Commissioner Of Income Tax, Faridabad v. Iilm Foundation Academy, Gurgaon

I. T. A. No. 198 of 2011 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. Case No. : I. T. A. No. 198 of 2011 Reserved On : September 01, 2016 Pronounced On : September 16, 2016 Commissioner of Income Tax, Faridabad vs. IILM Foundation Academy, Gurgaon ....Appellant ....Respondent CORAM : HON'BLE MR. JUSTICE S. J. VAZIFDAR, CHIEF JUSTICE.HON'BLE MR. JUSTICE DEEPAK SIBAL.HON'BLE MR. JUSTICE DEEPAK SIBAL. * * * Present :Mr. Denesh Goyal, Advocate for the appellant. Mr. Rohit Jain, Advocatefor the respondent. * * * DEEPAK SIBAL, J. : Under Section 260-A of the Income Tax Act, 1961 (for short –the Act), the present appeal has been filed at the instance of the Revenue tochallenge therein the order passed by the Income Tax Appellate Tribunal,Delhi Bench “C”, New Delhi (for short – the Tribunal), through which, theTribunal, while setting aside the order of the Commissioner of Income Tax,Faridabad (for short – the Commissioner), has held the assessee eligible forregistration under Section 12-AA as also for exemption under Section 80-Gof the Act. The appeal was admitted on the following substantial question I. T. A. No. 198 of 2011 2 “Whether the Ld. ITAT was right inholding that since it has been held that theassessee is eligible for registration u/s 12AA ofthe Income Tax Act, 1961 whereas the CIT in hisorder u/s 12AA dated 21.12.2009 of the IncomeTax Act, 1961 has given a detailed finding that thenature of the income derived or derivable wouldnot be exempt u/s 11 & 12 of the Income Tax Act,1961 ?” After traversing the record, the relevant facts which haveemerged, are that the assessee, which is a Company incorporated underSection 25 of the Companies Act, 1956 (for short – the Companies Act), tobecome eligible for the grant of exemption under Section 11 of the Act,made an application under Section 12-A(1)(a) of the Act for registration,which was rejected by the Commissioner as he was of the view that theancillary objects of the respondent (hereinafter referred to as – theCompany) empowered its members to invest and utilize its funds in themanner they wanted to. He also found ample scope with the members toutilize the funds of the Company in pursuance to its ancillary objects,which, according to him, were alien to its main object of impartingeducation. The Commissioner was further of the opinion that the ancillaryobjects permitted the Company to carry on activities in the nature of trade,commerce or business. Such powers with its members through theCompany's ancillary objects were found by the Commissioner to berepugnant to the Company's main object of imparting education. TheMonika2016.09.20 11:48I attest to the accuracy andauthenticity of this document I. T. A. No. 198 of 2011 3 Commissioner was also of the view that the ancillary objects would bepursued by its members independent of its main objects, as also against theprovisions of the license granted under Section 25 of the Companies Act.In view of the aforesaid reasons, holding that the Company was notperfectly constituted to advance charitable activities, the Commissionerrefused to register the Company under Section 12AA of the Act. I. T. A. No. 198 of 2011 3 Commissioner was also of the view that the ancillary objects would bepursued by its members independent of its main objects, as also against theprovisions of the license granted under Section 25 of the Companies Act.In view of the aforesaid reasons, holding that the Company was notperfectly constituted to advance charitable activities, the Commissionerrefused to register the Company under Section 12AA of the Act. The order of the Commissioner was taken up in appeal by theCompany before the Tribunal. The Tribunal applied the pre-dominant testand by holding that the main objects of the Company were to imparteducation to be carried on a non-commercial basis and that all its ancillaryobjects were incidental to the attainment of the main objects, over-ruled theview taken by the Commissioner. The Tribunal further placed reliance uponthe license granted by the Government of India to the Company underSection 25 of the Companies Act to hold that the sole object of theCompany was to impart education on a non-commercial basis. Drawing adistinction between primary and enabling objects, the Tribunal held theCompany eligible for grant of registration under Section 12AA of the Actand as a consequence thereof, for exemption under Section 80-G of the Act. It is in the above background that the Revenue has preferred thepresent appeal raising therein the afore-quoted substantial question of law. Clause III of the 'Memorandum of Association' (hereinafterreferred to as – the Memorandum) of the Company, which contains itsobjects, reads as under :- I. T. A. No. 198 of 2011 4 “A. THE MAIN OBJECTS TO BEPURSUED BY THE COMPANY ON ITSINCORPORATION ARE : 1.To Promote Education in the field ofArt, Commerce, Science by establishing,running institutes including primary,secondary, senior, graduate, postgraduate,technical, vocational, training and managementlevels schools, colleges, institutes. 