AI Structured Summary
Not yet generated for this judgment
Judgment
PER MAHAVIR SINGH, VICE PRESIDENT :
These appeals by the assessee are directed against the respective orders of the Commissioner of Income Tax (Exemption), Delhi [hereinafter referred to as “CIT(E)”] passed u/s. 12AA and u/s. 80G of the Income Tax Act, 1961 (hereinafter referred as Act).
The assessee has raised the following grounds in ITA No. 7881/Del/2025 :
1.That the CIT(E), Delhi has erred in law and on facts by rejecting the application filed in Form No. 10AB of the Act without appreciating the replies and documentary evidence filed to prove the genuineness of activities filed during the course of proceedings.
2.That the CIT(E) erred in concluding that the appellant works exclusively for the benefit of its members, without appreciating that the term members refers to Members of the Institute of Company Secretaries of India, a statutory professional body formed under the Act of Parliament. The appellant does not operate for private or mutual benefits but for skill enhancement, education, and capacity building of professionals governed under an Act of Parliament, which constitutes a charitable purpose under section 2(15).
3.That the CIT(E) ignored the fact that professional bodies engaged in imparting knowledge, training, and public governance related competencies to qualified professionals serve a wider public purpose, and such activities have consistently been held to be educational in nature which is covered u/s. 2(15) of the Act.
4.That, the CIT(E) has failed to grant proper opportunity of being heard and has wrongly rejected the application filed in Form NO. 10AB for granting registration u/s. 12A of the I.T . Act.
5.That the order passed by the CIT(E) is against the principles of natural justice.
6.The appellant craves leave to add modify or alter any of the grounds of appeal erred or advice additional evidence at the time of hearing.
Ld. AR further submitted that the applicant is a company promoted by the Institute of Company Secretaries of India (a statutory professional body formed under the Act of Parliament). The CIT(E) rejected the application filed for registration u/s. 12A on the following grounds:-
that as one of the main objectives is to safe guard the rights and privileges of Social Auditors who are its members;
ii) that the only eligibility criteria was specified as members of ICSI;
iii) that the appellant company operates exclusively for the benefit of ICSI and its members and its services and courses are not available to the public at large and
that the appellant has not carried out any charitable activities and that the revenue received were made only the benefit of its members indicating that the appellant works under the concept of mutuality.
Ld. AR further submitted that CIT(E) erred in concluding that the applicant works exclusively for the benefit of its members, without appreciating that the term members refers to Members of the Institute of Company Secretaries of India, a statutory professional body formed under the Act of Parliament. The appellant does not operate for private or mutual benefits but for skill enhancement, education, and capacity building of professionals governed under an Act of Parliament, which constitutes a charitable purpose under section 2(15). It was further submitted that CIT(E) ignored the fact that professional bodies engaged in imparting knowledge, training, and public governance related competencies to qualified professionals serve a wider public purpose, and such activities have consistently been held to be educational in nature which is covered u/s. 2(15) of the Act. He further submitted that the objects of the applicant are similar to the objects of the Bar Council and accordingly, he relied upon the decision of the Hon’ble Bombay High Court reported in 126 ITR 27 and the Hon’ble Supreme Court reported in 130 ITR 28. He drew our attention towards the decision of the Hon’ble Supreme Court of India in the case of ACIT (Exemptions) vs. Ahmedabad Urban Development Authority reported in [2022] 143 taxmann.com 278 (SC) wherein, in numerous appeals have been disposed including the Revenue’s appeals against the decision of Hon’ble Jurisdictional High Court in the case of ICAI are dismissed and for the same reasons, the appeals filed by the ICAI are allowed on the similar facts and circumstances of the case as that of the instant case. Thus, he prayed to follow the aforesaid ratio in the present case by setting aside the orders of the CIT(E) passed u/s. 12A and u/s. 80G of the Act.
The Ld. DR has submitted that since the applicant has not carried out any charitable activity coupled with the fact that it works exclusively for the benefits of its members and does not impart any charitable activity in any form for general public at large, therefore, the conditions for grant of registration are not satisfied and hence the application filed in Form 10AB for grant of registration u/s. 12A(1)(ac)(iii) was rejected and provisional registration issued on 4.4.2023 was also canceled and simultaneously, the approval u/s. 80G was also cancelled.
