Section 12AA Registration Granted to Society Promoting Technology Business Incubators and Start-ups

By | January 24, 2025
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Section 12AA Registration Granted to Society Promoting Technology Business Incubators and Start-ups

Summary in Key Points:

  • Issue: Whether a society engaged in promoting technology business incubators and raising funds for start-ups can be considered to have charitable purposes and be eligible for registration under Section 12AA of the Income-tax Act, 1961.
  • Facts: The assessee-society, registered under the Chhattisgarh Society Registration Act, 1973, aimed to implement State Policy, establish technology business incubators, and raise funds for start-ups. The Commissioner denied registration under Section 12AA, claiming the society’s activities were commercial in nature. However, the Tribunal overturned this decision and granted registration.
  • Decision: The High Court upheld the Tribunal’s decision, confirming that the society’s activities were for charitable purposes and of general public utility, thus qualifying for registration under Section 12AA.

Analysis:

The High Court ruled in favor of the assessee-society, confirming the Tribunal’s directive to grant registration under Section 12AA. The court emphasized the following:

  • Charitable Purpose: The society’s activities, while involving technology business incubation and fundraising, were ultimately aimed at promoting economic development and benefiting the public at large.
  • General Public Utility: Establishing technology business incubators and supporting start-ups contribute to innovation, job creation, and overall economic growth, fulfilling the criteria of general public utility.
  • Not Trade, Commerce, or Business: The Commissioner’s view that the society’s activities were commercial in nature was incorrect. The society was not engaged in profit-making activities for its own benefit.

Important Note: This case broadens the understanding of charitable purposes under the Income-tax Act, 1961. It recognizes that activities promoting innovation, economic development, and public welfare can be considered charitable, even if they involve elements of business or commerce. This decision encourages the formation and registration of organizations that contribute to societal good, even if their activities are not traditionally seen as charitable.