2.No object of the company will becarried out without obtaining priorapproval/No Objection Certificate from theconcerned authority wherever required. 3.None of the objects of the companywill be carried out on commercial basis. B. THE OBJECTS INCIDENTAL ORANCILLARY TO THE ATTAINMENT OF THEABOVE MAIN OBJECTS ARE : 1.To enter into any arrangement oragreement or contract with any personassociation firm or corporation whether inIndia or outside, for professional, technicians,or for such other purpose that may seembeneficial and conducive to the objects of thecompany. 2.To organize fairs, seminars andconferences, sports festivals and other eventswhich are required to be carried on for thepurpose of proper execution of the main objectsof the company. I. T. A. No. 198 of 2011 5 3.To provide reading, writing materialand newspapers rooms and library. 4.To promote the study practice andknowledge or music, art, science, commerce,literature and others to give or to arrange,concerts, musical, entertainment, programmes,shows displays, invite lecturers, writers,speakers, poets, composers, philosophers,preachers and to purchase copyrights, books,pamphlets, articles, magazines and to giveprizes and awards for the implementation of themain objects. 5.To spread and promote educationand learning in all its branches, to establishand support schools, colleges and othereducational institutions or other educationcenters, study centers and research centers tocarry on systematic research and encourageand get together competent scholars, teachers,lecturers or pundits for holding classes,seminars and lectures in all fields of educationand author books and other publications and toissue books, journals, periodicals or othermodern complications such as software andundertake generating the systematic study andteachings of all subjects for the implementationof the main objects. 5.To spread and promote educationand learning in all its branches, to establishand support schools, colleges and othereducational institutions or other educationcenters, study centers and research centers tocarry on systematic research and encourageand get together competent scholars, teachers,lecturers or pundits for holding classes,seminars and lectures in all fields of educationand author books and other publications and toissue books, journals, periodicals or othermodern complications such as software andundertake generating the systematic study andteachings of all subjects for the implementationof the main objects. 6.To accumulate capital by means ofmonthly subscriptions or otherwise frommembers and also by borrowing money frommembers or any other persons on such security I. T. A. No. 198 of 2011 6 and on such terms as the company may fromtime to time arrange and accept and to acceptdonations, contributions, grants, either in cashor in kind from any persons, companies,corporations, institutions on such terms and forsuch objects which are in conformity with theobjects of the company. 7.To establish and run hostels,dormitory, guest house and to provide anyother kind of lodging/accommodation facilityfor the students, faculty and other staff, and torun cafeteria, mess, canteen or any otherfacility of similar nature. 8.To purchase, acquire, take on leaseor mortgage, land and immovable propertiesand to construct, rejuvenate, rehabilitate anddevelop immovable property consistent with theobject and to purchase, acquire, take on lease,any movable property including furniture,fixtures, books, conveyances, equipment,appliances, instruments, vehicles. 9.To invest the surplus funds and/orretain the investment and properties receivedas donations either in the shape or shares orsecurities or other form of movable orimmovable properties and to permit the same toremain in the actual state of investments thereofso long as the Company may think fit and atany time or times to sell, call in or convert intomoney the aforesaid investments or any of themor any part thereof and with a power to change I. T. A. No. 198 of 2011 7 or vary any investments for the time beingforming part of the assets. 10.To appoint committees, advisoryboards, governing body for any institution,established, run and maintained by theCompany. 11.To employ and discharge staff for thepurposes of Company. 12.To borrow or raise moneys on thesecurity of the Assets of the Company whichmay be needed in times of emergency and topay the same. 13.To provide guarantee and security inrespect of loans and advances availed by thecompany, its directors or any other company orpersons and also create the charge by way ofpledge/hypothecation/mortgage/assignment onany moveable/immovable properties/assets ofthe company. 14.To indemnify the employees andofficers of the Company against proceedingslosses, costs, damages, claims and demandsunder Law or Equity or otherwise in respect ofaccidents, injury, death, whether as workman,clerk, officer, technician and to appointadvisers, experts, agents or insurers toinvestigate the circumstances of accident,injury or damage and take steps to prevent thesame and to oppose, resist, compromise orsatisfy fully or in party such claims anddemands. I. T. A. No. 198 of 2011 8 15.To acquire real or personal property,both movable and immovable including shares,securities, debentures by way of investment orwith a view to resale or otherwise and inparticular in freehold leaseholds, mortgages,shares securities, debentures and otherinevitable sources for attainment of mainobjects of the Company. I. T. A. No. 198 of 2011 8 15.To acquire real or personal property,both movable and immovable including shares,securities, debentures by way of investment orwith a view to resale or otherwise and inparticular in freehold leaseholds, mortgages,shares securities, debentures and otherinevitable sources for attainment of mainobjects of the Company. 