AIC- RNTU FOUNDATION,RAISEN vs. CIT EXEMPTION, BHOPAL

आयकर अपील�य अ�धकरण, इ�दौर �यायपीठ, इ�दौर IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE

BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER AND SHRI MANISH BORAD, ACCOUNTANT MEMBER

ITA No.940/Ind/2019 Assessment Year:2019-20

AIC-RNTU Foundation CIT(Exemption) Block no.5 Rabindranath Bhopal बनाम/ Tagore University Chiklod Vs. Road, Raisen (Appellant) (Revenue ) P.A. No.AARCA0316M Appellant by Shri S.S. Deshpande, CA Revenue by Smt. Ashima Gupta, CIT-DR Date of Hearing: 08.09.2020 Date of Pronouncement: 14.10.2020 आदेश / O R D E R PER KUL BHARAT, J.M: This appeal by the assessee is directed against the order of ld. Commissioner of Income Tax (Exemption)(in short ‘Ld. CIT(E)’, Bhopal dated 30.09.2019 pertaining to assessment year 2019-20. The assessee has raised following grounds of appeal: “That on the facts and in the circumstances of the case of the

AIC-RNTU Foundation /ITANo.940/2019

assessee the Ld. CIT(E), Bhopal was not justified in holding that the activities of the assessee are not in the nature of charitable activities but commercial in nature. 2. That on the facts and in the circumstances of the case of the assessee the ld. CIT(E), Bhopal was not justified in mentioning that the assessee has not furnished the copy of accounts since its inception. That on the facts and in the circumstances of the case of the assessee the Ld. CIT(E), Bhopal was not justified the rejecting the claim of the assessee for registration 12A of the Income Tax Act. 4. The assessee craves leave to add, alter amend or withdraw any ground of appeal on or before the time hearing.”

assessee is a company duly registered under the

Companies Act 2013 applied for registration u/s 12AA of

the Income Tax Act 1961(herein after referred as ‘the Act’)

in the prescribed form No.10A on 06.03.2019. The

application so filed was rejected by the Ld. CIT(E). The

basis of rejection of application by the Ld. CIT(E) was that

in his view the company was not doing any charitable work

perse, but carrying out the work on behalf of Government

of India as per the terms and conditions laid down in the

AIC-RNTU Foundation /ITANo.940/2019

sanction order and MOA and purely acting as a service

provider.

before us.

application made u/s 12AA of the Act. Ld. counsel for the

assessee, Shri S.S. Deshpande, vehemently argued that the

Ld. CIT(E) is not justified in rejecting the application filed

for registration u/s 12AA of the Act. He drew our attention

to the paper book pages at 62 to 96 wherein copy of

Memorandum of Association and Articles of Association are

filed. Further, he pointed out that the company is

registered u/s (8) of the Companies Act 2013, therefore, the

company is existing for non-profit and the object of the

assessee company are charitable in nature, hence, eligible

for registration u/s 12AA of the Act.

AIC-RNTU Foundation /ITANo.940/2019

submissions as made in the written synopsis. Ld. counsel

submitted that under the identical facts of Coordinate

Bench of this Tribunal has taken a view in favour of the

assessee in the case of Kiit Technology Business v. CIT (E)

ITANo.114/CTK/2017 and directed the Ld. CIT(E) to grant

registration u/s 12AA of the Act.

