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2016 Supreme(P&H) 1851
IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH
S.J. VAZIFDAR & DEEPAK SIBAL, JJ.
Commissioner of Income Tax, Faridabad - Appellant
Versus
IILM Foundation Academy, Gurgaon - Respondent
I.T.A. No. 198 of 2011
Decided On : 16-09-2016
For the Appellant :Mr. Denesh Goyal, Advocate.
For the Respondent:Mr. Rohit Jain, Advocate.
The dominant purpose of an institution or Trust must be charitable, and ancillary objects must be merely incidental to the main charitable objects to qualify for registration and exemption under the Income Tax Act.
Headnote:
Income Tax Act - Registration under Section 12-AA - Section 11, Section 12, Section 25 of the Companies Act - Summary: The court analyzed the eligibility of the assessee for registration under Section 12-AA and exemption under Section 80-G of the Income Tax Act. The court discussed the main and ancillary objects of the Company, the definition of 'charitable purpose' under Section 2(15) of the Act, and relevant case laws to determine the charitable nature of the Company's activities. The court emphasized that the dominant purpose of the Company was to impart education on a non-commercial basis, and the ancillary objects were merely incidental to the main charitable objects. The court held that the Company was eligible for registration and exemption under the Act.
Fact of the Case:
The Company applied for registration under Section 12-A(1)(a) of the Income Tax Act, which was rejected by the Commissioner on the grounds that the ancillary objects of the Company were not charitable and permitted non-charitable activities.
Finding of the Court:
The Tribunal held the Company eligible for registration under Section 12AA and exemption under Section 80-G, emphasizing that the main objects of the Company were charitable and the ancillary objects were incidental to the attainment of the main objects.
Issues: The main issue was the eligibility of the Company for registration under Section 12-AA and exemption under Section 80-G of the Income Tax Act based on its main and ancillary objects.
Ratio Decidendi: The court applied the test of whether the dominant purpose of the Company was charitable and whether the ancillary objects were merely incidental to the main charitable objects to determine its eligibility for registration and exemption under the Act.
Final Decision: The court dismissed the appeal and ordered the granting of registration to the Company, subject to conditions binding the Company to engage only in charitable activities and to utilize surplus funds for educational purposes.
DEEPAK SIBAL, J.
1. Under Section 260-A of the Income Tax Act, 1961 (for short – the Act), the present appeal has been filed at the instance of the Revenue to challenge therein the order passed by the Income Tax Appellate Tribunal, Delhi Bench “C”, New Delhi (for short – the Tribunal), through which, the Tribunal, while setting aside the order of the Commissioner of Income Tax, Faridabad (for short – the Commissioner), has held the assessee eligible for registration under Section 12-AA as also for exemption under Section 80-G of the Act.
2. The appeal was admitted on the following substantial question of law :-
“Whether the Ld. ITAT was right in holding that since it has been held that the assessee is eligible for registration u/s 12AA of the Income Tax Act, 1961 whereas the CIT in his order u/s 12AA dated 21.12.2009 of the Income Tax Act, 1961 has given a detailed finding that the nature of the income derived or derivable would not be exempt u/s 11 & 12 of the Income Tax Act, 1961 ?”
3. After traversing the record, the relevant facts which have emerged, are that the assessee, which is a Company incorporated under Section 25 of the Companies Act, 1956 (for short – the Companies Act), to become eligible for the grant of exemption under Section 11 of the Act, made an application under Section 12-A(1)(a) of the Act for registration, which was rejected by the Commissioner as he was of the view that the ancillary objects of the respondent (hereinafter referred to as – the Company) empowered its members to invest and utilize its funds in the manner they wanted to. He also found ample scope with the members to utilize the funds of the Company in pursuance to its ancillary objects, which, according to him, were alien to its main object of imparting education. The Commissioner was further of the opinion that the ancillary objects permitted the Company to carry on activities in the nature of trade, commerce or business. Such powers with its members through the Company's ancillary objects were found by the Commissioner to be repugnant to the Company's main object of imparting education. The Commissioner was also of the view that the ancillary objects would be pursued by its members independent of its main objects, as also against the provisions of the license granted under Section 25 of the Companies Act. In view of the aforesaid reasons, holding that the Company was not perfectly constituted to advance charitable activities, the Commissioner refused to register the Company under Section 12AA of the Act.
4. The order of the Commissioner was taken up in appeal by the Company before the Tribunal. The Tribunal applied the pre-dominant test and by holding that the main objects of the Company were to impart education to be carried on a non-commercial basis and that all its ancillary objects were incidental to the attainment of the main objects, over-ruled the view taken by the Commissioner. The Tribunal further placed reliance upon the license granted by the Government of India to the Company under Section 25 of the Companies Act to hold that the sole object of the Company was to impart education on a non-commercial basis. Drawing a distinction between primary and enabling objects, the Tribunal held the Company eligible for grant of registration under Section 12AA of the Act and as a consequence thereof, for exemption under Section 80-G of the Act.
5. It is in the above background that the Revenue has preferred the present appeal raising therein the afore-quoted substantial question of law.
6. Clause III of the 'Memorandum of Association' (hereinafter referred to as – the Memorandum) of the Company, which contains its objects, reads as under :-
“A. THE MAIN OBJECTS TO BE PURSUED BY THE COMPANY ON ITS INCORPORATION ARE :
1. To Promote Education in the field of Art, Commerce, Science by establishing, running institutes including primary, secondary, senior, graduate, postgraduate, technical, vocational, training and management levels schools, c
