TaxTMI 
TaxTMI 
2025 (10) TMI 851
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....order of preference in Industries, Commercial, educational, social establishments, and departments including government, semi government, co-operatives, and corporations and private sector .... (b) To plan, promote, execute and organize, manage and implement the rehabilitation schemes for ex-servicemen. (c) To formulate and execute the schemes for welfare and economic upliftment of the ex-servicemen .... 3. The assessee filed an application in Form No.10A for grant of registration u/s 12AA of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') on 12.09.2019. The Ld. CIT(Exemption), after considering the various submissions made by the assessee, rejected the application for grant of registration. While doing so he noted that: a) other objects are not ancillary to the attainment of main objects and are independent by themselves. b) the assessee company had come into existence for commercial purposes and not for charitable purposes. c) the assessee is also providing services to the civilians apart from ex-servicemen d) a perusal of the financial information for the last three years shows that - (i) The asses....
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....ered the matter in proper perspective. Therefore, in the interest of justice, the matter should be remanded back to the file of the ld. CIT (Exemption) for de-novo consideration of application on the touchstone of law laid down by the Hon'ble Supreme Court in the case of Ananda Social and Educational Trust vs. CIT, 272 Taxman 7 after giving due opportunity of being heard to the appellant. Thus, the grounds of appeal raised by the assessee are partly allowed for statistical purposes." 6. Subsequently the Ld. CIT(E) issued a show cause notice on 03.11.2023, copy of which is placed at pages 174 to 180 of the paper book, asking the assessee to submit its explanation along with supporting evidence for the claim of eligibility for registration u/s 12AA of the Act. The assessee in response to the said notice filed elaborate submissions. However, the Ld. CIT(E) was not satisfied with the submissions made by the assessee and rejected the application for grant of registration u/s 12AA of the Act by observing as under: 4. The assessee furnished reply on 16.11.2023. After taking into consideration the facts as emerged from the rejection order dt. 31.03.2021, the observations and th....
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.... engages in trade, commerce, or business unless the revenue from such activities does not exceed 20% of total receipts. The assessee's main activities involve providing manpower services, running petrol pumps, engaging in trading, leasing, and construction, all of which are inherently commercial. Its financial statements show that it consistently earns substantial revenue from these business activities, which exceed the permissible limits for a charitable organization under the Income Tax Act. The assessee's contention that its activities generate employment opportunities for ex-servicemen, thereby indirectly serving a charitable cause under the category of General Public Utility (GPU) is also not found to be acceptable. The employment generation by itself is not a charitable activity under Section 2(15). If the assessee's argument were accepted, every business entity employing people would qualify as a charitable institution, which is not the intent of the law. Furthermore, the assessee's significant mark- up (between 10-19%) on manpower services, reveals that it operates with a profit motive rather than purely charitable intent. 7. On perusal of the asses....
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....t activity much less a charitable activity. On the contrary, the minutes of assessee's own meetings confirm that the petrol pump was established with the goal of generating income rather than providing employment opportunities for ex-servicemen. The assessee has contended that the petrol pump is managed to provide employment to ex-servicemen and is not being run with a profit motive. This contention is devoid of any merit since the primary intention behind running a petrol pump, as evidenced in assessee's own documents, was to generate revenue. Further, the petrol pump's revenue is not directly linked to charitable activities but instead contributes to the organization's overall income. Moreover, the potential of a petrol pump activity as a employment provider, with much investment, is also not convincing considering the job creation therein. 10. It has been a repeated contention of the assessee that its main objective is to provide employment opportunities to ex-servicemen and their families/ dependents. However, records indicate that the assessee has also employed civilians. The assessee has contended that such civilian employment is restricted to special....
