TMI Blog2018 (4) TMI 865X X X X Extracts X X X X X X X X Extracts X X X X ..... he Assessee : Shri Dillip Kumar Mohanty, AR For The Revenue : Shri Ashit Kumar Mohapatra , CIT DR ORDER Per N.S.Saini, AM This is an appeal filed by the assessee against the order of the Commissioner of Income Tax, Cuttack, dated 29.7.2013. 2. The sole issue involved in this appeal is that the CIT, Cuttack erred in rejecting the application for registration u/s.12AA of the Act to the assessee. 3. The brief facts of the case are that the assessee is registered under the registration of Society Act, 1860 having registration No.3723-619 of 1984-85 dated 23.2.1985. It filed application u/s.12A of the I.T.Act, 1961 for registration u/s.12A(a) of the Act on 21.1.2013. The CIT rejected the said application of the assessee society on the ground that from the examination of financial statement of last three financial years i.e. 2010-11, 2011-12 and 2012-13, it is observed that the excess of income over expenditure was ₹ 2,044/-, ₹ 2,771/- and ₹ 1,72,500.46, respectively. He observed that in the financial years 2010-11 and 2011-12, there was no activity except construction of tennis court. Further, the society charged fees from the partici ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es by encouraging young persons, providing coaching facilities and organizing tournaments. 2) To acquire and hold property to serve its aims and objectives. 3) To do all such acts and things may be deemed necessary and/or conducive and/or convenient and incidental to execute its aims and objectives. 9. The Ld CIT, Cuttack refused to grant registration u/s.12AA of the Act namely; on the ground that there was little activity during the previous year, only members are allowed to play from whom fee is charged and from the activity report submitted by the assessee, it is observed by him that the assessee society is looking for donors and sponsors for organising tennis tournament. From this, the ld CIT, Cuttack apprehended that when the donors or sponsors will be involved, then huge amount of commercial consideration will take effect by way of advertisement, ticket selling and broadcasting right over the game, etc and the genuine activities of the Association would not be considered as charitable under ambit of section 2(15) of the Act. 10. We find the Hon ble Allahabad High Court in the case of Hardayal Charitable Educational Trust vs CIT, 355 ITR 534 (All) has held as u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income derived by the trust or the institution is being misused or that there is some apprehension that the same would not be used in the proper manner and for the purposes relating to any charitable purpose, rejection cannot be made. 12. Further, the Chandigarh Benches of the Tribunal in the case of Professional Gold Tour of India vs CIT, 143 ITD 165 (Chd), has held as under: 7 .Golf is a game in which not many people are interested. It is clear from the aims and objects of the society that any person who is in any way attached to or interested in the game of golf can join as its member and can contribute towards the promotion of game. We do not find anything on record which suggest that the society is being run on commercial lines. It is not taking any financial aid or grant from any government agency. Therefore, it becomes imperative for it to follow certain rules or commercial expediency in order to keep-going. It is nowhere mentioned that a charitable society has to be poor, ill- managed, financially drenched and always anchoring for financial help. If any society acts in a prudent manner to become self-sustained, it would not amount to becoming of commercial org ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity is carried on with the predominant object of earning profit, it would be an activity for profit, though it may be carried on in advancement of the charitable purpose of the trust or institution. Where an activity is carried on as a matter of advancement of the charitable purpose or for the purpose of carrying out the charitable purpose, it would not be incorrect to say as a matter of plain English grammar that the charitable purpose involves the carrying on of such activity, but the predominant object of such activity must be to subserve the charitable purpose and not to earn profit. The charitable purpose should not be submerged by the profit making motive; the latter should not masquerade under the guise of the former. The purpose of the trust, as pointed out by one of us (Pathak,J.) in Dharmadeepti v. CIT [(1978) 3 SCC 499 : 1978 SCC (Tax) 193] must be essentially charitable in nature and it must not be a cover for carrying on an activity which has profit making as its predominant object. This interpretation of the exclusionary clause in Section 2 clause (15) derives considerable support from the speech made by the Finance Minister while introducing that provision. The Fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me 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 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 realisation but would also reflect unsound principle of management. We, therefore, agree with Beg, J., when he said in Sole Trustee, Loka Shikshana Trust case [(1976) 1 SCC 254 : 1976 SCC (Tax) 14 : (1975) 101 ITR 234] that if the profits must necessarily feed a charitable purpose under the terms of the trust, the mere fact that the activities of