AIC-RNTU Foundation /ITANo.940/2019

12AA of the Act before adverting to the rival submissions, we deem it proper to reproduce the relevant provision of section 12AA which provides procedure for registration: “12AA. (1) The 2[***] 2a[Principal Commissioner or] Commissioner, on receipt of an application for registration of a trust or institution made under clause (a) 99[or clause (aa) of sub-section (1)] of section 12A, shall— (a) call for such documents or information from the trust or institution as he thinks necessary in order to satisfy himself about the genuineness of activities of the trust or institution and may also make such inquiries as he may deem necessary in this behalf; and (b) after satisfying himself about the objects of the trust or institution and the genuineness of its activities, he— (i) shall pass an order in writing registering the trust or institution; (ii) shall, if he is not so satisfied, pass an order in writing refusing to register the trust or institution, and a copy of such order shall be sent to the applicant : Provided that no order under sub-clause (ii) shall be passed unless the applicant has been given a reasonable opportunity of being heard. 3[(1A) All applications, pending before the 2a[Principal Chief Commissioner or] Chief Commissioner on which no order has been passed under clause (b) of sub-section (1) before the 1st day of June, 1999, shall stand transferred on that day to the 2a[Principal Commissioner or] Commissioner and the 2a[Principal Commissioner or] Commissioner may proceed with such applications under that sub-section from the stage at which they were on that day.] (2) Every order granting or refusing registration under clause (b) of sub-section (1) shall be passed before the expiry of six months from the end of the month in which the application was received under clause (a) 4[or clause (aa) of sub-section (1)] of section 12A.] 5

AIC-RNTU Foundation /ITANo.940/2019

5[(3) Where a trust or an institution has been granted registration under clause (b) of sub-section (1) 6[or has obtained registration at any time under section 12A [as it stood before its amendment by the Finance (No. 2) Act, 1996 (33 of 1996)]] and subsequently the 6a[Principal Commissioner or] Commissioner is satisfied that the activities of such trust or institution are not genuine or are not being carried out in accordance with the objects of the trust or institution, as the case may be, he shall pass an order in writing cancelling the registration of such trust or institution: Provided that no order under this sub-section shall be passed unless such trust or institution has been given a reasonable opportunity of being heard.] 6b[(4) Without prejudice to the provisions of sub-section (3), where a trust or an institution has been granted registration under clause (b) of sub-section (1) or has obtained registration at any time under section 12A [as it stood before its amendment by the Finance (No. 2) Act, 1996 (33 of 1996)] and subsequently it is noticed that the activities of the trust or the institution are being carried out in a manner that the provisions of sections 11 and 12 do not apply to exclude either whole or any part of the income of such trust or institution due to operation of sub- section (1) of section 13, then, the Principal Commissioner or the Commissioner may by an order in writing cancel the registration of such trust or institution: Provided that the registration shall not be cancelled under this sub-section, if the trust or institution proves that there was a reasonable cause for the activities to be carried out in the said manner.]

on receipt of an application for registration of a trust or

institution made under clause (a) [or clause (aa) of sub- 6

AIC-RNTU Foundation /ITANo.940/2019

section (1)] of section 12A, shall call for such documents or

information from the trust or institution as he thinks

necessary in order to satisfy himself about the genuineness

of activities of the trust or institution and the compliance of

such requirements of any other law for the time being in

force by the trust or institution as are material for the

purpose of achieving its objects and after satisfying himself

about the objects of the trust or institution and the

genuineness of its activities under item (A) and compliance

of the requirements under item (B) of sub-clause (i). He is

empowered to pass an order in writing registering the trust

or institution, if he is not so satisfied in that event he shall

pass an order in writing refusing the registering trust or

institution and copy of such order is required to be

supplied to the applicant. However, the Ld. Pr. CIT is under

our obligation to provide reasonable opportunity of being

heard before passing order of rejection of application. In

AIC-RNTU Foundation /ITANo.940/2019

the present case the Ld. Pr. CIT has rejected application by

observing as under:

