Section 12A, read with section 2(15), of the Income-tax

HIGH COURT OF MADHYA PRADESH Sarafa Association v. Commissioner of Income-tax ABAY M. NAIK, J. WRIT PETITION NO. 1646 OF 1999 November 2, 2006 Section 12A, read with section 2(15), of the Income-tax Act, 1961 - Charitable or religious trust - Registration of - Petitioner-trust was created with objects, inter alia, to promote local business of gold, silver and ornaments and to protect legitimate rights of businessmen - In view of its objects, petitioner claimed registration under section 12A by submitting that its case fell within section 2(15)- However, for want of any factual material on record, Commissioner denied registration by merely observing that claim of petitioner was not justified - Whether even in absence of any factual material on record, it was obligatory on part of Commissioner to exercise power under section 12A(a) by calling requisite information and making necessary enquiry, this power having not been exercised, impugned order was not sustainable in law - Held, yes FACTS The assessee-trust was created on 17-5-1976 with the objects, inter alia, to promote local business of silver, gold and ornaments, and to protect legitimate rights of the businessmen and to relive them from the problems arising from the Government or third party. On 2-7-1998, the assessee submitted application under section 12A to the Commissioner for its registration. However, the Commissioner denied the registration by merely observing that claim of the assessee that its case fell within ambit of section 2(15) was not justified. On writ: HELD Earlier, definition of ‘charitable purposes’ under section 2(15) was succeeded by the words ‘not involving the carrying on of any activity for profit.’ These words were omitted by the Finance Act, 1983, with effect from 1-4-1984. In the instant case, the assessee-association was established on 17-5-1976, whereas the application under section 12A had been made on 2-7-1998, i.e., after the enforcement of the Finance Act, 1983. Thus, the definition of ‘Charitable purpose’ under section 2(15), as it stands after omission of the words ‘not involving the carrying on of any activity for profit’ would be relevant. [Para 5] In the instant case, in the objects of the assessee, a provision for weighment facility had been made which was obviously a facility of general public utility. This coupled with the object of promoting the local business of silver and gold ornaments could not be necessarily termed as not falling within the scope of ‘advancement of any other object of general public utility’. Promotion of commerce and trade is a predominant object of the activity and has been held by the Supreme Court in Addl. CIT v. Surat Art Silk Cloth Mfrs. Association [1980] 121 ITR 1/(1979) 2 Taxman 501, as an object of public utility. The Commissioner had denied the registration on the ground that the claim of the assessee that this case fell within the ambit of section 2(15) was not justified. This said finding was given for want of any factual material on record. Which could not be sustained without affording the assessee an opportunity to establish the same. Moreover, the Commissioner was required to examine the deed as a whole and further ought to have considered the effect of various balance-sheets on record. Since the Commissioner had found the claim of the assessee unjustified in the absence of any factual material on record, it was obligatory on his part to exercise the power under section 12A(a) by calling the requisite information and making the necessary enquiry. This power having not been exercised, the impugned order was not sustainable in law. [Para 10] Accordingly, the impugned order was to be quashed. The Commissioner was to be directed to redecide the application under section 12A submitted by the assessee by providing opportunity to it as well as the department to place the relevant material on record in support of their respective contentions. [Para 11]