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Facts
The assessee, an industrial association, applied for registration under Section 12AB and recognition under Section 80G. The CIT(E) rejected the applications, stating the assessee had not received donations and its expenses were not for charitable activities. The assessee appealed these rejections.
Held
The Tribunal held that the lack of donations alone is not a reason to deny registration under Section 12AB. Citing the Supreme Court decision in Ahmedabad Urban Development Authority, the Tribunal found the assessee's activities likely fall under 'general public utility'.
Key Issues
Whether the rejection of registration under Section 12AB and 80G solely based on the absence of donations, despite the assessee's activities serving industrial development, is justified?
Sections Cited
12AB, 80G, 2(15)
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Income Tax Appellate Tribunal, “A” BENCH : BANGALORE
Before: SHRI PRASHANT MAHARISHI & SHRI SOUNDARARAJAN K.
Per Prashant Maharishi, Vice President 1. These appeals are filed by Dharwad Growth Center Industries Association (the assessee/appellant) against the application made by the assessee for registration u/s. 12AB of the Income Tax Act, 1961 [the Act] rejected by the ld. Commissioner of Income Tax (Exemptions), [ld.
CIT(E)] dated 27.12.2024 and rejecting the application u/s. 80G of the Act by order of the CIT(E) dated 26.12.2024, respectively.
The brief facts of the case show that assessee is a society registered under the Karnataka Societies Registration Act, 1960 in July, 2004 which is an industrial association operating in Dharwad and Belur Industrial Area with the object of organising development programmes, resolving dispute of industries and making representation before the Government authorities. It is a non-profit organisation earlier registered u/s. 12AB from AY 2021-22 to 2025-26.
The assessee filed application in Form 10AB on 15.9.2024 for renewal of registration. The application of registration was enquired by the CIT(E) through the jurisdictional AO wherein it was found that assessee has not received any donation and receipt from membership fees which are utilised for development of association. It reproduced the Income & Expenditure account for the year ended 31.3.2024 & 31.3.2023. It further held that the expenses were also not towards the charitable activities and therefore in para 7 the ld. CIT(E) held that assessee is required to submit the necessary documents to prove the genuineness of the activities of the trust. Accordingly the application filed by the assessee for registration u/s. 12AB of the Act was rejected and registration was cancelled.
The assessee is in appeal in against the same order.
The application for registration u/s. 80G of the Act was made which was also rejected as application u/s. 12AB was rejected. The rejection order was identical.
The assessee is in appeal before us against both the above orders.
The assessee submitted that originally the assessee was granted registration u/s 12AB of the Act on 9.8.2024 in Form 10AD holding that assessee is carrying on charitable activity. The ld. AR furnished a paperbook containing 123 pages submitting Memorandum of Association, Registration Certificate with Registrar of Co-operative Societies, activity report at page 30 to 100 of the PB and annual accounts from FY 2021-22 to 2023-24. The ld. AR also furnished several judicial precedents. On the earlier occasion when the appeal of the assessee was heard, the order sheet noted that there is a decision of the coordinate Bench in Ahmedabad Engineering Manufacturers Association. The ld. AR submitted that assessee is seeking registration u/s. 12A of the Act where the assessee is carrying on the object of development of industrial area and resolving the disputes of the industry. It was further submitted that the income of the association is not be to be distributed to the members or to others and therefore assessee is entitled for registration u/s. 12AB of the Act. The submission was made that the rejection of the application was made without looking at the activities of the association and also without giving proper opportunity of being heard. It was stated that as per para 5, only reason for rejection of the application is that assessee
has not received any donation for AY 2023-24 and further the expenses are not towards charitable activities. It was submitted that the Income & Expenditure account clearly shows that assessee has incurred the expenditure to the tune of Rs.25,85,572 on the object of the trust. It was further stated that the income of the assessee association is from the membership of the various members of the association. It was submitted that in view of the decision of the Hon’ble Supreme Court in the case of Ahmedabad Urban Development Authority, assessee is definitely carrying on charitable activities and its gross receipt also did not exceed the prescribed limit and therefore it is entitled to registration under the provisions of section 2(15) of the Act carrying on charitable activities. It was submitted that the Decision of Ahmedabad tribunal did not take in to consideration the decision of the Honourable Supreme court in case of Ahmedabad Urban development authority which is wholly on the charitable purposes of the persons carrying on object of general public utility. That decision was neither considered nor referred to be the bench and therefore such decision does not apply. He submits that otherwise how the local chamber of commerce etc. would be obtaining registration u/s 12AB of the act which is also referred to in the decision of Honourable Supreme court. It was stated that that was not the reason why the assessee is denied the registration.
