Case Law Details
Keeday Makauday Foundation Vs CIT (ITAT Jaipur)
ITAT Jaipur held that CIT(Exemption) not justified in denying the registration under section 12AB of the Income Tax Act as the foundation/ trust duly supplied all the desired information as per the query letter.
Facts- The assessee foundation filed application online dated 31-03-2022 in Form No. 10AB seeking registration u/s 12AB of the Act.
CIT(E) took the reference of Rule 17A of Income Tax Rules, 1962 whereby the assessee foundation is required to produce documents regarding establishing of the trust/society for verification and in order to decide the matter of seeking registration u/s 12AB the genuineness of the activities of the assessee trust /institution being undertaken and its object are required to be examined by the ld. CIT(E). From the submissions/ documents filed by the assessee foundation, the ld. CIT(E) noted that the assessee trust does not perform the activity of charitable in nature but business activities are visible. Hence, the ld. CIT(E) rejected the application of the assessee for seeking registration u/s 12AB.
Conclusion- CIT(E) in first para that only part of the details were submitted by the applicant. However, we find that ld. CIT(E) did not mention in his order as to which details called out were not submitted by the assessee foundation.
Held that the ld. CIT (E) is not justified in denying the registration 12AB of the Act when the assessee foundation/ trust has supplied all the desired information as per his query letter and he did not controvert them which indicates that the order passed by the ld. CIT(E)suffers from infirmity which cannot be sustained. Thus, appeal of the assessee foundation is allowed.
FULL TEXT OF THE ORDER OF ITAT JAIPUR
This appeal by the assessee is directed against the order of the ld. CIT(Exemption), Jaipur dated 28-09-2022 for the assessment year 2022-23 in the matter of registration u/s 12AB of the Income Tax Act, 1961. The grounds of appeal raised by the assessee are as under:-
‘’1. The ld. CIT(Exemption) erred in law and on facts in rejecting the application for registration u/s 12A of the Act.
2. The ld. CIT(Exemption) erred in law and on facts in considering the objects of the assessee as non-charitable without considering the para 5 of Memorandum of Association and Licence u/s 8(a) of the Companies Act, 2013.”
2.1 During the course of hearing, the ld. AR of the assessee prayed that there was delay of one day in filing the appeal. He submitted that the appeal had been filed online on 25-11-2022, however, the hard copies of form 36 and appeal documents were presented on 29-11-2022 and actual date of filing of the appeal was on 28-11-2022. He further submitted that the appeal could not be filed within time as all the directors of the assessee foundation are out of Jaipur and signed copies were sent by one director by speed post on 24-11-2022 from village Kaflong, District Champawat which was received through speed post on 29-112022. Hence the delay occurred because of late delivery of documents through speedpost which was beyond the control of the assessee and the delay for one day may kindly be condoned.
2.2 On the other hand, the ld. DR did not raise any objection except praying that the Bench may decide this issue as deem fit and proper in the case.
2.3 After hearing both the parties and submissions of the ld. AR of the assessee, the Bench finds that delay of one day in filing the appeal is condonable as the circumstances were beyond the control of the assessee. Hence, the delay in filing the appeal by the assessee is condoned in view of the decision of Hon’ble Supreme Court in the case of Collector, land Acquisition vs. MSt. Katiji and Others, 167 ITR 471.
3.1 Brief facts of the case are that the assessee foundation filed application online dated 31-03-2022 in Form No. 10AB seeking registration u/s 12AB of the Act for which assessee trust was issued a letter/notice No. ITBA/EXM/F/EXM43/2022-23/104478325 (1) dated 18-08-2022 asking therein to submit certain documents/ explanation by 12-09-2022. In response to this letter, the assessee submitted certain documents having only part details. Being not satisfied with part submission/ documents filed by the assessee foundation, the ld. CIT(E) vide his letter dated 1909-2022 desired from the assessee following details/information/clarification.
‘’On perusal of the MoA, it is noticed that Object Nos. A-1,2,3, B-10,11,15,19,21,22,23,29,31,34,27, 39 & 40 are having elements of commercial/ business nature and various objects are related to the activities in abroad. Please clarify how it is charitable objects in the light of section 2(15) and explain why the application filed by you should not be rejected.
You are requested to furnish the above details/documents through e-mail/in person on or before 21-09-2022 positively. Kindly note that if you fail to file the reply on this date or comply with required details in writing, your application will be decided on the basis of materials available on recored of this office without giving any further opportunity.’
The ld. CIT(E) noted that the assessee foundation furnished the reply in response to show cause notice and examined the record and proceeded to decide the case of the assessee based on the materials available on record. In order to consider the case for registration u/s 12AB of the Act, following issues are to be examined by the ld. CIT(E).
(i) Genuineness of the activities.
(ii) The compliance of such requirements of any other law for the time being in force by the trust or institution as are material for the purpose of achieving its objects.
