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2016 (2) TMI 1023 - AT - Income TaxExemption u/s 12AA(3) cancelled - registration was cancelled by the authorities on finding its activities in nature of trade, commerce and business etc and also on the reason of that the gross receipt of the assessee became in excess of ₹ 10 lacs - Held that - Both the aspects with regard to the cancellation of registration have duly been examined by the DIT(E) and thereafter took the action in accordance with law. The only proviso of the section 12AA(3) is in connection with giving an opportunity of being heard to the assessee which has also been given by virtue of notice dated 02.02.2012. Anyhow, apparently in view of the P & L Account the total sales is to the tune of ₹ 2,30,32,426/- and the net income from cost of sales has shown to the tune of ₹ 1,21,73,529/- and miscellaneous income has also shown to the tune of ₹ 6,14,126/- and the case is squarely covered in view of the proviso u/s 2(15) of the Act. Moreover, charitable purposes should be on record to carry out the exemption granted by the DIT(E). As discussed above receipts on account of sale of liquor, catering receipts and soft drink etc cannot be treated for charitable purposes. The receipt has also became very high i.e. more 25 lakhs thereforer in view of the said circumstances we are of the view that the purpose of the assessee is not the charitable purpose and value of receipt has became more than 25 lakhs therefore the learned DIT(E) has rightly cancel the registration as per provision of 12AA(3) of the Act in accordance with law. - Decided against assessee Order required to be implemented retrospectively - Held that - Undoubtedly, the proviso to section 2(15) of the Act is effective from the assessment year of 2009-10 but in the instance case the matter was taken by the learned DIT(E) in pursuance of report / proposal received from ADIT(E)(II)(1), Mumbai. The order nowhere speaks that the report filed by the ADIT(E)(II)(1), Mumbai is in connection of any specific year, but it is quite clear that the authority examined the record of the assessee for the year of 2009-10. When the activities of the assessee was not charitable for the period w.e.f A.Y.2009-10 then no doubt the activities of the assessee is not required to be legalized on this fact that the order passed by the respondent on 01.03.2012. The record of the assessee speaks about this fact that the purpose of the assessee was not charitable for the period w.e.f 2009-10 then in the said circumstances we are of the view that the order is required to be implemented to the very assessment year 2009-10, not from the date of passing the order. Accordingly this issue is also decided against the assessee and in favour of Revenue.
Issues Involved:
1. Jurisdiction to cancel registration under Section 12AA(3). 2. Applicability of proviso to Section 2(15) and its impact on charitable status. 3. Charitable nature of activities like providing sports facilities and running a canteen. 4. Consideration of sports activities as educational and their exemption from Section 2(15) proviso. 5. Classification of activities as trade, commerce, or business. 6. Retrospective application of the cancellation of registration. Detailed Analysis: Issue Nos. 1 to 5: The primary contention revolves around the cancellation of the assessee's registration under Section 12A of the Income Tax Act, 1961, on the grounds that its activities were in the nature of trade, commerce, and business with gross receipts exceeding Rs. 10 lakhs. The DIT(E) had initially granted registration for charitable purposes but later revoked it based on a report from ADIT(E) II(1), Mumbai. The assessee argued that DIT(E) lacked the authority to cancel the registration solely on the basis of exceeding gross receipts and the nature of activities being commercial. The assessee cited various judgments, including SAE India Vs. DIT(E) and Karnataka Industrial Area Development Board Vs. DIT(E), which held that genuine charitable purposes should not be negated merely due to exceeding receipts. The DIT(E) justified the cancellation by referencing Section 2(15) of the Act, which defines "charitable purpose" and includes a proviso that excludes activities involving trade, commerce, or business if gross receipts exceed Rs. 25 lakhs. The DIT(E) examined the assessee's income from sports activities, social functions, and canteen sales, concluding that these were commercial in nature and exceeded the permissible limit. The Tribunal noted that the DIT(E) provided a reasonable opportunity of being heard to the assessee, as required under Section 12AA(3). The Tribunal upheld the DIT(E)'s decision, emphasizing that the assessee's activities and receipts fell within the exclusionary proviso of Section 2(15), thus justifying the cancellation of registration. Issue No. 6 (Additional Ground): The assessee contended that the cancellation order dated 01.03.2012 should not be applied retrospectively from the assessment year 2009-10. However, the Tribunal observed that the DIT(E) acted on a report regarding the assessee's activities for the year 2009-10 and found them non-charitable. The Tribunal ruled that since the activities were not charitable from 2009-10, the cancellation should be effective from that assessment year, not merely from the date of the order. Thus, the Tribunal decided this issue against the assessee, affirming the retrospective application of the cancellation. Conclusion: The appeal was dismissed, with the Tribunal upholding the DIT(E)'s decision to cancel the assessee's registration under Section 12AA(3) due to the commercial nature of its activities and gross receipts exceeding the statutory limit. The Tribunal also supported the retrospective application of the cancellation from the assessment year 2009-10.
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