INDIAN REFRACTORY MAKERS ASSISIATION,KOLKATA vs. CIT(EXEMPTIONS), KOLKATA, KOLKATA

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ITA 2289/KOL/2016Status: DisposedITAT Kolkata19 April 2017AY 2014-159 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 the objects of the assessee are identical to those of the previously registered 'IRMA(old)', which was considered an institution for the charitable purpose of advancing general public utility. The Tribunal found no reason to deny the assessee registration on this basis. The Tribunal agreed with the assessee's contention that the dominant and prime objective should be considered, which is the advancement of the refractory industry in India, a general public utility. The fact that the assessee has a limited number of members does not negate the character of its object as being for general public utility. Therefore, the Tribunal held that the CIT(Exemption) was not justified in refusing registration under Section 12A. Consequently, the Tribunal directed that the registration under Section 12A and approval under Section 80G be granted to the assessee. No issue was expressly left undecided.

What were the facts?

The assessee, Indian Refractories Makers Association, incorporated as a Section 25 company on January 23, 2014, applied for registration under Section 12AA and approval under Section 80G of the Income Tax Act, 1961. The applications were rejected by the CIT(Exemption), Kolkata, by orders dated October 5, 2016. The assessee's objects are to promote the refractory industry in India, establish research centers, and provide infrastructure and training. The CIT rejected the applications, stating that the objectives do not qualify for general public utility as defined in Section 2(15) and that the activities are restricted to its members. The CIT also noted that the previous association, 'IRMA(old)', which had Section 12A registration, was not dissolved, and its assets and liabilities were taken over by the assessee without dissolving the old association.

What were the issues?

1. Whether the assessee's objects qualify for advancement of general public utility under Section 2(15) of the Income Tax Act, 1961, for the purpose of registration under Section 12AA. 2. Whether the assessee is entitled to registration under Section 12AA and approval under Section 80G of the Income Tax Act, 1961. Assessee's contentions: The assessee argued that its dominant and prime objective is not profit-making but the advancement of general public utility, specifically the promotion of the refractory industry in India. They relied on the identical nature of their objects to the previously registered 'IRMA(old)' and cited the Delhi High Court's decision in India Trade Promotion Organisation vs. DGIT (E) and the Kerala High Court's decision in Sree Anjaneya Medical Trust vs CIT, emphasizing that the genuineness of the trust and its charitable purpose should be examined. Revenue's contentions: The revenue, through the CIT(DR), placed strong reliance on the order of the CIT(Exemptions), Kolkata. The CIT(Exemptions) concluded that the assessee's objectives do not qualify for general public utility and that its activities are restricted to its members. The CIT also noted that the previous association, 'IRMA(old)', was not dissolved, and its registration benefits could not automatically extend to the assessee.

Which sections of the Income-tax Act were involved?

Section 12AA,Section 80G,Section 2(15),Section 12A,Section 11,Section 143(3)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “B” BENCH : KOLKATA

Before: Hon’ble Sri N.V. Vasudevan, JM & Dr.Arjun Lal Saini, AM]

Hearing: 10.04.2017Pronounced: 19.04.2017

IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH : KOLKATA [Before Hon’ble Sri N.V.Vasudevan, JM & Dr.Arjun Lal Saini, AM] Assessment Year : 2014-15 Indian Refractory Makers Association -vs.- C.I.T. (Exemption), Kolkata Kolkata [PAN : AADCI 6977 J] (Respondent) (Appellant) For the Appellant : Shri Sajjan Kumar Tulsiyan, Advocate For the Respondent : Shri Niraj Kumar, CIT(DR) Date of Hearing : 10.04.2017. Date of Pronouncement : 19.04.2017. ORDER Per N.V.Vasudevan, JM

These are appeals by the Assessee against two orders both dated 05.10.2016 of C.I.T(Exemption), Kolkata rejecting the assessee’s application for grant of registration u/s 12AA of the Income Tax Act, 1961 (Act) and rejecting the application for grant of approval u/s 80G of the Income tax Act, 1961 (Act) to the assessee.

2.