The ld. CIT(E) took the reference of Rule 17A of Income Tax Rules, 1962 whereby the assessee foundation is required to produce documents regarding establishing of the trust/society for verification and in order to decide the matter of seeking registration u/s 12AB the genuineness of the activities of the assessee trust /institution being undertaken and its object are required to be examined by the ld. CIT(E). From the submissions/ documents filed by the assessee foundation, the ld. CIT(E) noted that the assessee trust does not perform the activity of charitable in nature but business activities are visible. Hence, the ld. CIT(E) rejected the application of the assessee for seeking registration u/s 12AB by observing as under:-
‘0.5It is also found from objects of applicant trust that the object Nos. A1,2,3, mentioned in the MOA/Deed are having elements of commercial/business nature:-
Object No. (1)
‘’…Maintaining seed banks and nurseries and providing training on related activities…”
This object focuses on establishing of Training Centres in the field of agriculture/ environment. In the present economic system in India, such institutions are being run as a profit making/ commercial institution and therefore these cannot be termed as charitable. Moreover, neither this particular object mentions that establishment of impugned intuitions will be run without any profit motive nor in the object clause without any profit motive have been referred to. Hence, it cannot be deducted that the trust will carry out charitable activity on this object.
‘’…..Conducting forest immersion programs and training them in skills that help the environment… disseminating it as required through media and publication….”
This object focuses on Publication & Distribution of Books/ Pamphlets/ Literature in the field of agriculture/ environment. In the present economic system in India, publication & distribution of books/ pamphlets/ literature is being carried out with the philosophy of profit making only. Hence, such activity in no manner can be termed as charitable. Moreover, neither this particular object mentions that establishment of impugned institutions will be run without any profit motive nor in the object clause without any profit motive have been referred to. Hence, it cannot be deducted that the trust will carry out charitable activity on this object.
Object No. (3)
‘’….. Supporting learning programs including vocational training, teacher training. incubating alternative running projects…”
This object focuses on establishing of Vocational Training Centres in the field of agriculture/ environment. In the present economic system in India, such institutions are being run as a profit making/ commercial institution and therefore these cannot be termed as charitable, Moreover, neither this particular object mentions that establishment of impugned intuitions will be run without any profit motive nor in the object clause without any profit motive have Been referred to. Hence, it cannot be deducted that the trust will carry out charitable activity on this object.
Section 2(15) defines the charitable purpose. It reads as under:-
“Charitable purpose includes relief of the poor, education, medical relief [preservation of environment (including watersheds, forests and wildlife) and reservation of monuments or places or objects or artistic or historic interest.] and the Advancement of any other object of General Public Utility.”
Proviso to Section 2(15) reads as under-
“Provided that the Advancement of any other object of General Public Utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity.”
In nutshell, the meaning of the proviso to section 2(15) of the Income Tax Act. 1961 is that while deciding the case where business activities are visible, the predominant object test is to be applied and also the business activities should be in the course of actual carrying out of such Advancement of any other object of General Public Utility activities i.e. such business activities should only be incidental to the charitable object and hence should not be the pre-dominant or primary activity by itself. The emphasis of the section for “any other object of General Public Utility” is that it should be for the benefit of General Public. It is primarily the objects which decide the fate of application. If the object itself talks about or intends for business activity, then it cannot be considered as charitable one.
07. Sufficient opportunity has been provided to the applicant to produce details and furnish explanations in support of its claim for registration u/s 12AB of the Income Tax Act, 1961 but the applicant has failed to do. In the light of the above facts, the application seeking registration u/s 12AB is hereby rejected and filed.”
3.2 During the course of hearing, the ld. AR of the assessee prayed that the ld. CIT(E) has erred in rejecting the registration of assessee trust u/s 12AB of the Act while the assessee trust is a charitable trust and the submission to this effect is as under:-
‘’Ground no. 1 – Rejection of application u/s 12A
2. As earlier stated in above para 1(e) the ld. CIT(E) has rejected the application for two reasons. We take up the first reason where he has alleged that the assessee has failed to produce details and furnish explanations in support of its claim.
3. It is respectfully submitted that the allegation is absolutely incorrect. The assessee foundation has furnished all the material details called by him. Kindly refer PB page 12,13,14-24,25,31-76 and 81-83. All these details/documents/reply were submitted during the proceedings within the allowed time. The ld. CIT(E) has mentioned in the first para of the order that only part of the details were submitted by the applicant but he did not mention a single detail which was called but not submitted. It is submitted that all the material details required vide his notice dated 18/08/2022 were submitted personally by Shri Manvendra Singh Inaniya Director of the foundation on 12/09/2022 and 13/09/2022 and oral explanations were also given by him. The foundation also submitted online reply to show cause notice dated 19/09/2022, placed at PB page 81-83, explaining all the issues raised in the show cause notice.
