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Before: SHRI MAHAVIR SINGH & SHRI ASHWANI TANEJA
Per Ashwani Taneja, AM:- This appeal has been filed by the Assessee against the order of Ld. Director of Income Tax(Exemption), Mumbai[hereinafter called DIT] u/s 12AA(1)(b)(ii) r/w sec12AA of the Income Tax Act, 1961 on the following grounds dated 09.07.2014 passed against the order of the AO u/s 12Aof the Act dated 24.06.2013 on the following grounds:-
2 Mumbai mudibazar I.T.A.No.5473/M/2013 Grounds of Appeal: i) “On the facts of the case and in Law, the learned DIT[Exemption] Mumbai has erred in rejecting the application u/s 12A for approval of the Appellant Company by holding that the Memorandum and Articles of Association of the Appellant contains mixed objects, charitable and non charitable, and also lack of obligation on the Board of Directors regarding application of income. ii) On the facts of the case and in Law, the learned DIT[Exemption] Mumbai has erred in rejecting the application u/s12A for approval of the Appellant Company by wrongly holding that the main objects are not charitable/mutual in nature although they are directly for the furtherance of interest of themembers of Bombay Mudibazar kairana Merchants”.
2. The brief background of the case is that the assessee is a limited company and incorporated u/s 25 of companies Act,1956 vide certificate of incorporation dated 06.02.2006. It filed application for registration u/s 12A of the Act in prescribed form No.10A on 05.12.2012 with the office of DIT(Exemption), Mumbai.
3.Ld. DIT (E), examined the objects of the assessee and found that the assessee and has been formed as an association ofgrocery merchant for the purpose of developing and promoting trade and commerce of grocery business and also for protecting the business interests of grocery merchants. It was held that though the applicant company has been setup for the advancement of an object of general public utility because the public in general is interested in promotion and protection of trade and commerce, however the applicant has mixed objects of charitable and non charitable objects. It was the further observed that some of the objects are directed towards looking after personal business interest of its members. Therefore, these objects are not covered within the ambit of ‘charitable purpose’ as defined u/s 2(15) of the Act. Thus,
3 Mumbai mudibazar I.T.A.No.5473/M/2013 the assessee is not entitled to benefit of registration u/s12A. Under these circumstances, application for grant of registration filed by the assessee was rejected by Ld. DIT(E).
During the course of hearing before us, Ld. Counsel vehemently assailed the order of the Ld. DIT(E). It was submitted that Ld. DIT(E) has himself admitted in the order that the objects of the assessee are meant for general public utility. Under these circumstances, Ld. DIT(E)misunderstood the facts of this case while observing that assessee had mixed objects of charitable and non charitable objects. He wrongly denied the benefit of registration. Once the objects are found to be of general public utility, the benefit of registration must be granted because AO has full liberty to examine whether assessee had carried out any business or that the funds of the assessee were used for any business purpose and if any such thing is found,he can very well refuse the benefit of the registration at that stage. However, the benefit of registration cannot be refused at this stage. He placed reliance upon the judgment of the Hon'ble’ Mumbai Bench of the Tribunal in the case of The Bengal Foundation(I.T.A.No. 1546/Mum/2013) order dated 30.09.2015 and Shri Vile Parle Vardhman Sthanatvasi Jain Foundation u/s DIT 151 ITD 142 (Mumbai)
5.Per contra Ld. CIT(DR) relied upon the impugned order and submitted that AO must be given full liberty to examine the eligibility of the exemption at the assessment stage.
We have gone through the orders passed by Ld. DIT(E). It is noted by us that the assessee has been formed as a company u/s 25 of companies Act, as association of Mumbai grocery merchant’s association. Ld. DIT(E) has gone through all the objects in the Memorandum of Association. He has also gone through various clauses of Articles of Association and after examining the 4 Mumbai mudibazar I.T.A.No.5473/M/2013 same, he was of the opinion that mostly objects of the assessee are of general public utility. He did not find anything in the Memorandum and Articles of Association which suggest that the association would be run like a business association. The only apprehension expressed by the Ld. DIT(E) is about the mixed nature of the objects. He is of the opinion that some of the objects indicate that the association shall work for protection of business interest of its members, which, according to him, would not be charitable and therefore, he refused the benefit of registration.
