2014 (5) TMI 920 - AT - Income Tax

Cancellation of registration u/s 12AA of the Act Held that - Registration granted to charitable trust cannot be cancelled, unless and until conditions laid down u/s 12AA are violated Section 12AA (3) stipulates that if the commissioner is satisfied, that the activities of the society are not genuine or not being carried out in accordance with the objects of the society, he shall pass an order in writing for cancelling the registration of the trust - there is no finding by the CIT that admission to students for the various courses conducted by the society are only provided for a particular caste -There is also no finding by the CIT that the activities of the trust/society are not genuine and they are not carried out in accordance with the objects of the trust - if there is some surplus derived from the activities of the institutions that does not mean that the objects of the trust are not charitable. CIT has also raised adverse inference for advertisements made by the society in the leading newspapers and other Medias in order to attract students Relying upon CIT v. Sarvodaya Ilakkiya Pannai 2012 (2) TMI 160 - Madras High Court and Circular No.11 of 2008 dated 19th December, 2008 - The newly inserted proviso to section 2(15) will not apply in respect of the first three limbs of sec 2(15), i.e. relief of the poor, education or medical relief - where the purpose of a trust or institution is relief of the poor, education or medical relief, it will constitute charitable purpose even if it incidentally involves the carrying on of commercial activities - the amended provisions of Section 2(15) of the Act clearly provide that charity includes education and the applicability of the proviso to the section excludes education thus, the order of the CIT is set aside and the registration granted earlier by the Revenue is restored Decided in favour of Assessee.

Summary

Issues Involved:

1. Cancellation of registration under Section 12AA of the Income Tax Act.
2. Interpretation of 'charitable purpose' under Section 2(15) of the Income Tax Act.
3. Compliance with the conditions laid down under Section 12AA(3) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Cancellation of registration under Section 12AA of the Income Tax Act:

The primary issue in this appeal is the cancellation of the registration granted to the assessee under Section 12AA of the Income Tax Act. The assessee, a society formed on 05.04.1958, was granted registration under Section 12AA on 11.03.1975. The Learned Commissioner of Income Tax (CIT) observed that the society's memorandum of association contained a clause indicating a preference for the Nadar community, which led to the initiation of proceedings to cancel the registration. The CIT noted that despite several opportunities, the requisite information was not provided by the assessee. The CIT concluded that the society was running educational institutions on commercial lines for profit and not utilizing the surplus for any charitable purpose, thus justifying the cancellation of the registration.

2. Interpretation of 'charitable purpose' under Section 2(15) of the Income Tax Act:

The CIT's decision was based on the interpretation of 'charitable purpose' under Section 2(15) of the Income Tax Act. The CIT argued that mere imparting of education cannot be considered a charitable purpose if the primary objective is earning profits. The CIT referred to various judicial precedents, including CIT v. National Institute of Aeronautical Engg. Educational Society [2009] 315 ITR 428 (Uttarakhand), which held that education imparted with a profit motive cannot be deemed charitable. The CIT emphasized that the activities of the trust should align with the declared objects in the trust deed, and any deviation could disqualify the trust from exemption.

3. Compliance with the conditions laid down under Section 12AA(3) of the Income Tax Act:

The Tribunal examined whether the conditions under Section 12AA(3) were violated. Section 12AA(3) stipulates that the registration can be canceled if the activities of the society are not genuine or not carried out in accordance with the objects of the society. The Tribunal found no evidence that the society provided admission exclusively to a particular caste or that its activities were not genuine. The Tribunal noted that the mere existence of a surplus from educational activities does not imply non-charitable objectives. The Tribunal cited several High Court decisions, including CIT v. Sarvodaya Ilakkiya Pannai [2012] 343 ITR 300 (Mag.) and Tolani Education Society v. Dy. DIT (Exemptions) [2013] 351 ITR 184, which supported the view that incidental surplus used to upgrade educational facilities does not disqualify an institution from being considered charitable.

The Tribunal also referred to Circular No.11 of 2008, which clarified that the proviso to Section 2(15) does not apply to relief of the poor, education, or medical relief, even if these activities incidentally involve commercial activities. The Tribunal concluded that the CIT's order lacked merit and quashed the cancellation, reinstating the registration granted earlier.

Conclusion:

In conclusion, the Tribunal allowed the appeal of the assessee, reinstating the registration under Section 12AA of the Income Tax Act. The Tribunal found that the CIT's interpretation of 'charitable purpose' and the subsequent cancellation of registration were not justified based on the facts and judicial precedents. The Tribunal emphasized that the activities of the society were genuine and aligned with its declared objects, thereby qualifying for the benefits under the Income Tax Act.