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....en any activities, and the rejection was based solely on the lack of operations. Contrary to the same, the present assessee has been in existence since 2002. The assessee's application was not rejected due to a lack of activity but due to the nature of its operations, which were found to be commercial rather than purely charitable. Moreover, said decision emphasizes that a trust must genuinely carry out activities in line with its stated charitable objectives. In the assessee's case, several issues, such as significant surplus generation, commercial engagements, and a provision for profit distribution among members have been identified which are not of charitable nature. These factors distinguish assessee's case from the Ananda case (supra), where no such commercial operations or profit-sharing provisions were present. 14. From the elaborate discussion made in the preceding paras, it is evident that the assessee company is a commercial entity and not a non-profit organization. It is not a charitable trust or a society, or a Section 8 company. 15. Considering the above facts, the undersigned is not satisfied about the charitable nature of the objects an....
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....I. He submitted that MESCO was carrying a belief that its activities get covered under scope of section 10(26BBB) and as such, entire income of MESCO was tax exempt. From assessment year 2008-09 onwards the assessee's claim of exemption u/s 10(26BBB) of the Act was denied by holding that the assessee is not formed under any Central, State or Provincial Act. He submitted that the assessee filed application for registration u/s 12AA on 12.09.2019 which was rejected by the CIT(E). On appeal, the Tribunal restored the matter to the file of the CIT(E) for de-novo consideration. He submitted that after the order passed by the Tribunal the assessee amended the Memorandum of Association (MOA) and Articles of Association (AOA) after seeking the due approval for modification by the Legal Team of Govt. of Maharashtra on 05.07.2022. Referring to pages 49 to 99 of the paper book the Ld. Counsel for the assessee drew the attention of the Bench to the amended MOA and AOA. 9. Referring to the order of the Ld. CIT(E) the Ld. Counsel for the assessee submitted that vide paras 4 to 7 of the order of Ld. CIT(E), he was of the opinion that despite the changes in MOA and AOA, yet, some such clauses e....
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....considers civilian candidates to fill the positions. Referring to pages 284 to 288 of the paper book-II, the Ld. Counsel for the assessee drew the attention of the Bench to sample copies of such recruitment advertisements. 12. So far as the observation of the Ld. CIT(E) that revenue of MESCO is substantial for assessment years 2018-19, 2019-20 and 2020-21 is concerned, he submitted that the revenue for these three years is about Rs. 283 crore Rs. 258 crore and Rs. 272 crore respectively. He submitted that since MESCO deploys over 15,000 ex-servicemen for various security related deployments, therefore, for paying salaries to these ex-servicemen, MESCO has to generate revenue by billing to the parties to whom, the security services are rendered. He submitted that generating revenue should not to be an objection, especially when the same is having close nexus with deployment of ex-servicemen. He submitted that giving opportunity of earning to these ex-servicemen is the key object of MESCO. 13. So far as the objection of the Ld. CIT(E) that MESCO earns significant mark-up ranging from 10% to 19% for which he rejected the application for registration u/s 12AA of the Act is concer....
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....s may be, the losses shall be borne by the members in proportion to the capital paid up, or which ought to have been paid up at the commencement of the winding up on the shares held by them respectively. And if in a winding up the assets available for distribution among the members shall be more than sufficient or repay the whole of the capital paid up at the commencement of the winding up, the excess shall be distributed amongst the members in proportion to the capital at the commencement of the winding up, or which ought to have been paid up on the shares held by them respectively. But this clause is to be without prejudice to the rights of the holders of share issued upon terms and condition. The property remaining after satisfaction of all the debts and liabilities shall not be distributed amongst the members of company but shall be given or transferred to such other company / institution having the same objects as that of the company, to be determined by the Government of Maharashtra at or before the time of the dissolution or, in default, by the High Court of Judicature / NCLT that has or that may acquire jurisdiction in the matter. 16. He submitted that the Ld. CIT(E) ....
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.... that MESCO was and is and shall remain a helping compassionate hand mainly for ex-servicemen. He submitted that registration u/s 25 of the old Companies Act or section 8 of the new Companies Act is not a compulsion per se for getting registration u/s 12AA of the Act. The Ld. Counsel for the assessee referring to various State Corporations formed on the basis of GRs of the respective State Governments submitted that under identical circumstances those entities were allowed registration u/s 12AA of the Act. 21. Referring to the decision of the Delhi Bench of the Tribunal in the case of Army Welfare Placement Organization vs. DIT vide ITA No.2996/Del/2011 order dated 22.01.2015, he submitted that under identical circumstances the Tribunal has directed the CIT to grant registration u/s 12A of the Act. 22. Referring to the decision of the Kolkata Bench of the Tribunal in the case of M/s. Indian Ex-services League vs. CIT vide ITA No.1098/Kol/2017 order dated 04.09.2019 for assessment year 2012-13, he submitted that under somewhat identical circumstances the Tribunal has set aside the 263 proceedings initiated by the CIT(E), Kolkata against the order passed u/s 143(3) of the Act a....