We have heard both the parties and perused the material available on record. We find that Ld. CIT(E) rejected the application of the applicant for registration u/s. 12A by observing as under :-
“3.Upon perusal of the Memorandum of Association of the company, it is observed that one of its main objectives is “to safeguard the rights and privileges of SAs who are its members.” Additionally, the company offers a crash course on social audit. However, upon reviewing the advertisement/brochure for the said course, it is noted that the only eligibility criteria was specified as ‘Members of ICSI’. This clearly indicates that the applicant company operates exclusively for the benefit of ICSI and its members, and its services and courses are not available to the public at large. Thus, the claim of the applicant company of doing charitable activities for general public at large is not found tenable.
4.In addition to the above, as per the Income And Expenditure A/c for the FY 2022-23 to FY 2024-125, it is noted that the assessee has not carried out any charitable activities in the given period as no charitable expenses have been listed. In financial year 2023-24, the applicant has received revenue from ‘Crash Course Fee’ amounting to Rs. 20,10,000/- and ‘Annual Membership fee’ amounting to Rs. 2,85,000./-, however, expense were made only to benefit of its member which indicates that the company works under the concept of mutuality where it works only for benefit of its members when receives money from them. Thus, it again clearly suggests that there is no such charitable activity done by the company for General Public at large.
5.In view of the above facts and circumstances, since the applicant has not carried out any charitable activity coupled with the fact that the it works exclusively for the benefits of its members and does not impart any charitable activity in any form for general public at large, therefore, the conditions for grant of registration are not satisfied and hence the application filed in Form 10AB for grant of registration u/s. 12A(1)(ac)(iii) is hereby rejected and provisional registration issued on 4.4.2023 vide URN AAGCI8721BE20221 for the period from AY 2023-24 to 2025-26 is cancelled.”
We further find that Ld. CIT(E) also rejected the application for grant of approval u/s. 80G of the Act on the ground that the applicant was required to file the application by September, 2025, however, applicant failed to file the application in Form 10AB within stipulated limit. Moreover, the application filed in Form 10AB for registration u/s. 12A is also rejected by issuing separate order and in the absence of regular registration, the application filed in Form 10AB for grant of approval u/s. 80G(5) was also rejected.
We note that it is undisputed fact that the applicant does not operate for private or mutual benefits but for skill enhancement, education, and capacity building of professionals governed under an Act of Parliament, which constitutes a charitable purpose under section 2(15). The applicant is a professional body engaged in imparting knowledge, training, and public governance related competencies to qualified professionals serve a wider public purpose, and such activities have consistently been held to be educational in nature. The following are the main aims of the applicant:
To act as Self-Regulatory Organization as prescribed in Clause (f) of Regulation 292A of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 and functions incidental thereto.
To register social auditors on fulfilling the prescribed requirements.
To lay down criteria / norms for empanelment of Social auditors, categorization of social auditors into various categories on fulfillment of required criteria/ norms including but not limited to number of qualified social auditors in the firm, relevant experience etc.
To lay down standards of professional conduct for registered Social auditors and monitoring their performance.
To safeguards the rights and privileges of Social Auditors who are its members.
To suspend or cancel the membership of social auditors who are its members, on the grounds set out in its bye laws.
To coordinate and support the National Institute of Securities Markets (NISM). SEBI and Stock Exchanges for implementation and functioning of Social Stock Exchanges.
