TaxTMI 
TaxTMI 
2017 (3) TMI 522
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.... City Montessori School (refd.) Vs. Union of India (2009) 315-ITR-48(A11). Therefore, rejection of application U/S 12-A is against the decision of Allahabad High Court, which is binding up on Commissioner of Income-Tax, Meerut. 3. That the Ld. Commissioner of Income-Tax is not justified that in treating the receipt in the nature of trade, commerce or business because the assessee has utilized his all the activities for the charitable purpose not in the nature of trade of commerce or business. Even Ld. Commissioner of Income-Tax has not point out any activities, which has in the nature of trade, commerce or business." 3. Brief facts of the case is that coordinate bench against the order of Ld. CIT, Meerut has passed an order in ITA No. 5013/del/2010 wherein the application of the assessee for grant of registration under section 12 AA of the income tax act which was rejected, restored the matter back to the file of the Ld. CIT for fresh adjudication after providing reasonable opportunity of being leading to the assessee. Pursuant to the order of the coordinate bench, Ld. CIT passed an order on 29.11.2011 rejecting the application of the appellant. The main reasons for rejection....
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....art at page No. 13 of his paper book to show that how the expenditure are met out of the receipt of funds. He further submitted at page No. 1 of his paper book that autonomous bodies are set up whenever it is felt that certain functions need to be discharged outside the governmental setup with some amount of independence and flexibility without day-to-day interference of the governmental machinery and therefore such autonomous bodies under the development Commissioner is a setup they are neither engaged in the business or trade or commerce. In the result, he submitted that assessee is carrying on educational activities and therefore entitled to registration under section 12 AA of the income tax act. 5. Ld. DR relied upon the order of the Ld. CIT and stated that the assessee is carrying on the business and therefore registration under section 12 AA of the income tax act is rightly rejected. 6. We have carefully considered the rival contentions. The appellant is an autonomous society under the administrative control of the office of the development Commissioner, Ministry of micro small and medium enterprises, government of India. The annual accounts and the annual report of the....
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....e of the 18 such Tool Rooms established by the Govt. of India across different states. Subsequently, the govt. of India had decided to register the tool rooms as societies and as per the said decision assessee was registered as a public society under the Andhra Pradesh (Telangana Area) Public Societies Registration Act, 1350 Fasli. The main object of assessee society is to provide training facilities to technical personnel in designing and making tools, dyes and moulds. Assessee institution on 02/11/2007 made an application in the prescribed manner before ld. DIT(E) seeking registration u/s 12A of the Act. As appears from record, since, assessee failed to comply to a notice issued seeking certain information, application for registration was rejected vide order dated 23/04/2008. Being aggrieved of the said order of rejection, assessee preferred appeal before the ITAT. ITAT vide order dated 09/04/2009 in ITA No. 05/Hyd/09 set aside the order of ld. DIT(E) and remitted the matter back to his file with a direction to decide the issue afresh after due opportunity of being heard to assessee. In pursuance to the direction of ITAT, proceeding were again taken up by ld. DIT(E) and he calle....
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....order to sustain practical training in making dyes, moulds and tools, precision engineering manufacturing orders from public sector undertakings, Hindustan Aeronautics Ltd, Defence Research Laboratories and other government organizations are being undertaken. The design manufacture of tools, dyes and mounds is also a part of the vocational training. It was submitted that the objects of the society makes it clear that it is established basically for the training of technical personnel in design and making tools, dyes and moulds. All other objects are only ancillary in nature and are with a view to support the training of technical personnel. Thus, it was submitted that the main object of assessee being education, assessee is a charitable institution in terms with the definition of charitable purpose u/s 2(15) of the Act. Ld. AR submitted, if legislative history of section 2(15) which defines the word 'charitable purpose' is anlaysed, it would be seen that by virtue of amendment made to the said section w.e.f. 01/04/1984, the words 'not involving the carrying on of any activity for profit' were removed. Therefore, w.e.f. 01/04/1984, there is no restriction in carrying....
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....ining certain products are produced which are sold. Therefore, the activities are considered as part of education. Only because sales are recorded in the books of account, it will not adversely effect assessee's entitlement to registration u/s 12A of the Act. As far as allegation of ld. DIT(E) that it is also earning royalty, ld. AR submitted, assessee used to impart vocational training in collaboration with ECIL, Secunderabad and another MSME organization i.e. prototype development centre, Agra and a part of the fees was received from them annually as a royalty which actually is training fees. Even otherwise also, receipts from royalty forms negligible part of the total receipts. Ld. AR submitted, for initial two years, assessee received grants from centre, because in the initial period grants were needed for establishment of the institution. Thereafter, assessee has to sustain itself for which it needed to generate fund. Thus, it was submitted by ld. AR that objects of assessee being education and all other activities being ancillary and incidental to the main object and fees received from those activities having been utilized for the main object, it cannot be said that asses....
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....e, submitted, since assessee has earned substantial revenue in different AYs from commercial activity, ld. DIT(E) was justified in rejecting assessee's application for grant of registration. 9. We have considered the submissions of the parties and perused the order of ld. DIT(E) as well as other material on record. It is clear from the order of ld. DIT(E) that he has considered assessee as non-charitable institution because it has receipts from the sale of finished goods and secondly it has earned royalty. Thus, ld. DIT(E) is of the view that as assessee is engage in commercial activity it is a non-charitable institution, hence, not eligible for registration u/s 12A of the Act. Before deciding the issue, let us examine the objects of assessee society which are as under:- "(i) Training of the technical personnel in designing and making tools, dyes and moulds, (ii) Provision for advisory services to small scale units, including assistance in designing and developing tools for various processes, (iii) Recommending measures to standardize components, dyes, jigs and other tools, (iv) Production on a limited basis of dies, jigs, fixtures and gauges etc., subject to the....
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....mb, viz; 'advancement of any other object of general public utility', the proviso to section 2(15) will not automatically disqualify the assessee from being considered as a society established for charitable purpose only because it has receipts from sale of dyes, moulds etc. or from royalty. It has to be seen whether the primary or dominant purpose or object of the assessee is to carry out 'object of general public utility' or 'any activity of profit'. If for achieving its primary or dominant object of 'education' or even 'advancement of any other object of public utility' the society has earned some income from business it cannot be said that assessee has carried on business activity with a profit motive. Charitable activities also require operational/running expenses as well as capital expenses for being able to sustain itself and continue in long run. There is no such statutory mandate that a charitable institution falling under the residuary clause should be wholly, substantially or in part funded by voluntary contributions. The Hon'ble Supreme Court in case of Addl. CIT v. Surat Art Silk Cloth Mfgr. Association [1978] 121 ITR 1/[1979....
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....t be established/ proved. In such cases, there should be evidence and material to show that the activity has continued on sound and recognized business principles, and pursued with reasonable continuity. There should be facts and other circumstances which justify and show that the activity undertaken is infect in the nature of business. The test as prescribe in Raipur Manufacturing Co. (supra) and Sai Publication Fund (supra) can be applied. The six indicia stipulated in Lord Fisher (supra) are also relevant. Each case, therefore, has to be examined on its own facts." 9.3 Thus, the principle of law which emerges from the judicial pronouncements is, if the predominant object of a trust or institution is charitable and in the process of achieving that object some activity of commercial nature generating income is carried out, which again is utilized for charitable object, it cannot be said that the trust or institution is not established for charitable purpose. Moreover, the application of proviso to section 2(15), as rightly pointed out by ld. AR, has to be looked into at the stage of assessment while examining assessee's claim of exemption u/s 11 of the Act and not at the ti....