CASE LAWS
SUBJECT : CHARITABLE PURPOSE
SECTION : 12A
FAVOUR OF : ASSESSEE
ITAT CHANDIGARH BENCH ‘B, CHANDIGARH
SARBAT THE BHALA GURMAT MISSION CHARITABLE TRUST V/S CIT (EXEMPTIONS)
SMT.ANNAPURNA GUPTA, A M AND SHRI R.L. NEGI, J M
ITA No. 297/Chd/2020 (A Y: 2020-21)
30.03.2021
(Hearing through webex)
ORDER
Per Annapurna Gupta , Accountant Member :
The appeal filed by the assessee is directed against the order of Learned Commissioner of Income Tax (Exemptions) [in short the ‘ Ld.CIT(E)], Chandigarh dated 18.05.2020 ,denying grant of registration u/s 12A of the Income Tax Act, 1961 (in short ‘the Act’) as a charitable society.
2. The facts, as find mention in the order of the Ld.CIT(E), are that the assessee is a trust in operation since 30.12.2014 and had applied for grant of registration u/s 12AA,as a charitable society for the purposes of claiming exemption of its income u/s 11 & 12 of the Act ,on 02.11.2019. The Ld.CIT(E) after calling for requisite information and making due enquiries, denied registration for the reason that the objects of the trust provided for operations being carried out/extended outside India also. The Ld.CIT(E) observed that the Act rules out grant of exemptions of incomes applied for charitable purpose outside India, allowing operation outside India only for limited purpose subject to approval by the Central Board of Direct Taxes. Accordingly, he derived from the same and held that the activities of a trust can be treated as charitable only when its income is applied for the activities carried out in India only. For the aforesaid reasons he denied grant of registration u/s 12A of the Act to the assessee. The relevant findings of the CIT(E) at paras 5 and 6 of the order are as under:
“5. In response to the fixation letter dated 20.12.201J, the applicant trust has not submitted the reply. The reminder was issued on 15.01.2020 to the trust to submit the reply to questionnaire on or before 24.01.2020. In response, the applicant trust has submitted the response online on ITBA. On perusal of the trust deed of the trust provided in the submission, it is noticed that operation will be extended outside INDIA also which mentioned at Sr. no. 7(r) of the objects incidental or ancillary to the attainment of the main objects & same are reproduced as under:
"7(r). To open branches of trust in India and Abroad. "
As per section 11(1) (c) of the income tax Act, any income applied on activities outside India is not eligible for exemption. A charitable organization cannot have activity outside India unless it happens to be a trust/company/society created before 1-4-1952 or it is engaged in promotion of international welfare in which India is interested. In other words, NGOs registered after 1-4-1952 are not allowed to have any international activity unless such activity is specifically exempted by CBDT.
Provisions of section 11 (1 )(c) are as under:
(c) Income derived from the property held under trust-
* Created on or after the 1st day of April, 1952 for a charitable purpose which tends to promote international welfare in which India is interested, to the extent to which such income is applied to such purposes, outside India, and
* For charitable or religious purposes, created before the 1st day of April, 1952, to the extent to which such income is applied to such purposes outside India:
Provided that board, by general or special order, has directed in either case that all not be included in the total income of the person in receipt of such income.
It is also worthwhile to mention that the activities will be treated as charitable when the expenses incurred on such activities will be borne by the applicant in INDIA only.
6. In view of the above, the present application for grant of registration u/s 12AA is hereby rejected.”
3. Aggrieved by the same the assessee has come up in appeal before us. He has raised the following grounds:
“1. That the Ld. Commissioner of Income Tax Exemptions Chandigarh has wrongly rejected the registration u/s 12AA of Income Tax Act simply on the basis of general clause at sr no 7 in objects clause i.e To Open branches of trust In India or Abroad without appreciating the fact that the appellant trust has neither incurred any expenses outside India nor intention to incur expenses abroad.
2. That the Ld. Commissioner of Income Exemptions Chandigarh has wrongly rejected the registration u/s 12AA of Income Tax Act particularly in view of fact that the appellant had given complete details to Ld. CIT and there is no material pointed out by Ld. CIT that the appellant had incurred any expenses outside India & he simply rejected registration on the basis of clause for opening of branches outside India & there is no provision in trust deed that the appellant society shall incur any expenses outside India out of funds collected from India & also there is no prohibition under Income Tax to open branches outside India.
