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2015 (7) TMI 531 - ITAT HYDERABAD

2015 (7) TMI 531 - ITAT HYDERABAD - [2015] 41 ITR (Trib) 578 (ITAT [Hyd]) - Entitlement for registration u/s 12AA - DIT(E) observed that a trust or society having both charitable and non-charitable objects is not eligible for exemption of its income, is, not entitled for registration u/s 12A of the Act - Held that:- If the predominant object of a trust or institution is charitable and in the process of achieving that object some activity of commercial nature generating income is carried out, whi .....

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rade, commerce or business from being considered to be a charitable purpose, but, the second proviso to section 2(15) restricts the application of first proviso only to such trusts and institutions having receipts from commercial activity exceeding a prescribed limit in a particular previous year. Therefore, application of proviso to section 2(15) has to be looked into in every assessment year. Further, ld. AR has demonstrated before us, receipts from sales of finished goods and royalty forms on .....

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ngabad. Though, ld. AR submitted that this fact was also placed before ld. DIT(E), but, the order of ld. DIT(E) is totally silent on the issue. Be that as it may, if similar institutions established by central govt. in other states having similar object have been granted registration u/s 12AA, as is the case in Bhubaneswar, Indore and Aurangabad, we do not find any justifiable reason why assessee should be deprived from availing such benefit. In the aforesaid facts and circumstances, we set asid .....

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ra Sai ORDER PER SAKTIJIT DEY, J.M.: This appeal of the assessee is directed against order dated 27/06/20123 of ld. DIT(E), Hyderabad, rejecting assessee s application for grant of registration u/s 12AA of the Act.. 2. There is a delay of 769 days in filing the appeal. Assessee has filed a petition seeking condonation of delay supported by an affidavit, wherein, the cause of delay has been explained in detail. It is stated by assessee in the petition that after the impugned order was passed by l .....

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is entitled for registration u/s 12AA of the Act keeping in view the fact that similar societies of the central govt. functioning in other parts of the country spread over 10 states have been granted registration u/s 12AA of the Act. It was stated in the petition that after receiving the audit report in the month of August, 14, assessee society reviewed the entire issue and after discussions in the meeting of governing council of the institution at New Delhi on 27/08/14 decision was taken to eng .....

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submissions of the parties and perused the material on record, we are of the view that delay is required to be condoned not only because of the fact that assessee is a central govt. institution but also due to the sufficiency of reasons shown by assessee for delay in filing the appeal. Accordingly condoning the delay of 769 days, we admit the appeal for hearing on merit. 5. Briefly, the facts are, assessee was established by the Govt. of India, under the Ministry of Small, Micro and Medium Indus .....

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ng facilities to technical personnel in designing and making tools, dyes and moulds. Assessee institution on 02/11/2007 made an application in the prescribed manner before ld. DIT(E) seeking registration u/s 12A of the Act. As appears from record, since, assessee failed to comply to a notice issued seeking certain information, application for registration was rejected vide order dated 23/04/2008. Being aggrieved of the said order of rejection, assessee preferred appeal before the ITAT. ITAT vide .....

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, though, assessee claimed that it is conducting different courses and training programmes for various participants, but, actually it was seen that assessee in addition to receipts from services/training, has also got receipts from sale of finished products in different assessment years. Ld. DIT(E) observed that on verification of the annual accounts, it was found that assessee has shown various amounts towards stock-in-trade, finished goods, workin- progress and raw materials. He also noted tha .....

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eipts therefrom. He, therefore, held that activity of assessee cannot be considered to be charitable as it is engaged in commercial activity. Ld. DIT(E) referring to a decision of Hon ble Supreme Court in case of East India Industries (Madras) Pvt. Ltd. Vs. CIT [1967], 65 ITR 611, observed that a trust or society having both charitable and non-charitable objects is not eligible for exemption of its income, is, not entitled for registration u/s 12A of the Act. Accordingly, he rejected assessee s .....

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U, Hyderabad and Osmania University. It was submitted, society also provides certain vocational courses and the main source of revenue for the society is vocational training fees. Ld. AR submitted, in order to sustain practical training in making dyes, moulds and tools, precision engineering manufacturing orders from public sector undertakings, Hindustan Aeronautics Ltd, Defence Research Laboratories and other government organizations are being undertaken. The design manufacture of tools, dyes a .....

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le purpose u/s 2(15) of the Act. Ld. AR submitted, if legislative history of section 2(15) which defines the word charitable purpose is anlaysed, it would be seen that by virtue of amendment made to the said section w.e.f. 01/04/1984, the words not involving the carrying on of any activity for profit were removed. Therefore, w.e.f. 01/04/1984, there is no restriction in carrying of any activity for profit so long as such profit or gain is utilized for the purpose of the objects of the society as .....

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other object of general public utility whereas assessee is basically engaged in providing education. Ld. AR submitted, since the so called commercial activity is inextricably linked with the training activity of assessee, it cannot be said that assessee is a non-charitable institution. Ld. AR submitted, society is running on no profit no loss basis and the fee structure is always based on the nature of training provided. Therefore, uniform rate of fee is not fixed for course organized. In this .....

