2010 (5) TMI 833 - AT - Income Tax

Exemption u/s 11 - registration u/s 12AA(3) denied - DIT(Exemption) stated that the registration u/s 12AA(3) was granted erroneously and therefore it was withdrawn from the first date of the registration -assessee is an autonomous body set up and governed by the provisions of The Gujarat Town Planning and Urban Development Act, 1976 ( GTP Act ) and was registered u/s 12AA of the DIT(Exemption) but subsequently cancelled the registration u/s 12AA w.e.f. 1-4-2002. HELD THAT - As evident that once a trust or institution has been granted registration u/s12AA(3), subsequently, the if Commissioner finds that one of the conditions viz. (i) the activity of such trust or institution are not genuine, and (ii) the activity of the such trust or institution are not being carried out in accordance with the objects of the trust or institution is satisfied, then the Commissioner has power to cancel registration granted u/s.12AA(1) by passing an order in writing. Therefore, registration granted u/s.12AA(1) cannot be cancelled u/s.12AA(3) unless one of the conditions prescribed u/s.12AA(3) is satisfied. In present case, the assessee is recovering the cost as provided under the GTP Act , under which the assessee is functioning. Merely because the assessee is recovering the cost of the project, partially or wholly, it cannot be said that the activities of the assessee are not being carried out in accordance with the object of the institution. None of the conditions as prescribed u/s12AA(3) is satisfied in the case of the assessee so as to cancel the registration granted u/s 12AA. We therefore quash the order of the DIT(Exemption) passed u/s 12AA(3) and restore the order of the Registration passed by the DIT(Exemption) u/s12AA(1). In the result, the assessee s appeal is allowed.

Summary

Issues:
Appeal against cancellation of registration under Section 12AA(3) of the Income Tax Act, 1961.

Analysis:
1. The assessee appealed against the cancellation of registration granted under Section 12AA(1) by the Director of Income Tax (Exemption) under Section 12AA(3). The primary argument was that the activities of the assessee, governed by The Gujarat Town Planning and Urban Development Act, 1976, were genuine and in line with its objects. The assessee contended that recovery of costs through levies did not negate its charitable activities, citing legal precedents to support its position.

2. The Departmental Representative (DR) supported the cancellation, arguing that the registration was erroneously granted and could be withdrawn if not meeting the conditions of Section 12AA(3). It was asserted that the assessee's commercial approach indicated non-charitable activities. Reference was made to cases where similar bodies were denied registration under Section 12AA.

3. The Tribunal analyzed Section 12AA(3) which allows cancellation if the trust's activities are not genuine or not in line with its objects. It was clarified that registration could only be canceled if these conditions were met. The Tribunal disagreed with the DR's assertion that erroneous registration alone justified cancellation, citing a Kerala High Court case in a different context. The DIT(Exemption) failed to provide evidence of the assessee's activities deviating from its objects.

4. The Tribunal highlighted the provisions of the Gujarat Town Planning Act, emphasizing that the assessee's recovery of costs through levies was in accordance with the law, supporting the charitable nature of its activities. Consequently, the Tribunal found that none of the conditions under Section 12AA(3) were satisfied, leading to the quashing of the DIT(Exemption)'s order and restoration of the original registration granted to the assessee.

5. The Tribunal clarified that the appeal did not concern the initial entitlement to registration but focused solely on the cancellation under Section 12AA(3. After considering arguments and facts, the Tribunal concluded that the conditions specified under Section 12AA(3) were not met, leading to the allowance of the assessee's appeal and the cancellation of the DIT(Exemption)'s order.

In conclusion, the Tribunal ruled in favor of the assessee, reinstating the registration under Section 12AA(1) and rejecting the cancellation under Section 12AA(3 due to the absence of evidence supporting non-genuine or non-charitable activities by the assessee.