Society engaged in implementing Welfare Scheme of State Govt to provide Mid-day-Meals to Students in Schools is eligible for Tax Exemption: Allahabad HC [Read Judgment]

Charitable Society

Allahabad High Court recently ruled that society engaged in implementing welfare scheme of the State Government to provide mid-day-meals to students in schools is eligible for 12A Registration for getting tax exemption.

In the instant appeal, the Assessee claimed itself to be a registered society with an object to establish and run Health Club, Arogya Kendra, to organize emergency relief centers etc. and also to promote moral values, eradication of child labor and dowry etc.

During its conduct Assessee engaged mainly in preparing and supplying mid-day-meals to the students at primary schools in various villages and filed an application to grant registration under section 12AA.

The Commissioner of Income Tax treated this as a contractual work and leans towards business activity. He took a view that in such a case, even if the contention of the applicant that it is engaged in the object of the general public utility is accepted, the same is in the nature of trade, commerce or business as admittedly consideration is received for providing mid-day-meal. Accordingly, CIT rejected the application for the grant of registration.

On appeal, the Tribunal pressed the second proviso to Section 2(15) of the Act and held that the assessee was entitled to registration under Section 12-AA of the Act.

Shubham Agarwal, the counsel for the Revenue contended that no such evidence was led by the assessee to establish that it was actually engaged in an act of ‘general public utility” and not an activity covered under the first proviso to Section 2(15) of the Act.

Revenue’s further contention was that there is no presumption in favor of the assessee pursuing a charitable purpose because it’s receipts were below Rs. 10,00,000/-

On counterpart, the Assessee argued that merely because a contract had been awarded to supply and distribute mid-day meals, it could not be said that the assessee was engaged in a business activity or that it had profit motive.

Having considered the argument so made by counsel for the parties, the bench comprising Justice sBharati Sapru and Saumitra Dayal Singh checked the provision of Section 2(15) of the Act, second proviso inserted with retrospective effect from 1.4.2009 and sub-Section (8) was introduced to Section 13 of the Act.

The bench noted that “on the basis of findings recorded by the Tribunal and the material examined by the Commissioner it would be wrong to conclude that because there existed a contract between the assessee & the government, therefore, the assessee was not pursuing a “charitable purpose”. On the other hand, the activity performed by the assessee clearly appears to be inseparably linked to the ‘charitable purpose’ of providing mid-day meals at village schools. Also, admittedly, the total receipts of the assessee were below the limit of Rs. 10,00,000/- as stipulated under the second proviso to Section 2(15) of the Act”

Accordingly, the Court held that even though it may have involved an activity in the nature of trade, commerce or business, etc., it would fall within the ambit of general public utility and therefore be a charitable purpose under Section 2(15) of the Act and eligible for 12A Registration.

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