2014 (1) TMI 1124 - AT - Income Tax

Eligibility for exemption u/s 11 - Held that - The registration u/s 12AA was cancelled/withdrawn by the DIT(E) and further the activities of sale of liquor, canteen, daily card games, guest fees are in the nature of trade, business and commerce and therefore hit by the proviso of Section 2(15) of the Income Tax Act - The CIT(A) has decided the issue solely on the basis of withdrawal/cancellation of registration u/s 12AA without going into the issue of applicability of proviso to Section 2(15) of the Act - The registration u/s 12AA has been restored by the Tribunal vide order dated 10.7.2013 therefore, the impugned order of CIT(A) has been set aside for fresh adjudication to decide the issue on the question of applicability of proviso to Section 2(15) of the Act.

Issues:
1. Denial of exemption u/s 11 due to withdrawal of registration u/s 12A and applicability of proviso to Section 2(15).
2. Assessment of non-mutual income and business income.
3. Interpretation of the activities of the assessee as trade, commerce, or business.
4. Contention regarding the charitable nature of sports and recreational activities.
5. Restoration of registration u/s 12A by the Tribunal.
6. Applicability of the proviso to Section 2(15) post-amendment.

Analysis:
1. The appeal challenged the denial of exemption u/s 11 based on the withdrawal of registration u/s 12A and the applicability of the proviso to Section 2(15). The CIT(A) upheld the denial, emphasizing that exemption under Section 11 is linked to registration under Section 12A. With the retrospective withdrawal of registration from A.Y. 2009-10, the CIT(A) deemed the assessee ineligible for exemption. The A.O's decision was supported, citing the DIT's power to withdraw registration retrospectively (Sinhagad Technical Education Society Vs CIT). The Tribunal remitted the matter back to the CIT(A) for a fresh decision considering the restoration of registration u/s 12A.

2. The A.O assessed non-mutual income and business income, which the CIT(A) affirmed. The assessee argued that the registration restoration by the Tribunal reinstated its charitable trust status, entitling it to exemption u/s 11. The AR relied on legal precedents supporting the charitable nature of sports activities and contended that the proviso to Section 2(15) was inapplicable to their case.

3. The dispute centered on the characterization of the assessee's activities as trade, commerce, or business. The AR argued that the trust's primary purpose was to provide sports and recreational facilities, which align with the concept of education. The restoration of registration u/s 12A was pivotal in reinstating the assessee's eligibility for exemption u/s 11, as the income was utilized for the trust's objectives.

4. The AR highlighted that the trust's activities, including running a bar and restaurant, were incidental to achieving its charitable objectives. Legal arguments were presented to support the contention that sports and recreational activities fell within the ambit of education, qualifying as charitable purposes. The restoration of registration by the Tribunal was crucial in establishing the trust's eligibility for exemption u/s 11.

5. The Tribunal's decision to restore the registration u/s 12A played a significant role in the assessee's argument for exemption u/s 11. The AR emphasized that the trust's income was entirely dedicated to advancing its charitable objectives, aligning with legal precedents supporting the charitable nature of sports and recreational activities.

6. The debate post-amendment revolved around the applicability of the proviso to Section 2(15) to the assessee's activities, particularly the sale of liquor. The AR contended that the activities were charitable in nature, citing legal precedents and the restoration of registration u/s 12A as grounds for exemption u/s 11. The Tribunal's decision to remit the matter back to the CIT(A) underscored the need for a detailed assessment of the proviso's applicability in light of the restored registration status.

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