THE INDIAN SPEECH AND HEARING ASSOCIATION (ISHA) BENGALOORU CHAPTER,BANGALORE vs. COMMISSIONER OF INCOME TAX (EXEMPTIONS), BANGALORE

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ITA 980/BANG/2019Status: DisposedITAT Bangalore19 July 2019AY 2019-205 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that restrictions on membership do not automatically disqualify an association from being charitable if its dominant purpose is for the advancement of general public utility. The CIT's conclusion that benefits did not enure to the general public was found to be factually incorrect.

What were the facts?

The assessee's application for registration under Section 12AA was rejected by the CIT(Exemptions) on the grounds that membership was not open to the general public and the Memorandum of Association lacked a beneficial clause for the public at large. The appeal was filed with a delay which was condoned.

What were the issues?

Whether an association with restricted membership can be considered charitable and eligible for registration under Section 12AA if its dominant purpose serves the general public. Whether the CIT erred in denying registration based on membership criteria.

Which sections of the Income-tax Act were involved?

Section 12AA,Section 2(15)

AI-generated summary — verify with the full judgment below

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Income Tax Appellate Tribunal, ‘B’ BENCH, BENGALURU

Before: SHRI J. SUDHAKAR REDDY & SMT. BEENA PILLAIDr.S.R.Chandrashekar Institute of Speech,

For Appellant: Shri H. Anil Kumar CA
For Respondent: Ms. Neera Malhotra, CIT(DR)
Hearing: 18/07/2019Pronounced: 19/07/2019

Appellant by : Shri H. Anil Kumar CA. Respondent by : Ms. Neera Malhotra, CIT(DR) Date of hearing: 18/07/2019 Date of pronouncement: 19/07/2019 O R D E R

Per J. SUDHAKAR REDDY, AM:

1.

This is an appeal filed by the assessee against the order of the CIT(Exemptions), Bengaluru dated 20/02/2019 where he had rejected the grant of registration u/s 12AA(1)(b) of the Income-tax Act,1961 ['the Act' for short].

2.

At the outset it is noticed that the appeal is barred by 15 days. The assessee has filed an application for condonation of delay. We are satisfied with the reasons for delay. We condone the delay and admit the appeal.

3.

We have heard rival contentions. The CIT(Exemptions) in para.1 of his order observed as follows:

Page 2 of 5 “The applicant trust filed application through e-filing in Form No.10A on 10.08.2018. The details were called for from the assessee and the details filed was verified. The objects of the association and activities are charitable as defined u/s 2(15) being in the area of Education, Relief of the Poor, Medical Relief and/or other objectives of General Public Utility and the Association is eligible for registration u/s 12A.” (emphasis supplied) Thereafter he has refused to grant registration u/s 12AA of the Act on the following grounds: a) Membership is not open to general public. b) Memorandum of Association does not have beneficial clause specifying that the objects are open to public at large.

In our view, just because they are certain qualifications laid down for a person to become a member of the Association, it cannot be concluded that the object of the assessee is not charitable as defined u/s 2(15) of the Act. This cannot be a ground for denial of registration u/s 12AA of the Act. The learned counsel for assessee has rightly relied on the decision of the Hon’ble Supreme Court in the case of CIT vs. Bar Council of Maharashtra (130 ITR 28)(SC) wherein it is held as follows:

“The preamble of the Advocates Act, 1961 shows that it was enacted with a view to amend and consolidate the law relating to legal practitioners and to provide for the constitution of Bar Councils and an All India Bar. Section 6(1) of the aforesaid Act lays down the obligatory functions, while section 6(2) indicates as to what are the optional or discretionary functions that could be undertaken by a State Bar Council. The functions mentioned in clauses (a) and (b) of sub-section (1 ) of the aforesaid section 6, namely, to admit persons as advocates on its roll and to prepare and maintain such roll, are clearly regulatory in character intended to ensure that persons with Page 3 of 5 requisite qualifications, who are fit and otherwise proper to be advocates, are available for being engaged by the litigating public; the function prescribed in clause (c) of the said sub- section, namely, to entertain and determine cases of misconduct against advocates on its roll, has been enjoined upon avowedly with the object of protecting the litigating public from unscrupulous professionals by taking them to task for any misconduct on their part. It is also one of the obligatory functions of a State Bar Council to promote and support measures for law reform as also to conduct law seminars and organise talks on legal topics by eminent jurists, obviously with a view to educate the general public. The function prescribed by clause (eee), namely, to organise legal aid to the poor is obviously charitable in nature. Amongst these various obligatory functions, one under clause (d) is to safeguard the rights, privileges and interests of the advocates on its roll and it is difficult to regard it as a primary or dominant function or purpose for which the body is constituted. Even this function, apart from securing speedy discharge of obligations by the litigants to the lawyers, ensures. maintenance of high professionals standards and independence of the Bar which are necessary in the performance of their duties to the society.

The dominant purpose of a State Bar Council, as reflected by a various obligatory functions, is to ensure quality service of competent lawyers to the litigating public, to spread legal literacy, promote law reforms and provide legal assistance to the poor while the benefit accruing to the lawyer members is incidental.

It is true that sub-section (2) of the said section 6 provides that a State Bar Council may constitute one or more funds for the purpose of giving financial assistance to organise

Page 4 of 5 welfare schemes for the indigent, disabled or other advocates; but it is an optional or discretionary function to be undertaken by the Council. Apart from that, admittedly the assessee, in the instant case, had not so far constituted any such fund for the purpose specified. As and when such a fund was constituted, a question may rise for consideration and the Court may have to decide whether the function so undertaken by a State Bar Council had become the dominant purpose for which that council was operating.

Having regard to the preamble to the aforesaid Act and the nature of the various obligatory functions including the one under clause (d) enjoined upon every State Bar Council under section 6(1 ), it became apparent that the primary or dominant purpose of an institution like the assessee was the advancement of the object of general public utility within the meaning of section 2( 1 5) and as such the income from securities held by the assessee would be exempt under section 11.”

4.

Even in the case of Institute of Chartered Accounts of India (ICAI), as rightly pointed out by the learned counsel for assessee, membership is restricted to persons who have passed the final examination of the Institute of Chartered Accountants of India and such requirement does not take away the eligibility of ICAI from being registered u/s 12AA of the Act. The ground on which the CIT(Exemptions) denied grant of registration to the assessee is not in accordance with law.

5.

Coming to other grounds i.e. conclusion of the CIT(Exemptions) that the objects and the activities of the Association are confined to its members who subscribed to the association and Page 5 of 5 that the benefits do not enure to the general public, is not factually correct. We have gone through the Memorandum of Association of the assessee. There is no such restriction. In fact, the CIT(Exemption) himself, at para.1 has stated that the objects of the assessee are charitable. Hence, we hold that the CIT(Exemptions) is wrong in coming to such conclusion. In our view, the assessee has satisfied all the requirements of law to be eligible for registration u/s 12AA of the Act. Hence, we allow the appeal of the assessee and direct the CIT(Exemptions) to grant registration to the assessee u/s 12AA of the Act.

6.

In the result, the appeal of the assessee is allowed.

Order pronounced in the open court on 19th July, 2019.

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