16.To provide education in academic,vocational and competitive examinations and toaward scholarship, prizes in such form andmanner as may be decided by the company. 17.To provide living accommodation orhousing/developing units for workman andother and in connection therewith to providesuch facilities and conveniences for washing,bathing, cooking, and writing purposes andsale of provision and stores and for the safecustody of personal belongings. 18.To sell, let, develop, dispose off orotherwise deal with the undertaking or anyparty of the property of the company. 19.To enter any arrangements with anyGovernmental Authority, Supreme, Municipal,Local or otherwise and to obtain from any suchGovernment or Authority rights concessionsand privileges that may seem conducive to theCompany's objects or any of them. 20.To establish, maintain and procurecontributory funds for the benefit of personswho are or were at any time in the employment I. T. A. No. 198 of 2011 9 or the services of the Company and who are orwere at any time whole-time stipendiarydirectors, technicians, officers, employees,workmen of the company, wives, widows.Families, and dependents of such persons andto subscribe to any institution, association orclub the funds collected for the benefit of or toadvance the interest and well being of themembers of the Company. 21.To pay the costs, charges andexpenses preliminary or incidental to theformation establishment and registration of thecompany, and all expenses which the companymay lawfully pay, having regards to theprovisions of the Companies Act, 1956, for orIncidental to the raising of money for theCompany. 22.To sell or dispose of the undertakingof the company or any part thereof for suchconsideration as the Company may think fit andin particular for shares, debentures orsecurities or any other association or companyhaving objects altogether or in part similar tothose of the Company. 23.To enter into contracts necessary ordesirable for the conduct of the Company'saffairs, including contracts of indemnity orguarantee of any kind whatsoever with in Indiaor outside India. 24.To open accounts with anybanks/financial institutions and to draw, make, I. T. A. No. 198 of 2011 10 accept, discount, execute or issue Bills ofExchange, promissory notes, bills of lading,warrants, debentures and other negotiableinstruments or securities. 25.To frame schemes, rules andregulations for attaining any of the objects ofthe company and bye-laws for conducting theaffairs of the Company from time to time. 26.To engage the services of lawyers,bankers, architects, brokers or any otherexperts, technical or otherwise on such termsand conditions as may be determined. 27.To insure and keep insures theCompany's property movable and immovable,as may be determined against any riskwhatsoever. 28.The doing of all such other lawfulthings as are incidental or conducive to theattainment of the above objects. Provided that the Company shall not supportwith its funds or Endeavour to impose on, orprocure to be observed by its members orothers, any regulations or restrictions which, asan object of the company would make it aTrade Union. C. THE OTHER OBJECTS ARE : NIL.” Section 11 of the Act exempts from the payment of tax any income derived by a Trust set up wholly for charitable or religious purposes 27.To insure and keep insures theCompany's property movable and immovable,as may be determined against any riskwhatsoever. 28.The doing of all such other lawfulthings as are incidental or conducive to theattainment of the above objects. Provided that the Company shall not supportwith its funds or Endeavour to impose on, orprocure to be observed by its members orothers, any regulations or restrictions which, asan object of the company would make it aTrade Union. C. THE OTHER OBJECTS ARE : NIL.” Section 11 of the Act exempts from the payment of tax any income derived by a Trust set up wholly for charitable or religious purposes Monika2016.09.20 11:48but for the grant of such exemptions, a Trust is required to be registeredI attest to the accuracy andauthenticity of this documentI attest to the accuracy andauthenticity of this document under Section 12-A. The procedure for registration is prescribed underSection 12-AA of the Act. “Charitable Purpose” is defined under Section 2(15) of the Act, the relevant portion of which reads as under :- “2(15)“Charitable purpose” includes reliefof the poor education, medical relief, preservationof environment (including watersheds, forests andwildlife) and preservation of monuments or placesor objects of artistic or historic interest, and