of the Companies Act, 1956 (for short - the Companies Act), to become eligible for the grant of exemption under Section 11 of the Act, made an application under Section 12-A(1)(a) of the Act for registration, which was rejected by the Commissioner as he was of the view that the ancillary objects of the respondent (hereinafter referred to as - the Company) empowered its members to invest and utilize its funds in the manner they wanted to. He also found ample scope with the members to utilize the funds of the Company in pursuance to its ancillary objects, which, according to him, were alien to its main object of imparting education. The Commissioner was further of the opinion that the ancillary objects permitted the Company to carry on activities in the nature of trade, commerce or business. Such powers with its members through ....
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....nto any arrangement or agreement or contract with any person association firm or corporation whether in India or outside, for professional, technicians, or for such other purpose that may seem beneficial and conducive to the objects of the company. 2. To organize fairs, seminars and conferences, sports festivals and other events which are required to be carried on for the purpose of proper execution of the main objects of the company. 3. To provide reading, writing material and newspapers rooms and library. 4. To promote the study practice and knowledge or music, art, science, commerce, literature and others to give or to arrange, concerts, musical, entertainment, programmes, shows displays, invite lecturers, writers, speakers, poets, composers, philosophers, preachers and to purchase copyrights, books, pamphlets, articles, magazines and to give prizes and awards for the implementation of the main objects. 5. To spread and promote education and learning in all its branches, to establish and support schools, colleges and other educational institutions or other education centers, study centers and research centers to carry on systematic research and encourage and get toge....
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....tors or any other company or persons and also create the charge by way of pledge/hypothecation/mortgage/assignment on any moveable/immovable properties/assets of the company. 14. To indemnify the employees and officers of the Company against proceedings losses, costs, damages, claims and demands under Law or Equity or otherwise in respect of accidents, injury, death, whether as workman, clerk, officer, technician and to appoint advisers, experts, agents or insurers to investigate the circumstances of accident, injury or damage and take steps to prevent the same and to oppose, resist, compromise or satisfy fully or in party such claims and demands. 15. To acquire real or personal property, both movable and immovable including shares, securities, debentures by way of investment or with a view to resale or otherwise and in particular in freehold leaseholds, mortgages, shares securities, debentures and other inevitable sources for attainment of main objects of the Company. 16. To provide education in academic, vocational and competitive examinations and to award scholarship, prizes in such form and manner as may be decided by the company. 17. To provide living accommodation....
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.... lawyers, bankers, architects, brokers or any other experts, technical or otherwise on such terms and conditions as may be determined. 27. To insure and keep insures the Company's property movable and immovable, as may be determined against any risk whatsoever. 28. The doing of all such other lawful things as are incidental or conducive to the attainment of the above objects. Provided that the Company shall not support with its funds or Endeavour to impose on, or procure to be observed by its members or others, any regulations or restrictions which, as an object of the company would make it a Trade Union. C. THE OTHER OBJECTS ARE : NIL." Section 11 of the Act exempts from the payment of tax any income derived by a Trust set up wholly for charitable or religious purposes but for the grant of such exemptions, a Trust is required to be registered under Section 12-A. The procedure for registration is prescribed under Section 12-AA of the Act. "Charitable Purpose" is defined under Section 2 (15) of the Act, the relevant portion of which reads as under :- "2(15) "Charitable purpose" includes relief of the poor education, medical relief, preservation of environment ....
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....dental to the primary or dominant purpose would not prevent the trust or institution from being a valid charity: vide CIT Vs. Andhra Chamber of Commerce (1965) 55 ITR 722 (SC). The test which has, therefore, to be applied is whether the object which is said to be noncharitable is a main or primary object of the trust or institution or it is ancillary or incidental to the dominant or primary object which is charitable." Thus, the Apex Court was clearly of the opinion that if the dominant purpose of an institution or Trust is charitable, then other objects, which may not be by itself charitable, but which are merely ancillary or incidental to the main object, would not make the institution or Trust noncharitable. In Digember Jain Society for Child Welfare vs. Director General of Income-tax (Exemptions) - 2009 (185) Taxman 255, a Division Bench of the Delhi High Court, while considering the claim of the petitioner therein, which filed the petition as a Charitable Society, to claim exemption under Section 10 (23C) (vi) of the Act, which had been denied by the Revenue, while following the judgment of the Apex Court in American Hotel & Lodging Association Educational Institute vs. CBD....
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....on certain percentage or accounting income to be utilized/applied for imparting education in India, as it was a case of a foreign educational institutions. We are in respectful agreement with the afore-quoted observations. Learned counsel for the appellant relied upon a judgment of the Apex Court in Yogiraj Charity Trust vs. Commissioner of Income-Tax, New Delhi - (1976) 103 ITR 777 to submit that where there were several objects of the Trust, some of which charitable and some not, then in such cases, the Trust was not entitled for exemption. In that case, however, clauses 11 and 16 of the deed gave an uncontrolled discretion to the trusts to spend the whole of the trust fund on any of the non-charitable objects of the trust. The non-charitable objects authorized the management to open and maintain commercial institutions where work at living wages could be provided to the poor and to contribute to commercial, technical or industrial concerns, institutions, associations or bodies imparting any type of training or providing employment to persons. The revenue contended that these clauses were non-charitable. What it is equally important to note is that according to the revenue its....
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....hich is intended to subserve the religious and charitable objects may not prevent the grant of an exemption. This is because such an ancillary or secondary object, even though not of a religious or charitable nature, is intended to effectuate the main and primary objects of the trust. If the primary or dominant purpose of a trust is charitable, another object which by itself may not be charitable but which is merely ancillary or incidental to the primary or dominant purpose would not prevent the trust from being a valid charity. A clear distinction must be drawn between the object of a trust and the powers conferred upon the trustees as incidental to the carrying out of the object." A Division Bench judgment of the Andhra Pradesh High Court in Aurora Educational Society vs. Chief Commissioner of Income-Tax and others - (2011) 339 Income Tax Reports 333 was also cited on behalf of the appellant. That too does not support the case of the Revenue as it was held therein that if the dominant purpose of an institution is educational, then the other objects, which are ancillary or incidental to the dominant purpose, would not disentitle the institution from exemption. Paragraphs 17 a....
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....it is proved to the satisfaction of the Central Government that an association- (a) is about to be formed as a limited company for promoting commerce, art, science, religion, charity or any other useful object, and (b) intends to apply its profits, if any, or other income in promoting its objects, and to prohibit the payment of any dividend to its members, the Central Government may, by licence, direct that the association may be registered as a company with limited liability, without the addition to its name of the word" Limited" or the words" Private Limited.........................." The conditions of the licence issued to the respondent under section 25 in so far as they are relevant read as under:- "(2) that the income and property of the said company whensoever derived, shall be applied solely for the promotion of the objects as set forth in its memorandum of association and that no portion thereof shall be paid or transferred, directly or indirectly by way of dividend, bonus or otherwise by way of profit, to persons who at any time are or have been members of the said company or to any of them or to any persons claiming through any one or more of them; (3) that ....