We note that Hon’ble Supreme Court of India in the case of ACIT (Exemptions) vs. Ahmedabad Urban Development Authority reported in [2022] 143 taxmann.com 278 (SC) have disposed of numerous appeals including the Revenue’s appeals against ICAI, (which is also a body incorporated by the Parliament as similar to the instant applicant) are dismissed and for the same reasons, the appeals filed by the ICAI are hereby allowed on the similar facts and circumstances of the case as that of the instant case. The Hon’ble Supreme Court in the case of ACIT vs. Ahmedabad Urban Development Authority (Supra) has observed as under:-
191.During the hearings, rival contentions were made in regard to the facial nature of the public utility character of regulatory bodies. A sample special case was that of the Institute of Chartered Accountants of India (ICAI). In respect of some years, the revenue has preferred appeals and in respect of some others, the Institute has preferred appeals. Reliance was placed upon the provisions of the ICAI Act and detailed submissions were made to emphasise that it plays a pivotal role in regulating the entire universe of vocation of Chartered Accountants - i.e., selecting candidates that can undergo the educational course, setting the syllabus for the Chartered Accountancy examination; holding classes, training sessions and imparting education; conducting exams, etc. It was highlighted that the membership of the institute, i.e., those who are enrolled as Chartered Accounts has grown significantly. Whereas in the end of financial year 2005, the membership was1.23 lakhs, it had increased to 1,86,440 on 31-3-2012. Likewise, there was an exponential growth in the students appearing in the examination - in 2005, it was 2,96,294, and on 31-3-2012, it had increased to10,70,839. Apparently, the Institute conducts distance education courses and also conducts classroom instruction facilities. These are integrated with the course curriculum. Additionally, it was urged that no commercial motive was involved; coaching and revisional classes conducted are very nominally priced -ranging from Rs. 1500 to Rs. 2500 for one group, and from Rs. 4000 to Rs. 6000 for both groups, depending on cities where the classes are held.
192.During the submissions on behalf of the Institute, the financials for different years were provided. It was revealed that the total outflow towards salaries for 2003-04 was Rs. 55.27 lakhs and depreciation for the same was Rs. 51.64 lakhs. The total expenditure for that year was Rs. 1.0691 lakhs. As against that, the Revenue earned from generation of fees for the corresponding year which was Rs. 1.78 crores and the corresponding expenditure was Rs. 96.93 lakhs. The corresponding figures for FY 2011-12 for salaries was Rs. 2.94 crores. The depreciation was Rs. 4.05 crores. The total expenditure thus was Rs. 6.9 crores. As against this, the amount received towards fees was Rs. 6.36 crores and expenditure incurred towards coaching, including salaries, provisions of course material, etc. was Rs. 4.34 crores. The surplus (without including administrative expenditure) for that year was Rs. 2.01 crores. The Institute apparently cannot distribute the surplus or utilise it for any activity other than what is set out under the controlling statute and its rules.
193.The Revenue highlighted that conducting courses leading to a professional qualification and charging fees for it is in the nature of a 'service', and all services in relation to trade, commerce or business squarely falls within the mischief of section 2(15), which has to preclude the institute's claim for exemption as a GPU charity.
194.The Institute is a creature of the Institute of Chartered Accountants Act, 1949. By section 4 of this Act, every person who qualifies in the examination conducted by the Institute has to seek registration as a Chartered Accountant. Only when members obtain certificates issued by the Council of the Institute under section 6 can they be known as a 'Chartered Accountant' and be entitled to practice that profession (Sections 6and 7). The Council of the Institute is constituted under section 9 which defines such constitution and the manner for holding elections, etc. The functions of the Council by section 15(2A) include approving the academic courses and their contents, examining the candidates, regulation and article ship assistance, prescribing qualification for entry of persons in the register, collection of fees from members; the regulation and maintenance and status of the professional qualifications of the members of the Institute, etc. By section 15A, universities are enabled to impart education on subjects covered by the academic courses of the Institute. However, by section 15A(2) while awarding degrees or diplomas, their designation should not resemble or be identical to what is awarded by the Institute. The finances are regulated by section 18. The Council is enjoined to maintain the register under section 19 and has disciplinary powers by virtue of sections 21A, 21B and 21Cof the Act.