The facts and circumstances under which these appeals arise for consideration are as follows :- The Assessee is a company incorporated under the provision of the Companies Act, 1956 as a “Sec.25-Company” under the said Act on 23.01.2014. Since the assessee has objects of the nature specified in Section 25 (1)(a) of the Companies Act, 1956 and since it intends to apply its profits or other income in promoting its objects and since it prohibits the payment of any dividend to its members, the registrar of companies of West Bengal has granted registration to the assessee as a company licenced u/s 25 of the Companies Act, 1956 and consequently though the assessee is a limited liability company it need not have an additional word ‘company’ or “limited” to its name.

3.

The main objects of the assessee as per the objects of the Memorandum of Association are (a)To promote, support, protect, maintain, further, aid and stimulate the development of the Refractory industry in India.- (b) To establish research or study centres, laboratories and infrastructure to evolve improved designs, patterns, product range, raw materials for growth of refractory industries or undertake on behalf of the members of the company such analysis as may be required by them to facilitate them in their smooth conduct of business. (c) The Association shall function without any object or purpose of profit, and no moneys or surpluses may be distributed by way of dividends to the members, provided that there shall be no bar to payment of any genuine expenses by way of salary, remuneration, fees, etc· to any stipendiary, employees, legal counsel, Auditors, advisors, etc. in furtherance of the Association's object. (d) To establish, strengthen and up gradation of Human resource Development facilities including skill up gradation, training and like activities, common raw material bank including raw material procurement, Common Tool Room including common Testing Facility, marketing infrastructure and provision of information of all kinds to the industrial units and business centre and organize learning programme for the benefit of industries.

4.

The assessee made an application dated 06.04.2016 to C.I.T.(Exemptions), Kolkata for grant of registration as a charitable institution under clause (aa) of Sub- section (1) of Section 12A of the Act. The assessee also made an application dt. 06.04.2016 for grant of approval u/s 80G(5(vi) of the Act, whereby any person giving donation to the trust would be entitled to avail of tax exemptions on such donations.

3 Indian Refractories Makers Association A.Yr.2014-15 5. There was an association by name “Indian Refractory Makers Association”. This association came into existence by the efforts of four companies namely (i) Behar Firebricks & Potteries Ltd., (b) Burn & Co. Ltd., (c) Kumardhubi Fireclay & Silica Works Ltd., and (d) Reliance Firebrick & Pottery Co. Ltd who were in the business/industry of refractory making. This association which was registered with the Registrar of Societies as early as 27.01.1958 was granted registration u/s 12A of the Act by Commissioner of Income Tax, West Bengal-VII, Kolkata vide certificate registration dated 23.06.1983. The purpose of forming this association was to protect the interests of the refractory industry in India and development of the industry, furtherance of the common interests of those engaged in the industry and other objects. We will refer to this association as “IRMA(old)” to distinguish the same from the Assessee as both the names are identical. IRMA(old) was registered as an AOP with PAN AAATI 1163Q for income tax purposes. The last assessment of IRMA(old) as an AOP was completed u/s 143(3) of the Act by I.T.O. (Exemption) Ward -1(1) for A.Y.2013-14 on 18.03.2016 after allowing exemption u/s 11 of the Act.

6.

There is no evidence on record to show that IRMA(old) which as per the certificate of registration dated 23.06.1983 granted u/s 12A of the Act is stated to be a society registered with the Registrar of Societies as early as 1958 ceased to exist as a society at a later point of time. However, the chairman and other office bearers of IRMA(old) in a meeting of General Committee held on 18.03.2013 resolved that as per legal advice, the activities of IRMA (old) should be carried out by forming and registering as a non- profit company u/s 25 of the Companies Act, 1956. Accordingly the Assessee was formed and incorporated. Further the General Committee of IRMA (Old) also resolved in the meeting held on 18.3.2013 that the liability and assets of IRMA(old) which was formed on 27.01.1958 would be taken over by the assessee which would be registered u/s 25 of the Companies Act, 1956 without dissolving the old association formed on 27.01.1958. This resolution in our view cannot have the effect of putting an end to the 3

4 Indian Refractories Makers Association A.Yr.2014-15 status of IRMA(old) which was registered as a society in a manner known to law. Nevertheless the fact remains that this resolution will have the effect of assets and liabilities of IRMA(old) to vest with the assessee.

