AIC@36INC, RAIPUR V. COMMISSIONER OF INCOME TAX(EXEMPTION) BHOPAL, BHOPAL

ITA 65/RPR/2019

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 5795 (ITAT-RAIPUR)
• Duration Of Justice: 3 year(s) 3 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-07-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2018-2019
• Appeal Filed On: 31-03-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Charitable institution
• Section: 12AA; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, RAIPUR BENCH, RAIPUR BEFORE SHRI RAVISH SOOD, JUDICIAL MEMBER AND SHRI RATHOD KAMLESH JAYANTBHAI, ACCOUNTANT MEMBER ं. / ITA No. 65/RPR/2019 / Assessment Year : 2018-19 AIC@36INC 3 rd Floor, City Centre Mall, Raipur Chhattisgarh PAN : AAGAA 0318 L ....... Appellant / V/s. CIT (Exemption) Bhopal ...... ! / Respondent Assessee by : None Revenue by : Shri P. K. Mishra " # $ % / Date of Hearing : 08.06.2022 &' # $ % / Date of Pronouncement : 19.07.2022 (े* / ORDER PER RATHOD KAMLESH JAYANTBHAI, AM: This appeal is filed by the assessee aggrieved from the order of the Commissioner of Income Tax (Exemption), Bhopal [ Here in after 2 ITA No. 65/RPR/2019 A.Y.2018-19 referred as Ld. CIT(E)] dated 30.01.2019 denying registration under section 12AA of the Income Tax Act, 1961 [ here in after referred to as “Act” ] . 2. The only issue assailed by the assessee is action of CIT(E) denying registration u/s 12AA of the Income Tax Act and assessee has raised the following grounds of appeal :- “a. That the order passed by learned CIT(Exemption) is contrary to the law and contrary to the facts of the case. b. That Dissolution Clause is mentioned in Appendix A, Rules and Regulations (bye laws of the society) in Point No. 13 and Fund Clause in Point No. 14. c. That the learned CIT (Exemption) erred in stating that the objects of the society are commercial in nature. d. That the learned CIT (Exemption) erred in stating that the society is carrying activities outside India. e. That the learned CIT (Exemption) erred in stating that the society is not in the nature of charitable purposes for the public at large. f. That the spot verification made by inspector relating to facts which is relied upon by the CIT (Exemption) is erroneous and misleading. g. That the interpretation of the learned JCIT(Exemption) and learned AO (Exemption) relating to sole objective of the society being implementation of Chhattisgarh innovation and entrepreneurship policy, 2015 not being charitable is erroneous. h. That the assessee craves to add, alter or amend any of the above grounds of appeal.” 3. On the day fixed for hearing of this appeal and called out for hearing none remain present in person to represent the case. Various notices were issued to the assessee but assessee has preferred not to 3 ITA No. 65/RPR/2019 A.Y.2018-19 attend the hearing. Thus, the matter is decided on the basis of the merits of the case. 4. The fact as culled out from the records is that the assessee is a society registered with the Dy. Registrar of Societies on 30.06.2017, under Chhattisgarh Society Registration Act, 1973. An opportunity was provided to the assessee by issuing notice dated 30.11.2018 to explain the genuineness of activities claimed by the assessee. On receipt of compliance to the ld. CIT(E) noticed the following facts: ( i ) The Memorandum of Association for Registration of the Societies issued by Dy. Registrar Firms and Societies, Chhattisgarh does not include several clause, i.e. investment clause, dissolution clause, utilization of funds etc., ( ii ) all objects are commercial in nature and hence not covered under definition of charitable as provided in section 2(15) of the Act. ( iii ) As per object C & F stated in the Memorandum of Association, the society will also carry out activities outside India. 5. In the light of the above observation by the CIT(E), the assessee was asked to show cause as to why the registration u/s 12AA be denied. The date for compliance was fixed to 04/01/2019 by CIT(E). 6. The written submission was mailed by the assessee, the ld. CIT(E) stated the written submission is not accepted. The relevant finding of the ld. CIT(E) as well as the summarized point on which the 4 ITA No. 65/RPR/2019 A.Y.2018-19 society has submitted their reply is extracted from his order for the sake of brevity; In the written submission it is stated that "the incumbation facility named as 'AIC@36Inc' will act as a State Hub was established in the capital city of Chhattisgarh, Raipur on 30th June, 2017. The incubator focuses on technology and MSME Start-ups. AIC@36Inc is completely equipped with the state-of-the-art equipment which would help the start-ups to make rapid prototypes while learning in a co-working space. Working in a co-working space will assist them in building market linkage within the country and on a global level too. AIC@36 Inc also supports it's incubates in mentoring, coaching and prototyping. AIC@36 Inc started with its first batch of start-ups, which includes start-ups selected under start up Chhattisgarh program, accelerator batch startups co- incubated with Mobile 10x. AIC@36Inc is taking various measures for spreading awareness about Entrepreneurship all across the state. Few of the measures are: 1. AIC @36inc is executing student connect program in various colleges. 