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Income Tax Appellate Tribunal, PUNE BENCHES A, PUNE
Before: DR. MANISH BORAD & SHRI VINAY BHAMORE
आदेश / ORDER
PER DR. MANISH BORAD, ACCOUNTANT MEMBER :
1. The captioned two appeals at the instance of appellant are against the rejection of application for regular registration u/s.12AB(1)(b)(c)(iii) and approval u/s.80G of the Income-tax Act, 1961 respectively framed by ld.CIT(E) dated 12.11.2024.
Brief facts of the case are that the appellant is a Section 8 company registered under the Companies Act, 2013 with the primary objective of promoting charitable and social welfare activities as outlined in its Memorandum of Association. Appellant applied for registration u/s.12AB(1)(b)(c)(iii) of the Act and furnished Form 10AB on 28.05.2024. Ld.CIT(E) called for various details as enumerated in impugned order at pages 3 to 8. Appellant replied and submitted all relevant details. Ld.CITE) however made two observations, firstly that in the objects, it is mentioned that the appellant shall runs Guest Houses, Restaurants and Motels and secondly he observed that the appellant has purchased a piece of land for proposed activities. Based on these observations ld.CIT(E) came to a conclusion that the appellant has not been able to prove the genuineness of the activities being charitable in nature and accordingly rejected the application and also cancelled the provisional registration granted pm 09.11.2022. Aggrieved appellant is now in appeal before this Tribunal.
Ld. Counsel for the appellant took us through the objects of the appellant company and submitted that the words mentioned in the main objects namely “Guest Houses, Restaurant and Motel facilities” are basically in the nature of Dharamshala/Vishram Gruh/Athithi Gruha for various visitors who will be visiting the place for the purpose of universal spiritual upliftment and also for the monks who visit the place. He further submitted that ld.CIT(E) ought to have seen the total objects rather than the few words mentioned in the main objects. He also submitted that even though only a piece of land purchased but then registration are granted keeping into considering the main objects of the appellant and the charitable nature of the activities to be carried out. He further submitted that if any of the conditions are not fulfilled then they can be taken care of by the Assessing Officer during the course of assessment proceedings. He also submitted that even section 2(15) of the Act provides that some commercial activities can be carried out subject to certain terms and conditions. Reliance placed on the decision of Coordinate Bench, Indore in the case of Aruva Foundation Vs. CIT (E) reported in (2025) 170 taxmann.com 198 (Indore – Trib.) and it is claimed that the same is squarely applicable on the facts of the case in the instant appeal.
On the other hand, ld. Departmental Representative vehemently argued supporting the order of ld.CIT(E).
We have heard the rival contentions and perused the record placed before us. Appellant is aggrieved with the following finding of ld.CIT(E) rejecting the application for regular registration u/s.12AB(1)(b)(c)(iii) of the Act :
“6. The assessee furnished its response on 22/10/2024. On the issue of objects with commercial elements, the applicant contended that its primary purpose is charitable, with all income directed to social welfare as per its MoA and legal provisions. The organization operates a community center that hosts various public welfare activities, including educational and health programs and to support these events, the applicant offers guest houses, restaurants, and motels. It further contended that these facilities are non-commercial and necessary for attendees. The applicant relied upon the decision of the Hon'ble Karnataka High Court in PCIT(E) v. Embassy Charitable Trust, asserting that ancillary income-generating activities don't undermine charitable intent if proceeds support charitable aims. 6.1 The applicant's contention is duly considered. It is, however, not found to be acceptable. The contention of the applicant that its ancillary facilities (guest houses, restaurants, and motels) are purely charitable in nature and merely support its primary charitable objectives are devoid of merit. The operation of these facilities goes these facilities goes beyond what considered incidental to charitable activities, particularly given their commercial nature and the potential for profit generation. While the applicant claims that these facilities are necessary for the effective operation of the community center, the provision of such services; especially restaurants, motels, and guest houses; reveals a commercial aspect that aligns more with hospitality services than with core charitable activities. The income generated from these activities, regardless of its eventual application, indicates that the applicant intends to conduct activities that cannot be strictly regarded as charitable under Section 2(15) of the Income Tax Act. The ratio of the cited case law in Embassy Charitable Trust (supra) would not apply to the applicant's case since in its case, its services are not merely incidental but form a substantial part of its operations. Thus, the applicant's activities involve a commercial element rather than a charitable one.