We do not agree with the approach adopted by the Ld. DIT(E). As per our understanding, the role assigned by the Legislature to Ld. DIT(E) at the time of granting of registration is to prima-facie examine if the objects fall into the definition of charitable purpose as defined u/s2(15) of the Act. Ld. DIT(E) is not granting, at this stage, the entitlement of benefit of exemption u/s 11 because the AO can at the stage of assessment also verify the nature of activities of the trust and application of income by the assessee. Reliance in this regard has been rightly made by the Ld. Counsel of the assessee upon the judgment of Mumbai bench of the Tribunal in the case of the Bengal Foundation,supra. Relevant portion of the same is reproduced is below:-
“We have considered the submissions of the parties and perused the material available on record. The learned DIT has refused to grant registration to the assessee under 117 section 12A of the Act basically for the following reasons:- '1 The assessee has mixed objects of both "charitable" and i) "non-charitable" nature; ii ) The trust deed authorizes the trustees to apply income /fund /trust even for non-charitable objects; and iii ) Activities of the trust was not yet started”.
5 Mumbai mudibazar I.T.A.No.5473/M/2013 “As far as the allegation that some of the objects are of non-charitable nature, it is to be noted, the Tribunal, Mumbai Bench, in Kanakia Art Foundation (supra), held the very same or almost similar objects to be of charitable nature and allowed assessee's claim of registration under section 12A. That being the case, respectfully following the decision of the co-ordinate bench of the Tribunal cited supra, we hold that the learned DIT's finding that the assessee trust is having non-charitable / business object cannot be accepted. As far as the allegation of the learned DIT that the assessee has not yet started its activities, hence, the genuineness of the activities cannot be ascertained, we must observe that the contention of the assessee that unless registration is granted, it is difficult to receive funds and start the activities in accordance with the objects merits consideration. Unless registration is granted to the assessee under section 12A of the Act, it is difficult on its part to get donations and voluntary contribution, hence, it cannot start its activities. Moreover, grant of registration under section 12 A of the Act does not make the trust/institution immune from further investigation. There are enough safeguards given under the statute to cancel the registration of trust or institution if subsequently it is found that the objects of the trust or institution are not charitable or the activities of the trust are not genuine or not in accordance with the objects of the trust. This is clear from the provisions contained under section 12AA(3) of the Act. Further, grant of registration under section 12A does not automatically entitle the assessee to avail exemption under section 11 unless he satisfies the conditions of sections 11,12 and 13 of the Act. At the stage of assessment also, the Assessing Officer can verify the genuineness of the activities of the trust and the application of income by the assessee. Therefore, considering the aforesaid aspects, were of the view that the impugned order passed by the learned DIT refusing to grant registration to the assessee cannot be sustained. Accordingly, we set aside the impugned order passed by the learned DIT and direct him to grant registration under section 12AA of the Act to the assessee. The ground raised by the assessee is allowed”.
Similarly in the case ofVile Parle Vardhman ,supra similar view has been taken by the Tribunal.
6 Mumbai mudibazar I.T.A.No.5473/M/2013 10. In the case before us, the admitted case is that the objects of the assessee are of general public utility. Under these circumstances the benefit of registration should not be refused to the assessee, since the grant of registration u/s 12 A does not automatically entitle the assessee to avail the benefit of the exemption u/s11 unless various conditions as stipulated u/s 11,12 and 13 of the Act are also satisfied. It is also well settled law and we clarify here also that at the stage of assessment also the AO can very well verify the nature of the activities carried out by the assessee and the application of its income towards its objects. Under these circumstances we set asideorders passed by Ld. DIT(E) and direct him to grant registration u/s 12 AA of the Act to the assessee.
As a result appeal filed by the assessee is allowed. Order was pronounced in the open court at the conclusion of hearing.