Saktijit Dey, Member (J) -
(1.) THIS appeal of the assessee is directed against the order dated 27/09/2012 of the DIT(E), Hyderabad rejecting assessee's application for grant of registration u/s. 12A of the Act and approval u/s. 80G of the Act.
(2.) BRIEFLY the facts are, assessee is registered as a company under the Companies Act, 1956. Claiming itself to have been established for charitable purpose as defined u/s. 2(15) of the Act, assessee institution applied for registration u/s. 12A of the Act and also for approval u/s. 80G(G)(vi) before the DIT(E) on 05/10/2007. The DIT(E) vide order dated 26/03/2008 rejected assessee's application for grant of registration. Being aggrieved of such order of DIT(E), assessee preferred appeal before the ITAT. ITAT passed an order in ITA No. 1081/Hyd./2008 dated 06/10/2009 setting aside the order of DIT(E) and remitted the matter back to him with a direction to consider assessee's application for registration again independently on its own merits and decide the issue. Pursuant to such direction of ITAT, the DIT(E) initiated proceeding de -novo by issuing a notice to the assessee by calling upon it to produce books of account, financial statements and various other information and document. As noted by DIT(E) in the impugned order, in response to such notice, the appellant appeared before the DIT(E) and furnished information/documents called for. In course of the proceeding before the DIT(E), the appellant referring to the issues raised in the earlier order of the DIT(E) submitted that initially the company was incorporated with 2 directors who were foreign nationals. Subsequently, the board was reconstituted with 3 directors out of those, two are Indian nationals and 3rd Director is also a person of Indian origin. Further, referring to the objects of the company, which allowed extension of its activities to other countries apart from India, it was submitted that the company has no such intention to extend its activities outside India. The appellant also clarified, the objects of the company are not for commercial exploitation and it also stated that surplus funds are to be invested as per the provisions of section 11(5) of the Act. DIT(E) after considering the submissions of the appellant company vis -vis materials placed on record, however, rejected the application for grant of registration u/s. 12A of the Act and approval u/s. 80G. Being aggrieved of such order of rejection, assessee is in appeal before us. The learned AR submitted before us that the DIT(E) was not correct in rejecting the application for grant of registration on extraneous considerations when there is no allegation with regard to charitable object of the assessee or genuineness of its activities. It was contended that the object of the company being to improve public health, it clearly comes within the meaning of 'charitable purpose' as provided u/s. 2(15) of the Act. Contesting the finding of the DIT(E) that appellant company has been created with a commercial intention, it was submitted that there cannot be any assumption with regard to commercial intention as the assessee is a section 25 company, which indicates that it is not for profit. Therefore, the conclusion reached by the DIT(E) on presumptions and surmises cannot be a ground to deny registration. It was submitted that in absence of any profit motive or personal gain there can be no valid reason to conclude that assessee has commercial intention. In support of such contention, the learned AR relied on the decision of ICAI Accounting Research Foundation Vs. DIT, : 321 ITR 73 wherein it is held that there is no business unless there is profit motive. Further, referring to the decision of the Hon'ble Allahabad High Court in case of CIT Vs. Red Rose School, 212 CTR 394, it was contended that registration cannot be denied on apprehensions and surmises and section 12AA, does not speak anywhere that the CIT while considering the application for registration, shall also see that the income derived by the trust or the institution is either not being spent for charitable purpose or such institution is earning profit. It was submitted that dominant object of the assessee being to promote public health, which is a charitable object, assessee has to be regarded as a charitable institution. It was submitted that the DIT(E) was not justified in denying registration by referring to some incidental objects. In this context, learned AR referring to the decisions of the Hon'ble Supreme Court in case of Additional CIT Vs. Surat Ark Silk Cloth Manufacturers Association, : 121 ITR 1 (SC) and that of the Hon'ble Delhi High Court in case of ICAI Accounting Research Foundation Vs. DCIT (supra), contended that dominant object is to be considered and not incidental and ancillary objects and further there is no business unless there is a profit motive. So far as allegation of DIT(E) that assessee intends to carry out activities outside India and thereby utilize its surplus fund outside country, learned AR submitted that apart from carrying out activities as per its object in India, assessee has no such intention of extending its activities outside India, hence, there is no scope of infringement of section 11. Further, at the stage of grant of registration, the DIT(E) cannot examine assessee's entitlement u/s. 11. With regard to allegation of DIT(E) that assessee has not carried out any charitable activity independently, learned AR submitted that while coming to such conclusion DIT(E) has completely misconceived the facts. It was submitted that DIT(E) has completely overlooked the fact that there is no surplus but deficit of Rs. 1.14 crores. That besides, appellant company has its own separate legal existence and has carried out only such projects which are assigned to the company in the year under consideration. In any case, for the purpose of granting registration, the activities undertaken is not a relevant consideration, as the registering authority is only required to look at the objects of the trust and genuineness of the activities. In support of such contention, learned AR again referred to the decision of the Hon'ble Delhi High Court in case of ICAI Accounting Research Foundation Vs. DCIT (supra). The learned AR further submitted when the assessee has submitted all documents and informations called for in course of the proceeding, the DIT(E) without seeking clarification on the doubts entertained by him should not have rejected the application for registration. The learned AR submitted that so far as the objects of the assessee are concerned, there cannot be any doubt with regard to charitable nature as it caters to the needs of 54 villages in the rural Andhra Pradesh so far as health is concerned. It was, therefore, submitted that the order of the DIT(E) being contrary to the statutory provisions should be vacated.
(3.) THE learned DR, on the other hand, relied upon the orders of the DIT(E).;