3. That the Ld. Commissioner of Income Exemptions Chandigarh has wrongly rejected the registration u/s 12AA of Income Tax Ac during lockdown period and before 1-6-2020 hurriedly in order to avoid of benefit granted by Finance Act 2020 to appellant trust.
5. That the Assessee craves for permission to add, amend, alter or withdraw any grounds of appeal with approval of the hon'ble bench.”
4. During the course of hearing before us, the Ld.Counsel for the assessee contended that the Ld.CIT(E),while denying grant of registration, had referred to the provisions of section 11 of the Act which denied exemption to incomes applied outside India for charitable purposes, which provision was applicable only while computing or determining the exempt income of entities which qualified for the same under the section. That for the purpose of grant of registration the Ld.CIT(E) was only required to consider the genuineness of the objects and activities of the applicant trust or entity, whether they qualify as existing for “charitable purpose” as defined under the Act in section 2(15) of the Act. Drawing our attention to the same, the Ld.Counsel for the assessee pointed out that the definition of “charitable purpose” nowhere restricted the carrying out of charitable activities within the geographical boundary of India alone. Therefore, while granting registration the possibility of the applicant trust carrying out the activities outside India cannot lead to the conclusion that it is not in existence for charitable purpose at all and, therefore, registration cannot be denied for the said reason. He contended that it is only when the quantum of income exempt is to be determined, that the factum of income applied for charitable activities outside the India would be relevant for the purposes of excluding the same for exemption. He pointed out that this issue has been dealt with in various judicial decisions in favour of the assessee as under:
1) MK Nambyar SAARC Law Charitable Trust Vs. Union of India & Others (Del)
2) Foundation for Indo-German Studies Vs. Director of Income-Tax (Exemptions) (Hyd)
3) National Informatics Centre Services Inc. Vs. DIT(Exemption) (New Delhi)
Copies of the aforesaid orders were placed before us. He further contended that in any case carrying out activities outside India was not its main object but only incidental and the applicant primarily would carry out its activities in India only.
5. The Ld. DR, on the other hand supported the order of the Ld.CIT(E).
6. We have heard both the parties. The issue before us relates to grant of registration u/s 12AA of the Act, for the purposes of claiming exemption u/s 11 & 12 of the Act of incomes applied for charitable purposes.
7. The applicant assessee in the present case has been denied registration for the reason that its incidental and ancillary objects included carrying out the activities outside the India. The Ld.CIT(E) has held that for the aforesaid reason the assessee cannot be said to be indulging in charitable activities. And for holding so he has referred to the provisions of section 11(1)(c) of the Act.
8. The primary argument of the assessee against the order of the Ld.CIT(E) is that for the purposes of granting registration only the conditions mentioned in section 12AA need to be fulfilled and the provisions of section 11(1)(c) are not relevant for the said purpose, being applicable only while determining the income entitled to exemption u/s 11 of the Act. That in any case carrying out charitable activities outside India was not the sole or main object but only incidental/ancillary object of the applicant assessee.
9. What is therefore to be decided is whether the law provides for any such geographical limitation in carrying out charitable activities for the purposes of recognising an entity as charitable and eligible for registration as such u/s 12A of the Act. We have gone through the provisions of the Act relating to charitable entities, relevant for adjudicating the issue before us, i.e section 11, 12, 12A,12AA & 2(15) of the Act. While section2(15) defines charitable purposes, section 11 exempts incomes, derived from properties held under trust, to the extent applied for charitable purposes. Section 12A imposes the requirement of seeking registration for the purposes of availing the exemption u/s 11, and the process of granting registration is governed by section 12AA. Since in the present case registration has been denied u/s 12AA of the Act, relying upon provisions of section 11, it is relevant to reproduce both the aforesaid provisions for adjudicating the issue.
