GEAR TRAINING AND RESEARCH FOUNDATION,JAIPUR vs. CIT(EXEMPTION), JAIPUR

At the outset, the ld. AR submitted that there has been a delay in filing the present appeal by 27 days. It was submitted that the impugned order was passed by the ld. CIT(E) on 30.03.2021 and the same was received by the assessee on 30.03.2021 and ordinarily, the 2 Gear Training and Research Foundation, Jaipur vs. CIT (Exemption), Jaipur appeal should have been filed before the Tribunal on or before 28.05.2021. However, the same was filed on 17.06.2021. It was submitted that the delay so happened in filing the present appeal was on account of the 2nd outburst of COVID-19 Pandemic and consequent lockdown announced by the State Government. It was accordingly submitted that due to lockdown, the assessee was prevented from filing the present appeal and the delay so happened was not deliberate. In support, the reliance was also placed on the decision of Hon’ble Supreme Court dated 27.04.2021 wherein the period of limitation in filing of appeal, irrespective of the limitation prescribed under the general law or special laws whether condonable or not shall stand extended with effect from 14th March, 2021 till further orders. It was accordingly submitted that the delay so happened in filing the present appeal was beyond the control of the assessee and the same may be condoned and appeal of the assessee be heard on merits.

It was submitted that an application seeking approval u/s 12AA in Form 10A was filed with the office of ld CIT(E) on 05.08.2020 which was however rejected by ld. CIT(E) vide his order dated 30.03.2021 for the sole reason that the object no. 1,2,4 & 5 as stated in the memorandum of association are having element of commercial/business nature.

It was submitted that running a Skill Development Centre is imparting education and which also helps the poor. Therefore, proviso to Section 2(15) is not applicable. It was submitted that promoting business/economic activities, alternatively, are charitable in nature falling under the last limb “any other object of general public utility” of the definition of charitable purpose u/s 2(15) of the Act.

It was submitted that the ld. CIT(E) has accepted the objects being charitable in nature and after having found the objects being 4 Gear Training and Research Foundation, Jaipur vs. CIT (Exemption), Jaipur charitable in nature, has rejected the application for the reason of “elements of Commercial/Business nature”. It was submitted that ld. CIT(E) has totally ignored the fact that the applicant before him was a company incorporated u/s 8 of the Companies Act, 2013 and attention is drawn towards following clauses contained in the memorandum of association of the appellant company:

Without prejudice to above, it was submitted that alleged commercial/business nature of activities cannot be a reason for rejection of the application u/s 12AA and in support, reliance was placed on the following judicial precedents:

It was further submitted that the provision of section 13(8) introduced in the Finance Act, 2012 w.r.e.f. 01.04.2009 may be considered where it has been provided that nothing contained in section 11 and 12 shall operate where provisions of first proviso to section 7 Gear Training and Research Foundation, Jaipur vs. CIT (Exemption), Jaipur 2(15) become applicable in any previous year. This makes it clear that allegation of commercial/business nature cannot be a reason for rejection of application u/s 12AA. It was submitted that activities of commercial/business nature whether actually carried out or not and allowability of benefit u/s 11 and 12 can be examined by the Assessing Officer at the time of regular assessment for the relevant previous years. In view of the above, it was submitted that the order of CIT(E) denying approval u/s 12AA deserves to be quashed and he may be directed to grant approval to the appellant company.

Per contra, the ld. Pr. CIT/DR in his submission taken us through the application filed by the appellant company in Form No. 10A wherein the object of the appellant company has been specified as advancement of other objects of General Public Utility. It was further submitted that on perusal of its memorandum of association, it is seen that the objects no. 1, 2, 4 & 5 are having elements of commercial/business nature and the appellant company failed to furnish valid explanation on why these activities should not be considered as commercial in light of section 2(15) of the Act. Given that it was a limitation matter and inspite of giving sufficient opportunities, the appellant company failed to produce details and furnish explanation, therefore, the ld CIT(E) rejected the application based on material available on record.

It was further submitted that merely because the assessee company has been registered u/s 8 of the Companies Act, the same by default does not necessarily mean that it shall be eligible for registration u/s 12AA of the Act. It was submitted that both are separate legislation 8 Gear Training and Research Foundation, Jaipur vs. CIT (Exemption), Jaipur operating in respective domain and in absence of anything mentioned in the Income Tax Act, the companies registered u/s 8 of the Companies Act does not necessarily qualify for registration u/s 12AA of the Act. The company, where it seeks registration u/s 12AA, has to independently apply seeking registration and file requisite documentation in support of its application, and the Commissioner has to consider its objects and genuineness of activities and then take appropriate action in terms of either accepting or rejecting its application seeking registration u/s 12AA of the Act. It was accordingly submitted that there is no infirmity in the findings of the ld. CIT(E) in rejecting application of the assessee company seeking registration u/s 12AA of the Act.