“4. The applicant is established by Rabindra Nath Tagore University as a Special Purpose Vehicle (SPV) under Companies Act with registered office at Village Mendua, Post Bhojpur, Bhopal for establishment and operating Atal Incubation Centre (AIC) under Atal Innovation Mission (AIM) by NITI Ayog, Govt. of India. On perusal of the objects of the company, it is seen that the objects of the company are commercial in nature and for the benefit of its members, some of which are mentioned as under: i) To accumulate capital and raise funds by means of donations, subscriptions fees or by any other means from members and others and to accept donations, contribution grants either in cast: or in kind from any person, persons, companies, corporations, institutions on such terms and for such objects which are in conformity with the objects and on conditions, including the conditions of associating the name of such person, or persons and such purpose or purposes are in conformity with the object of the Company. ii) To provide and promote, incubate, asssit and support sustainable and scalable start-up entrepreneurial ventures and small and medium enterprises across various sectors by providing incubation and consulting services. administrative and business support services, technical assistance, training and mentoring support in operation, strategy, marketing, legal, talent, business development, sales. supply chain management, information technology, public relations and leadership to entrepreneurs for their gholistic development and engaged in other capacity building activities for the development of entrepreneurial ecosystem in Bhopal. iii) To provide and promote synergies among interested/relevant entrepreneurs, Industrial establishments, start-up companies, resource providers, research and development institutes, educational and service institutions, Individual/s or incubation or innovator 8

AIC-RNTU Foundation /ITANo.940/2019

groups to function in partnership and/or collaborative mode. iv. To provide and engaged in such activities to make the organization and the entrepreneurial ventures scalable and self-sustainable, including through raising appropriate and all forms of capital and investments in compliance with applicable laws and providing and creating new resources through building an immunity or advisors and well wishes in India and abroad. v. To propagate new scientific and technologies development and innovation from idea stage to full scale commercial production or any part of this chain. For the above purpose to assist, cooperate or collaborate with any establishment, laboratory, technology business, incubators centre, organization or institution in India or abroad. vi. To acquired advanced telecommunication technology, E- mail, internet fax and exchange services, and provide both project and bureau services associated with this technology, project services include feasibility studies, consultation project implementation, market development, import services, maintenance compute software customization, optimization and system integration, and to set up a country wide network for value added communication services, procure equipment and arrange its management, operation and maintenance. vii) To purchase and sell copyrights. and other Intellectual Property Assets, rights. cause publication. sale and distribution of books. pamphlets, articles. magazines and to give prizes and awards. viii) To procure the Company to be registered or recognized in or under the laws of any place outside India and to do all act necessary for furthering the objectives of the company and carrying on in any foreign country for the business or furthering the objectives of the company. To acquire. invest in both movable and immovable ix) including securities. bank deposits. bonds by way of investment or with a view to resale or otherwise and in particular in freehold. leaseholds. securities. bonds and other investable sources. as permitted by law. x) To appoint agents. sub-agent. dealers. managers 9

AIC-RNTU Foundation /ITANo.940/2019

canvassers. sales. representatives or salesmen for transacting all or any kind of the main business of which this company is authorized to carry on and to constitute agencies of the company in India or in any other country to carry out any activities for furthering the objectives of the company and establish depots and agencies in different parts of the world. 5. A plain reading of the above object of the Company shows that the objects are not covered as Charitable or fall under the definition of Charitable Purpose as enshrined in Section 2(15) of the Income Tax Act, 1961, which reads as under: i. According to Section. 2(15) of the Act, Charitable purpose included relief of the poor education, yoga, medical relief, preservation of environment (including water sheds forests and wild life) and preservation of monuments or places or objects of artistic or historic interest and advancement of any other object of general public utility. Trust/institution covered under advancement of any other object of general public utility can do commercial activities upto 20% of its total receipts (proviso to section 2(15). The advancement of any other object of general public utility shall not be charitable purpose, if it involves the carrying on of 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, irrespective of the nature of use of application, or retention, of the income from such activity, unless- a) Such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility. b) the Aggregate receipts from such activity or activities, during the previous year, do not exceed 20% of the total receipts, of the trust or institution undertaking such activity or activities, for the previous year. 6. The activities of the Company is that of a Service Provider of NITI Aayog with whom the Company entered into agreement by way of MOU for setting up of a Incubation Centre. The Company is being paid by way of Government grant for providing the requisite service. As per the Sanction letter dated 24th 10

