Aarambh Foundation Vs CIT (ITAT Indore)
Conclusion: Mere charging a nominal amount for smooth functioning of educational institution and trust could not called to be a part of commercial activity, and therefore, CIT(E) was directed to grant registration u/s 12AB to assessee.
Held: Assessee filed an application for registration u/s 12AB which was rejected by the CIT(E) on the ground that the activities of assessee society were commercial in nature as assessee was charging against the services provided by it. Assessee filed an appeal against CIT(E) order but there was a delay of 93 days. Assessee filed an application for condonation of delay explaining it as inadvertence and bonafide mistake which was not opposed by the department. CIT(E) had conducted physical verification report to verify the objects and activities of assessee. In report of the spot verification of CIT(E) vide letter had pointed out that assessee was engaged in the consultancy services, sale of training material, various training seminars & workshops on payment basis, running computer classes and women stitching classes Orbit Mall, A.B. Road Indore. The amounts received by assessee on various heads also clear from the audit report as well as ledger account submitted by assessee therefore, it was held that activities carried out by assessee were commercial in nature. CIT(E) had not disputed the genuineness of the activities of the assessee and also not doubted the activity and evidence which was produced by the assessee comparison of details as well as audited accounts for preceding three assessment years. Even the objects of the assesse society were not held as not charitable therefore, the twin conditions as required u/s 12AB were satisfied that assessee’s activities were genuine and the objects of assessee society were charitable in nature. It was held that the trust or education institute was running with a nominal fee to cover cost on account of its activities that could not be held to be a commercial activity. Sometime trust or the other institution did not get complete donations either from public or from the government. In that case, if those trusts or education institutes charging nominal amount of fee in order to carrying out its activities in a smoother way, this could not be called a part of commercial activities. Accordingly, CIT(E) was directed to grant registration u/s 12AB to assessee.
FULL TEXT OF THE ORDER OF ITAT INDORE
This appeal by the Assessee is directed against the order dated 20.10.2022 of Commissioner of Income Tax (Exemption), passed u/s 12AB of the Act whereby the application of the assesse for registration u/s 12AB was rejected.
2. There is a delay of 93 days in filing the present appeal. The assessee has filed an application for condonation of delay which is supported by the affidavit of the assessee. Ld.AR of the assesse has submitted that due to inadvertence the assessee after receiving impugned order kept the same in almirah and forgot to discuss the same with the counsel for filing the appeal. Later on when the assesse has again checked the E-mail and noticed the same order it was realized that the appeal against the impugned order is yet to be filed and accordingly the assessee took immediate steps for filing the appeal. Thus, Ld. AR has submitted that it is bona fide mistake on the part of the assesse for not taking steps within the period of limitation for filing the appeal. He has contended that the assessee has not got any benefit or achieved any purpose due to the delay in filing the present appeal. Hence Ld. AR has submitted that in the interest of justice the delay in filing the appeal may be condoned and appeal of the assessee be heard and adjudicated on merits.
3. On the other hand, ld. DR has raised no serious objection against the contention of delay and left the matter to the wisdom of the bench.
4. Having considered rival submissions and careful perusal of the contents of the application for condonation of delay as well as affidavit filed by the assessee we find that the assessee has explained the cause of delay as inadvertence and bonafide mistake for not filing the appeal in time and therefore, the conduct of the assessee is found to be honest in explaining the cause of delay. Further this is an appeal against rejection of application for registration u/s 12AB of the Act and there is no possibility of taking any advantage or achieving any hidden purpose by filing the appeal belatedly. Thus, the explanation of the assessee for delay is found to be bona fide and not to cover any ulterior purpose or an attempt to save the limitation in under head way. The assesse has fairly explained the reasons and has not acted in malafide therefore a liberal construction of sufficient cause is required to be made. It is settled proposition on the point that whenever substantial justice and technical considerations are opposed to each other, cause of substantial justice has to be preferred by taking a justice oriented approach while deciding the matter of condonation of delay. Accordingly in the facts and circumstances of the case we are satisfied that the assesse has explained a reasonable and sufficient cause for not filing the appeal within the period of limitation and hence, the delay of 93 days in filing the appeal is condoned. The assessee has raised following grounds of appeal:
“1. The Ld. CIT grossly erred in issuing order rejecting application for registration under section 12AB of the Act.