the trust yield profit will not alter the charitable character of the trust. The test now is, more clearly than in the past, the genuineness of the purpose tested by the obligation created to spend the money exclusively or essentially on charity . The learned Judge also added that the restrictive condition that the purpose should not involve the carrying on of any activity for profit would be satisfied if profit making is not the real object (empha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Ordinarily there should be no difficulty in determining whether the predominant object of an activity is advancement of a charitable purpose or profit making. But cases are bound to arise in practice which may be on the borderline and in such cases the solution of the problem whether the purpose is charitable or not may involve much refinement and present real difficulty. There is, however, one comment which is necessary to be made whilst we are on this point and that arises out of certain observations made by this Court in Sole Trustee, Loka Shikshana Trust case [(1976) 1 SCC 254 : 1976 SCC (Tax) 14 : (1975) 101 ITR 234] as well as Indian Chamber of Commerce case [(1976) 1 SCC 324 : 1976 SCC (Tax) 41 : (1975) 101 ITR 796] . It was said by Khanna, J. in Sole Trustee, Loka Shikshana Trust case [(1976) 1 SCC 254 : 1976 SCC (Tax) 14 : (1975) 101 ITR 234] : [ I]f the activity of a trust consists of carrying on a business and there are no restrictions on its making profit, the court would be well justified in assuming in the absence of some indication to the contrary that the object of the trust involves the carrying on of an activity for profit. And to the same e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 10(22) of the Income Tax act, held: The High Court has made an observation that any income which has a direct relation or incidental to the running of the institution as such would qualify for exemption. We may state that the language of Section 10(22) of the Act is plain and clear and the availability of the exemption should be evaluated each year to find out whether the institution existed during the relevant year solely for educational purposes and not for the purposes of profit. After meeting the expenditure, if any surplus results incidentally from the activity lawfully carried on by the educational institution, it will not cease to be one existing solely for educational purposes since the object is not one to make profit. The decisive or acid test is whether on an overall view of the matter, the object is to make profit. In evaluating or appraising the above, one should also bear in mind the distinction/difference between the corpus, the objects and the powers of the concerned entity. ( iii) In American Hotel Lodging Assn. Educational Institute v. CBDT, (2008) 301 ITR 86, this Court dealt with Section 10(23C)(vi) as follows: 29. In CIT v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y was not charitable in nature or any of the activity of the assessee society was non-genuine. In our considered view, simply because the activities of the assessee society were little or not substantial cannot be a ground to not to grant registration u/s.12AA of the Act. Further, whether the activity of the assessee is of commercial nature or not is to be examined while granting exemption u/s. 11 12 of the Act by the Assessing Officer at the time of making the assessment. 15. In this connection, the CBDT vide its circular No.21/2016 dated 27.5.2016 has opined as under: CIRCULAR NO. 21/2016, DATED: 27-05-2016 CLARIFICATION REGARDING CANCELLATION OF REGISTRATION U/S 12AA OF THE INCOME-TAX ACT, 1961 IN CERTAIN CIRCUMSTANCES REGARDING. Sections 11 and 12 of the Income-tax Act, 1961 ('Act1 exempt income of charitable trusts or institutions, if such income is applied for haritable purpose and such institution is registered under section 12AA of the Act. 2. Section 2(15) of the Act provides definition of charitable purpose . It includes advancement of any other object of general public utility provided it does not involve carrying on of any activity in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e cut-off specified in the proviso to section 2(15) of the Act is exceeded in a particular year without there being any change in the nature of activities of the institution. If in any particular year, the specified cut-off is exceeded, the tax exemption would be denied to the institution in that year and cancellation of registration would not be mandatory unless such cancellation becomes necessary on the ground(s) prescribed under the Act. 5. With the introduction of Chapter XII-EB in the Act vi.de Finance Act, 2016, prescribing special provisions relating to tax on accreted income of certain trusts and institutions, cancellation of registration granted u/s 12AA may lead to a charitable institution getting hit by sub-section (3) of section 115TD and becoming liable to tax on accreted income. The cancellation of registration without justifiable reasons may, therefore, cause additional hardship to an assessee institution due to attraction of tax-liability on accreted income. The field authorities are, therefore, advised not to cancel the registration of a charitable institution granted u/s 12AA just because the proviso to section 2(15) comes into play. The process for cancella ..... X X X X Extracts X X X X X X X X Extracts X X X X
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