theadvancement of any other object of general publicutility.” From a perusal of the above quoted definition, it is abundantlyclear that imparting of education is charity. At the stage of registrationunder Section 12-A read with Section 12-AA of the Act, what is required tobe examined by the Principal Commissioner or the Commissioner (as thecase may be) is whether at the time of making the application andconsideration thereof, the applicant fulfills the conditions prescribed underSection 12-A and that its main objects are charitable or religious in nature.At that stage, to consider the objects, which are merely incidental orancillary to the attainment of the main objects, some of which in itself maynot be charitable, as distinct and independent objects would taint suchconsideration. We have used the words `at that stage' with a purposebecause after the grant of registration, the Principal Commissioner or theCommissioner (as the case may be) should monitor the activities of theexemptee and if as a result thereof, it is found that the activities of theMonika2016.09.20 11:48exemptee are non-charitable, then by taking recourse to the provisions ofI attest to the accuracy andauthenticity of this document Section 12-AA (3) of the Act, such registration should be withdrawn. In Additional Commissioner of Income Tax, Gujarat vs.Surat Art Silk Cloth Manufacturers Association– 1980 (121) IncomeTax Reports 1, the Apex Court opined as under :- Section 12-AA (3) of the Act, such registration should be withdrawn. In Additional Commissioner of Income Tax, Gujarat vs.Surat Art Silk Cloth Manufacturers Association– 1980 (121) IncomeTax Reports 1, the Apex Court opined as under :- “The law is well-settled that if thereare several objects of a trust or institution, someof which are charitable and some non-charitableand the trustees or the managers in theirdiscretion are to apply the income or property toany of those objects, the trust or institution wouldnot be liable to be regarded as charitable and nopart of its income would be exempt from tax. Inother words, where the main or primary objectsare distributive, each and every one of the objectsmust be charitable in order that the trust orinstitution might be upheld as a valid charity:videMohd. Ibrahim Vs. CIT (1930) 57 IA 260 and EastIndia Industries (Madras) P. Ltd. Vs. CIR (1967)65 ITR 611 (SC). But if the primary or dominantpurpose of a trust or institution is charitable,another object which by itself may not becharitable but which is merely ancillary orincidental to the primary or dominant purposewould not prevent the trust or institution frombeing a valid charity: vide CIT Vs. AndhraChamber of Commerce (1965) 55 ITR 722 (SC).The test which has, therefore, to be applied is-whether the object which is said to be noncharitable is a main or primary object of the trustor institution or it is ancillary or incidental to the ”dominant or primary object which is charitable. Thus, the Apex Court was clearly of the opinion that if thedominant purpose of an institution or Trust is charitable, then other objects,which may not be by itself charitable, but which are merely ancillary orincidental to the main object, would not make the institution or Trust non-charitable. In Digember Jain Society for Child Welfare vs. Director General of Income-tax (Exemptions)– 2009 (185) Taxman 255, aDivision Bench of the Delhi High Court, while considering the claim of thepetitioner therein, which filed the petition as a Charitable Society, to claimexemption under Section 10 (23C) (vi) of the Act, which had been deniedby the Revenue, while following the judgment of the Apex Court inAmerican Hotel & Lodging Association Educational Institute vs.–CBDT (2008) 301 ITR 86, held that when an application for exemptionis moved by any Trust etc., the conditions prevalent at the time of making ofsuch application and passing of order on the same, are to be considered. Ifat that time, all mandatory conditions so prescribed are fulfilled by theapplicant, the exemption should be granted, but while granting the same, theAuthority can make the grant of exemption subject to conditions, as deemedfit, but within the framework of law. Further, the Authority would continueto monitor the activities of the exemptee institution and if it is found at alater stage that such activities are not genuine or in violation of theprescribed mandatory conditions, it is up to the Monitoring Authority toMonika2016.09.20 11:48I attest to the accuracy andauthenticity of this document withdraw the exemption by following the procedure prescribed by law, byholding as under :- withdraw the exemption by following the procedure prescribed by law, byholding as under :- “11.It follows from the aforesaidjudgment that when an application for exemptionis to be moved by any trust, fund, university orother educational institution, the thresholdconditions which are to be examined at that stageare actually existence of an educational institutionand approval of the prescribed authority, forwhich every applicant has to move an applicationin the standardized form in terms of first proviso.Insofar as newly added third proviso isconcerned, which relates to the application offunds, namely to see whether such institution etc.has not invested/deposited its funds, inaccordance with the conditions subject to whichthe approval is granted, would be a matter thatwould arise for consideration at a later stage asthe third proviso contains mandatoryconditions/requirements. It is only in the eventthat such conditions are not fulfilled, after thegrant of exemption, the prescribed authority isempowered to withdraw the approval earliergranted after complying wit the procedurementioned therein. 