AIC-RNTU Foundation /ITANo.940/2019

September, 2018, NITI Ayog, sanctioned Rs.904,OO,OOO/- as grantin-aid to the applicant company as a SPV (Special Purpose Vehicle) under the Companies Act establishment for operation of Atal Incubation Centre. Out of his sanction amount Rs.397,OO,OOO/- has already been disbursed to the company as 1st installment. It is also seen from the MOA dated 31.8.2018 between the Company and NITI Ayog, Government of India, that the purpose of Grant-in-aid is to set up Incubation facilities with suitable infrastructure. The AIC set up by the SPV should have incubation facilities such as competent team members who understand the incubation and startup ecosystem and have the ability to successfully guide the incubate startups, infrastructure such as incubation space, meeting rooms, conferencing space and facilities; tech support such as sector specific labs and workshops that have tools and equipment; seed funding support; other support services such as IPR, regulatory, legal market research, etc. The AIC should also conduct outreach initiatives, build a network of mentors, subject matter experts and investors, devise training programmes and/or other incubation related events, building the entrepreneurship ecosystem, for incubate startups. 6.1 The above shows that the company is not doing any charitable work perse, but carrying out the work on behalf of Government of India as per the terms and conditions laid down in the Sanction order and MOA and purely acting as a Service Provider. The MOA by the SPV with NITI Ayog' have all the ingredients of a contract i.e. details Project, Amount, terms & conditions, Duration of Projects etc. Apart from the grant in aid for establishment and operation of Atal Incumation Centre, the SPV' is also given sanction of “Seed Fund to enable the SPV to invest in the equity of Incubatee company and to make funding available to the Incubatee Companies. The company is being fully sanction by way of Grant-in-aid for facilitating and providing services to the new entrepreneur to start any new business/startups. Service provided against any consideration or grant is in the nature of commercial activity and proviso to section 2(15) is applicable. 6.2 It is stated from above facts that, the activities of the society cannot said to be in the nature of charitable activities for public 11

AIC-RNTU Foundation /ITANo.940/2019

at large, but commercial in nature and also the activities are of a service provider/facilitator for which funds by way of grant in aid are provided by NITI Ayog. Govt. of India. The society’s memorandum also specifies its activities outside India and also the society has not furnished the copy of accounts since its inception, which is a prerequisite for approval u/s 12AA of the Act. Therefore, the claim for registration u/s 12A cannot be considered. 7. Thus the Society is not entitled for registration u/s.12M of the Income Tax Act, 1961. Accordingly the application in Form No. 10A, received in this office on 06.3.2019 seeking registration u/s 12AA is hereby rejected/refused.

ground that the activities of the society cannot said to be in

the nature of charitable activities for public at large but are

commercial in nature and also the activities are of service

provider for which funds by way of grant in aid is provided

by the NITI Ayog, Government of India. The assessee has

placed heavy reliance on decision of the Coordinate Bench

rendered in the case of KIIT Technology Business vs. CIT(E)

ITANo.114/CTK/2017 wherein the Coordinate Bench has

held as under:

“On a perusal of the above order of CIT(E), it is observe d that there is no finding by him that the objects of the trust are either 12