7.

It is also not disputed that the directors and members of the assessee were the chairman and executive of IRMA (old). The assessee has obtained PAN which is PAN:AADCI6977J.

8.

With the aforesaid background, the CIT(Exemptions)Kolkata examined the claim of the assessee for grant of registration u/s 12AA of the Act as well as approval u/s 80G(5)(vi) of the Act. The first conclusion of the CIT(Exemption) was that IRMA(old) was not dissolved and that for A.Ys.14-15 to 2016-17 the assessee did not enjoy the benefit of registration u/s 12A of the Act. According to the CIT(E) the benefit of registration granted to IRMA(old) cannot hold good for the assessee and to claim exemption u/s 11 of the Act, the assessee should get registration u/s 12A of the Act in its own name. This is the crux of the impugned order of the CIT(E) in para 1 to 6 of his order.

9.

Thereafter the CIT(E) expressed his opinion that the assessee is not entitled to have registration for the following reasons :- “8. Without prejudice to the above, from the submission dated 19-08-2016, the objectives of the Company, have been submitted as "to promote, support, protect, maintain, further, aid and stimulate the development of the Refractory Industry in India". From the website of the Company (www.irmaindia.org) . this is clear that, the services rendered by the. Company (Annexure D) is restricted to 75 manufacturing & 26 Associate members and the services are:-

a. providing trade information, b. representing to the authorities on issues of common concern to members, c. extending advisory services to the members on imports/export policy, d. legal aspects relating to taxes and duties, e. preparation of background notes and reports, 4

5 Indian Refractories Makers Association A.Yr.2014-15 f. publication of the quarterly IRMA Journal, g. organizing seminars and conferences on technical and management aspects.

From the objectives and services rendered, this is clear that, the objectives cannot qualify for general public utility as mentioned in Sec. 2(15) of the Income-tax Act, 1961.

Perusal of memorandum of association, study of the documents, accounts and the above discussion lead to an inescapable inference that in this instant case, i) the applicant Company has not paid the tax which was due. In course of proceeding I was driven to the conclusion that such non-payment of tax is in violation of the provisions of the Income Tax Act, 1961 and is not genuine activity. ii) The activities of the Company are restricted to 75 manufacturing & 26 Associate members.

Therefore, the application of the applicant filed in Form l0A for registration u/s. 12AA is rejected. It is held that the applicant Company i.e. INDIAN REFRACTORY MAKERS ASSOCIATION is not registered as a charitable institution u/s. 12AA of Income Tax Act, 1961.”

10.

As a consequence the approval u/s 80 G was also rejected. Aggrieved by the aforesaid orders the assessee has preferred the present appeals before the Tribunal.

11.

We have heard the rival submissions. The ld. Counsel for the assessee pointed out that the objects of IRMA(old) as well as the assessee are identical and there is no reason that the assessee should be denied grant of registration u/s 12AA of the Act. His next submission was that the objects of the Assessee as listed by CIT(Exemption) in the impugned order are extracted from the website of the assessee. It was submitted that CIT(E) had to examine the Memorandum of Association and Articles of the assessment of the assessee and not the one which is found in the website. It was further submitted by him that the allegation of CIT(A) in the impugned order regarding non-payment of tax by the assessee is without any basis as the assessee was entitled to exemption u/s 11 of the Act. With regard to the conclusion of the CIT(E) the activities of the assessee 5

