TaxTMI 
TaxTMI 
2026 (8) TMI 54
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....tivities of the trust are for the benefit of its members and not for the benefit of the public at large? (ii) Whether on the facts and in the circumstances of the case and in law, the Hon'ble Tribunal has erred in holding that registration of trust is not required for the purpose of grant of registration under section 12A of the Income-tax Act, 1961, ignoring Rule 17A(1)(c) of the Income-tax Rules, 1962 which states that an application for registration of charitable or religious trusts shall be accomplished by "self certified copy of registration with Register of companies or Register of Firms and Societies or Register of Public Trusts, the case may be? 3. The brief facts of the case are that the Assessee-Trust filed an application for registration of Trust under Section 12AA of the Act on 10.07.2019 in Form No 10A under Rule 11AA of the Income Tax Rules, 1962 ['the Rules' for short] along with requisite details and documents. 3.1 The Commissioner of Income Tax (Exemption) (for short 'the CIT(E)'), on receipt of the application, observed that the memorandum of association of the assessee-Trust indicated that the objects of the Trust were primarily for the benefit of ....
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....ann.com 387 (Delhi) wherein, it is held that mere charging of fees from members or non-members for rendering services ipso facto would not lead to denial of exemption when the dominant object of the assessee remains charitable and such activities were only incidental to the main activity. 3.8 Reliance was also placed by the Tribunal on the decision of Confederation of Pharma Dealers Association vs Commissioner of Income Tax (Exemptions) reported in 137 taxmann.com 117 of the Raipur Bench wherein, it is held that the assessee-society was engaging in the promotion of trade and commerce related to the pharma business and protecting rights and interests of its members and would be covered in the fourth limb of Section 2(15), that is, the advancement of any other object of general public utility and would be entitled to registration under Section 12A of the Act. Considering this decision, the Tribunal quashed and set aside the order of the CIT(E) and remitted the matter to consider the case of the assessee afresh by observing as under : "14. Accordingly, in our considered view, in light of the above judicial precedents and facts of the assessee's case, in our considered view....
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....powers conferred upon the assessee for securing the fulfilment of the dominant or primary purpose. It is true that the subsidiary objects of the assessee would benefit its members but the benefit would be incidental in carrying out its main or primary purpose. If, therefore, its dominant or primary purpose was charitable, the subsidiary objects would not militate against its charitable character and its purpose would not be any the less charitable. The words "not involving the carrying on of any activity for profit" in section 2(15) qualify or govern only the last head of charitable purpose and not the earlier three heads. Thus, where the purpose of a trust or institution is relief of the poor, education or medical relief, the requirement of the definition of "charitable purpose" would be fully satisfied, even if an activity for profit is carried on in the course of the actual carrying out of its primary purpose. But, if its purpose cannot bring it under the cover of earlier three heads and its claim to be a charitable purpose rests only on the last head, it has to fulfil two conditions: (i) its purpose must be an advancement of general public utility, and (ii) th....
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....tigation. (ii) Section 11(4), which declares that "property held under trust" shall include a business undertaking enjoying immunity from tax and which gave statutory recognition to this principle decided by this Court in earlier cases, would be rendered wholly superfluous and meaningless, after the insertion of clause (bb) in section 13(1) with effect from 1-4-1977. The question that automatically arises, in this context, is as to when can the purpose of the trust be said to involve the carrying on of any activity for profit? The word "involve", according to the Shorter Oxford Dictionary, means "to enwrap in anything. to enfold or envelop; to contain or imply". The activity for profit must, therefore, be intertwined or wrapped up with or implied in the purpose of the trust or institution or, in other words, it must be an integral part of such purpose. There are two possible ways of construction, one interpretation is that, according to the definition, what is necessary is that the purpose must be of such a nature that it involves the carrying on of any activity for profit in the sense that it cannot be achieved without carrying on an activity for profit. On this ....
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....ble in nature" and it must not be a cover for carrying on an activity which has profit-making as its predominant object. It is not at all necessary that there must be a provision in the constitution of the trust or institution that the activity shall be carried on no-profit no-loss basis or that profit shall be proscribed. Even if there is no such express provision, the nature of the charitable purpose, the manner in which the activity for advancing the charitable purpose is being carried on and. the surrounding circumstances may clearly indicate that the activity is not propelled by a dominant profit motive. What is necessary to be considered is whether the dominant object of the activity is profit-making or carrying out a charitable purpose. If it is the former, the purpose would not be a charitable purpose, but, if it is the latter, the charitable character of the purpose would not be lost. In the instant case, the predominant object of the assessee's activity was promotion of commerce and trade in specified articles which was clearly an object of general public utility and profit was merely a bye-product which resulted incidentally in the process of carrying o....