195.These provisions of the Act clarify beyond a doubt that the Institute performs statutory functions in the larger public interest of regulating the standards of education, leading up to the profession of Chartered Accountancy and also prescribing standards of professional etiquette, behaviour, and discipline of its members. No other entity or body has the authority in law to perform the functions that the Institute does. Although the Act regulating Chartered Accountancy came into force prior to the Constitution of India, the subject (of regulating professions, etc.) appears to be relatable to the exercise of legislative power under Entry25 and 26 of the Concurrent List. Furthermore, they also appear to conform to Entry 65 of the Union List(which has been adverted to in Entry 25 of the Concurrent List). As things stand, the Institute is the only body which prescribes the contents of professional education and entirely regulates the profession of Chartered Accountancy. There is no other body authorised to perform any other duties which it performs. It, therefore, clearly falls in the description of a charity advancing general public utility. Having regard to the previous discussion on the nature of charities and what constitutes activities in the 'nature of trade, business or commerce', the functions of the Institute ipso facto does not fall within the description of such 'prohibited activities'. The fees charged by the Institute and the manner of its utilisation are entirely controlled by law. Furthermore, a note of caution. It is important, at times, while considering the nature of activities (which may be part of a statutory mandate) that regulatory bodies may perform, whether the kind of consideration charged is vastly or significantly higher than the costs it incurs. For instance, there can be in given situations, regulatory fees which may have to be paid annually, or the body may require candidates, or professionals to purchase and fill forms, for entry into the profession, or towards examinations. If the level of such fees or collection towards forms, brochures, or exams are significantly higher than the cost, such income would attract the mischief of proviso to section 2(15), and would have to be within the limits prescribed by sub-clause (ii) of the proviso to section 2(15)……
After perusing the aforesaid observations of the Hon’ble Supreme Court, we note that the in the similar status organization like ICAI, it was the contention of the revenue that conducting courses leading to a professional qualification and charging fees for it is in the nature of a 'service', and all services in relation to trade, commerce or business squarely falls within the mischief of section 2(15), which has to preclude the institute's claim for exemption as a GPU charity and similarly in the instant case it was the contention of the Revenue that in the financial year 2023-24, the applicant has received revenue from ‘Crash Course fee’ amounting to Rs. 20,10,000 and Annual Membership fee amounting to Rs. 2,85,000/-, however, expenses were made only to the benefit of its members, which clearly suggests that there is no such charitable done by the applicant company for General Public at large. However, the Hon’ble Supreme Court in the case of ICAI vide para no. 196, has observed as under:-
“196.Similarly, there are several other regulatory bodies that discharge functions which are otherwise within the domain of the State. A singular characteristic of ICAI and other statutory bodies which can be said to regulate specific functions and professions (including the profession of Cost and Work Accountants, and Company Secretary, etc.) is the powers conferred upon them by the statutes to prescribe standards and enforce them through disciplinary sanctions. Therefore, it is held that bodies which regulate professions and are created by or under statutes which are enjoined to prescribe compulsory courses to be undergone before the individuals concerned is entitled to claim entry into the profession or vocation, and also continuously monitor the conduct of its members do not ipso facto carry on activities in the nature of trade, commerce or business, or services in relation thereto.”
Keeping in view the aforesaid main objects as well the decision of the Hon’ble Supreme Court, wherein, the Hon’ble Apex Court has also referred the ICSI as being carried out identical activities, as aforesaid, it is established that the applicant’s objects are similar to the objects of the ICAI and thus not in the in the nature of trade, commerce or business or services. However, CIT(E), has ignored the fact that appellant works exclusively for the benefit of its members, without appreciating that the term members refers to Members of the Institute of Company Secretaries of India, a statutory professional body formed under the Act of Parliament. The appellant does not operate for private or mutual benefits but for skill enhancement, education, and capacity building of professionals governed under an Act of Parliament, which constitutes a charitable purpose under section 2(15). It is undisputed fact that professional bodies like the applicant engaged in imparting knowledge, training, and public governance related competencies to qualified professionals serve a wider public purpose, and such activities have consistently been held to be educational in nature which is covered u/s. 2(15) of the Act. Therefore, respectfully following the Hon’ble Supreme Court of India decision in the case of ACIT vs. Ahmedabad Urban Development Authority (Supra), the activities of the applicant are charitable and covered u/s. 2(15) of the Act. Hence, the action of the Ld. CIT(E) rejecting of Form 10AB seeking registration 12A and approval u/s. 80G are cancelled, by setting aside the orders of the Ld. CIT(E).
In the result, both the appeals of the assessee are allowed.