2. AIC@35 Inc has developed relationship with Mobile 10X, a National level Institute to provide support to digital start-ups. 3. AIC@36Inc with the support of school of Social Entrepreneurs have started off with a batch of social entrepreneurs. 4. AIC@36Inc has also signed MoU with various international Institutes including Spinta Accelerator, Magik Malaysia, GOInternational Finland etc Here at AIC@36 Inc there are 91 startups incubated which generates around 400+employment every month. The incubated startups are from various sectors such as Healthtech, Edutech, IT/ITES/F&B etc. AIC@36 Inc also conducts trainings, workshops and mentoring sessions, where trainers from all around the country guides and mentors the incubates. Few of the workshops that were conducted are 1. Design Thinking workshop by Mr. Kaustubh Dhargalkar 2. Business Model Canvas workshop by Mr. Raj Bhatt 3. Artificial Intelligence workshop by Mr. Nandan Mishra 4. UI/UX workshop by Mr. Masood Nasser etc. The society has also launched two Funds I.e. Leap of Faith Revolving Fund (LOFR) and 36AF (36 Angel Fund). Under LOFR the society provides loans to startups selected by it. Under 36AF the society has created a Venture Fund specially to help start-ups based in CG during early state. A Corpus of Rs. 10.00 crores each for both fund are given by State Government and Government Agencies which are stated to be invested in equity and equity linked instrument of start-up in early stage, growth stage and seed stage." 6 The above activities are not in the nature of charitable for Public at large, rather it is a business activities for which the Government has created a SPV in the name of this society, and funded it by way of grant to develop and improve the economic activities and help startup entrepreneurship; 5 ITA No. 65/RPR/2019 A.Y.2018-19 In fact the spot verification report made by the Inspector of the department also shows that the society has established incubation facilities as per "Atal Innovation Mission" where some entrepreneurs book a seat for Working Space provided by the society against Rs. 3000/ P.M. The society is not involved in any activity of its own but only function as a catalyst. The society is being funded by the Government Agencies and it utilizes the fund as per guidelines fixed in the "Atal Innovation Mission" and MOU with the funding agencies. 7 Further, the JCIT(E) and AO(E) have also not recommended the case to grant registration and reported as under: "The Society is not involved in any charitable activity. On going through the objects of the Society as mentioned in para 5 of the Rules and Regulations, it is seen that the Society has been formed with the sole object of implementing Chhattisgarh Innovation & Entrepreneurship Development Policy,2015. The funds have been provided by the Government agencies for utilization of the society, for furtherance of innovation and entrepreneurship in the state of Chhattisgarh. This will go on for five years as has been mentioned in the letter dated 19.12.2018 by the Finance Manager of the above Society. The charges fixed for per open seat and per dedicated seat are being taken from start-ups as fixed by the Governing Council of the Society" 8 It is observed from above facts that, the activities of the Society cannot said to be in the nature of charitable activities for public at large. The society's memorandum also specify's its activities outside India and also several clause as stated in para 3(1) above are not provided. Therefore, the claim for registration u/s 12AA cannot be considered. 9. In the light of above discussion, it is held that the applicant society is not considered for registration u/s 12AA of the I.T. Act, 1961. Accordingly, the application in form no. 10A, filed on 04/07/2018 seeking registration u/s 12AA is hereby rejected and registration sought u/s 12AA is refused. 7. The ld. CIT(E) has observed that details produced by the society reveals that the Memorandum of Association of the society does not include clause for investment, dissolution and utilization of funds. He further observed that the objects of the society are commercial in nature and hence not covered under the definition of charitable 6 ITA No. 65/RPR/2019 A.Y.2018-19 activities. Then he reproduced the observation of JCIT(E) and AO (E) who have also not recommended the case for registration of the society. 8. Based on the stated fact he has summarized his finding at para 8 & 9 of his order wherein he held that the activities of the Society cannot said to be in the nature of charitable activities for public at large. The society's memorandum also specifies its activities outside India and also several clauses as stated in para 3(1) above are not provided. In lieu of the said observation he has rejected registration sought u/s. 12AA. 9. The ld. DR heavily relied upon the findings of the ld. CIT(E) and based on that finding he has substantiated the action of the ld. CIT(E). 10. The ld. CIT(E) has not appreciated the fact that the society has filed purpose, object and details of the activities carried out so far and placed on record the related details. He did not prove the nature of activities done by the assessee are not charitable activities and is not related to public at large. He has observed that society’s memorandum also specifies its activities outside India and also several clauses as 7 ITA No. 65/RPR/2019 A.Y.2018-19 stated in the letter were not provided. Accordingly, the application in form no. 10A, filed on 04/07/2018 seeking registration u/s 12AA was rejected and registration sought u/s 12AA refused. 