4 The assessee has also obtained copy of the proceedings note sheet, which itself proves that the allegation of the department is incorrect. We fail to understand the reason behind making non furnishing of documents as one of the basis for rejection of registration application whereas each and every document was furnished during registration proceedings.
5. Relief Sought-
We request the Hon’ble Bench to declare the finding of the ld. CIT(E) as erroneous and direct him to grant the registration.
Ground no. 2 – Considering the objects as non-charitable
6. The ld. CIT(E) has issued show cause notice proposing to reject the application for registration. The show cause notice was as under (PB 78-79)-
“ …. On perusal of the MOA, it is noticed that object nos. A-1,2,3,B-10,11,15,19,21,22,23,29,31,34,37,39 & 40 are having elements of commercial/business nature and various objects are related to the activities in abroad. Please clarify how it is charitable objects in the light of section 2(15) and explain why the application filed by you should not be rejected ”
7. The show cause notice was very well replied in detail by the foundation (PB 81-83). However the application was rejected by him without properly considering the reply and material on record.
8. In the rejection order the ld. CIT(E) picked up few words from the main object clauses of MOA of the foundation as under-
Object no. A-1
“…. Maintaining seed banks and nurseries and providing training on related activities…”
Object no. A-2
“…Conducting forest immersion programs and training them in skills that help the environment… Disseminating it as required through media and publication…”
Object no. A-3
“….. Supporting learning programs including vocational training, teacher training, incubating
alternative running projects….. ”
Finding of the ld. CIT(E)-
The finding for all the three objects mentioned by the ld. CIT(E) is verbatim same as under-
“… In the present economic system in India, such institutions are being run as a profit making/commercial institution and therefore these can not be termed as charitable.Moreover, neither this particular object mentions that establishment of impunged institution will be run without any profit motive nor in the object clause without any profit motive have been referred to. Hence, it can not deducted that the trust will carry out charitable activity on this object.”
9. above finding is shockingly verbatim same for all the three objects and the conclusion/finding is extremely general in nature, baseless and is against the material on record. The focal point of objects of the foundation is preservation of environment. The so called business activities, when intrinsically woven into and are part of the charitable activity undertaken, the business activities are not feeding charitable activities, as they are integral to the charity/charitable activity.What has to be seen is, as to what is the core/main activity of the Assessee. The predominant activity should be the basis of the decision making. We draw support from para number 34 of judgement of Hon’ble Gujarat High Court in the case of DIT ( Exemptions) v. Gujarat Cricket Association 419 ITR 561 (2019) [ Para 34 at page 19-20 of the Judgment].
10.It is submitted that the foundation is a company registered under section 8 of the Companies Act, 2013. The definition or meaning of charitable purpose are almost similar in the section 8(1) of the companies Act, 2013 and section 2(15) read with section 11 and 13 of the Income Tax Act, 1961. The Registrar of Companies issues the incorporation certificate and licence u/s 8 only after drawing satisfaction that the company‘s object are not of commercial nature and surplus if any will be applied for promotion of objects and surplus will not be distributed as dividends to its members.
11. Now kindly see the MOA para 5 (PB 21-22) and also see the licence u/s 8 (PB-13). The MOA and licence clearly mandates that the company will not distribute its surplus to its members i.e. the company’s motive is to run without profit. It also contains mandate that surplus if any will be applied solely for the promotion of the objects. There is no element of self intrest. The fact that the carrying on of charitable activities results in a surplus does not mean that Assessee exists for profit. ‘Profit’ means that owners have a right to withdraw the surplus for any purpose including personal purpose. However, if the surplus is ploughed back into the same charitable activities, the Assessee cannot be said to be carrying out commercial activities in the nature of trade, commerce or business. We again place reliance on judgment of Gujarat High Court referred in para 9 supra.[ Para 163(i) at page 83 of Judgment]
12. We further draw attention of the Hon’ble Bench towards the Income & Expenditure account of the foundation (PB-36). It can be seen that entire source of funding is donation. The foundation has not charged a single rupee from any of the beneficiary of the programmes conducted by the foundation. We also draw attention to the activities carried out by the foundation (PB 45-57). It can be seen that the focal point of activities and objects of the foundation is preservation of environment.
13. We respectfully submit that the allegation of the ld. CIT(E) that the MOA does not the mention that the institution will be run without profit motive, is incorrect and against the facts of the case. By any stretch of imagination, the objects of the foundation can not be held to be of non-charitable. There is no iota of evidence suggesting that the foundation is being /or will be run as a commercial institution as alleged by the department.
14. We further submit that if the intention of the foundation is to make profit out of the proposed objects, then in that case why would the company got itself registered under section 8 of the Companies Act, 2013.