12.In order to bind the institutions etc.,to properly implemented the rigours contained inthe third proviso, the Supreme Court provided thesolution also in the aforesaid judgment, which isthis: on fulfilling the threshold conditions,approval could be granted with the stipulation that conditions mentioned in the third provisowould be carried by the applicant. The SupremeCourt also was of the view that while imposingsuch stipulation, subject to the approval asgranted, the prescribed authority may insist oncertain percentage or accounting income to beutilized/applied for imparting education in India,as it was a case of a foreign educationalinstitutions. We are in respectful agreement with the afore-quotedobservations. Learned counsel for the appellant relied upon a judgment of the -Apex Court inYogiraj Charity Trust vs. Commissioner of IncomeTax, –New Delhi (1976) 103 ITR 777 to submit that where there were severalobjects of the Trust, some of which charitable and some not, then in suchcases, the Trust was not entitled for exemption. In that case, however,clauses 11 and 16 of the deed gave an uncontrolled discretion to the trusts tospend the whole of the trust fund on any of the non-charitable objects of thetrust. The non-charitable objects authorized the management to open andmaintain commercial institutions where work at living wages could beprovided to the poor and to contribute to commercial, technical or industrialconcerns, institutions, associations or bodies imparting any type of trainingor providing employment to persons. The revenue contended that theseclauses were non-charitable. What it is equally important to note is thataccording to the revenue itself in that case the clauses were neither ancillary I. T. A. No. 198 of 2011 16 I. T. A. No. 198 of 2011 16 nor secondary to the primary and dominant purpose of the trust. Nor couldit be said that the clauses sub served the main object of the purpose. It wasfound that some of the objects of the trust were non-charitable. The questionwas whether the exemption could be granted where some objects arecharitable and some non-charitable. It was held that where some objects arecharitable and some non-charitable, the whole trust fails and no part ofincome is exempt from tax. The test laid down by the Supreme Court wasthat if one of the objects of the trust deed is not of a religious or charitablenature and the trust deed confers full discretion on the trustees to spend thetrust funds for an object other than of a religious or charitable nature, theexemption under section 4(3)(i) of the 1922 Act was not available to theassessee. The case is clearly distinguishable for there was a finding that theclauses there gave the trust an uncontrolled discretion to spend the whole ofthe trust funds on any non-charitable objects of the trust. Further the saidclauses were neither ancillary nor secondary to the primary and dominantpurpose of the trust. In the case before us the clauses objected to areexpressly contained in Part-B which as the heading itself enumerates areancillary and incidental objects. Further Mr. Rohit Jain’s statements asrecorded above are accepted. Further, still leaving scope for grievance wehave left it to the department to impose any terms and conditions inaccordance with law as a condition precedent to the grant of certificate. A closer scrutiny of the judgment shows that the same does notfurther the case of the appellant as it has been held therein that the benefit of exemption can be granted in cases where the primary objects of the Trustare of a charitable nature and even if ancillary or secondary objects exist,which are not of charitable nature, it would not prevent the grant ofexemption under the Act, for the reason that such ancillary or secondaryobjects are intended to effectuate the main and primary objects. It was held as under :- “The only relaxation which may arisein some cases is that all primary objects of thetrust must be of a religious and charitable natureand the existence of any ancillary or secondaryobject which is not of a religious or charitablenature but which is intended to subserve thereligious and charitable objects may not preventthe grant of an exemption. This is because such anancillary or secondary object, even though not ofa religious or charitable nature, is intended toeffectuate the main and primary objects of thetrust. If the primary or dominant purpose ofa trust is charitable, another object which by itselfmay not be charitable but which is merelyancillary or incidental to the primary or dominantpurpose would not prevent the trust from being avalid charity. A clear distinction must be drawnbetween the object