AIC-RNTU Foundation /ITANo.940/2019

not charitable or the activities of the trust are not genuine. We find '" Hon'ble Rajasthan High Court in the case of CIT Vs. Gopi Ram Goyal Charitable Trust, taxmann.com 403 (Rajasthan) has held that while granting registration u/s.l2AA of the Act to the assessee the CIT has to enquire about the objects of the trust are charitable and genuineness of its activities and that he cannot enquire about the application of income of trust for charitable. Further, the Mumbai (E) Bench of the Tribunal in case of Tara Educational and Charitable Vs. DIT(E), in ITA NU.1247/Mum/:l013 for assessment year 2012-2013 has held that the scope of enquiry contemplated u/s 12AA of the Act, thus, is limited to the ITA NO.114/2017 extent of Commissioner getting himself satisfied about object of the Trust and the genuineness of its activities so as to grant or refuse the registration u/s 12A of the Act. A perusal of the impugned order of the ld. DIT (Exemptions), however, shows that he has not recorded any adverse comment or dis-satisfaction about the object of the Trust or genuineness of the Trust activities. He has refused to grant the registration u/s 12A of the Act on the ground that its Trust Deed does not contain "dissolution clause". In our opinion, the ld. DIT (Exemptions) thus has clearly gone beyond the scope of enquiry contemplated u/s 12A of the Act and has refused to grant the registration u/s 12A of the Act to the assessee Trust on a totally irrelevant ground without pointing out as to how he was not satisfied either about the object of the Trust or the genuineness of its activities. We therefore set aside the impugned order of the ld. DIT (Exemptions) and direct that the registration u/s 12A of the Act as applied by the assessee Trust be granted. Therefore, in our considered view, as the CIT(E) has not given any finding in his order that either the objects of the assessee company are not charitable or its activities are not genuine, hence, he was not justified in refusing to grant registration u/s.l2AA of the Act and approval u/s.80G of the Act to the assessee company. We, therefore, set aside the order of CIT(E) and direct him to grant registration u] s.l2AA of the Act to the assessee company as well as approval u/s.80G of the Act since its inception and allow the grounds of appeal of the assessee.

AIC-RNTU Foundation /ITANo.940/2019

NITI Aayog dated 24 September, 2018 wherein certain

conditions related to grant in aid provided to the assessee

company are mentioned. The relevant conditions are

reproduced as under for the sake of clarity.

“7. The amount of grant-in-aid released should be spent exclusively on the specified purpose for which it has been sanctioned within the stipulated time frame and as per the break -up suggested for fund utilization. 8. After receipt of this Sanction Letter. the Spy is required to Immediately start the process for establishment of facilities for the Atal Incubation Centre (AIC). including 'physical infrastructure and human resources for the AlC 9. The Spy shall put in place all the requisite systems, processess and tools required to achieve the targets arrived at mutually between AIM, NITI Aayogand the SPV!Promoter/Host Institution. which would form the basis for evaluation of the performance of the AIC. 10. It is mandatory for the SPY/AlC to attend all workshops and meetings conducted by AIM, NITl Aayog withregard to incubation centres. Intimation for such events will be provided at least a week in advance, and recusal if required. should be obtained by the SPY/Ale in writing [rom AIM. NITI Aayog,. 11. As part of the grant-in-aid support for-establishment of Ale, it is mandatory for the SPV/AIC to abide by the AIC monitoring, system, details of which will be communicated in due course of time, AIM, NITI Aayog will have the right to evaluate and monitor the working of the AIC to ensure that it is in alignment with the vision of AIM. NITI Aayog. The website link for uploading AlC updates and related instructions will be communicated separately. 12. The promoter/host institution shall nominate members/guarantors/directors in the SI)Y. Any change in the structure 14

