2012 (8) TMI 369 - AT - Income Tax

Charitable Trust - cancellation of registration u/s 12A on ground of pursuing commercial activity - association engaged in the activity of promoting and regulating the game of Cricket in Mumbai entered into a concession agreement with Shrike Infrastructure (Concessionaire) for development of Indoor Cricket Academy (ICA) - activity undertaken at ICA includes running four restaurants with bar, banquets hall - concession provided to Concessionaire to recoup its cost by admitting 7000 Associates to the ICA facility who will be permitted to make use of such facilities on payment of charges to the Concessionaire - Revenue contended that assessee(MCA) had conceived and executed the plan and is owner whereas SI is mere a contractor for few years - activity cannot be said to be incidental to the cricket activity - collecting associate fee of around 10 to 15 lacs per member could not be said to be non-business activity - assessee contesting withdrawl and retrospective withdrawal of registration Held that - Where an approval had been given, its withdrawal with retrospective effect is bad and illegal. However, department can any time review the function, in fact the CIT can review the grant of registration at any time because the words used in the provision are, and subsequently the Commissioner is satisfied , which means that registration can be reviewed at any given point of time. Nevertheless, registration cannot be cancelled retrospectively. Cancellation of registration granted to MCA, shall not date back to the date of signing of the Concessionaire Agreement, i.e. 12.12.2005, but shall be effective from 01.06.2010. i.e. the date when the amendment was inserted in the provision - Decided partly in favor of assessee.

Summary

Issues Involved:
1. Cancellation of registration under section 12A of the Income Tax Act, 1961.
2. Legality of activities involving commercial usage of land allotted for non-commercial purposes.
3. Retrospective application of section 12AA(3) for cancellation of registration.

Detailed Analysis:

Cancellation of Registration Under Section 12A:
The Appellant, a public charitable trust registered under the Societies Registration Act 1860 and Bombay Public Trust Act, 1950, was initially granted registration under section 12A of the Income Tax Act, 1961. The Department of Income Tax (DIT) cancelled this registration, citing that the activities planned under the concession agreement with M/s Shirke Infrastructure were not in accordance with the charitable objects of the trust. The DIT observed that the facilities constructed, including restaurants, banquet halls, and recreational areas, were primarily commercial rather than charitable, thus violating the terms of the trust's objectives.

Legality of Activities Involving Commercial Usage:
The Association entered into a concession agreement with M/s Shirke Infrastructure to develop a World Class Indoor Cricket Academy (ICA) and associated facilities. The DIT argued that these facilities, which included sports, dining, and recreational amenities, were commercial in nature and not incidental to the promotion of cricket. The DIT noted that the land allotted by MMRDA was strictly for non-commercial activities, and the creation of these facilities violated the terms of the agreement, thus acting against public policy. The DIT also highlighted that the substantial associate fees collected indicated a business activity rather than a charitable endeavor.

Retrospective Application of Section 12AA(3):
The Appellant argued that the provision for cancellation of registration under section 12AA(3) was inserted with prospective application from 1st June 2010, and thus, the registration granted prior to this date could not be cancelled retrospectively. The Appellant relied on judicial precedents, including the decision of the coordinate Bench at Lucknow and the Hon'ble Allahabad High Court, which held that retrospective withdrawal of approval is illegal and unsustainable. The Tribunal agreed with this argument, stating that the cancellation of registration should be effective from 1st June 2010, the date when the amendment was inserted in the statute.

Conclusion:
The Tribunal concluded that while the Department has the authority to review and cancel the registration of a trust if its activities are not in accordance with its objects, such cancellation cannot be applied retrospectively. The Tribunal directed that the cancellation of registration should be effective from 1st June 2010, and not from the date of signing the concession agreement. Thus, the appeal filed by the assessee was partly allowed, maintaining the registration until the prospective date of the amendment.