TaxTMI 
TaxTMI 
2020 (1) TMI 1072
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....tors (ATPA) filed an application on 12.12.2005 seeking registration under Section 12A of the Act. The said application was rejected by DIT(E), vide order dated 30.06.2006 holding that certain objects of the trust were not charitable and trustees had discretion in applying the trust's income to any of the objects. Aggrieved with the aforesaid findings, assessee filed an appeal before ITAT which resulted in order dated 30.04.2017, restoring the matter to the file of DIT(E) with direction to pass a speaking order as to which of the objects were of non-charitable nature, after giving opportunity of hearing to the assessee. In compliance with the directions of the ITAT, CIT(E) after examining the records, declined the grant of registration to the assessee, inter alia, on the ground that ATPA is aiming at industry status for Third Party Administrator (TPA) business, and is working for mutual benefit of its members. Aggrieved with the aforesaid order, the assessee preferred an appeal before ITAT. The ITAT after examining the records and having regard to the objects of the assessee, allowed the appeal in favour of the assessee and overturned the order of CIT(E). Consequently CIT(E) was dir....
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....incipal Commissioner or Commissioner shall call for such documents or information from the trust or institution as he thinks necessary in order to satisfy himself about the genuineness of activities of the trust or institution; and the compliance of such requirements of any other law for the time being in force by the trust or institution, as are materials for the purpose of achieving its objects, and he may also make such inquiries as he may deem necessary in this behalf. Once he is satisfied about the objects of the trust or institution, and genuineness of its activities, he shall pass an order under the said provision. On this aspect, the Tax Authorities have looked into the aims and objects of the trust. Since the same is the backbone of the decision impugned before us, we consider it apposite to extract the same hereinunder: "6. The aims and objects of the Trust shall be: (i) To organize and arrange all licensed Third Party Administrators (TPAs) to be members of the Trust for mutual betterment of the TPA business; (ii) To thrive for an industry status for TPA business; (iii) To draft guidelines, procedures, documents for implementation of th....
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....es; (xviii) To organize and promote conferences, seminars, lectures, workshops, public debates and exhibitions in furtherance of the objectives of the Trust; (xix) To offer awards, prizes, scholarships and stipends in promotion of the aims and objects of the Trust; (xx) To provide need-based grants and donations; (xxi) To cooperate and collaborate with other national institutions and agencies in furtherance of the objectives of the Trust; (xxii) To cooperate with institutions and associations having similar aims and objects; (xxiii) To borrow moneys for carrying out the objects of the Trust and for that purpose to create security by mortgage or charge or pledge or hypothecation of any immovable property of the Trust; (xxiv) To establish any fund to further the interest of the Trust; (xxv) To establish an institute for training and dissemination of knowledge among Third Party Administrators; (xxvi) To undertake programmes which ensures raising of income levels and expanding employment opportunities of the weaker sections of Trust, particularly of those living below the poverty line and women by involvin....
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.... (Del.) 318 and also CIT v. Andhra Chamber of Commerce (1965) 55 ITR 722 (SC) and has came to the conclusion that the assessee is entitled to the registration. The relevant portion of the order of the ITAT has been extracted hereinunder: "12. In view of the decision rendered by Hon'ble Supreme Court and Hon'ble High Courts in the judgment discussed in the preceding paras, we are of the considered view that the applicant trust cannot be said to be engaged only for TPA members and their employees and working for mutual benefits of its members, but its objects are certainly aimed at providing to the general public in the field of insurance and health facilities. No doubt, activities of the TPA which is a trade association for TPA business for the benefits of its members and non-members, but it is established to protect the interest of TPA members and work towards developing new products related to health insurance or insurance company and to structure the TPA fees, which is like Chambers of Commerce and Industry. So it is certainly providing services to the insurance sector, which in return benefits the public at large. Moreover, at this stage, the Commissioner (E) wa....
