THE EURO INDIA CENTRE (INDIA),MUMBAI vs. DIT (E), MUMBAI

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ITA 5201/MUM/2014Status: DisposedITAT Mumbai16 March 20165 pages
AI SummaryRemanded

What did the Tribunal hold?

The Tribunal held that the non-resident status of the directors of the company is not a valid ground for refusing registration under Section 12A of the Income Tax Act, 1961. The Tribunal reasoned that the company itself is an Indian resident, being incorporated under the Indian Companies Act, 1956, and it is the company that is seeking registration. The Tribunal further noted that the DIT(E) failed to examine the primary conditions for registration under Section 12AA, namely, the charitable nature of the assessee's objects and the genuineness of its activities. The DIT(E) had not made any observations on these crucial aspects. Consequently, the Tribunal set aside the impugned order of the DIT(E) and restored the matter to his file for fresh adjudication. The DIT(E) was directed to decide the application afresh after providing the assessee with due opportunity of being heard and after verifying the charitable nature of the objects and the genuineness of the activities. The Tribunal clarified that if these conditions are met, registration must be granted.

What were the facts?

The assessee, The Euro India Centre (India), a company incorporated under the Indian Companies Act, 1956, applied for registration under Section 12A of the Income Tax Act, 1961. The Director of Income Tax (Exemption) [DIT(E)], Mumbai, rejected the application. The DIT(E)'s primary reason for rejection was that two of the company's directors were non-residents. The DIT(E) reasoned that directors of charitable companies should have permanency of residential status and that non-citizens face restrictions in holding property in India, drawing an analogy with non-resident trustees being barred under the Bombay Public Trusts Act, 1950. The assessee contended that being a Section 25 company, it is entitled to registration and that the non-resident status of its directors should not be a ground for denial. The revenue supported the DIT(E)'s action.

What were the issues?

1. Whether the non-resident status of directors of a Section 25 company is a valid ground for rejecting an application for registration under Section 12A of the Income Tax Act, 1961? (Question of law) Assessee's contentions: The assessee argued that as a Section 25 company, it is eligible for registration under Section 12A. It contended that the non-resident status of its directors is not a valid reason to deny registration under Section 12AA, as the company itself is seeking registration. The assessee sought to set aside the order with a direction to grant registration. Revenue's contentions: The Revenue supported the action of the learned DIT(E), implying that the non-resident status of directors was a valid ground for rejection.

Which sections of the Income-tax Act were involved?

Section 12A,Section 12AA

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “E” BENCH, MUMBAI

Before: SHRI SAKTIJIT DEY & SHRI RAMIT KOCHAR

For Appellant: Shri C.V. Dharkar
For Respondent: Shri Ritesh Misra

This appeal is directed against the order dated 26th June 2014, of learned Director of Income Tax (Exemption) [for short “the learned DIT(E)]”, Mumbai, rejecting assessee’s application for grant of registration under section 12A of the Income Tax Act, 1961 (for short "the Act").

2.

Briefly stated the facts are, assessee is a company incorporated under Indian Companies Act, 1956, and registered with Registrar of 2 The Euro India Centre (India) Companies, Mumbai. The appellant made an application in the prescribed manner seeking registration under section 12A of the Act. After receiving the application, the learned DIT(E), issued a notice to the assessee requiring it to furnish certain details / documents like PAN , copy of bank account, no objection certificate in respect of office premise, certificate of registration issued by the Charity Commissioner, copy of audited accounts and note on activities undertaken by it. Subsequently, learned DIT(E) noticing that both the directors of the company are non–residents called upon the assessee to explain why its application for registration should not be rejected. Though, assessee submitted a detailed explanation objecting to the proposed action of the learned DIT(E) but rejecting the submissions of the assessee, he passed the impugned order refusing to grant registration under section 12A of the Act. While doing so, learned DIT(E) observed as under:–

“4. I have carefully perused the submissions made by the applicant company but the same are not acceptable as two of its directors viz. Mrs. Colette Mathur and Mr. Michel Sabatier are Non–Residents/foreign Nationals/Not Indian Citizens. It is pertinent to mention that the assessee of any charitable company or for that matter a director of a Section 25 company lies in its characteristic of permanency of the residential status / availability of at all times of its director. The possibility of such a company cannot be conceived wherein the tenure / residency of its director does not exist / is not predicable. Furthermore, the director of a charitable company is a holder of a property. Therefore, his capacity to be a director they will depend upon the law as to whether an alien / director can hold property in 3 The Euro India Centre (India) India. In India there are restrictions for non-citizens to hold property. In this connection, it would not be out of place to mention that the applicant company is a Section 25 Company, a Company which has a charitable entity as that of a Public Charitable Trust under the B.P.T. Act, 1950. Even in case of Public Charitable Trust non-resident trustees are barred from becoming trustees under the provisions of Section 47(1)(b) & (c) of the B.P.T. Act, 1950 taking into consideration their residential status / availability for performance of charitable duties. Therefore, the company does not qualify for grant of registration u/s 12A of the I.T. Act.”

3.

Learned Authorised Representative submitted, assessee is a section 25 company under Companies Act, 1956, therefore, it is entitled for registration under section 12A. He submitted, only because the directors of company are non–residents, it cannot be a reason on the deny registration under section 12AA. He, therefore, submitted as the ground on which the learned DIT(E) has refused to grant registration is an invalid ground, the order should be set aside with a direction to grant registration under section 12AA.

4.

Learned Departmental Representative, however, justified the action of the learned DIT(E).

5.

We have considered the submissions of the parties and perused the material available on record. There is no dispute to the fact that assessee is a section 25 company incorporated under Companies Act, 1956, and has been registered with Registrar of Companies. Therefore, for all intent and purpose, the appellant is a resident of India. That 4 The Euro India Centre (India) being the case, only because the directors of the company are non– residents, as alleged by the learned DIT(E), on that basis alone, registration under section 12AA cannot be refused to the company as it is the company which is seeking registration under section 12A. Moreover, on a careful reading of section 12AA of the Act, it is evident that the registering authority at the time of grant of registration has to be satisfied with two conditions, viz. objects of the trust and genuineness of its activities. If the objects of the trust are of charitable nature and its activities are genuine, then the registering authority has to grant registration under section 12AA. On a perusal of the impugned order of the learned DIT(E), it is evident that he has not whispered a word either about the object of the assessee company or the genuineness of its activities. It is not forthcoming whether the learned DIT(E) has at all examined these two aspects which are the primary conditions for grant of registration under section 12AA. On the contrary, he has refused registration on the ground that two of the directors are non–residents. In our view, the reasons shown for refusing registration are not at all valid reasons, hence, cannot be supported. However, considering the fact that learned DIT(E) has not examined application of the assessee the Assessing Officer in terms of section 12AA by verifying the objects of the society and genuineness of its activities, we are inclined to set aside the impugned order of the 5 The Euro India Centre (India) learned DIT(E) and restore the matter back to his file for deciding afresh after due opportunity of being heard to the assessee. We make it clear, if it is established that assessee’s objects are of charitable nature and its activities are genuine, then the learned DIT(E) must grant registration in terms of section 12AA of the Act.

6.

In the result, appeal is allowed for statistical purposes. Order pronounced in the open Court on 16.03.2016

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