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....ause (ii) shall be passed unless the applicant has been given a reasonable opportunity of being heard. xxxxxx (4) Without prejudice to the provisions of sub-section (3), where a trust or an institution has been granted registration under clause (b) of sub-section (1) or has obtained registration at any time under section 12A [as it stood before its amendment by the Finance (No. 2) Act, 1996 (33 of 1996)] and subsequently it is noticed that [(a) the activities of the trust or the institution are being carried out in a manner that the provisions of sections 11 and 12 do not apply to exclude either whole or any part of the income of such trust or institution due to operation of sub-section (1) of section 13; or (b) the trust or institution has not complied with the requirement of any other law, as referred to in sub-clause (ii) of clause (a) of sub-section (1), and the order, direction or decree, by whatever name called, holding that such non-compliance has occurred, has either not been disputed or has attained finality, then, the Principal Commissioner or the Commissioner may, by an order in writing, cancel the registration of such trust or institu....
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....of section 11 and section 12 shall not apply in relation to the income of any trust or institution unless the following conditions are fulfilled, namely:- (a) the person in receipt of the income has made an application for registration of the trust or institution in the prescribed form and in the prescribed manner to the [Principal Commissioner or] Commissioner before the 1st day of July, 1973, or before the expiry of a period of one year from the date of the creation of the trust or the establishment of the institution, whichever is later and such trust or institution is registered under section 12AA : Provided that where an application for registration of the trust or institution is made after the expiry of the period aforesaid, the provisions of sections 11 and 12 shall apply in relation to the income of such trust or institution,- (i) from the date of the creation of the trust or the establishment of the institution if the [Principal Commissioner or] Commissioner is, for reasons to be recorded in writing, satisfied that the person in receipt of the income was prevented from making the application before the expiry of the period aforesaid for sufficien....
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....s for the public at large, the same would be considered as charitable purpose. The Hon'ble Supreme Court in case of Assistant Commissioner of Income-tax (Exemptions) v. Ahmedabad Urban Development Authority reported in 449 ITR 1 (SC) has held as under: "IV. Summation of conclusions 253. In view of the foregoing discussion and analysis, the following conclusions are recorded regarding the interpretation of the changed definition of "charitable purpose" (w.e.f. 1-4-2009), as well as the later amendments, and other related provisions of the IT Act. A. General test under section 2(15) A.1. It is clarified that an assessee advancing general public utility cannot engage itself in any trade, commerce or business, or provide service in relation thereto for any consideration ("cess, or fee, or any other consideration"); A.2. However, in the course of achieving the object of general public utility, the concerned trust, society, or other such organization, can carry on trade, commerce or business or provide services in relation thereto for consideration, provided that (i) the activities of trade, commerce or business are connected ("actual....
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....de, commercial, or business activities. However, since their objects are essential for advancement of public purposes/functions (and are accordingly restrained by way of statutory provisions), such receipts are prima facie to be excluded from the mischief of business or commercial receipts. This is in line with the larger bench judgments of this court in Ramtanu Cooperative Housing Society and NDMC (supra). B.2. However, at the same time, in every case, the assessing authorities would have to apply their minds and scrutinize the records, to determine if, and to what extent, the consideration or amounts charged are significantly higher than the cost and a nominal mark-up. If such is the case, then the receipts would indicate that the activities are in fact in the nature of "trade, commerce or business" and as a result, would have to comply with the quantified limit (as amended from time to time) in the proviso to section 2(15) of the IT Act. B.3. In clause (b) of section 10(46) of the IT Act, "commercial" has the same meaning as "trade, commerce, business" in section 2(15) of the IT Act. Therefore, sums charged by such notified body, authority, Board, Trust or Comm....
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....tions, can be said to be involved in advancement of objects of general public utility. However, if such organisations provide additional services such as courses meant to skill personnel, providing private rental spaces in fairs or trade shows, consulting services, etc. then income or receipts from such activities, would be business or commercial in nature. In that event, the claim for tax exemption would have to be again subjected to the rigors of the proviso to section 2(15) of the IT Act. E. Non-statutory bodies E.1. In the present batch of cases, non-statutory bodies performing public functions, such as ERNET and NIXI are engaged in important public purposes. The materials on record show that fees or consideration charged by them for the purposes provided are nominal. In the circumstances, it is held that the said two assessees are driven by charitable purposes. However, the claims of such non-statutory organisations performing public functions, will have to be ascertained on a yearly basis, and the tax authorities must discern from the records, whether the fees charged are nominally above the cost, or have been increased to much higher levels. E.2. I....
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....e record to discern whether the nature of the assessee's activities amount to "trade, commerce or business" based on its receipts and income (i.e., whether the amounts charged are on cost-basis, or significantly higher). If it is found that they are in the nature of "trade, commerce or business", then it must be examined whether the quantified limit (as amended from time to time) in proviso to section 2(15), has been breached, thus disentitling them to exemption." 10. In the facts of the case, the assessee has submitted its Agreement of Association of Persons dated 31st May 2019 with the following main objects: "1. Main Object: That the main purpose of AOP shall be To organize events for its members, To share knowledge and Information among members and to educate them. To encourage the trade, industry and profession of Mandap contractors works To represent to government and non-government organization on behalf of and for the benefit and larger interest of members and To promote and carry all such activities which are in benefit of members." 11. On perusal of the above objects, it is for the advancement of the trade and business for its members and the public at larg....