HIGH COURT OF CHHATTISGARH
Commissioner of Income-tax (Exemption)
v.
AIC@36Ince
SANJAY K. AGRAWAL and Radhakishan Agrawal, JJ.
Tax Case No.20 of 2023
DECEMBER  4, 2024
Amit Chaudhari, Standing Counsel and Vijay Chawla, Adv. for the Appellant. Shobhit Mishra, Adv. for the Respondent.
Judgment
Sanjay K. Agrawal, J. – This tax appeal under Section 260A of the Income Tax Act, 1961 (for short, ‘the IT Act’) was admitted for hearing on 2-8-2023 by formulating the following substantial question of law: –
“Whether on facts & circumstances of the case, ITAT is correct in directing to CIT(E) to grant registration u/s 12AA of the Act irrespective of the findings by the CIT (E) that the activities of the trust is in the nature of trade, commerce or business and covered by proviso to Section 2 (15) of the Act.”
2. The respondent herein / assessee had filed an application on 4-72018 for grant of registration under Section 12AA of the IT Act in Form No.10A, as the assessee Society was registered with the Deputy Registrar of Societies on 30-6-2017 under the Chhattisgarh Society Registration Act, 1973 and the main area of activities claimed to be conducted by the Society are, to implement the Chhattisgarh Innovation & Entrepreneurship Policy, 2015; to establish Accelerators/Technology business Incubators in the State; to start up incubated in the State to have funding raised from Venture Capitalists, Financial Instituted and Angel Investors; etc.. Opportunity was provided to the assessee on 30-11-2018 by issuing notice to explain the genuineness of activities claimed by him, which he responded and has submitted his written submission on 31-12-2018 and ultimately, the Joint Commissioner of Income Tax (Exemption) and the Assessing Officer (Exemption) have not recommended the case of the assessee for grant of registration holding that the assessee is not involved in any charitable activity. Ultimately, by order dated 30-1-2019, the application filed by the assessee under Section 12AA of the IT Act was rejected by the Commissioner of Income Tax (Exemption), Bhopal against which the assessee filed appeal before the Income Tax Appellate Tribunal (ITAT) and the learned ITAT by its impugned order, allowed the appeal and set aside the order of CIT(E) and directed the CIT(E) to grant registration under Section 12AA of the IT Act against which this appeal has been preferred by the Revenue.
3. Mr. Amit Chaudhari, learned Standing Counsel for the Income Tax Department appearing for the appellant herein / Revenue, would submit that the learned ITAT is absolutely unjustified in directing the CIT(E) to grant registration by recording a finding perverse to the record, as the object of the respondent assessee Society is not for charitable purpose, as such, registration should not have been directed under Section 12AA of the IT Act.
4. Mr. Shobhit Mishra, learned counsel appearing for the respondent herein / assessee Society, would submit that the learned ITAT is absolutely justified in allowing the appeal of the assessee and directing for registration under Section 12AA of the IT Act.
5. We have heard learned counsel for the parties and considered their rival submissions made herein-above and also went through the material available on record minutely and thoroughly as well.
6. Section 12AA(1)(b)(i) of the IT Act states as under: –
“12AA. Procedure for registration.—(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)xxx xxx xxx
(b)after satisfying himself about the objects of the trust or institution and the genuineness of its activities as required under sub-clause (i) of clause (a) and compliance of the requirements under sub-clause (ii) of the said clause, he—
(i)shall pass an order in writing registering the trust or institution;
(ii)xxx xxx xxx
and a copy of such order shall be sent to the applicant:”
7. A careful perusal of the aforesaid provision would show that the Principal Commissioner or the Commissioner has to satisfy himself about the objects of the trust or institution and the genuineness of its activities as required under sub-clause (i) of clause (a) and compliance of the requirements under sub-clause (ii) of the said clause, and has to pass an order in writing registering the trust or institution and a copy of the order so passed will be sent to the applicant.
8. In the matter of Commissioner of Income Tax v. Chhattisgarh Urology Society, a coordinate Bench of this Court has considered the issue and held that the said provision nowhere empowers the Commissioner of Income Tax to assess the objects vis-a-vis the books of accounts and even otherwise, it is not to be seen at this stage as to whether the fulfillment of the charitable trust would eventually benefit the members of the society, and observed in paragraphs 10, 11, 12 and 13 as under: –
“10. The provision contained under Section 12A nowhere empowers the CIT to assess the objects vis-a-vis the books of accounts. Even otherwise, it is not to be seen at this stage as to whether the fulfillment of the charitable trust would eventually benefit the members of the society. If the constituent of the trust engage in some genuine charitable activity which may benefit them in some other aspect of their personality which may include their vocation in life, it would not affect the genuineness of the objects of the trust. A person does not engage in charity for not doing anything in the other walks of life. A charity for one particular object is not for destroying the career for an individual which he is otherwise entitled to profess. If this ground is considered to be affecting the genuineness of the trust, people successful in different walks of life would never engage in charitable activity.
11. In the matters of Commissioner of Income Tax v. Vijay Vargiya Vani Charitable Trust (2014) 271 CTR 0698 (Raj) and Fifth Generation Education v. Commissioner Income Tax All, it is held that at the stage of Section 12A, the Commissioner is not to examine the application of income. All that he may examine is whether the application is made in accordance with the requirements of Section 12A read with Rule 17A and whether Form No.10A has been properly filled up. He may also see whether the objects of the trust are charitable or not. At this Stage, it is not proper to examine the application of income.
12. In the case at hand, the order passed by the CIT does not say in definite terms, that the objects of the society are not charitable in nature. Merely because the trust consists of Urologist Doctors and the charitable activity may mutually benefit those members, the object itself would not cease to be charitable in nature.
13. For the foregoing, we are satisfied that the Appellate Tribunal has rightly interfered with the order passed by the CIT. No substantial question of law arises in this appeal for determination in view of the plain language of Section 12A of the Act, 1961. The appeal being sans substance, it deserves to be and is hereby dismissed.”
9. A careful perusal of the order impugned would show that the learned ITAT has clearly recorded a finding in paragraph 12 that the activity of respondent / assessee Society is charitable in nature, and recorded the following finding: –
“12. On careful consideration of the material placed before us by the assessee, we are of the considered view that the reasons placed by CIT(E) while rejecting approval u/s. 12AA of the Act are not sufficient to deny the recognition considering the facts on record. The assessee is Special Purpose Vehicle (SPV) and runs from the grants and support of the state government. Except the points observed by him on all the other sphere the assessee trust is fulfilling all the conditions for registration under section 12AA of the Act. The reasons based on which the recognition denied are not in accordance with the law when this special purpose vehicle created in the name of the society and funded it by way of grant to develop and improve the economic activities by the state government and it helps start-up entrepreneurship. This is an activity of charitable in nature merely the trust activity has scope outside India is and memorandum of the assessee trust does not include the investment and dissolution clause and utilization of fund, when this trust is promoted by the state Government how it can be termed as commercial in nature. The observation of ld. CIT(E) considering the object for which the society is created is not tenable while granting the registration. In our considered view the society fulfill all the condition to grant the registration and in our view the reasons presented while taking the decision ld. CIT(E) is not in accordance with the law and the assessee should be considered for registration u/s. 12AA of the Act. Accordingly, the grounds of appeal raised by the assessee is allowed.”
10. Reverting to the facts of the present case in light of the order passed by this Court in Chhattisgarh Urology Society’s case (supra) and in view of the finding of the learned ITAT, it is quite vivid that the activities of the assessee Society are for charitable purpose for public at large and in that view of the matter, the learned ITAT is absolutely justified in directing the CIT(E) to grant registration under Section 12AA of the IT Act by setting aside the order of the CIT(E), as such, the order impugned passed by the ITAT is in accordance with law. Accordingly, the finding recorded by the CIT(E) that the activities of the respondent assessee Society is in the nature of trade, commerce or business and covered by proviso to Section 2(15) of the IT Act was not the correct finding. The substantial question of law is answered in favour of the assessee and against the Revenue. Consequently, the tax appeal stands dismissed leaving the parties to bear their own cost(s).