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2015 (6) TMI 248 - ITAT HYDERABAD

2015 (6) TMI 248 - ITAT HYDERABAD - [2015] 40 ITR (Trib) 559 (ITAT [Hyd]) - Registration under S.12A refused - Held that:- The ratio of the decision of the Delhi High Court in the case of India Trade Promotion Organization (2015 (1) TMI 928 - DELHI HIGH COURT ) is directly applicable to the issue involved in the present case wherein held Merely because a fee or some other consideration is collected or received by an institution, it would not lose its character of having been estebtishea for a ch .....

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entities from masking their activities and portraying them in the garb 'of an activity with the object of a general public utility. It was not designed to hit at those institutions, which had the advancement of the objects of general public utility at their hearts and were charity institutions

Thus respectfully following the above, we set aside the impugned order of the learned Director of Income-tax (Exemption), with a direction to grant registration to the assessee society under S. .....

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assessee in the present case is an institution which was established in the year 1983 under the overall control of the Irrigation Department of Government of Andhra Pradesh. It was converted and registered as a society in the year 1992 under the Societies Registration Act as an autonomous body. An application in Form No.10A was filed by it on 19.1.2012 seeking registration under S.12A of the Act. In order to dispose of the said application, a questionnaire was issued by the learned Director of I .....

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e department of agriculture and other allied departments and agencies of the State Government dealing with aspects relating to water and land management in planning, designing, construction, operation and maintenance or irrigation and drainage networks etc., with due emphasis on micro-level functioning and On-Farm irrigation practices to ensure optimum utilization of Water and Land Resources; (b) To ensure full understanding of the principles of efficient operational plans and improved irrigatio .....

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e performance; and deal with any other issues entrusted by the government to the institute; (e) To provide consultancy services to the Government, local bodies, associations and individuals in the areas of water and land management; (f) To undertake intensive and need based research on water and land management with the collaboration of other institutions, associations and societies interested in similar objects; It was also submitted on behalf of the assessee before the learned Director of Inco .....

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through consultancies. It was submitted that the assessee society in consonance of its objectives organized various training for farmers at field training centres in the State. 3. After considering the submissions made by the assessee and the material placed on record before him, the learned Director of Income-tax(Exemption) noted that the assessee society was mainly functioning as a training institute for the purpose of training of various government officials in the field of water and land man .....

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roviding consultancy services yielding substantial income was hit by the proviso to S.2(15) inserted in the statute by the Finance Act, 2008 with effect from 1.4.2009. Accordingly, relying on the said proviso, he held that the activity of the assessee of providing consultancy services yielding substantial income was sufficient to indicate commercial intention on the part of the assessee society, and therefore, the assessee society could not be considered as carrying on any charitable activity to .....

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d by the learned Director of Income-tax( Exemption) in his impugned order. As a matter of fact, in pargraph no.3 of his impugned order, he has agreed that the services provided by the assessee society in the matter of water and land management for the benefit of the farmers and other organisations fell under the ambit of advancement of an object of general public utility. However, keeping in view one of the activities carried on by the assessee of providing consultancy services, which yielded su .....

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emption) (1124 DTR (Del) 329) cited by the learned counsel for the assessee, wherein the claim of the assessee, which was otherwise established to be for the purposes of advancement of an object of general public utility, for grant of approval u/s. 10(23C)(iv) was denied exemption by the learned Director of Income tax ( Exemption), relying on the proviso to S.2(15). Hon'ble Delhi High Court however, directed the learned Director of Income tax ( Exemption) to grant such approval to the assess .....

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n relation to any trade, commerce or business on the one hand and genuine charitable organizations on the other. It must be remembered that the Court is construing the expression "charitable purpose" not in a vacuum, but in the specific context of s. 10(23C)(iv). Sec. 10 deals with the incomes not included in total income. And, 510(23C)(iv) specifically deals with the income received by any person on behalf of, inter alia, an institution established for charitable purposes. Therefore, .....

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s a charitable institution. Whether that institution, which is established for charitable purposes, will get the exemption under s. 10(23C)(iv) -would have to be determined by the prescribed authority having regard to the objects of the institution and its importance throughout India or throughout any State or States. There is no denying that having regard to the objects of the assessee and its importance throughout India in the field of advancement of promotion of trade and commerce, the assess .....

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and beverages outlets in the exhibition grounds, does not, in any way, affect the nature of the assessee as a charitable institution if it otherwise qualifies for such a character. To put it plainly, if an institution established for charitable purposes did not receive an income at all, then what would be the need for taking any benefit under s. 10(23C)(iv). Therefore, if a meaning is given to the expression 'charitable purpose' so as to suggest that in case an institution, having an obj .....

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ught to be given by the Revenue, be qualified for being considered as an institution established for charitable purposes. So, either w?:y, the provisions of s. 10(23C)(iv) would not be available either because it IS not necessary or because it is blocked. Theintention behind introducing the proviso tos.2(q5) could certainly not have ben ro render teh provisions of s.10(23C)(iv) redundant. Merely because a fee or some other consideration is collected or received by an institution, it would not lo .....

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the object of promoting trade and commerce not for itself, but for the nation-both within India and outside India. Clearly, this is a charitable purpose, which has as its motive the advancement of an object of general public utility to which the exception carved out in the first proviso to s. 2(15) would not apply. If a literal interpretation were to be given to the said proviso, then it would' risk being hit by Art. 14 (the equality clause enshrined in Art. 14 of the Constitution). It is we .....

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able purpose", as defined in s. 2(15), is read in the context of s .. 1O(23C)(iv) the Court would have to give up the strict and literal interpretation' sought to be given to the expression "charitable purpose" by the Revenue. The' introduction of the proviso to s. 2(15) by virtue of the Finance Act, 2008 was' directed to prevent the unholy practice of pure trade, commerce and business entities from masking their activities and portraying them in the garb 'of an ac .....

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ucing the Finance Bill, 2008...... In conclusion, the expression "charitable purpose", as defined in s. 2(15) cannot be construed literally and in absolute terms. It has to take colour and be considered in the context of s. 10(23C)(iv). It is also clear that if the literal interpretation is given to the proviso to s. 2(15), then the proviso would be at risk of running fowl of the principle of equality enshrined in Art. 14 of the Constitution of India. In order to save the Constitutiona .....

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