2014 (2) TMI 1172 - AT - Income Tax

Registration granted under section 12A denied - DIT coming to the conclusion that the appellant is directly hit by the proviso to section 2(15)which was inserted with effect from the assessment year 2009-10 - Held that - The charitable purposes include the objects of artistic or historic interest. In the instant case also the assessee-trust was founded to acquire art museum and art theatre for the promotion of art and culture amongst the members of the general public. Therefore the activity of the assessee are charitable in nature is as per the provisions contained in section 2(15) of the Act. In the instant case as we have already mentioned that the assessee-trust was established to make it available the art museum and art theatre for the members of the general public irrespective of their caste community or religion therefore the activity of the assessee-trust is charitable in nature as per the provisions of section 2(15) of the Act. Whereas the proviso inserted by the Finance (No.2) Act 2009 by the Central Board of Direct Taxes Circular No. 1 of 2011 dated April 6 2011 shall not be applicable in the instant case for the year under consideration. We therefore considering the totality of the facts as discussed hereinabove are of the view that the learned Director of Income-tax (Exemption) was not justified in cancelling registration already granted to the assessee-trust under section 12A of the Act by invoking the provisions of section 12AA(3) of the Act. In that view of the matter the impugned order is set aside and the registration under section 12A already granted to the assessee is restored. - Decided in favour of assesse.

Issues Involved:
1. Jurisdiction of the Director of Income-tax (Exemption) to cancel registration under section 12A.
2. Applicability of the proviso to section 2(15) of the Income-tax Act, 1961.
3. Legitimacy of the cancellation of registration under section 12AA(3) of the Act.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Director of Income-tax (Exemption) to Cancel Registration under Section 12A:
The appellant contended that the Director of Income-tax (Exemption) lacked jurisdiction to cancel the registration granted under section 12A, as the registration could not be canceled or withdrawn under section 12AA(3) of the Act. The Director of Income-tax (Exemption) received a proposal from the Income-tax Officer (Exemption) for cancellation of the registration on the grounds that the assessee was engaged in activities of trade, commerce, or business with gross receipts exceeding Rs. 10 lakhs, thereby attracting the provisions of section 2(15) from the assessment year 2009-10. The Director issued a show-cause notice to the assessee, which led to the cancellation of the registration under section 12AA(3). However, the Central Board of Direct Taxes (CBDT) Circular No. 1 of 2011 clarified that the registration granted under section 12A could be canceled by invoking the amended provisions of section 12AA(3) only for the assessment year 2011-12 and subsequent years. Thus, the cancellation for the assessment year 2009-10 was not justified.

2. Applicability of the Proviso to Section 2(15) of the Income-tax Act, 1961:
The Director of Income-tax (Exemption) concluded that the appellant was directly hit by the proviso to section 2(15) of the Act, which was inserted with effect from the assessment year 2009-10. The proviso states that if a trust's main object is "for advancement of any other object of general public utility" and it carries out activities in the nature of trade, commerce, or business for a fee or consideration, it shall not be considered for charitable purposes. The Director observed that the income received by the assessee from theatre hire charges was towards commercial exploitation of its property, which constituted business income. However, the assessee argued that its activities were charitable in nature, aimed at promoting arts and culture among the general public, and the theatre hire charges were to cover maintenance costs. The Tribunal noted that the objects of the trust were charitable, and the activities were in line with the promotion of arts and culture, thus falling under the definition of "charitable purpose" as per section 2(15) of the Act.

3. Legitimacy of the Cancellation of Registration under Section 12AA(3) of the Act:
The Tribunal considered the submissions and the material on record. It was noted that the registration was initially granted under section 12A, and the Director of Income-tax (Exemption) canceled it by invoking section 12AA(3), considering the activities as commercial. The Tribunal referred to the CBDT Circular No. 1 of 2011, which clarified that the power to cancel registration under section 12A was applicable from June 1, 2010, for the assessment year 2011-12 and subsequent years. Since the assessment year in question was 2009-10, the cancellation was not in accordance with the law. The Tribunal also cited the decision of the Income-tax Appellate Tribunal, Agra Bench, which held that the Commissioner could not cancel registration under section 12AA(3) for activities prior to June 1, 2010. The Tribunal concluded that the Director of Income-tax (Exemption) was not justified in canceling the registration, as the assessee's activities were charitable in nature, and the cancellation provisions were not applicable for the assessment year 2009-10.

Conclusion:
The Tribunal set aside the impugned order of the Director of Income-tax (Exemption) and restored the registration under section 12A granted to the assessee. The appeal was allowed, and the order was pronounced in the open court on February 4, 2014.

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