ITAT CHENNAI BENCH ‘A’
Social Pedia Knowledge Foundation
Director of Income-tax (Exemptions)
IT APPEAL NO. 1910 (MDS.) OF 2012
JANUARY 24, 2013
Vikas Awasthy, Judicial Member
The appeal has been filed by the assessee impugning the order of the Director of Income Tax (Exemptions) dated 31.8.2012 rejecting the application of the assessee for registration under section 12AA of the Income Tax Act (hereinafter referred to as “the Act”).
2. The assessee is a company registered under section 25 of the Companies Act, 1956. The assessee company was incorporated on 17.1.2012 with the following main objects:-
“1. To help, educate, network, facilitate social and economic empowerment, economic development programs, literacy programs, workshops, training programs for villagers and downtrodden people encourage and help to gain employment for children and their parents or elderly.
2. To educate, teach, instruct, coach, inform, train villagers and downtrodden people through formal and informal means for their welfare and protection in respect of their food, clothing, safe drinking water, sanitation facilities.
3. To help voluntary agencies and other bodies to reach the poor and needy and to enlarge their vision of service and strengthen them in their mission to the needy.
4. To provide education to villagers and downtrodden people from less privileged background, to pursue education, vocational training, to train teachers to work in non-formal education and vocational centers to provide for the all-round development of a child with sports, medical camps, art camps.
5. To impart training suitable to villagers and downtrodden people and to facilitate distribution and sale of produce of such training and produce of activities related to agricultural or non-agricultural, horticulture, poultry, animal-husbandry, milk, milk based and organic products with or without help of modern technologies like dedicated web portals, internet technologies and other applications and tools.”
On 8.2.2012, the assessee made an application for registration under section 12AA of the Act. The assessee was asked to furnish certain information and clarifications, which the assessee allegedly submitted.
3. Dr. Anita Sumanth appearing on behalf of the assessee contended that application for registration was made immediately after incorporation of the assessee company. Director of Income Tax (Exemptions) has dismissed the application merely on assumption that commercial harnessing of such portal cannot be ruled out. The counsel for the assessee contended that a perusal of the objects of the assessee company would clearly show that the same has been incorporated with the object to help, educate, facilitate social and economic empowerment, literacy programs, workshops, training programme for villagers and downtrodden people and to gain them employment. The object of the assessee is to teach, instruct and coach people in general and train villagers and downtrodden people through formal and informal means for their welfare and protection in respect of their food, clothing, safe drinking water, sanitation facilities etc. The counsel contended that the Director of Income Tax (Exemptions) ought to have granted registration under section 12AA of the Act in the first instance and if the assessee is found ineligible on account of its activity being carried out in the subsequent years, the same is open to the authorities concerned to withdraw the registration.
4. On the other hand, Shri Anirudh Rai, appearing on behalf of the Revenue submitted that the Director of Income Tax (Exemptions) in para 8 of the order has categorically stated that the objects and activities of the assessee are not inconformity with the definition of charitable objects under section 2(15). Therefore, the trust does not qualify for the registration under section 12AA of the Act. He further contended that education per se is not a charitable activity. He strongly supported the order of the Director of Income Tax (Exemptions) in rejecting the application of the assessee.
5. We have heard the submissions made by both the parties. We have gone through the orders of the authorities below and the main objects of the assessee company. The term “charitable objects” has been defined in section 2(15) of the Act, which is reproduced hereinbelow:-
“charitable purpose” includes relief of the poor, education, medical relief, [preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest,] and the advancement of any other object of general public utility:”
A bare perusal of the definition of the term ‘charitable purpose’ shows that imparting education is a charitable activity.
6. The Board Circular No.11 of 2008 dated 19.12.2008 relates to exemption under section 11 in case of assessee claiming both to be charitable institution as well as mutual organization. The relevant extract of the circular is reproduced hereinbelow:-
“Circular No. 11/2008, dated 19-12-2008
Definition of ‘Charitable purpose’ under section 2(15) of the Income-tax Act, 1961
Section 2(15) of the Income Tax Act, 1961 (‘Act’) defines “charitable purpose” to include the following:-
(i) Relief of the poor
(iii) Medical relief, and
(iv) the advancement of any other object of general public utility.
An entity with a charitable object of the above nature was eligible for exemption from tax under section 11 or alternatively under section 10(23C) of the Act. However, it was seen that a number of entities who were engaged in commercial activities were also claiming exemption on the ground that such activities were for the advancement of objects of general public utility in terms of the fourth limb of the definition of ‘charitable purpose’. Therefore, section 2(15) was amended vide Finance Act, 2008 by adding a proviso which states that the ‘advancement of any other object of general public utility’ shall not be a charitable purpose if it involves the carrying on of –
(a) any activity in the nature of trade, commerce or business; or
(b) 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.
2. The following implications arise from this amendment –
2.1 The newly inserted proviso to section 2(15) will not apply in respect of the first three limbs of section 2(15), i.e., relief of the poor, education or medical relief. Consequently, where the purpose of a trust or institution is relief of the poor, education or medical relief, it will constitute ‘charitable purpose’ even if it incidentally involves the carrying on of commercial activities.”
7. Thus, as per the circular where the purpose of the trust or institution is relief of the poor, education or medical relief, preservation of medical environment or preservation of historic monuments it will constitute charitable purposes even if it incidentally involves commercial activities. Thus, the object of providing education is charitable activity even if consequent to carry on of such activity the trust earns any benefit out of it.
8. In the instant case, a perusal of the object clause of the company shows that it has been incorporated with the aim of providing education, facilitate social and economic empowerment, economic development programs, literacy programs, training programs for villagers and downtrodden people. How these objects are to be achieved should be left to the assessee. The fact that the assessee has been incorporated under section 25 of the Companies Act, 1956 show that it has been formed for promoting charity or any other useful object and intends to apply its profits, if any or other income in promoting its objects. In other words, it’s a non-profit earning organization.
9. In our considered view, the Director of Income Tax (Exemptions) merely on assumption has rejected the application of the assessee for registration under section 12AA. The impugned order of Director of Income Tax (Exemptions) is set aside. The Director of Income Tax (Exemptions) is directed to grant registration to the assessee under section 12AA. However, it shall be open to Director of Income Tax (Exemptions) to withdraw the same later, if the activities of the assessee are not found in accordance with its objects.
11. The appeal of the assessee is allowed.