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....esolution No : मा. सै. म.- /1099/2390/प्र/244/99/28 Mantralaya, Mumbai-400032. Date : 18th January, 2002. GOVERNMENT RESOLUTION :- Various schemes have been launched by the State and Central Governments for the re-settlement of servicemen of the Indian Defence Forces (i.e. Army, Navy and Air Force) and opening employment opportunities after their retirement/discharge from the defence forces. Schemes have also been undertaken to provide means of livelihood to the retired/discharged soldiers, maimed soldiers and families of soldiers who laid down their lives during war. The Government of Maharashtra has been contemplating of establishing a corporation since 1982 for effective implementation of these various schemes for the welfare and re-settlement of Ex-servicemen Recently during the programme organised on the occasion of Kargil Victory Day on 28 July 2001, Hon Chief Ministry and Deputy Chief Minister made an announcement to establish such a corporation. Accordingly, a decision has been taken by the State Government to establish Maharashtra Ex-Servicemen Corporation for implementation of various schemes announced for ....
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....inancial aid from the Flag Day Fund generated from the people for re-habilitation of the Ex-servicemen. This has been accepted in principle and the funds will be utilized only after the issuance of orders to that effect after observing due process. 5. A decision has also been taken to grant exemption to the corporation after its establishment by the Labour Department, under the provision of Section 23 of the Maharashtra Private Security Guards (Regulation of Employment and Welfare) Act, 1981. In addition, a decision is also taken to obtain empanelment of the corporation with the Director General Resettlement, Ministry of Defence, New Delhi for providing security services as per its rules and regulations to the various Govt/Semi Govt and Private organizations by executing agreements with them. 6. The Corporation, having its objectives as above, will be incorporated as a company under the Companies Act, 1956. Detailed orders for establishment of this corporation will be disseminated after completion of all actions outlined in above paragraphs. 7. This Govt. Resolution is being issued in pursuance of the informal reference of Finance Department No 37/2002/14....
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.... mark-up ranges between 3.70% to 12.92%, the details of which have already been reproduced in the preceding paragraphs (para 13 of the order). 27. We find the Hon'ble Supreme Court in case of ACIT(E) Vs. Ahmedabad Urban Development Authority reported in 449 ITR 1 (SC) at para 172 has observed as under: "172. Yet another manner of looking at the definition together with section 10(23) and 11 is that for achieving a general public utility object, if the charity involves itself in activities, that entail charging amounts only at cost or marginal mark-up over cost, and also derive some profit, the prohibition against carrying on business or service relating to business is not attracted-if the quantum of such profits do not exceed 20 per cent of its overall receipts." 28. As per the above decision if the quantum of profits does not exceed 20% of its overall receipts, then no adverse view should be taken. Since in the instant case the profit rate / mark-up rate is below 20%, therefore, the Ld. CIT(E) in our opinion is not justified in rejecting the application u/s 12AA on this issue. 29. So far as the next objection of the Ld. CIT(E) that even after the amendment to....
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....s including procurement of machinery, raw material and other factors of production and business whether on ownership, hire, lease basis. 5. To formulate and execute schemes for welfare and economic up-liftment of the ex- servicemen. 6. To provide margin money and/or subsidy to ex-servicemen and their dependants and to co- operative societies having exclusively ex-servicemen and their dependants as members, for trade and business. 7. To augment the Flag Day Fund for welfare of ex-servicemen out of the profits accrued from various activities, for the purpose of servicing the existing schemes and formulating new schemes of Benevolent Fund as well as Special Fund and to finance Welfare Oriented Schemes and Proposals under the aegis of Department of Sainik Welfare, Government of Maharashtra. 8. To carry on and undertake, establish, maintain and run the business of canteens and Departmental stores for ex-servicemen. (B) OBJECTS INCIDENTAL OR ANCILLARY TO THE ATTAINMENT OF THE MAIN OBJECTS: 9. To identify trades and industries which can be taken up by ex-servicemen and their dependants and to undertake feasibility studies of such schem....