We have heard the rival contentions and perused the material available on record. It is observed that the precise reason for the rejection of assessee’s application seeking registration u/s 12AA by the ld CIT(E) was basis his finding that “on perusal of its memorandum of association, it is seen that the objects no. 1, 2, 4 & 5 are having elements of commercial/business nature and the appellant company failed to furnish valid explanation on why these activities should not be considered as commercial in light of section 2(15) of the Act.” We find that in response to show-cause notice dated 13.03.2021 wherein this matter was initially enquired by the ld CIT(E), the assessee company vide its submission dated 19.03.2021 has submitted that “the main object of the applicant trust as contained in object no. 1, 2, 4 & 5 are interconnected to develop training and research centre to facilitate “skill development” to the entire chain of work force engaged at various levels in the Garment and Textile Industry. The object is covered under 9 Gear Training and Research Foundation, Jaipur vs. CIT (Exemption), Jaipur section 2(15) as the advancement of any other object of general public utility. The objects are not for the private or personal interest of the members but the objects are to promote the garment industry in general. It is clearly mentioned in the memorandum of association that no objects of the company shall be carried out on commercial basis and therefore, it cannot be said that these objects are having an element of commercial/business nature.” We therefore find that the assessee company did submit its response to the show-cause notice and it is therefore not a case where the assessee company has failed to respond to the queries raised by the ld CIT(E). We however find that the ld CIT(E) has failed to take into consideration the explanation so offered by the assessee company.

Having said that, we may refer to the objects, including the objects highlighted by the ld CIT(E) in the show-cause notice, for which the assessee company has been established and incorporated as Section 8 company under the Companies Act, 2013 and the same reads as under:

Further, we find that the assessee company by virtue of being incorporated u/s 8 of the Companies Act, 2013 has committed to the approving authorities under the parent legislation that its activities are for the promotion of its aforesaid objects and it shall intend to apply its profits or income in promoting its objects and intends to prohibit the payment of any dividends to its members and has gone ahead and provided specific clauses in its memorandum of association to this effect. We find that the said commitment and undertaking on part of the assessee company as part of its charter provides an additional level of comfort in terms of determining the real intent and objectives behind setting up of the assessee company and whether the same is for the 12 Gear Training and Research Foundation, Jaipur vs. CIT (Exemption), Jaipur purposes of earning profits or for the purposes of carrying out activities in pursuance of its objectives of enhancing the skill set of manpower in the field of garment and textile sector by setting up training and research centres, identifying and naturing the budding entrepreneurs in the field of garment and textile sector and providing them initial handholding in form of business incubation centres, setting up testing laboratories to maintain and improve the quality and standards of production and facilitating the trade and commerce by setting up conference and meeting halls and organizing such conferences and meetings from time to time and lastly, promoting the traditional garment and textile techniques and products.

Further, we find that under section 12AA(a)(ii) of the Act, the ld CIT(E) has to examine compliance of requirements of other law as are material for the purposes of achieving its objects and in the instant case, approval by the sanctioning authority and grant of registration under section 8 of the companies act is one such material requirement for achievement of its objectives which the assessee company has fulfilled and which should have been considered by the ld CIT(E) before rejecting the application seeking registration u/s 12AA of the Act.

We may clarify that merely because the assessee company has been registered u/s 8 of the Companies Act, we are not saying that the same by default mean that it shall be eligible for grant of registration u/s 12AA of the Act as the legislation is currently not worded to support the said proposition. All we are saying is that where another arm of the government administering the company law legislation has examined 13 Gear Training and Research Foundation, Jaipur vs. CIT (Exemption), Jaipur the objects and intended application of profits and has granted the registration as section 8 company, the said registration allows the assessee company to take necessary steps to seek separate and independent registration u/s 12AA and where such an approval is placed on record, as part of assessee’s application u/s 12AA and supporting documentation as required under law, it shall provide an additional level of comfort to the ld CIT(E) in terms of examining the true intent behind its objects of setting up/incorporation and also for the purposes of examining compliance of other laws material for achievement of its objectives under section 12AA(a)(ii) of the Act.

In view of the aforesaid discussions and in the entirety of facts and circumstances of the case, the appellant company’s application seeking registration u/s 12AA for undertaking the aforesaid objects of general public utility deserve to be accepted as falling within the purview of charitable purpose u/s 2(15) of the Act. In terms of examining the allowability of benefit u/s 11, 12 r/w section 13, it is a settled position that the same can be examined on year to year basis by the Assessing officer and he shall be free to take action, as per law including under section 13(8) as so provided in the statue, during the course of regular assessment proceedings. We accordingly direct the ld CIT(E) to grant approval to the assessee company u/s 12AA of the Act.