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2016 (2) TMI 560 - ITAT DELHI

2016 (2) TMI 560 - ITAT DELHI - TMI - Grant of registration u/s 12AA rejected - Held that:- If similar institutions having similar objects have been granted registration under section 12AA of the Income Tax Act, 1961, there is no justifiable reason as to why the assessee should be deprived from availing of such benefit. In the aforesaid facts and circumstances, we set aside the impugned order of the learned Director of Income-tax (Exemptions) and remit the matter to the Ld. DIT (Exemptions) to v .....

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shu Srivastava, JM For the Appellant : Shri Gopal Nathani, CA For the Respondent : Smt Nandita Kanchan, CIT-DR ORDER Per Sudhanshu Srivastava, Judicial Member This appeal of the assessee is directed against the order dated 26.3.2014 of the Ld. Director of Income Tax (Exemptions), New Delhi rejecting the assessee's application for grant of registration u/s 12AA of the Income Tax Act,1961. 2. Briefly, the facts of the case as borne out from the records, are that the assessee company has been p .....

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it is a Company incorporated u/s 25 of the Indian Companies Act, 1956 and its main objects are as under :- 1. To initiate, carry out, execute, implement, aid and assist activities towards skill development in the Rubber sector in India ("Sector") and meeting the entire value chain's requirements of appropriately trained manpower in quantity and quality on a sustained and evolving basis. 2. To develop a skill development plan for the Sector and maintain skill inventory. 3. To deter .....

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ning providers, professional societies and NGOs/civil society groups in the process of skill development for the Sector. 9. To identify the skill development needs of the Sector,review international trends in Sector skill development and identify Sector skill gaps and technology. 10. To do and undertake the task of educational and vocational skill upgrade for the Sector. 11. Facilitate in setting up a robust and stringent certification and accreditation process for the Sector to ensure consisten .....

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DIT(Exemptions) was of the opinion that the assessee 's main source of income was grant received from NSDC i.e National Skill Development Council for the execution of projects allotted to it. Ld. DIT (Exemptions) also noted that as per clause 12 of pre distribution conditions of grant agreement, the assessee was bound to share its earnings after tax (EAT) with NSDC@15% till such time the entire grant amount was returned back to the NSDC. The Ld. DIT (Exemptions) also noted that in order to e .....

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s were in the nature of business. Therefore, as per the Ld. DIT (Exemptions) the conditions for granting registration u/s 12AA were not satisfied and the application for registration was rejected. 4. The Ld. AR, referring to the objects of the company, submitted before us that the assessee company as a part of its activities carries out skill gap studies in various states to identify skill development needs in the rubber industry. Another of its activities is to establish Labour Market Informati .....

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o standardize affiliation, certification and accreditation process to measure competency. Yet another activity is to plan and execute training of trainers for educational and vocational skill upgrade in different areas in different states. He drew our attention to clause 17 of incidental objects of the company and submitted that fees, service charges, consultancy charges etc. are charged only in furtherance of the objects of the company and not for any other purposes. He also drew our attention .....

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past members. The Ld. AR submitted that it is clearly provided in the memorandum that none of the objects of the company will be carried out on commercial basis. He submitted that the Ld. DIT(Exemptions) even while holding that the aims and objects were of general public utility (GPU) u/s 2(15) of the Income Tax Act, 1961 completely mistook the assessee's activities and wrongly labelled it as being in the nature of commercial activity holding it similar to any other training institute that c .....

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b) 578 (Hyderabad) 5. The Ld. AR also drew our attention to pages 127 to 129 of the paper book which contains copies of registration certificate granted u/s 12A to other similar functioning skill development councils and submitted that since these skill development councils have been granted registration u/s 12AA of the Act, the assessee company should also be granted registration on a similar footing. 6. Ld. DR, on the other hand, submitted that the Assessee Company works on a commercial busine .....

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interference was called for in the said order. 7. We have considered the rival submissions and perused the order of the Ld. DIT (Exemptions) as well as other material on record. It is clear from the order of the Ld. DIT (Exemptions) that he has considered the assessee as a non charitable institution because as per him the activities of the assessee are commercial in nature and hence not eligible for registration u/s12A of the Act. On a cursory look at the objects of the assessee, it is seen tha .....

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al public utility. There is no express provision u/s 2(15) of the Act which restricts an institution from undertaking any commercial activity if it comes under other limb of charitable purposes. Only requirement is that the assessee must not have profit motive and the income generated from commercial activity is utilised for achieving the charitable object. Even assuming that the assessee's objects / activities come under advancement of any other object of general public utility, the proviso .....

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other object of public utility, the assesee company has earned some income from fee etc., it cannot be said that the assessee has carried on a business activity with a profit motive. Charitable activities also require operational/running expenses as well as capital expense for being able to sustain itself and continue in the long run. There is no such statutory mandate that a charitable institution falling under the residuary clause should be wholly, substantially or in part be funded by volunta .....

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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 the activity must be carried on in such a manner that it does not result in any profit. It would indeed be difficult for persons in charge of a trust or institution .....

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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 the Hon'ble Delhi High Court in the case of Institute of Chartered Accountants Of India v. DGIT (Exemptions) 347 ITR 99 (Delhi), as under (page 123): "Section 2(15) defines the term 'charitable purpose'. Therefore, while construing the term 'business' for the said section, the object and pu .....

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ase 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 recognised business principles, and pursued with reasonable continuity. There should be facts and other circumstances which justify and show that the activity undertaken is in fact in the nature of business. The test as prescribed in State of Gujarat v. Raipur Manufacturing Co. Ltd. [1967] 19 STC .....

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nature generating income is carried out, which again is utilised for the advancement of its charitable objects, it cannot be inferred that the trust or institution is not established for charitable purposes. Moreover, the issue of applicability of the proviso to section 2(15) has to be examined at the stage of assessment while adjudicating the assessee's claim of exemption under section 11 of the Income Tax Act, 1961 and hence it is not germane at the time of considering the issue of granti .....

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