The Calcutta High Court has held that a non-profit organization under section 25 of the Companies Act imparting education is eligible for income tax exemption as the same would be treated as charitable activity for the purpose of the Income Tax Act, 1961.
The Assessee established by the National Council of Science Museum under the Ministry of Culture, was registered under Section 25 of the Companies Act, 1956, is engaged in design and development of knowledge centers like science museums, planetariums, etc., had applied for registration as a charitable institution under Section 12AA of the Income Tax Act, 1961, which was granted to it. The Assessee had carried out various turnkey projects throughout the country, including for the Reserve Bank of India (RBI) and the Surat Municipal Corporation. The Assessee had filed its income tax return declaring its income to be nil after claiming exemption under Section 11 of the Income Tax Act.
The Assessing Officer held that the surplus generated by the Assessee Company was from commercial activities, and thus disallowed the exemption under the proviso to Section 2(15) and Section 13 (8) of the Act.
The counsel for the Assessee before the Calcutta High Court submitted that since the Assessee Company was registered under Section 25 of Companies Act, 1956 all its activities were deemed to be non-profit.
Section 11 of the Income Tax Act provides that income from property held under a charitable trust shall not be included in the total taxable income to the extent to which such income was applied to charitable purposes in India. Section 2(15) provides the definition of “charitable purpose”, which includes education or advancement of any other object of general public utility.
A Bench of Calcutta High Court, consisting of Justices T.S. Sivagnanam and Hiranmay Bhattacharyya, after analysing the main objects of the Assessee Company under its Memorandum of Association, observed that the ITAT did not consider the main objects for which the Assessee Company had been established.
The court ruled that the ITAT had misread the nature of the activities done by the Assessee Company qua the objects behind its incorporation under Section 25 of the Companies Act, 1956. The High Court held that the object behind the projects carried out by the Assessee, such as the establishment of science centres or museums on turn-key basis, was in public interest to educate the general public in an easy and attractive manner. It observed that the technical expertise and research done by the Assessee, for carrying out the projects for a specified purpose, could not be within the capacity of a contractor.
Allowing the contentions of the assessee, the Court has ruled that when a Company has been established as a non-profit organization under the Companies Act, and its profits are applied solely for the promotion of its objects, its activities would by necessary implication fall under the definition of a “charitable purpose” under the Income Tax Act, 1961.
“Thus, when the assessee has not been established for the purpose of earning profit and the income it generates has to be applied for promoting the objects as spelt out in the memorandum and no portion of the income can be directly or indirectly paid by way of dividend or bonus etc, it has to be necessarily held that the assessee is a not for profit organisation but public utility company and the activities of the company for which it has been established would undoubtedly show that the company by establishing knowledge parks, engaged in imparting education and also undertakes advancement of other aspects of general public utility to fall within the definition of charitable purpose as defined under Section 2 (15) of the Act.” The High Court said.
CREATIVE MUSEUM DESIGNERS vs INCOME TAX OFFICER, EXEMPTIONS, WARD-1(1), KOLKATA
CITATION: 2022 TAXSCAN (HC) 132
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