“12AA. (1) The [Principal Commissioner or] Commissioner, on receipt of an application for registration of a trust or institution made under clause (a) [or clause (aa) [or clause (ab) of sub-section (1)] of section 12A, shall—
(a) call for such documents or information from the trust or institution as he thinks necessary in order to satisfy himself about the genuineness of activities of the trust or institution and may also make such inquiries as he may deem necessary in this behalf; and
(b) after satisfying himself about the objects of the trust or institution and the genuineness of its activities, he-
(i) shall pass an order in writing registering the trust or institution;
ii) shall, if he is not so satisfied, pass an order in writing refusing to register the trust or institution,
and a copy of such order shall be sent to the applicant :
Provided that no order under sub-clause (ii) shall be passed unless the applicant has been given a reasonable opportunity of being heard.”
“Income from property held for charitable or religious purposes.
11. (1) Subject to the provisions of sections 60 to 63, the following income shall not be included in the total income of the previous year of the person in receipt of the income—
(a) income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India; and, where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of fifteen per cent of the income from such property;
(b) income derived from property held under trust in part only for such purposes, the trust having been created before the commencement of this Act, to the extent to which such income is applied to such purposes in India; and, where any such income is finally set apart for application to such purposes in India, to the extent to which the income so set apart is not in excess of fifteen per cent of the income from such property;
(c) income derived from property held under trust—
(i) created on or after the 1st day of April, 1952, for a charitable purpose which tends to promote international welfare in which India is interested, to the extent to which such income is applied to such purposes outside India, and
(ii) for charitable or religious purposes, created before the 1st day of April, 1952, to the extent to which such income is applied to such purposes outside India:
Provided that the Board, by general or special order, has directed in either case that it shall not be included in the total income of the person in receipt of such income;
(d) income in the form of voluntary contributions made with a specific direction that they shall form part of the corpus of the trust or institution.”
10. As per section 12AA of the Act, the Commissioner, while considering the application of the trust/societies, has to satisfy himself regarding the genuineness of the objects and the activities of the trust/societies, whether they are for charitable purposes or not. Charitable purpose is defined u/s 2(15) of the Act as under:
“S .2(15)
(15) Charitable purpose includes relief of the poor, education, [yoga,] medical relief, [preservation of environment (including water-sheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest,] 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 involves the carrying on of any activity in the nature of trade, commerce or business, of 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 of application, or retention, of the income from such activity, unless—
(i) such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility and
(ii) the aggregate receipts from such activity or activities during the previous year, do not exceed twenty per cent of the total receipts, of the trust or institution undertaking such activity or activities, of that previous year;]]”
11. As is evident from the above, the section lists various activities which qualify as charitable purpose but there is no restriction to the scope of such activities within the geographical boundary of India. It is only section 11,as reproduced above, which places a geographical restriction allowing exemption only to incomes applied to charitable purposes in India. But even the said section does not completely rule out exemption to incomes applied outside India for charitable purposes, granting exemption to certain such applications, as mentioned in section 11(1)©,subject to being approved by the Board.
12. As is evident from the above, in the scheme of the Act, incomes applied outside India for charitable purposes are not completely and categorically ruled out from being eligible for grant exemption.
13. The Ld.Pr.CIT’s order ,in the present case, therefore denying registration to the applicant assessee merely for the reason that its objects included application of income outside India, we hold, is not in accordance with law.More particularly when, admittedly, this was not the sole and main object of the applicant assessee, but only its ancillary and incidental object. It is not the case therefore that there is to be no application of income within India at all as per the objects. In fact the main object of the applicant assessee involves carrying out charitable activities in India. In this factual situation, denying registration u/s 12AA of the Act, for the reason that its incidental object entailed application of income outside India, we find, would result in the assessee being denied exemption to income applied in India, which it would otherwise be entitled to under law.
14. Further as rightly pointed out by the Ld.Counsel for the assessee, the provisions of section 11(1)(c) of the Act, which the Ld.CIT(E) has relied upon for holding that only activities carried out in India will qualify as charitable for grant of registration, is only for the purpose of determining the income which qualifies for exemption u/s 11 of the Act. The said section comes into operation only once registration is granted u/s 12A of the Act and therefore cannot be relevant for the purposes of granting registration u/s 12A of the Act. The scheme of the Act is that all entities carrying out charitable activities, as defined in section 2(15) of the Act, qualify to be registered as charitable entities subject to satisfaction of the concerned officer vis a vis their objects and activities, but the exemption is provided/restricted only to the extent of income which is applied for charitable purpose in India.
