M/S. ARVINTH CHARITABLE TRUST,NAMAKKAL vs. CIT, SALEM

The assessee trust made an application in form 10A dated 22.07.2009 for registration under the provisions of Section 12AA of the Income Tax Act, 1961 (in short ‘’the Act’’) before the ld. CIT, Salem. The ITA No.267 /2010 :- 3 -: ld.CIT vide order dated 29.01.2010 rejected grant of registration assigning the following reasons.

(i) Activities of the trust was not carried out with charitable object but with profit motive, placing reliance on the decision of Hon’ble Uttaranchal High Court in the cases of CIT vs. Queens Educational Society, 319 ITR 160 and CIT vs. National Institute of Aeronautical Engineering

Educational Society, 315 ITR 428, wherein it is held that activities of imparting education with primary object of earning profit cannot be said to be charitable activity.

(ii) Building is being constructed in leasehold land which is owned by one of the Managing Trustee.

Accordingly, the ld. CIT rejected the application for registration u/s.12AA of the Act.

Being aggrieved by the order of the CIT, the assessee filed an 3. appeal before this Tribunal which in turn vide order dated 22nd December, 2010 in directed the ld. CIT to grant registration to the assessee trust by holding that at the time of grant

ITA No.267 /2010 :- 4 -: of registration, the ld. CIT is only expected to look into whether the object of the trust are charitable or not.

The Department filed appeal before the Hon’ble High Court of 4.

Judicature of Madras in Tax Case (Appeal) No.270 of 2011. The Hon’ble High Court vide order dated 30.01.2019 observed that Tribunal had failed to meet the reasoning of the ld. CIT while rejecting the registration u/s.12AA of the Act. The Hon’ble High Court made the following remark at para 8, wherein it was held as follows:

‘’8.One more aspect which is to be noted is that the proviso to Section 2(15) of the Act provides that advancement of any other object of general public utility shall not be a 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 or application, or retention, of the income from such activity. Therefore, in our considered view, the Tribunal failed to properly examine the contentions advanced by the Revenue and by a non-speaking order, allowed the appeal filed by the assessee. Therefore, we are of the considered view that the matter requires to be re-considered by the Tribunal’’. and finally restored the matter back to the file of the Tribunal vide para 13, which reads as under:-

‘’13.In the preceding paragraphs, we have recorded our satisfaction as to how the Tribunal failed to record its satisfaction with regard to the factual aspect dealt with by the Commissioner. Therefore, first the assessee should convince the Tribunal on facts that their activities, obligation of the income etc., qualify for a charitable purpose. No costs’’.

ITA No.267 /2010 :- 5 -:

From the perusal of the Hon’ble High Court order, it is clear that Hon’ble High Court had directed the Tribunal to consider the applicability of proviso to Section 2(15) of the Act at the time of grant of registration. Ld. Counsel submitted that at the time of grant of registration, ld. CIT is not expected to examine the applicability of proviso to Section 2(15) of the Act, he placed reliance on the CBDT Circular No.11/2008, dated 19.12.2008.

On the other hand, the ld. CIT (Departmental Representative) 5. placed reliance on the order of the ld. CIT in rejecting registration u/s.12AA of the Act.

We heard the rival submissions and perused the material on 6. record. The only issue in the present appeal relates to whether or not the ld. CIT was justified in rejecting registration u/s.12AA of the Act by applying the proviso to Section 2(15) of the Act. For better appreciation of law, the proviso to Section 2(15) of the Act as it stood at the relevant time is reproduced hereunder:

(15) "charitable purpose" includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility : Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it

ITA No.267 /2010 :- 6 -: 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 or application, or retention, of the income from such activity ; From the reading of the above proviso, it is crystal clear that proviso to Section 2(15) of the Act is applicable only to organization which is for advancement of any other object of general public utility. The proviso cannot be applied to an organization which is engaged in the first three limbs of the definition of charitable activity i.e. Relief to the poor, education and medical relief. Admittedly, assessee before us is perusing activity of education. Therefore proviso to Section 2(15) of the Act cannot be applied to the assessee trust. This position is made clear even by the CBDT Circular No.11/2008,dated 19.12.2008 at para 2.1 & 3 which reads as under:-

‘’2.1 The newly inserted proviso to section 2(15) will not apply in respect of the first three limbs of section 2(15), i.e., relief of the poor, education or medical relief. Consequently, where the purpose of a trust or institution is relief of the poor, education or medical relief, it will constitute ‘charitable purpose’ even if it incidentally involves the carrying on of commercial activities.

ITA No.267 /2010 :- 7 -: commerce or business is a question of fact which will be decided based on the nature, scope, extent and frequency of the activity’’.

Further, we note that reliance placed by the ld. CIT in the case of Queens Educational Society (supra) was over ruled by Hon'ble Supreme Court in 372 ITR 699. In the light of this factual position, we are of the considered opinion that the proviso to Section 2(15) of the Act is not applicable to trust. In the circumstances, we direct the ld. CIT to grant registration u/s.12AA of the Act.

In the result, the appeal filed by the assessee is allowed. 7.

Order pronounced on 24th day of February, 2020, at Chennai.