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....romote and protect trade, commerce and industry and to aid, stimulate and promote the development of trade, commerce and industry and to watch over and protect the general commercial interests of India or any part thereof and this was clearly an object of general public utility and though one of the objects included the taking of steps to urge or oppose legislation affecting trade, commerce or manufacture, which, standing by itself, may be liable to be condemned as non-charitable, it was merely incidental to the dominant or primary object and did not prevent the Andhra Chamber of Commerce from being a valid charity. The Court pointed out that if "the primary purpose be advancement of objects of general public utility, it would remain charitable even if an incidental entry into the political domain for achieving that purpose, e.g., promotion of or opposition to legislation concerning that purpose, was contemplated". The Court also held that the Andhra Chamber of Commerce did not cease to be charitable merely because the members of the Chamber were incidentally benefited in carrying out its main charitable purpose. The Court relied very strongly on the decisions in Commissioner of In....
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.... that the charitable purpose involves the carrying on of such activity, but the predominant object of such activity must be to subserve the charitable purpose and not to earn profit. The charitable purpose should not be submerged by the profit-making motive; the latter should not masquerade under the guise of the former. The purpose of the trust, as pointed out by one of us (Pathak, J.) in Dharmadeepti v. CIT (supra), must be "essentially charitable in nature" and it must not be a cover for carrying on an activity which has profit making as its predominant object. This interpretation of the exclusionary clause in section 2, clause (15), derives considerable support from the speech made by the Finance Minister while introducing that provision. The Finance Minister explained the reason for introducing this exclusionary clause in the following words: "The definition of 'charitable purpose' in that clause is at present so widely worded that it can be taken advantage of even by commercial concerns which, while ostensibly serving a public purpose, get fully paid for the benefits provided by them namely, the newspaper industry which while running its concern on commercial....
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...., agree with Beg, J. when he said in Sole Trustee, Loka Sikshana Trust case (supra) that "if the profits must necessarily feed a charitable purpose under the terms of the trust, the mere fact that the activities of the trust yield profit will not alter the charitable character of the trust. The test now is more clearly than in the past, the genuineness of the purpose tested by the obligation created to spend the money exclusively or essentially on charity". The learned Judge also added that the restrictive condition "that the purpose should not involve the carrying on of any activity for profit would be satisfied if profit-making is not the real object" (emphasis supplied). We wholly endorse these observations. xxxx xxxx xxxx 19. There is, however, one comment which is necessary to be made whilst we are on this point and that arises out of certain observations made by this Court in Sole Trustee, Loka Sikshana Trust case (supra) as well as Indian Chamber of Commerce case (supra). It was said by Khanna, J. in Sole Trustee, Loka Shikshana Trust case: "... if the activity of a trust consi....
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....itable character of the purpose would not be lost. (emphasis supplied) 7. Further, the Supreme Court in the case of Bharat Diamond Bourse (supra), referring to the Constitution Bench decision in the case of Surat Art Silk Cloth Manufacturers Association (supra), while dealing with the similar question relating to registration of an institute for charitable purpose, observed as under: "The decision of the Constitutional Bench of this Court in Addl. CIT v. Surat Art Silk Cloth Mfrs. Association [1980] 2 SCC 31 really clinches the issue. The assessee in Surat Art Silk Cloth Mfrs. Association's case (supra) was an association established to promote commerce and trade in Art Silk Yarn, Raw Silk, Cotton Yarn, Art Silk Cloth, Silk Cloth and Cotton Cloth. Its objects, as evidenced from the memorandum of association, included, inter alia, carrying on business in Art Silk Yarn, Raw Silk, Cotton Yarn, Art Silk Cloth, Silk Cloth, and Cotton Cloth belonging to and on behalf of its members as well as buying and selling and dealing in all kinds of cloth and yarn belonging to and on behalf of its members. The Constitutional Bench of this Court held that, if there are several obj....
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....ears to us that there is no escape from the conclusion that it is validly recognized as an institution established for charitable purpose. The assessee's predominant objects are: "(i) To establish common facilities required to promote exports of diamonds from India and to provide for this purpose trading halls and other utilities at a central place for Indian Exporters and Overseas buyer to carry on trade and commerce in diamonds with speed and in secure conditions. (ii) To establish and promote effective liaison between diamond trade and industry in India and abroad with a view to promoting their sales from India in International market. (iii) To promote, advance, protect and develop trade, commerce and industry in India relating to exports and imports of diamonds and (iv) To develop India as Modern and sophisticated diamond market by establishing and maintaining an international trading centre in India for all those engaged as manufacturers, traders, exporters and importers, brokers/commission agents of diamonds." These being the predominant objectives, we agree with the view taken by the Tribunal as well as the High Court that the....