15. The issue we find, is squarely covered in favour of the assessee by the decisions relied upon by the Ld.Counsel for the assessee before us. In the case of MK Nambyar SAARC Law Charitable Trust (supra), we find, the application for grant of registration was rejected on the ground that the applicant itself had admitted that the scholarship could be paid to members even outside India. The Hon'ble High Court held that the application of income outside India is not a relevant criteria for rejecting the application for grant of registration u/s 12AA of the Act and the officer has to only restrict himself to the satisfaction about the objects and genuineness of the activities of the trust while granting registration with no restriction on the activities being carried out inside or outside India. The relevant findings of the Hon’ble High Court is as under:
“The judgment of the court was delivered by B.C. Patel C.J. - M.K. Nambyar SAARC Law Charitable Trust has filed this petition against the order made by the Director of Income-tax (Exemptions) New Delhi, on February 24, 2004. The aforesaid trust submitted two applications in Form No. 10A for registration under section 12A and recognition under section 80G of the Income-tax Act, 1961 (hereinafter referred to as "the Act"). The application was rejected on the ground that the applicant itself has admitted that the scholarships can be paid to the members even outside India. It is in view of this admission that the activities will be extended outside India as per the objects laid down, it was held that the registration cannot be granted under section 12A of the Act and the approval of exemption under section 80G also cannot be granted.
Section 11 of the Act refers to income from property held for charitable or religious purposes. The relevant provisions are reproduced hereunder:
"11. (1) Subject to the provisions of sections 60 to 63, the following income shall not be included in the total income of the previous year of the person in receipt of the income-fa) income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India; and, where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of fifteen per cent, of the income from such property; . .
(a) income derived from property held under trust-
(b) (i) created on or after the 1st day of April, 1952, for a charitable purpose which tends to promote international welfare in which India is interested, to the extent to which such income is applied to such purposes outside India, and
(c) (ii) for charitable or religious purposes, created before the 1 st day of April, 1952, to the extent 1o which such income is applied to such purposes outside India:
(d) Provided that the Board, by general or special order, has directed in either case that it shall not be included in the total income of the person in receipt of such income;. .."
(e) So far as the benefit of section 11 (1 )(a) is concerned, it can be extended only to the extent to which such income is applied to such purposes in India. However, if the income is applied to the purposes outside India, then clause (c) will be applicable and if the permission is granted by the Board either by general or special order then, benefit can be extended. Section 12AA prescribes the procedure for registration. Reading the section, it becomes clear that after the application is made, the officer has to call for documents or information from the trust to satisfy himself about the genuineness of the activities of the trust, He can make further enquiry as he may deem necessary. It is only after satisfying himself about the objects of the trust and the genuineness of its activities that he has to pass an order in writing registering the trust or institution. And if he is not satisfied, he can reject the same. This section does not refer to the activities in India or outside India. It refers to application of income for charitable or religious purposes in India as also with direction or order of the Board for application of income as aforesaid outside India. Reading the order dated February 24, 2004, it is very clear that there is non-application of mind, it was necessary for the Commissioner to examine the purpose for satisfying himself that the activities are genuine. It was open for him to make necessary enquiries in this behalf and to pass an order as per the procedure laid down under section 12AAof the said Act. So far as income which is applied outside India is concerned, it is not a relevant criteria for rejecting the application. In the absence of an order under section 11(1)(a) and (c), one cannot seek benefit for application of income for charitable or religious purposes, outside India. Therefore, the order dated February 24, 2004 made by the Director of Income-tax (Exemptions), annexed at page 32, which is based on irrelevant criteria is quashed and set aside with a direction to consider the application strictly in accordance with law. It is made clear that even the application under section 80G is required to be considered afresh. It is directed that the applications shall be disposed of within a period of four weeks by the Commissioner.”
16. The aforesaid decision of the Hon'ble Delhi High Court has been followed by the Coordinate Benches of the Tribunal in the case of National Informatics Centre Services Inc. (supra).
17. In view of the above, the order passed by the Ld.CIT(E) denying registration u/s 12A of the Act is set aside and the Ld.CIT(E) is directed to grant registration as applied for by the assessee.
18. In the result, the appeal of the assessee is allowed.
Order pronounced on 30.03. 2021.
