2025 (7) TMI 251 - AT - Income Tax

Denial of registration u/s 12AB - as per revenue assessee has not engaged in the charitable activities but only engaged in rendering services of collection of management fees of 10% - CIT(A) concluded activities carried out by the assessee are business/ target oriented and commercial in nature rather than charity-focused - assessee had entered into agreement with M/s. Edujobs Academy Pvt. Ltd on 11.09.2024 as co- implementing partner whereas the parent agreement with NSDC was entered only on 24.09.2024. HELD THAT - Assessee had explained in detail that the discussions with NSDC were in the pipeline and the formal agreement was executed on 24.09.2024. What is to be seen at the time of grant of registration by the CIT(E) is that whether the activity carried out which are mentioned in the trust deed or the activity proposed to be carried out are indeed charitable in nature. There is absolutely no doubt on perusal of the objects of the trust deed that the activities mentioned thereon are indeed charitable in nature. Hence we direct the ld CIT(E) to grant registration u/s 12A of the Act to the assessee trust holding that it is engaged in charitable activity and consequentially grant claim of exemption u/s 80G - Appeals of the assessee are allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal question considered by the Appellate Tribunal was whether the Commissioner of Income Tax (Exemptions) was justified in denying registration under section 12AB of the Income Tax Act, 1961 to the assessee trust. This issue encompassed the following sub-questions:

• Whether the activities carried out by the assessee trust qualify as charitable activities within the meaning of the Income Tax Act.
• Whether the assessee's role as a service provider charging a management fee affects the genuineness of its charitable nature.
• Whether the delay and sequence in entering agreements with the National Skill Development Corporation (NSDC) and a co-implementation partner (M/s Edujobs Academy Pvt. Ltd) impact the validity of the assessee's claim for registration and exemption.
• Whether the assessee trust's activities satisfy the conditions for exemption under section 80G consequent to registration under section 12AB.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Whether the activities carried out by the assessee trust are charitable in nature

The relevant legal framework involves section 12AB of the Income Tax Act, which governs registration of trusts for charitable purposes, and section 80G, which provides exemption for donations to such registered entities. The Court examined the trust deed, the objects of the trust, and the actual activities undertaken by the assessee.

The trust deed, with the National Skill Development Corporation (NSDC) as the settlor, clearly stated objects related to imparting education and advancement of public utility through skill development programs. The Court noted that the trust was established with a corpus and had enrolled 608 candidates in various skill training programs, with 212 candidates already trained. Training was provided in diverse job roles such as IT Help Desk, Graphic Designing, Barista Executive, and others.

The Court reviewed the evidence submitted, including lists of enrolled candidates, bills, vouchers, photographs, and details of training centers. These materials corroborated the claim that the trust was actively engaged in skill development activities aligned with its stated charitable objectives.

The Tribunal emphasized that the core inquiry at the stage of registration is whether the activities carried out or proposed to be carried out are charitable in nature. The objects of the trust and the activities conducted were found to be charitable. The Tribunal rejected any doubt on the genuineness of the charitable activities based on the evidence.

Issue 2: Whether the assessee's role as a service provider charging a management fee negates its charitable status

The Commissioner of Income Tax (Exemptions) had held that the assessee was merely a service provider charging a 10% management fee on actual expenses, which was deemed commercial and business-oriented rather than charitable. The assessee explained that the management fee was only to recover operational costs and was not profit-driven.

The Tribunal considered that charging a management fee to sustain the trust's activities and ensure efficient execution does not negate the charitable nature of the trust's operations. The fee was characterized as reimbursement rather than profit-making. The Tribunal found this explanation reasonable and consistent with the trust's objective to facilitate skill development.

Thus, the Court rejected the contention that the charging of a management fee per se rendered the activities commercial and non-charitable.

Issue 3: Validity of agreements and timing of contracts with NSDC and co-implementation partner

The Commissioner questioned the sequence of agreements, noting that the agreement with M/s Edujobs Academy Pvt. Ltd was executed before the formal agreement with NSDC. The assessee explained that although the formal NSDC agreement was signed later, it was effective retrospectively from 01.04.2024 and that discussions and groundwork had been ongoing prior to formalization. The agreement with the co-implementation partner was necessary to ensure operational readiness.

The Tribunal accepted this explanation, recognizing that formal execution dates may not always coincide with the commencement of activities or negotiations, especially in large-scale government-linked programs. The Tribunal held that such procedural aspects do not undermine the charitable nature or the genuineness of the trust's activities.

Issue 4: Eligibility for exemption under section 80G consequent to registration under section 12AB

The denial of registration under section 12AB by the Commissioner also resulted in rejection of exemption under section 80G. Given the Tribunal's findings that the trust's activities are charitable and that registration under section 12AB should be granted, the consequential grant of exemption under section 80G was also directed.

3. SIGNIFICANT HOLDINGS

The Tribunal held:

"What is to be seen at the time of grant of registration by the ld CIT(E) is that whether the activity carried out which are mentioned in the trust deed or the activity proposed to be carried out are indeed charitable in nature. There is absolutely no doubt on perusal of the objects of the trust deed that the activities mentioned thereon are indeed charitable in nature."

The Tribunal established the principle that the presence of a management fee for operational sustainability does not negate charitable status, provided the fee is not profit-driven but a reimbursement of costs.

The Tribunal concluded that the assessee trust is engaged in charitable activity as defined under the Income Tax Act and directed the Commissioner to grant registration under section 12AB and consequential exemption under section 80G.

Final determination on the issue was in favor of the assessee, allowing the appeals and reversing the Commissioner's denial of registration and exemption.