15. It is submitted that the finding of the ld. CIT(E) is baseless, imaginary, illogical and contrary to the material on record. The objects of the foundation are towards preservation of environment which has been included in the definition of charitable purpose u/s 2(15) of the Income Tax Act, 1961 and hence foundation deserves for registration.”
3.3 On the other hand, the ld. DR supported the order of the ld. CIT(E) and also submitted that the reply of the assessee is cryptic. The ld. CIT(E) has considered the reply of the assessee and its object clauses and based on that he has given his findings. As regards the contention of the assessee that the ld. CIT(E) has not passed the speaking orders based on the submission made before him he has recommended to set-a-side the order with a direction to decide the issue based on the submission already on record.
3.4 We have heard both the parties and perused the materials available on record. From the record, it is noted that the assessee ‘M/s. Keeday Makuday Foundation’ is a company with charitable objects registered u/s 8 of the Companies Act, 2013. The certificate of incorporation was issued on 20/04/2021 by Ministry of Corporate Affairs (PB-12) and licence u/s 8(1) of the Companies Act was issued on 20/04/2021 by the Registrar of Companies (PB-13). The company was granted provisional registration by the ld. CIT(E) vide order dated 22-11-2021. The assessee company applied for permanent registration u/12AB on 31/03/2022 in form 10AB (PB 5-11). The ld. CIT(Exemptions) called for certain details vide notice dated 18/08/2022 (PB 26-30), which were submitted in physical form by Shri Manvendra Singh Inaniya (Director of the company) (PB 31-77) on 12/09/2022 and he further furnished the five documents on 13/09/2022. One final show cause notice dated 19/09/2022 (PB 78-79) was duly replied electronically (PB 81-83).The ld. CIT(Exemptions) rejected the application for registration u/s 12AB on the basis of following findings-
- Sufficient opportunity has been provided to the applicant to produce details and furnish explanations in support of its claim for registration u/s 12AB of the Income Tax Act, 1961 but the applicant has failed to do so.
- It is primarily the objects which decide the fate of application.If the objects itself talks about or intends for business activity, then it cannot be considered as charitable one.
It is also noteworthy to mention that the assessee trust was granted provisional registration vide order dated 22-11-2021 by the Ld. CIT (E). As regards the rejection of registration u/s 12AB of the Act by ld. CIT(E), it is noted from the available records that the assessee foundation has furnished all the details desired by the ld. CIT(E) vide paper book pages 12,13,14-24, 24,31-76 and 81-83. It is also noted that the assessee trust tried to submit all the details/documents during the course of proceedings before the ld. CIT(E). It isfurther noted from the order of the ld. CIT(E) in first para that only part of the details were submitted by the applicant. However, we find that ld. CIT(E) did not mention in his order as to which details called out were not submitted by the assessee foundation. Whereas Shri Manvendra Singh Inaniya, Director of the foundation had replied all the issues raised by the ld. CIT(E) and the foundation submitted the reply on 21-092019 through online (PBP 81-83) of query letter dated 19-9-2023 raised by the ld.CIT(E) and the ld. DR did not controvert this averments made before us. The Bench during the course of hearing finds that the assessee foundation has been granted Licence under section 8(1) of the Companies Act, 2013 mainly holding as under:-
‘’’’(2) that the profits, if any or other income and property of the said company, whensoever derived, shall be applied solely for the promotion of the object as set forth in its memorandum of association and that no portion thereof shall be paid or transferred, directly or indirectly, by way of dividend, bonus, or otherwise by way of profit, to persons who at an time are or have been members of the said company or to any of them or to any person claiming through anyone or more of them;
3. that no remuneration or other benefit in money or money’s worth shall be given by the company to any of its members except payment of cut of pocket expenses, reasonable and proper interest on money lent, or reasonable and proper rent on premises let to the company;
8. The company can be amalgamated only with another company registered under section 8 of the Act and having similar objects; and..”
The Bench also took into consideration the Memorandum of Association of the assessee foundation and found that the activities undertaken by the assessee trust are interconnected with the object of the foundation undertaken. It is also mentioned in the Memorandum of Association that the objects of the company extend to the whole of India which are not of profit motive. The profits, if any, or other income and property of the company, whensoever derived, shall be applied, solely for the promotion of its objects as set forth in this memorandum as is mentioned in the Memorandum of Association of Keeday Makauday Foundation filed under the Companies Act, 2013 who has granted Licence under Section 8(1) of the Companies Act, 2013. From the entire conspectus of the issue in question, we feel that the ld. CIT (E) is not justified in denying the registration 12AB of the Act when the assessee foundation/ trust has supplied all the desired information as per his query letter and he did not controvert them which indicates that the order passed by the ld. CIT(E)suffers from infirmity which cannot be sustained. Thus appeal of the assessee foundation is allowed.
4.0 In the result, the appeal of the assessee is allowed
Order pronounced in the open court on 30/01/2023.
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