2014 (2) TMI 1231 - AT - Income Tax

Registration granted to Assessee u/s. 12A cancelled - Held that - It is not the case of the revenue before us that the dominant activities of the assessee are not fitting with the objects of the Council and that the dominant activities in the nature of trade commerce and business or that the councils dominant activities have ceased to be for the purpose of advancement of any other objects of general public utility. Merely because the income of the assessee has crossed prescribed limit of 10 lakhs that itself cannot be ground for cancellation of its registration invoking section 12AA(3) of the Act. If any of the income arising on the activities is not in accordance with the objects of the trust the assessees income at best may not get the exemption under Section 11 of the Act. Further for the previous year during which the gross receipt income crosses limit of 10.00 lacs the trust will not get exemption or benefit of its being charitable in nature despite its carrying out charitable activities. However it will get such benefit if it is registered as charitable institution and income from business activities as mentioned in first proviso to section 2(15) does not cross limit of 10.00 lacs. Subject to our above observations the impugned order of the DI.T(exemptions) is hereby set aside and the registration to the assessee council granted under section 12A of the Act is hereby ordered to be restored - Decided in favour of assessee

Issues Involved:
1. Jurisdiction of DIT(E) to cancel registration under section 12A for AY 2009-10.
2. Nature of the assessee's activities and applicability of proviso to section 2(15).
3. Impact of the amended provisions of section 12AA(3) on the cancellation of registration.
4. Interpretation and application of CBDT Circular No.1/2011.
5. Assessment of whether the assessee's activities fall under "charitable purpose."

Issue-wise Detailed Analysis:

1. Jurisdiction of DIT(E) to Cancel Registration under Section 12A for AY 2009-10:
The primary contention was whether the Director of Income Tax (Exemptions) [DIT(E)] had the jurisdiction to cancel the registration of the assessee trust under section 12A for the assessment year (AY) 2009-10. The tribunal referenced a previous decision (ITA No.496/Mum/2012) which clarified that the power to cancel registration under section 12AA(3) was only applicable from AY 2011-12 onwards, as per the amendment effective from 01.06.2010. The CBDT Circular No.1/2011 also supported this interpretation, stating that the amended provisions apply from AY 2011-12. Therefore, the tribunal concluded that the DIT(E) did not have jurisdiction to cancel the registration for AY 2009-10.

2. Nature of the Assessee's Activities and Applicability of Proviso to Section 2(15):
The assessee argued that its activities were charitable and not in the nature of business. The tribunal examined the objects of the trust, which included advancing the science and technology of plastics, organizing conferences, and disseminating information. However, it was observed that the trust's activities generated significant income from international conferences and interest on deposits, indicating a business nature. The tribunal held that the activities did not strictly fall under "education" but rather "advancement of any other object of general public utility." Therefore, the proviso to section 2(15) was applicable, as the receipts exceeded the monetary limit of Rs. 10 lakhs, making the income business in nature.

3. Impact of the Amended Provisions of Section 12AA(3) on the Cancellation of Registration:
The tribunal discussed the applicability of section 12AA(3), which allows the cancellation of registration if the activities are non-genuine or not in accordance with the trust's objects. It was noted that this provision was only effective from 01.06.2010 and applicable from AY 2011-12 onwards. The tribunal referenced the case of Agra Development Authority v. CIT-1, which held that registration granted under section 12A could not be cancelled for AY 2009-10 as the power to cancel was not retroactive. Therefore, the cancellation of the assessee's registration for AY 2009-10 was not justified.

4. Interpretation and Application of CBDT Circular No.1/2011:
The CBDT Circular No.1/2011 clarified that the power to cancel registration under section 12AA(3) applies from AY 2011-12 onwards. The tribunal emphasized that this circular is binding on the Income-tax department. Since the assessment year in question was 2009-10, the tribunal held that the DIT(E) acted beyond its jurisdiction by cancelling the registration based on the amended provisions, which were not applicable for that year.

5. Assessment of Whether the Assessee's Activities Fall Under "Charitable Purpose":
The tribunal evaluated whether the assessee's activities qualified as "charitable purpose" under section 2(15). It was observed that the trust's activities, such as holding international conferences and earning substantial interest income, were in the nature of trade, commerce, or business. The tribunal referenced the case of "The Cotton Textiles Exports Promotion Council vs. DIT(E)," which discussed the impact of gross receipts exceeding Rs. 10 lakhs on the trust's charitable status. It was concluded that the trust's activities were not purely charitable, and the proviso to section 2(15) applied, disqualifying the trust from being considered charitable for the relevant year.

Conclusion:
The tribunal allowed the appeal, restoring the registration of the trust under section 12A, as the DIT(E) lacked jurisdiction to cancel it for AY 2009-10. The activities of the trust were deemed business in nature, making the proviso to section 2(15) applicable. However, the cancellation of registration was not justified for the assessment year in question due to the non-retroactive application of the amended provisions of section 12AA(3).

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