The ld. CIT(DR) supported the orders of the ld. lower authorities and submitted that the assessee was mandated to submit the necessary documents to prove the genuineness of the activities of the association and therefore the application was rejected.
In response to that, the ld. AR vehemently submitted that there is no finding that what are the records and details the assessee has not furnished before the ld. CIT(E).
We have carefully considered the rival contentions and perused the orders of the ld. lower authorities. The ld. CIT(E) rejected the application of the assessee for registration u/s. 12AB of the Act. No doubt the assessee might not have received any donation, that cannot be a reason for not granting registration to the assessee u/s. 12AB of the Act. The purpose of the assessee is to organise development programmes and dispute resolution with Government authorities of industrial units operating in Dharwad and Belur industrial area. The activities of the assessee is of an industrial association wherein the membership fees are collected and the activities of the trust are carried out. It is akin to the working being carried out by the Chamber of Commerce etc., which are not working for profit. The funds of the association also cannot be distributed as dividend to its members. Therefore, according to us, what documents the assessee was required to submit and has not been submitted to prove the genuineness of the activities of the association before the ld. CIT(E) which has resulted into rejection of the application is not mentioned at all. It is apparent that assessee is carrying on the object of general public utility for the larger benefit of industrial units who are members of this association. We have also been shown the annual accounts of this association for the last 3 years wherein we find that the membership fees received by the assessee is in the range of Rs.2 to 3 lakhs and the expenditure is incurred by the assessee for industrial area maintenance. Various other activities are also carried out which are placed at page 30 to 100 of the PB. The activity report for the various years are also placed before us. Therefore it cannot be said that assessee is not carrying on charitable activities. The Hon’ble Supreme Court in the case of Ahmedabad Urban Development Authority [2022] 449 ITR 1 (SC), (2023) 4 SCC 561 has specifically dealt with this kind of bodies which are involved in trade promotion which are set up with the object of purely advocating for coordinating and assisting trading organisation are said to be involved in advancement of general public utility. It was held that :-
“iii) Trade Promotion bodies, councils, associations or organizations 200. Surat Art Silk (supra) and other decisions, had ruled that as long as the objects of trade promotion bodies were for general public utility - wherein ‘trade promotion’ in itself, was held to be a GPU - the fact that incidentally these bodies carried on some commercial activity, leading to profit, did not preclude them from claiming to be driven by charitable purpose. As observed earlier, the enunciation of those principles were in the context of the unamended Section 2(15).
The question that arises is whether the change in definition impacts the claims of trade promotion bodies, federations of commerce, or such organizations, that they are GPU charities . The judgment in Surat Art Silk (supra) proceeded on the assumption that trade promotion was the pre-dominant object of the GPU charity before the court, and that other objects – including procuring licences, trade etc. were incidental. The assessee in Surat Silk had clear trading objects:
(b) To carry on all and any of the business of Art Silk Yarn, Raw Silk, Cotton Yarn as well as Art Silk f loth, Silk Cloth and Cotton Cloth belonging to and on behalf of the members. ********* ********** (e) To buy and sell and deal in all kinds of cloth and other goods and fabrics belonging to and on behalf of the Members.