6 Indian Refractories Makers Association A.Yr.2014-15 was restricted to 75 manufacturing and 26 Associate members, the ld. Counsel pointed out that the object of the assessee was overall infrastructural development of the Indian industry and industrial growth. The fact that the membership of IRMA had of course restricted to 75 manufacturing and 26 associate members that cannot make the objects of the assessee not for the general public utility. In this regard the ld. Counsel placed reliance on the decision of the Hon’ble Delhi High Court in the case of India Trade Promotion Organisation vs. DGIT (E) (2015) 371 ITR 333 (Del) wherein it was held that the dominant and prime objective has to be seen and if the dominant and prime objective of the institution is not profit making but advancing of general public utility then the institution has to be considered as established for charitable purpose. Reliance was also placed on the decision of the Hon’ble Kerala High Court in the case of Sree Anjaneya Medical Trust vs CIT(2016) 382 ITR 399 (Ker) wherein it was held that at the time of granting of registration u/s.12AA of the Act what is to be looked into is whether the trust is a genuine one and it is a sham institution floated only to avail the benefits of exemption under the Act. The ld. DR placed strong reliance on the order of CIT(Exemptions)Kolkata.

12.

We have given a very careful consideration to the rival submissions. At the outset, it will be worthwhile to analyse the parity of the objects between IRMA(old) and the assessee and the same is as follows :- AOP COMPANY The object of the Association are the (a) To promote, support, protect, maintain, protection of the interests of refractory further, aid and stimulate the development industry in India, the development of such of the Refractory industry in India. industry, the furtherance of the common (b) To establish research or study centres, interest of those engaged there in laboratories and infrastructure to evolve dissemination of technical information and improved designs, patterns, product range, matters of interest to the members and raw materials for growth of refractory honorary members as a whole or any other industries or undertake on behalf of the groups of members, the promotion and members of the company such analysis as formation of branches and any other may be required by them to facilitate on 6

7 Indian Refractories Makers Association A.Yr.2014-15 organization whether corporate or behalf of the members of the company incorporate for the said purposes of any of such analysis as may be required by them them, and generally to do or allow any act, to facilitate them in their smooth conduct natter or thing conductive to any of the of business. said subjects which may conveniently to (c) The Association shall function without be done in connection or conjunction any object or purpose of profit, and no therein. The Association shall function money or surpluses may be distributed by without any object or purpose of profit, way of dividends to the members, and no money or surpluses may be provided that there shall no bar to payment distributed by way of dividends to the of any genuine expenses by way of salary, members, provided that there shall no bar remuneration, fees, etc. to any stipendiary, to payment of any genuine expenses by employees, legal counsel, Auditors, way of salary, remuneration, fees, etc. to objects. advisors, etc. in furtherance of the any stipendiaries, employees, legal Association's objects. counsel, auditor's, advisors, etc. in (d) To establish, strengthen and up furtherance of the Association’s objects. gradation of Human Resource Development facilities including skill up gradation, training and like activities, common raw material bank including raw material procurement, Common Tool Room including common testing facility, marketing infrastructure and provision of information of all kinds to the industrial units and business centre and organize learning programme for the benefit of industry.

13.

It is clear from the objects of the IRMA(old) and the assessee that they are identical. It is not disputed that IRMA(old) was considered as an institution existing for charitable purpose of advancement of any other object of general public utility. In such situation we fail to see any reason as to why the assessee cannot be regarded as existing for charitable purpose of advancement of any other object of general public utility. The ld. DR placed emphasis on the profit motive which is the condition introduced in the proviso to section 2(15) of the Act. As rightly contended by the ld. Counsel for the assessee the dominant and the prime objective has to be seen. The dominant and prime objective of the assessee which cannot be denied is not profit making but for advancement of object of general public utility, viz., promotion of refractory industry in 7 8 Indian Refractories Makers Association A.Yr.2014-15 India. In the light of the existence of this primary condition for grant of registration, we fail to see any reason why the assessee should be denied registration u/s 12A of the Act. The fact that there will be only 75 manufacturing and 26 associate persons as members of the Assessee, cannot take away the character of the object of the Assessee being “advancement of objects of general public utility” as the Assessee’s objective was development of refractory industry and over all infrastructural development facilities. In that view of the matter, we hold that the CIT(Exemption), Kolkata was not justified in refusing to grant registration to the assessee u/s 12A of the Act. We hold that the assessee is entitled to grant of registration u/s 12A of the Act. The registration is directed to be allowed. Consequently the approval u/s 80G of the Act is also directed to be allowed.

14.

In the result both the appeals of the assessee are allowed.

Order pronounced in the Court on 19.04.2017.

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