of a trust and the powersconferred upon the trustees as incidental to thecarrying out of the object.” A Division Bench judgment of the Andhra Pradesh High Court inAurora Educational Society vs. Chief Commissioner of Income-Tax and others– (2011) 339 Income Tax Reports 333 was also cited onbehalf of the appellant. That too does not support the case of the Revenueas it was held therein that if the dominant purpose of an institution iseducational, then the other objects, which are ancillary or incidental to thedominant purpose, would not disentitle the institution from exemption.Paragraphs 17 and 18 of the judgment read as under :- “17.If the dominant purpose of aninstitution is “educational” another object whichis merely ancillary or incidental to the dominantpurpose would not disentitle the institution fromthe benefit. A Division Bench judgment of the Andhra Pradesh High Court inAurora Educational Society vs. Chief Commissioner of Income-Tax and others– (2011) 339 Income Tax Reports 333 was also cited onbehalf of the appellant. That too does not support the case of the Revenueas it was held therein that if the dominant purpose of an institution iseducational, then the other objects, which are ancillary or incidental to thedominant purpose, would not disentitle the institution from exemption.Paragraphs 17 and 18 of the judgment read as under :- “17.If the dominant purpose of aninstitution is “educational” another object whichis merely ancillary or incidental to the dominantpurpose would not disentitle the institution fromthe benefit. 18.The test which has, therefore, to beapplied is whether the object, which is said to benon-educational, is the main object of theinstitution or it is ancillary or incidental to thedominant object which his “educational” (Addl.CIT Vs. Surat Art Silk Cloth manufacturersAssociation (1980) 121 ITR 1 (SC). The test is thegenuineness of the purpose tested by theobligation created to spend the money exclusivelyon “education”. If that obligation is there, theincome becomes entitled to exemption (SoleTrustee, Loka Shikshana Trust Vs. CIT (1975) 101ITR 234 (SC).” A Division Bench judgment of the Jammu and Kashmir HighCourt in Ghulam Mohidin Trust vs. Commissioner of Income-Tax– I. T. A. No. 198 of 2011 19 of non-grant of exemption under Section 11 of the Act vis-a-vis applicationof Section 13(1)(a) and (b) of the Act was considered and adjudicated upon.The assessee therein was a Trust, whose objects clearly showed that it hadbeen created exclusively for the benefit of persons belonging to the Muslimcommunity and for that reason, by applying the provisions of Section 13(1)(b) of the Act, exemption under Section 11 was denied. Thus, that casewould have no application to the facts of the case in hand. When the afore-referred settled position of law is applied to thefacts of the case in hand, we find that as per Clause III-A the Memorandumof the Company, its main objects are for imparting education on a non-commercial basis. All other objects so mentioned under Clause III-B of theMemorandum, as its heading implies, are merely incidental and ancillary tothe attainment of the afore-referred main objects. The respondent was incorporated on 18.03.2009 under section25 of the Companies Act, 1956. The respondent was granted a licenceunder section 25 issued by the Regional Director dated 21.01.2009. It wouldbe convenient at this stage to note section 25 of the Companies Act and therelevant conditions of the licence. Section 25 of the Companies Act reads asunder:- “Section25. Power to dispense with "Limited" inname of charitable or other company. (1)Where it is proved to the satisfaction of theCentral Government that an association-Central Government that an association- (a)is about to be formed as a limited company forpromoting commerce, art, science, religion,promoting commerce, art, science, religion, I. T. A. No. 198 of 2011 20 charity or any other useful object, and (b)intends to apply its profits, if any, or otherincome in promoting its objects, and to prohibitthe payment of any dividend to its members, theCentral Government may, by licence, direct thatthe association may be registered as a companywith limited liability, without the addition to itsname of the word" Limited" or the words" PrivateLimited…………………….." The conditions of the licence issued to the respondent under section 25 in so far as they are relevant read as under:- (a)is about to be formed as a limited company forpromoting commerce, art, science, religion,promoting commerce, art, science, religion, I. T. A. No. 198 of 2011 20 charity or any other useful object, and (b)intends to apply its profits, if any, or otherincome in promoting its objects, and to prohibitthe payment of any dividend to its members, theCentral Government may, by licence, direct thatthe association may be registered as a companywith limited liability, without the addition to itsname of the word" Limited" or the words" PrivateLimited…………………….." The conditions of the licence issued to the respondent under section 25 in so far as they are relevant read as under:- “(2) that the income and property of the saidcompany whensoever derived, shall be appliedsolely for