2. The Ld. CIT grossly erred on facts and also in law by considering charitable activities as commercial activities and rejecting application for registration under section 12AB of the Act.
3. The Ld. CIT grossly erred on facts and also in law for not considering submission filed, law and information/documents already on record and rejecting application for registration under section 12AB of the Act.”
5. Ld. AR of the assesse has submitted that the assessee society has been constituted to carry on the charitable objects like Animal Welfare including medical treatment, feeding to poor, Annadaan, Old age home, medical checkup for needy, spreading education and faith for all Gods and Gooddes Environmental awareness etc. He has referred to the memorandum of association at page no. 42 & 43 of the paper book and submitted that objects of the assessee society are charitable in nature which includes various charitable activities for Animal, poor and destitute, spreading of education, awareness for environment, plantation, help to the differently ables persons and various cultural activities etc. The assessee filed the application for registration u/s 12AA of the Act and also produced require details and documentary evidences being part of the paper book and specifically ledger accounts along with income and expenditure account for the assessment year 2019-20 to 2021-22. The CIT(E) also got spot verification of the assessee wherein no adverse or incriminating fact was found or gathered but the activities carried on by the assessee society were acknowledged. The CIT(E) has committed an error and concluded that most of the activities carried out by the assessee society are commercial in nature because of the reason that the assessee is taking some charges against the services. He has pointed out that the assessee has charged very nominal amounts in order to recover to its cost and the same is evident from the income and expenditure account for A.Y.2019-20 to 2021-22. He has referred to the details at page no.117 to 120 of the paper book and submitted that it shows the net surplus for these three years is very normal and then less than the 15% exemption provided u/s 11 of the Act for utilization of the income for charitable purpose whereas the assessee has even applied this surplus amount for achieving the objects of the assessee and therefore, it is not a profit but the surplus generated was again applied for charitable activities and objects of the assessee society. Ld. AR has thus submitted that the CIT(E) applied proviso to section 2(15) by considering the activities of the assessee society as other objects of the Public Utility falling in the last limb of section 2(15) whereas the activities and objects of the assessee society are specifically described and falling in the charitable activities/purpose which includes relief to the poor, education, medical relief preservation of environment, objects of artistic or historic interest etc. Thus the proviso to section 2(15) is not applicable in the case of the assesse. Even otherwise the proviso can be invoked only when the activities of the assessee are in the nature of advancing general public utility and that itself would not lead to the conclusion that the assessee is engaged in any trade commerce or business or provide services in relation thereto for any consideration.
5.1 He has relied upon the judgment of Hon’ble Supreme Court in caw of ACIT(E) vs. Ahmedabad Urban Development Authority 143 taxmann 278 and submitted that the Hon’ble Supreme Court in para 253 while summarizing the conclusion has observed that in course of achieving object of general public utility, the concerned trust or society can carry out trade, business or provide services in relation thereto for consideration provided the activities of trade commerce or business are connected/actually carried out to the achievement of its objects of general public utility and the receipt of such business or commerce activity or service in relation thereto does not exceed the quantified limit as prescribed from time to time and presently 20% of the total receipts of the previous year. He has the referred to para 172 & 173 of the judgment and submitted that the Hon’ble Supreme Court has specifically observed that for achieving 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% of its overall receipts. Thus, Ld. AR has submitted that small charging fee to cover costs of the charitable activities and services provided by the assessee do not amount to carrying an activity of trade and commerce. He has then relied upon the decision of Coordinate Bench of this Tribunal dated 20.12.2021 in case of CRISP Society vs. DCIT in ITANo.297 & 298/Ind/2020 wherein the Tribunal has held that the trust or education institute is running with a nominal fee to cover cost on account of its activities that cannot be held to be a commercial activity. Ld. AR has submitted that the CIT(E) while rejected application of the assessee as relied upon judgment of Hon’ble Supreme Court in case of M/s New Noble Education Society vs. CCIT 143 taxmann.com 276 however the said judgment is on the scope of inquiry and examination by the CIT(E) and not on the point of trade and commerce activities. Thus, Ld. AR has submitted that the impugned order of the CIT(E) is not sustainable in law and liable to set aside and the assessee be granted registration u/s 12AB of the Act.