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....1. To advance money with or without securities to such companies, firms or persons, and on such terms as may seem expedient and in particular to the customers and others having dealings with the Company and to guarantee the performance of contracts by any persons, firms or companies. Provided that, the Company shall not carry on the Banking Business as defined under the Banking Regulation Act, 1949. 22. To apply for, promote, obtain, protect and deal in any patent, patent right, copyright, trademark, formulae, designs, licenses and concessions conferring any right. 23. To establish, provide, maintain, run and close library, trust, research institution center, workshop and to arrange meetings, lectures, seminars, get together, social functions, conferences for the interest of general public or any section thereof and to run training institutions for promotion of the objects of the Company. 24. To make or accept, gifts, bequests, donations, awards, prizes, scholarships, fellowships and grants to deserving persons and institutions. 25. To publish books, magazines, pamphlets, circulars, journals, papers, periodicals dealing with subjects of interest ....
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.... rights, privileges or conditions in such manner as may for the time being be provided by the Company. 30. A perusal of the above would show that the objects incidental or ancillary to the attainment of the main objects are nothing but merely incidental or ancillary to the main activity. The submissions of the Ld. Counsel for the assessee that the ancillary activities are not the main activities of MESCO itself could not be controverted by the Ld. DR. Further, in our opinion, mere presence with respect to some futuristic plausible incidental activities should not come in the way of granting registration u/s 12AA of the Act as long as the assessee has confined its activities to the attainment of its main objects. We, therefore, are of the considered opinion that the Ld. CIT(E) should not have rejected the application for grant of registration u/s 12AA of the Act on this issue. 31. So far as the objection of the Ld. CIT(E) that there is no clear record of beneficiaries, eligibility criteria or actual disbursements of financial aid and the assessee has not provided concrete documentary evidence to prove that such activities are actually being carried out is concerned, we find th....
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....members of MESCO is concerned, we find the members of MESCO is Maharashtra State Government (acting through Hon'ble Governor of Maharashtra). Further, profit distribution is not possible as per the amended AOA. A perusal of the old clauses before the amendment and the new clause after the amendment have already been reproduced in the preceding paragraphs (para No.15 of the order). In our opinion, since the assessee has already amended its Articles of Association on the issue of distribution of profit after dissolution which the Ld. CIT(E) has not considered, therefore, we are of the considered opinion that the same should not have been viewed adversely for grant of registration u/s 12AA of the Act. 35. We find somewhat an identical issue had come up before the Delhi Bench of the Tribunal in the case of Army Welfare Placement Organization vs. DIT (supra) where the Tribunal directed the CIT to grant registration u/s 12A by observing as under: "9. We find that the nominal fees for the registration, which is a onetime fees, is barely enough to meet even partial costs of running this establishment, and the fact that such a nominal fees is charged from the registrants, in....
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....situation in which an activity is not undertaken with a profit motive or on sound and recognized business principles, such an activity cannot be considered to be a business activity. We may, in this regard, usefully refer to the following observations made by Hon'ble Delhi High Court in the case of the Institute of Chartered Accountants of India Vs DGIT (Exemption) [(2011) 347 ITR 99 (Del)]: Therefore, while construing the term 'business' for the said section, the object and purpose of the section has to be kept in mind. We do not think that a very broad and extended definition of the term 'business' is intended for the purpose of interpreting and applying the first proviso to s. 2(15) of the Act to include any transaction for a fee or money. An activity would be considered "business" if it is undertaken with a profit motive, but in some cases this may not be determinative. Normally the profit motive test should be satisfied but in a given case activity may be regarded as business even when profit motive cannot 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....