the promotion of the objects as set forthin its memorandum of association and that noportion thereof shall be paid or transferred,directly or indirectly by way of dividend, bonus orotherwise by way of profit, to persons who at anytime are or have been members of the saidcompany or to any of them or to any personsclaiming through any one or more of them; (3) that no remuneration or other benefit in moneyor money’s worth shall be given by the companyto any of its members whether officers or servantsof the company or not except payment of out ofpocket expenses, reasonable and proper intereston money lent, or reasonable and proper rent onpremises let to the company. (4) that no member shall be appointed to anyoffice under the company which is remunerated by salary, fees or in any other manner not exceptedby clause (3)” The Tribunal rightly held that the registration granted undersection 25 of the Companies Act is a recognition of the fact that therespondent is essentially established for the purpose of education. It wasfurther held that the status granted by the Government by virtue of licenceunder section 25 itself recognises the fact that the respondent wasessentially established inter-alia for the purpose of education. Evenassuming that the licence is not conducive of the matter under the IncomeTax Act, it is certainly an important factor in favour of the applicant forregistration. There can be no doubt that the main objects read by themselvesentitle the respondent to registration under section 12AA of the Act. It wasrightly not even contended otherwise. It was, however, contended that inview of the objects incidental or ancillary to the attainment of the mainobjects, the respondent is not entitled to registration under section 12AA ofthe Act. There are 28 incidental or ancillary objects. To allay Mr. Goel’s objections and apprehensions, Mr. RohitJain, learned counsel appearing on behalf of the respondent stated that allthe ancillary and incidental clauses are those that are merely ancillary andincidental to the main objects and for no other purpose. He further statedthat powers conferred by every clause in part-B would be subject to andsolely for the purpose of, in connection with and in relation to the mainMonika2016.09.20 11:48objects of the respondent. We accept the statement and it is so ordered. I attest to the accuracy andauthenticity of this document I. T. A. No. 198 of 2011 22 The clauses also must be read as a part of the entirememorandum of objects and not in isolation. We are satisfied that theyconfer powers only for the purpose of attaining the main objects and for noother reasons whatsoever. We, however, do not wish to leave anything tochance and provide two safeguards - firstly by accepting the statement madeby Mr. Rohit Jain as aforesaid and secondly by permitting the appellant toobtain such clarifications and to impose such conditions as they desire uponthe respondent to ensure that there is no misuse of any of the incidental andancillary objects. I. T. A. No. 198 of 2011 22 The clauses also must be read as a part of the entirememorandum of objects and not in isolation. We are satisfied that theyconfer powers only for the purpose of attaining the main objects and for noother reasons whatsoever. We, however, do not wish to leave anything tochance and provide two safeguards - firstly by accepting the statement madeby Mr. Rohit Jain as aforesaid and secondly by permitting the appellant toobtain such clarifications and to impose such conditions as they desire uponthe respondent to ensure that there is no misuse of any of the incidental andancillary objects. A perusal of the order of the Commissioner shows that hedeclined to register the Company by reading its ancillary objects as its mainobjects as also on the basis that in the future the Company may, under itsancillary/incidental objects, indulge in activities, which would be of non-charitable character. As of today, there is nothing on the record that theCompany is indulging in any activity which is not in the nature of charity.Thus, at this stage, the order of the Commissioner can only be termed aspresumptuous. There is also nothing on record to show that the Companydoes not meet any of the conditions prescribed under the Act for the grant ofregistration to make it eligible for the grant of exemption under Section 11and consequently under Section 80-G of the Act. Thus, we find that theorder of the Commissioner was rightly set aside by the Tribunal in the orderimpugned before us. In view of the above, we order dismissal of the appeal. However, while granting registration, it would be open to the RegisteringAuthority to grant the same by imposing any condition, which would bindthe Company to indulge in only charitable activities. It will also be subjectto an affidavit or undertaking to be filed by the Company that it would notbreach any of the imposed conditions and further that surplus funds wouldbe utilized only for educational purposes and would not be diverted to anyother non-educational objectives. Whether speaking/reasoned ? Yes/No. Whether reportable ? Yes/No. ( S. J. VAZIFDAR ) CHIEF JUSTICE September 16, 2016monika ( DEEPAK SIBAL )JUDGE