This court, nevertheless, held that since the predominant object of the assessee was trade promotion, while furthering it, the fact that some trading occurred, leading to income, did not preclude the assessee from claiming tax exemption.
In the opinion of this court, the change in definition in Section 2(15) and the negative phraseology - excluding from consideration, trusts or institutions which provide services in relation to trade, commerce or business, for fee or other consideration - has made a difference. Organizing meetings, disseminating information through publications, holding awareness camps and events, would be broadly covered by trade promotion. However, when a trade promotion body provides individualized or specialized services - such as conducting paid workshops, training courses, skill development courses certified by it, and hires venues which are then let out to industrial, trading or business organizations, to promote and advertise their respective businesses, the claim for GPU status needs to be scrutinised more closely. Such activities are in the nature of services “in relation to” trade, commerce or business. These activities, and the facility of consultation, or skill development courses, are meant to improve business activities, and make them more efficient. The receipts from such activities clearly are ‘fee or other consideration’ for providing service “in relation to” trade, commerce or business.
The revenue has appealed to this court, in respect of two assessment years, in the case of Apparel Export Promotion Council (AEPC). The objects of AEPC, which was set up in 1978 – include promotion of ready-made garment export. To achieve that end, its objects include providing training to instil skills in the workforce, to improve skills in the industry; guide in sourcing machinery; to serve as a body advising, providing information on market or technical intelligence; assisting the concerned industry in obtaining import licenses; showcase the best capabilities of Indian garment exports through the prestigious “India International Garment Fair” organised twice a year by AEPC, etc. These fairs host over 350 participants who exhibit their garment designs and patterns. Other functions are to provide information, and to provide market research. AEPC also assists in developing new design patterns and garments and to perform promotional activities in individual foreign markets. Further, AEPC sends missions and trade delegations abroad, who participate in international fairs; and conducts surveys to gather information on potential export of ready-made garments.
As part of its functioning, it also books bulk space, which is then rented out to individual Indian exporters, who showcase their products and services, and ultimately secure export orders. Towards these services, i.e., booking and providing space, AEPC charges rentals. Now, these rents are not towards fixed assets owned by it. They are in fact charges, or fees, towards services in relation to business; likewise, the skill development and diploma courses conducted by it, for which fees are charged, are to improve business functioning of garment exporters. Furthermore, market surveys and market intelligence, especially country specific activities, aimed at catering to specified exporters, or specified class of exporters, is also service in relation to trade, commerce or business.
In the circumstances, it cannot be said that AEPC’s functioning does not involve any element of trade, commerce or business, or service in relation thereto. Though in some instances, the recipient may be an individual business house or exporter, there is no doubt that these activities, performed by a trade body continue to be trade promotion. Therefore, they are in the “actual course of carrying on” the GPU activity. In such a case, for each year, the question would be whether the quantum from these receipts, and other such receipts are within the limit prescribed by the sub-clause (ii) to proviso to Section 2(15). If they are within the limits, AEPC would be – for that year, entitled to claim benefit as a GPU charity.”
In view of this, the assessee’s activities are falling into that category i.e. of General Public Utility. In view of the above facts, we restore both the appeals to the file of the ld. CIT(E) to reconsider the application of the assessee after looking to the annual accounts and activities report furnished and considering the decision of the Hon’ble Supreme Court in the case of Ahmedabad Urban Development Authority (supra). Needless to say, that an opportunity of hearing should be granted to the assessee, if the ld. CIT(E) is of the opinion that the activities carried out by the assessee is not in accordance with the object, purpose as well as the provisions of section 2(15) of the Act.
The assessee is also directed to furnish the requisite information to the ld. CIT(E), thereafter the ld. CIT(E) may decide the issue afresh in accordance with law with regard to the registration u/s 12AB and recognition u/s 80G (5) of The Act. .
In the result, both the appeals filed by the assessee are allowed for statistical purposes.
Pronounced in the open court on this 31st day of December, 2025.