6. On the other hand, Ld. DR has submitted that the CIT(E) has conducted physical verification report to verify the objects and activities of the assessee. In report of the spot verification of Ld. CIT(E) vide letter dated 17.10.2022 has pointed out that assessee is engaged in the consultancy services, sale of training material, various training seminars & workshops on payment basis, running computer classes and women stitching classes Orbit Mall, A.B. Road Indore. The amounts received by the assessee on various heads also clear from the audit report as well as ledger account submitted by the assessee therefore, it was held that activities carried out by the assessee are commercial in nature. He has relied upon impugned order of the CIT(A).
7. We have considered rival submissions as well as relevant material on record. The Assesse society is registered under M.P. Society Registration Act, 1973 vide dated 04.08.2003. As per Momorandum of Association of the assessee society the objects of the society are given in para 3 as under:
“3.1 To work in the field of society service, adult education women & child and services for the benefit of elderly people of the society.
3.2 To work in the Field of animal care and welfare, providing medical facilities to mainly stray animals
3.3 To work in the field of education, literature, photography, and all forms of fine arts.
34 To work in the field of science including Medical, Engineering, and Environmental research, Education and Training etc.
3.5 To work in the field of environmental protection and up gradation, development and conservation of water and rain-water Harvesting and recharging works in rural and urban areas and other rural development works.
3.6 To work in the field of agro based activities and solar energy.
3.7 To run all types of awareness, IE.C. activities, to organize trainings, camps etc related to various programmes in Rural, Semi Urban and Urban areas.
3.8 To run activities for upliftment of Social & Economic status and Health & hygiene status of people including Women & Child.
3.9 To run activities related to protection and upgradation of Environment, Ecological balance and Soil and Water Conservation.
3:10 To work in the field of Handicrafts, Handlooms, Fabric printing of all types e.g. Batik, Hand block Printing. Vegetable dyes printing, Chemical printing, all types of Paintings Embroide & Stitching works Including R&D and Training etc.”
7.1 The above objects of the assessee society are clearly falling in the specific charitable purpose provided in section 2(15) of the Act such as the relief to poor, education, medical relief, preservation of environment, objects of artistic or historic interest etc. Therefore, the main objects of the assessee are in the nature of providing relief to the poor, needy persons and particularly adult education to women and children. The next object of the assessee is to work in the field of animal care and welfare, providing medical facilities to mainly stray animals. And then work in the field of science including medical, engineering and environmental research, education and training etc. Therefore, providing medical relied and education as well as help to the poor are in the category of charitable activities falling in the first part/limb of section 2(15) and not in the last limb being advancement of any other object of General Public Utility. The spot verification got done by the CIT(E) has confirmed the activities carried out by the assessee and it is not the finding of the CIT(E) that these activities are not carried out for achieving objects of the assessee. It is settle proposition that at the time of considering application for registration u/s 12AB the Commissioner has to satisfy himself from the record/documents as well as information provided by the applicant about the genuineness of the activities of trust or institution as well as about the objects of the trust or institutions being charitable in nature. The CIT(E) has not disputed the genuineness of the activities of the assessee and also not doubted the activity and evidence which was produced by the assessee comparison of details as well as audited accounts for preceding three assessment years. Even the objects of the assesse society are not held as not charitable therefore, the twin conditions as required u/s 12AB are satisfied that the assessee’s activities are genuine and the objects of the assessee society are charitable in nature.
7.2 The CIT(E) has rejected the application on the ground that activities of the assesse society are commercial in nature because the assessee is charging against the services provided by it. The assessee has produced the details of the revenue by way of charging against services and extract of the income and expenditure account specifically total receipts, net surplus and percentage which are as under:
