2013 (2) TMI 577 - AT - Income Tax

Registration granted u/s 12AA cancelled - assessee is earning huge profits by carrying various activities including the purchase of land at nominal cost, then level and clear it, cut into plots and sell the plots at much higher prices and earning huge profit and also charging fees and fines from the sale of forms, land enhancement fee, building plan fees, road cutting fees, transfer fee, fine and penalties and non construction charges - Held that - The charitable purpose include relief to the poor, education, medical relief and advancement of any other object of general public utility. As in the present case, the assessee-trust is carrying on various activities in the nature of trade, commerce or business and rendering its services for the purpose of trade, commerce and business, the assessee-trust is charging huge fees. No doubt, the assessee has given some explanation for charging fees for the afore-mentioned activities by stating that the assessee-trust is charging fees as per rules framed by the Punjab Local Bodies Govt. which is clearly the admission by the assessee-trust that the assessee-trust is doing activities not for charitable purpose but for business purpose only. No doubt, these penalties charged by the assessee-trust are in the nature of compensatory but that is not permissible for the charitable institution. FAA has rightly held that the land of the assessee trust is in the same category of other real estate products available in the market offered by the private colonizers and real estate agents. It is a matter of record that the assessee-trust sells off all these plots by organizing a public auction, where through the bidding process and the competition generated in it, the prices of their land keep escalating and finally, the land is sold off to the highest bidder. The surplus income which is generated through the sale of land is again used for buying more land, developing it and selling it the same way, thereby generating more profit. On the facts and circumstances the assessee trust is not merely a mediator in buying and selling of land to the general public. Rather it operates in a business oriented way on the well known principles of profit generation. Therefore, the activities of the assessee trust clearly constitute activities in the nature of trade, commerce or business because no plots are reserved for any socio-economically lower society, there is no element of donation or support to any cause - CIT(A) has rightly cancelled the registration granted to the assessee-trust w.e.f. 12.06.2003 in view of the amended provision of section 12AA(3) on fully satisfied that the activities of the assessee-trust are not genuine and not being carried out in accordance with the objects of the assessee-trust - against assessee.

Issues Involved:
1. Cancellation of registration under Section 12AA(3) of the Income Tax Act, 1961.
2. Nature of activities conducted by the assessee-trust and their compliance with the definition of "charitable purpose" under Section 2(15) of the Income Tax Act, 1961.
3. Validity of retrospective cancellation of registration.

Detailed Analysis:

1. Cancellation of Registration under Section 12AA(3):
The primary issue revolves around the cancellation of the assessee-trust's registration under Section 12AA(3) by the Commissioner of Income Tax (CIT), Bathinda. The CIT issued a show cause notice to the assessee-trust, questioning why the registration granted on 16.08.2010 should not be canceled based on the amended definition of "charitable purpose" under Section 2(15) of the Act, effective from 01.04.2009. The CIT concluded that the trust's activities were profit-oriented, involving the purchase and development of land for sale at higher prices, thus not qualifying as charitable.

2. Nature of Activities and Compliance with Section 2(15):
The CIT's investigation revealed that the trust was engaged in activities akin to those of real estate developers, such as purchasing land at nominal costs, developing it, and selling it at much higher prices. The trust also charged various fees and fines related to land transactions, indicating a business-oriented approach. The CIT concluded that these activities did not align with the definition of "charitable purpose" as per the amended Section 2(15), which excludes activities involving trade, commerce, or business for a fee or consideration.

The assessee argued that their activities were for general public utility and that they were not involved in trade, commerce, or business. They cited various charitable activities, such as developing sewerage systems, providing land for public amenities, and donating to welfare organizations. However, the Tribunal found that these activities were overshadowed by their profit-generating real estate transactions, thus not qualifying as charitable under the amended definition.

3. Validity of Retrospective Cancellation:
The assessee contended that the power to cancel registration under Section 12AA(3) should be prospective and not retrospective. They argued that the CIT's order did not specify whether the cancellation was from the date of the order or an earlier date. The Tribunal noted that the Finance Act, 2010, effective from 01.06.2010, empowered the CIT to cancel registration if the activities were not genuine or not in accordance with the trust's objects, even if the registration was obtained before the amendment.

The Tribunal upheld the CIT's decision, stating that the assessee-trust's activities were not charitable and were in the nature of trade, commerce, or business. The Tribunal dismissed the appeal, affirming that the CIT had rightly canceled the registration based on the amended provisions of Section 2(15) and Section 12AA(3).

Conclusion:
The Tribunal dismissed the appeal filed by the assessee-trust, upholding the CIT's order to cancel the registration under Section 12AA(3). The Tribunal found that the trust's activities were profit-oriented and did not qualify as charitable under the amended definition of Section 2(15). The cancellation was deemed valid, considering the trust's operations were not in line with charitable purposes as defined by the Income Tax Act.

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