Charitable Status Cannot Be Denied Merely Because Activities Benefit Specific Industry: ITAT New Delhi

The New Delhi Bench of the Income Tax Appellate Tribunal (ITAT) on 10 July held that an institution does not lose its charitable character merely because its activities benefit a specific industry, and set aside the Commissioner (Exemptions)'s order rejecting registration of the National Lubricating Grease Institute India Chapter under Sections 12AA/12AB of the Income Tax Act.

A Bench comprising Accountant Member S. Rifaur Rahman and Judicial Member Vimal Kumar held:

“Only because of specific group of participants of lubricating grease industry are directly benefitted cannot be a ground to question the charitable nature of a Society.”

The Indian chapter of the National Lubricating Grease Institute (USA), had applied for renewal of its registration under Sections 12AA/12AB of the Income Tax Act.

The Commissioner (Exemptions) rejected the application, holding that the society worked only for the lubricating grease industry and therefore did not carry out charitable activities. The Commissioner also relied on the fact that the parent organisation in the United States operated as a trade association rather than a charitable organisation.

Before the Tribunal, the Institute submitted that it organised conferences, seminars, workshops and educational courses to promote research, technical education and development in the field of lubricating grease. It argued that any surplus generated was only incidental to its charitable activities. It also pointed out that a coordinate Bench had earlier granted registration in its favour under identical facts, but the Commissioner ignored that decision.

The Revenue argued that the society functioned as an affiliate of a trade association, served only a specific industry and did not qualify either as an educational institution or as an entity advancing an object of general public utility.

The ITAT examined the record and found that the society organised technical conferences, workshops and educational programmes for researchers, students, industry participants and other stakeholders to promote research and disseminate knowledge relating to lubricating grease. It held that the identity of beneficiaries did not determine the charitable nature of an institution. It observed that an institution could retain its charitable character even if its activities benefited persons connected with a particular industry. The Bench observed:

“The generation of surplus alone cannot be a criteria to deny the registration u/s 12A of the Act. When there are other provisions under the Act to account for such surplus.”

Further, the Tribunal relied on its earlier decision in the Institute's own case, along with the Supreme Court's judgment in Ahmedabad Rana Caste Association and the Rajasthan High Court's decisions in Anesthesia Society and Jodhpur Chartered Accountants Society. It held that the Commissioner had wrongly rejected the registration application.

Accordingly, the ITAT set aside the impugned order and remanded the matter to the Commissioner (Exemptions) for fresh adjudication in accordance with law after granting the assessee a fair opportunity of hearing.

For Assessee: Shri Salil Agarwal, Senior Advocate and Shri Shailesh Gupta, CA

For Revenue: Shri Yashvendra Singh, CIT-DR