11. Before, we proceeds further as nobody appeared on the date of hearing and therefore, it is appropriate to read the written arguments placed on record by the assessee while filling this appeal. The same is extracted here in below and considered for disposal of appeal of the assesse: A. FACTS OF THE CASE 1. The Assessee is a society registered with the Dy. Registrar of Societies on 30.06.2017 2. The Assessee filed an application for Registration u/s 12AA of the Income Tax Act, 1961 on 04-07-2018. 3. After the said application was filed, Income tax department (Exemption) made spot verification at the address where Assessee is registered. 4. Along with the verification carried out by the Income tax department (Exemption), a notice was received from CIT (Exemption), Bhopal seeking submission of documents and clarifications w.r.t the same. 5. In response to notice issued by CIT (Exemption), Bhopal, The assessee filed various documents in support of seeking registration u/s 12AA along with detailed description. An email was sent on 29th December, 2018 along with uploading the same in income tax e filing portal on 29th December, 2018. 6. After submission of documents as stated in the notice received which is mentioned in point no.5 above, the learned CIT(Exemption) sent a show cause notice via e-mail as to why registration u/s 12AA should not be denied. 8 ITA No. 65/RPR/2019 A.Y.2018-19 7. In response to the SCN issued by the learned CIT(Exemption), The assessee filed relevant documents in response with description stating why it is eligible to be granted registration u/s 12AA. 8. After perusal of these documents along with clarification filed by the assessee, the learned CIT(Exemption) held that the applicant society is not considered for registration u/s 12AA of the Income Tax Act, 1961 on the grounds stated below: a. The Memorandum of the Society does not include clauses such as investment clause, dissolution clause, utilization of funds etc. b. All objects of the society are commercial in nature and hence, not covered under definition of section 2(15) of the Act. c. The objects to be carried out by the society contains activities carried outside India. d. The activities carried out by the society are not in the nature of charitable purpose for public at large, rather it is a business activity for which the government has created an SPV in the name of the society and funded it by way of grant to develop and improve the economic activities and helps start-up entrepreneurship e. The Spot Verification Report made by the Inspector from Income tax Department (Exemption), Raipur shows that the society established incubation facilities as per ATAL INNOVATION MISSION where some entrepreneurs book a seat for working space provided by the society against Rs. 3000 charged by the society. The society is not involved in any activity of its own but only function as a catalyst. The society is being funded by the government agencies and it utilizes the funds as per guidelines fixed in the ATAL INNOVATION MISSION and MOUS with funding agencies. f. The learned JCIT (Exemption) and AO (Exemption) stated that "the society is not involved in any charitable activity. On-going through the objects of the Society as mentioned in para 5 of the Rules and Regulations, it is seen that the Society has been formed with the sole object of implementing Chhattisgarh Innovation & Entrepreneurship Development Policy, 2015. The funds have been provided by the Government agencies for utilization of the society for furtherance of innovation and entrepreneurship in the state of Chhattisgarh. This will go on for five years as has been mentioned in the letter dated 19.12.2018 by the Finance Manager of the above Society. The charges fixed for per open seat and per dedicated seat are being taken from start-ups as fixed by the Governing Council of the Society". 9 ITA No. 65/RPR/2019 A.Y.2018-19 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 10 ITA No. 65/RPR/2019 A.Y.2018-19 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. 13. In the result, the appeal of the assessee is allowed. Order pronounced under rule 34(4) of the Appellate Tribunal Rules, 1963, by placing the details on the notice board. Sd/- Sd/- RAVISH SOOD RATHOD KAMLESH JAYANTBHAI JUDICIAL MEMBER ACCOUNTANT MEMBER / RAIPUR ; +( ं / Dated : 19 th July, 2022 Ganesh Kumar (े* # $, - .े- $ / Copy of the Order forwarded to : 1. / The Appellant. 2. ! / The Respondent. 3. The CIT(Appeals)-1, Raipur (C.G) 4. The Pr. CIT-1, Raipur (C.G) 5. - / 0 $ , , 1, / DR, ITAT, Raipur Bench, Raipur. 6. 0 2 3 4 / Guard File. (े* / BY ORDER, 5 1 / Private Secretary , / ITAT, Raipur. 11 ITA No. 65/RPR/2019 A.Y.2018-19 Date 1 Draft dictated on Sr.PS/PS 2 Draft placed before author Sr.PS/PS 3 Draft proposed and placed before the second Member JM/AM 4 Draft discussed/approved by second Member AM/JM 5 Approved draft comes to the Sr. PS/PS Sr.PS/PS 6 Kept for pronouncement on Sr.PS/PS 7 Date of uploading of order Sr.PS/PS 8 File sent to Bench Clerk Sr.PS/PS 9 Date on which the file goes to the Head Clerk 10 Date on which file goes to the A.R 11 Date of dispatch of order