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2016 (9) TMI 846 - ITAT DELHI

2016 (9) TMI 846 - ITAT DELHI - TMI - Grant of registration u/s 12AA refused - determination of object of a trust - 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, 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 app .....

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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, the application of the proviso to section 2(15) has to be looked into in every assessment year. In our considered view, the first proviso to section 2(15) will have no role to play in the matter of granting registration and the role of the Ld. DIT (E) is restricted to him being satisfied that the objects are genuine .....

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sessee : Dr. Rakesh Gupta, Adv. Sh. Somil Agarwal, Adv. Sh. Abhishek Anand, Adv. For The Revenue : Sh. Ravi Jain, CIT DR ORDER PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER: The present appeal has been preferred by the assessee against the order u/s 12AA(1)(b) dated 29/01/2014 passed by the ld. Director of Income Tax (Exemptions), New Delhi in which the assessee has been refused grant of registration u/s 12AA. 2. The brief facts of the case are that the assessee had filed an application seeking regi .....

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nt departments against which the amount spent for the period 01/04/2013 to 31/12/2013 was ₹ 3,777,952/-. The ld. DIT(E) was of the opinion that since the assessee society was being reimbursed for the training provided by it to the farmers, such training could not be held to be charitable in nature in view of section 2(15) of the Income Tax Act. The ld. DIT(E) further noted that as the various government agencies sponsored the candidates and the assessee was in receipt of fee for such train .....

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(E) in refusing to grant registration to the assessee society. 4. The ld. AR submitted that the considerations with respect to the first proviso to section 2(15) coming into play have no role to play in the matters relating to the registration of a trust or an institution u/s 12A or 12AA either in respect of granting or declining of a registration or in respect of cancellation thereof. The ld. AR submitted that the riders to the definition of charitable purposes can come into play only on year .....

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ld. AR further submitted that the impact of the proviso to sec. 2(15) will be that the assessee will not be eligible for exemption u/s 11 of the Act and although the assessee may be hit by the proviso to sec. 2(15), the same will not have any bearing on the grant, denial or withdrawal of the registration u/s 12AA. The ld. AR also relied on the decision of the ITAT Amritsar Bench in Kapoorthala Improvement Trust vs. CIT in ITA No. 732/Asr/2013. 5. The ld. DR supported the order of the ld. DIT (E .....

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To generate employment to unemployed rural youths through afforestation and reforestation programme. 5. To motivate the rural people for participation in literacy programmes, demonstration, communication and extension programme. 6. To promote rural technology through using domestic as well as imported technology for agri-horticulture development. 7. To generate marketing facilities for rural development and trade promotions in the country. 8. To promote Indian languages and their participation .....

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en flora and fauna. 13. To increase production of fruits, pulses and vegetables and provide healthy and hygienic quality of standard food resources to the countrymen. 14. To provide know-how for the conservation of soil and check further deterioration of soil fertility, to obtain higher productivity. 15. To utilize shade and ornamental trees for the landscape. 16. To use modern technology to raise forests, orchards and new variety of the different crops e.g.by tissue culture and hydroponics etc. .....

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and its resources with maintaining the sustainability. 23. To publish the scientific information, bulletins, achievements and applicability of available technology in local languages. 24. To intensify and promote the potential youth to utilize available technology and their related industrial matter. 25. To collect the information with regards to research technology and their related industrial matter. 26. To employ and pay necessary staff for the purposes of the society. 27. To do all other su .....

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& Technical Education to Farmers, Research Associates, Unemployed Youths, Students of Schools & Colleges in the field of Agriculture, Horticulture, Agri Business Management, Food Processing, Food Sciences, Dairy Science & Technology, Bio- Chemistry & Biotechnology. 30. To establish, open and run educational and vocational study centers, skill knowledge providing centers, Vocational Training providing centers Smart School Classes & Institutes across all over India under the ba .....

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he assessee society also mentions that all the income, earnings, movable and immovable properties of the society shall be solely utilized and applied towards the promotion of its aims and objects only as set forth in the memorandum of association and that no profit thereof shall be paid or transferred directly or in any other manner whatsoever to the present for the past members of the society or to any person claiming through any past or present members. It has also been provided that no member .....

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als that the society has been formed with a primary object of improving economy of the rural people through aforestation and reforestation. It is not in dispute that the above mentioned objects are charitable in nature and the ld. DIT (E) has also not recorded any advance finding to this effect. It is also not the case of the Department that the objectives of the society are not genuine. Clause (a) of sub-section (1) of Section 12AA provides that for the purposes of registration, the CIT may cal .....

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ons) 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/s12AA of the Act. On a cursory look at the objects of the assessee, it is seen that the assessee is engaged in improving economy of the rural people through aforestation and reforestation. All other objects are ancillary and incidental to the said main objects. A plain reading of the definition of charitable .....

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ated 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 to section 2(15) will not automatically disqualify the assessee from being considered as a society established for charitable purposes only because it has receipts in the form of grants, training fee , etc. What has to be seen is whether the primary or the dominant purpose or object .....

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elf 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 voluntary contributions only. The Hon ble Supreme Court in the case of Addl. CIT v. Surat Art Silk Cloth Manufacturers Association (1980) 121 ITR 1 (SC) has held as under (page 25): The test which has, therefore, now to be applied is whether the predominant object of the activity involved in carrying out the .....

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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 to so carry on the activity that the expenditure balances the income and there is no resulting profit. That would not only be difficult of practical realization but would also reflect unsound principle of management . 6.3 In our opinion, the aforesaid principle laid down by the Hon'ble Apex court still holds goo .....

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(page 123): "Section 2(15) defines the term 'charitable purpose'. Therefore, while construing the term 'business' for the said section, the object and purpose of the section has to be kept in mind. We do not think that a very broad and extended definition of the term 'business' is intended for the purpose of interpreting and applying the first proviso to section 2(15) of the Act to include any transaction for a fee or money. An activity would be considered 'busi .....

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ify 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 1 SC and CST v. Sai Publication Fund [2002] 258 ITR 70 SC ; [2002] 126 STC 288 SC can be applied. The six indicia stipulated in Customs and Excise Commissioners v. Lord Fisher [1981] S. T. C. 238 are also relevant. Each case, therefore, has to be examined on its own facts," 6.4 Thus, the principle of law which emerges from .....

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