Without prejudice to the above, in its submission, the applicant has admitted that the trust is in preoperative stage and has not carried out any activities during the period under consideration. It has only purchased a piece of land for proposed activities. The applicant's financial statements also does not show any income or expenses made on the charitable objects of the organisation. It is also noticed from the balance sheet that the major part of the income has been shown as corpus donations and has been invested in FDRs / bank accounts without its utilization on objectives and are lying idle. Therefore, it appears that the applicant has not undertaken any charitable activities as yet and, therefore, the present application is premature.
8. Further, the applicant has received donations which have been categorized as 'corpus' donations. However, the applicant, in all receipts has, by itself written the donation to be corpus. As per Section 11(1)(d) of the Income Tax Act, 1961, for donations to be treated as corpus donations, must be accompanied by a specific direction from the donor indicating that the amount is intended to form part of the corpus of the institution. Writing on receipt as 'corpus' by the donee does not express the donor's intent of said donation. In this case, although the applicant has categorised donations as corpus in its receipts, it has not provided any documentation or specific directions from donors confirming this intent.
9. Considering the above facts discussed in the show notice and discrepancies noticed, the undersigned is unable to draw any satisfactory conclusion about the charitable nature and the genuineness of activities of the assessee and compliance of requirements of any other law for the time being in force by the assessee as are material for the purpose of achieving its objects.
10. In view of the above, the application filed by the assessee is hereby rejected and the provisional registration granted on 09/11/2022 under section 12AB read with section 12A(1) (ac) (vi) of the Income Tax Act, 1961 is hereby cancelled.”
7. We observe that the main objects of the appellant is provided in the Memorandum of Association placed at pages 47 to 63 and the same reads as under :
“III. The Objects for which Company is established are:-
A) MAIN OBJECTS TO BE PURSUED BY THE COMPANY ON ITS INCORPORATION:
To promote social welfare activities intended for the welfare of the society and to encourage, conduct, support activities leading to Universal Spiritual Upliftment as preached by the Tirthankar Bhagwants and to build, erect, construct, establish, run and manage- multipurpose community center which can be useful for events, gatherings, social activities, social support, public information, religious programs and other purposes including accommodation, restaurant & motel facilities, guesthouses and to establish, maintain, organize and administer places such as Tyagi Bhavan for Jain monks and to promote, manage, establish, maintain, encourage, organise and assist in the development; and 2. To promote education which will empower the individual to lead through setting up /helping educational programs, educational institutions covering all fields either directly or through establishing trusts or other bodies; and 3. To establish and maintain Goshalas for preserving cows, calves and bovine animals. NO OBJECT OF THE COMPANY SHALL BE CARRIED OUT WITHOUT THE PERMISSION OF THE COMPETENT AUTHORITY WHOMSOEVER AND NO OBJECT OF THE COMPANY SHALL BE CARRIED OUT ON THE COMMERCIAL BASIS.”
8. From going through the main objects, we notice that ld.CITE) has only read the words Restaurant, Motel facilities and Guest Houses but then they have to be read in entirety and the main objects clearly provides that the appellant shall promote social welfare activities and also support the activities leading to universal spiritual upliftment as preached by Tirthankar Bhagwants. Ld.CIT(E) ought to have taken note of the fact that Bhagwants/buildings which will be constructed by the appellant shall also be used by the pilgrims/monks who will be visiting the place for preaching the public at large for universal spiritual upliftment and other charitable activities relating to Education. Therefore, going through the main objects provided in the Memorandum of Association, we find that same are for the purpose of carrying out charitable activities as provided u/s.2(15) of the Act. We also observe that appellant has purchased the land but then the same itself cannot be taken as a ground for rejecting the application for grant of regular registration. Purchasing of land is the first step and thereafter the construction activities will be started for making the building/campus to carry out the charitable activities. There is no pre-condition that for granting regular registration u/s.12A r.w.r. to section 12AB of the Act all the charitable activities mentioned in the objects have to be actually carried out. We further take note of the decision of Coordinate Bench, Indore in the case of Aruva Foundation (supra) wherein dealing with similar issue the Coordinate bench has held as under :