AIC-RNTU Foundation /ITANo.940/2019

or inclusions/exclusions of any members/guarantors/directors in the SPV shall be with the prior approval of AlM. NlTI Aayog. 13. All payments expenditure and advances for establishment of the grant shall be made by the Ale through EAT (Expenditure, Advance and Transfer) module of PFMS (Public Financial Management System). The Ale shall download all the volumes of tile User Manual on EAT module from PFMS portal and read them carefully before starting payment to vendor etc. 14. AU interests or other earnings against Grants in aid Of advances (other than reimbursement) released to any Grantee institution shalt be mandatorily remitted to the Consolidated Fund of India immediately after finalisation of the accounts. Such advances shall not be allowed to be adjusted against future releases in terms. of rule 230 (8) of General Financial Rules. 2011. 15. The SPV jointly with Promoter/Host Institution will be required to submit Utilisation Certificates (Des) as per format in Annex I, for the grant-in-aid at the end of each financial year, as well as at the time of seeking further installment of the gram-hi-aid, if any. Unspent balances alongwith interest earned by the Spy on the installment received by the Spy shall be adjusted in the next installments, Arty unspent balance out of the amount sanctioned at the end of the project period. would have to the refunded to the Government of India by means of an Account Payee Demand Draff drawn in favour of Drawing and Disbursing Officer, NITJ Aayog, payable at New Delhi 16. AU the assets acquired or created out of the grant-in-aid should not be disposed of or encumbered or utilised for the purpose other than those for which the grant-In-aid bas been sanctioned without the prior written permission of the AIM. NTI Aayog. 17. AIM, NITI Aayog reserves the right to terminate support to the AIC at any stage, if it is convinced that the grant-in-aid is not being utilised for the identified purpose or that appropriate progress is not being made. 18. In case a SPY/AlC wishes to wind up its activities, the Spy jointly with Promoter/Host Institution shall give a notice of at least three months to AIM, N1TI Asyog before the closure, and design and implement a closure/succession plan in consultation with AIM~ NITI Aayog as per the established procedures! regulations for winding up 19. In the event of breach or violation of the MoA terms and conditions .• 15

AIC-RNTU Foundation /ITANo.940/2019

the Spy jointly with Promoter/Host institution will be required to refund to the Government on demand, the entire amount or such part thereof as may be determined by the competent authority and mentioned in the demand notice issued by the Government, along with interest thereon at the rate of 1 1.50% (Or as applicable under the GFR-20 17) compounded annually from the date of the receipt of the grant-in-aid to the date of refund. 20. Release of first installment does not in any way bind AIM NITI Aayog, government of India to release the future installments and AIM NITI Aayog since the release of future installment will be regulated as para 5 above. Government of India shall not be responsible for any loss incurred by SPV/Promoter/Host Institution or any commitment made by them to any third party/agency. 21. As per Rule 211(1) of GFR, the accounts of the SPV shall be open to inspection by the sanctioning authority/audit by the C & AG and the institution shall provide all the necessary support to carry out the inspection/audit. 22. Provisions contained in Rule 233 of the GFR, 2017 may be kept in mind by the Grant in-Aid receiving organization. Extracts of Rule 233 of the GFR,2017 is given in Annexure-II”

the assessee was required to act in accordance with the

direction of NITI Aayog. The Money so given was to be spent

in accordance with the condition laid in the order of the

NITI Aayog. Therefore, entire activities of the assessee was

regulated and the governed by the NITI Ayog. Now question

arises whether the activities of the assessee would fall

under the charitable activities. Revenue has not rebutted 16

AIC-RNTU Foundation /ITANo.940/2019

the fact that the company is registered under section 8 of

the Companies Act. The Ld. CIT(E) has treated the assessee

as merely a service provider to NITI Aayog. However,

looking to the functions of the assessee company it can

easily be inferred that the functions would fall within the

term public utility in view of the expending economic

activities. Therefore, in our considered view term public

utility cannot be confined merely to the infrastructure and

other sovereign acts. Hence, in the light of the decision of

the Coordinate Bench, we are of the view that the assessee

ought to have been granted registration u/s 12AA if at any

stage revenue finds that the assessee is engaged in

commercial activities and has utilized its funds for the

purposes other than purpose as mentioned in the

memorandum of the assessee in that event the registration

granted u/s 12AA of the Act could be withdrawn. This

power can be exercised even post registration u/s 12AA of

AIC-RNTU Foundation /ITANo.940/2019

the Act. We, therefore, direct the Ld. CIT(E) to grant

registration u/s 12AA of the Act to the assessee company.

The grounds raised in this appeal are allowed.

Order was pronounced in the open court on 14.10.2020.

Sd/- Sd/- (MANISH BORAD) (KUL BHARAT) ACCOUNTANT MEMBER JUDICIAL MEMBER

Indore; �दनांक Dated : 14/10/2020 Patel/PS Copy to: Assessee/AO/Pr. CIT/ CIT (A)/ITAT (DR)/Guard file. By order

Assistant Registrar, Indore