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said perspective, it cannot be said that assessee is engaged in commercial activity. As far as allegation of ld. DIT(E) that it has earned substantial amounts from sale of finished goods, it was submitted by ld. AR that tools are manufactured by trainees during the training programme, assessee makes available stocks of raw material to the trainees and the required plant and machinery is also provided. Trainees with the knowledge acquired during the class room course undertakes the process of pro .....

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gistration u/s 12A of the Act. As far as allegation of ld. DIT(E) that it is also earning royalty, ld. AR submitted, assessee used to impart vocational training in collaboration with ECIL, Secunderabad and another MSME organization i.e. prototype development centre, Agra and a part of the fees was received from them annually as a royalty which actually is training fees. Even otherwise also, receipts from royalty forms negligible part of the total receipts. Ld. AR submitted, for initial two years .....

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on. Ld. AR submitted, at the stage of grant of registration u/s 12A, registering authorities has to be satisfied with two things, firstly, charitable nature of the object and secondly, genuineness of the activity. Any enquiry relating to assessee s eligibility for exemption u/s 11 can only be made by AO and not by ld. DIT(E). In support of his contention, ld. AR relied upon a number of decisions, which are as under: 1. Chartered Ship Brokers Vs. DIT(E), 53 SOT 72 (Chennai) 2. ICAI Accounting Res .....

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consider the aspects which are to be examined at the time of grant of exemption u/s 11. In this context, he relied upon the following decisions: 1. CIT Vs. Surya Educational and Charitable Trust and Bahara Educational and Charitable Society, 355 ITR 280 (P&H). 2. Hardayal Charitable and Educational Trust Vs. CIT, 355 ITR 534 (All.) 3. DIT (E) Vs. Chartered Accountants Study Circle, 347 ITR 321 (Mad.) 7.2 As far as the decision relied upon by ld. DIT(E), ld. AR submitted, the facts involved i .....

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ct of assessee society is not purely educational, it cannot be said that the restriction imposed under proviso to 2(15) would not apply to assessee. He, therefore, submitted, since assessee has earned substantial revenue in different AYs from commercial activity, ld. DIT(E) was justified in rejecting assessee s application for grant of registration. 9. We have considered the submissions of the parties and perused the order of ld. DIT(E) as well as other material on record. It is clear from the o .....

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ng tools, dyes and moulds, ii) Provision for advisory services to small scale units, including assistance in designing and developing tools for various processes, ii) Recommending measures to standardize components, dyes, jigs and other tools, iv) Production on a limited basis of dies, jigs, fixtures and gauges etc., subject to the condition that the job work undertaken by the CITD promote the training requirements of the institute, v) To award Certificates as may be appropriate to those who hav .....

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consultancy, but, on deeper analysis certainly one gets the impression that primary object of the assessee is to impart training in various courses of preparing and designing tools, moulds, dyes etc., which is an activity in the field of education and all other objects are ancillary and incidental to the said main object. A plain reading of definition of charitable purpose as provided u/s 2(15) of the Act would make it clear that the restriction imposed under the proviso to the said section appl .....

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is clear that he has not expressed any opinion under which limb of charitable purpose assessee s activity can be classified. Only observation made by him is assessee is involved in both charitable and non-charitable activities. Even, ld. DIT(E) has not specifically referred to the first proviso to section 2(15) while holding that assessee is not entitled for registration as it is engaged in commercial activity. However, as could be understood from the submissions of ld. DR, according to departm .....

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dominant purpose or object of the assessee is to carry out object of general public utility or any activity of profit . If for achieving its primary or dominant object of education or even advancement of any other object of public utility the society has earned some income from business it cannot be said that assessee has carried on business activity with a profit motive. Charitable activities also require operational/running expenses as well as capital expenses for being able to sustain itself .....

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ic utility is to subserve the charitable purpose or to I earn profit. Where profit-making is the predominant object of the activity, the purpose, though an object of general public utility, would cease to be a charitable purpose. But where the predominant object of the activity is to carry out the charitable purpose and not to earn profit, it would not lose its character of a charitable purpose merely, because some profit arises from the activity. The exclusionary clause does not require that th .....

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o to section 2(15) by Finance Act, 2008 w.e.f. 01/04/2009. The words 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 was considered and interpreted by Hon ble Delhi High Court in case of Institute of Chartered Accountants of India Vs. Director General of Income-tax (Exemptions), 347 ITR 99, as under: "Section 2(15) defines the term 'charitable p .....

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es this may not be determinative. Normally, the profit motive test should be satisfied but in a given case activity may be regarded as business even when profit motive cannot be established/ proved. In such cases, there should be evidence and material to show that the activity has continued on sound and recognized business principles, and pursued with reasonable continuity. There should be facts and other circumstances which justify and show that the activity undertaken is infect in the nature o .....

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carried out, which again is utilized for charitable object, it cannot be said that the trust or institution is not established for charitable purpose. Moreover, the application of proviso to section 2(15), as rightly pointed out by ld. AR, has to be looked into at the stage of assessment while examining assessee s claim of exemption u/s 11 of the Act and not at the time granting registration u/s 12AA. This is because, though, the first proviso to section 2(15) of the Act excludes any activity o .....

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