“7. We have considered rival contentions of both sides and perused the impugned order as well as the material held on record to which our attention has been drawn. Admittedly, the CIT(E) has analysed object No. 2 of assessee and observed "The above referred objects clearly show that the intention of the assessee is to carry out various commercial activities and also to engage in trading of various products as mentioned in the objects of the assessee". On this limited basis, the CIT(E) has denied registration to assessee. Here, we find a strong merit in the contention raised by Ld. AR that proviso to section 2(15) of the Act defining 'charitable purpose' itself allows commerciality in the activities of assessee but upto a ceiling limit of 20%. Further, section 11(4A) of the Act grants exemption to commercial or business activity on fulfillment of certain requirements. It is also important to note that the section 13(8) also provides that the exemption u/s 11/12 shall be denied in that previous year only in which the proviso to section 2(15) is violated. Therefore, these provisions of law clearly show that even if any object or activity of assessee, out of various multiple objects and activities, has element of commerciality, that would result in denial of exemption u/s 11/12 to that extent and in that particular previous year only but the CIT(E) in exercise of power u/s 12AB, cannot deny registration to assessee. The decisions in East India Industries (Madras) Pvt. Ltd. Vs. CIT (1967) 65 ITR 611 (SC) and Yogiraj Charity Trust Vs. CIT (1976) 103 ITR 777 (SC) relied by Ld. CIT(E) are not related to grant of registration but are for computation of total income by Assessing Authority. In present case, we are concerned with grant of registration by CIT(E), therefore those decisions are not relevant. It also remains a fact, as shown by Ld. AR with reference to the documents in Paper-Book, that the assessee has done only charitable activities till now and not undertaken any activity contemplated by object No. 2 & 3. Therefore, as and when the activity of Object No. 2 & 3 is actually undertaken by assessee in future, it would be a prerogative of Assessing Authority in that particular year, to ascertain the quantum of exemption u/s 11/12 available to assessee. Being so, we are inclined to hold that the CIT(E) is not justified in denying registration to assessee on the footing that by means of object No. 2 & 3, the assessee had intention to carry out commercial activity. Consequently, we direct the CIT(E) to grant registration u/s 12AB to assessee as applied. The assessee succeeds in this appeal.
Ld. AR for assessee carried us to the impugned order. He would demonstrate that the CIT(E) can be said to have denied approval u/s 80G to assessee for two-fold reasons, (i) the registration u/s 12AB has been denied as a consequence of which approval u/s 80G is also not available, and (ii) the assessee was granted provisional approval u/s 80G vide order dated 09.11.2022 and thereafter the assessee was required to apply for final approval within 6 months from start of activities but the assessee applied belatedly in September, 2023. The CIT(E) has also noted that although the CBDT has extended time-limit vide Circular No. 6/2023 dated 24.05.2023 but that extension is only for registration u/s 12AB and not for approval u/s 80G.
9. Ld. AR submitted that subsequent to passing of impugned order dated 05.03.2024, the CBDT has issued a new Circular No. 7/2024 dated 25.04.2024 wherein, vide Para 3(i) and 4.1, the time-limit for application u/s 80G has also been extended till 30.06.2024 and further the assessees have been authorized to file a fresh application even when the CIT(E) has already rejected earlier application on the ground of late filing. Therefore, the assessee has already filed a fresh application to CIT(E).
Ld. DR supported the impugned order passed by CIT(E) on first reasoning but, however, did not make any submission qua the second reasoning.
We have carefully examined the submissions. In so far as first reasoning for denial of approval u/s 80G is concerned, we have already directed the CIT(E) to grant registration u/s 12AB to assessee in foregoing part of this order. Therefore, the first reasoning for denial of approval u/s 80G does not survive. The second reasoning that the application filed by assessee was belated, is already addressed by CBDT Circular No. 7/2024 and the Ld. AR has also informed that the assessee has already filed a fresh application to CIT(E) before the designated deadline of 30.06.2024 which is pending before CIT(E). In that view of matter, we remand this matter back to the file of CIT(E) for an appropriate adjudication alongwith the fresh application filed by assessee. Accordingly, this appeal is allowed for statistical purpose.”
Going through the above decision, we find that the same is squarely applicable on the facts of the instant case. We therefore are of the considered view that appellant deserves to be granted regular registration u/s.12A of the Act. We accordingly direct ld.CIT(E) to grant registration to the assessee u/s.12A(1)(ac)(iii) of the Act. Impugned order is set aside and grounds of appeal raised by the appellant are allowed.
10. Since we have already directed the ld.CIT(E) to grant regular registration u/s.12A of the Act to the appellant (referred supra in para 9), ld.CIT(E) shall also grant approval u/s.80G of the Act to the appellant in accordance with law.
11. In the result, both the appeals of the appellant are allowed.
Order pronounced on this 14th day of July, 2025.