2014 (6) TMI 367 - AT - Income Tax

Withdrawal/cancellation of registration u/s 12A/12AA of the Act Charitable purpose or not - assessee trust is constituted on 27.7.2000 by the President of India acting through the Ministry of SSI and ARI - DIT(E) come to the conclusion that activities of the assessee trust were in the nature of trade, commerce or business etc and since its receipts are in excess of monetary limit laid down in the aforementioned proviso there is contravention of provisions of section 2(15) r.w. proviso which has come into effect from 2009-10. - Held that - The first proviso to the provision (s.2(15)), it would be noted, does not impinge directly on the objects per se, but the manner in which those are to be attained or achieved, and herein lies the controversy or the dichotomy attending the respective view points of the assessee and the Revenue. The review of registration subsequent thereto, as spoken of by the tribunal in Mumbai Cricket Association 2012 (8) TMI 369 - ITAT MUMBAI , is only in terms of and subject to the mandate of section 12AA(3), and which thus would be of no assistance to the Revenue. - Decision in the case of Maharashtra Housing and Area Development Authority V/s ADIT(E) 2013 (11) TMI 516 - ITAT MUMBAI and Rajasthan Housing Board Versus Commissioner of Income-tax, Jaipur-II 2012 (5) TMI 100 - ITAT JAIPUR followed. Exemption u/s. 11 r/w s. 12 is to be, notwithstanding grant of registration, only by the Assessing Officer, whose powers in the matter of assessment are plenary, on the satisfaction of the condition/s of those sections. Exemption u/s. 11(1) is only upon the application of income for charitable purpose/s, so that it is only where so applied, reading the term charitable purpose as per the extant law, that it could be allowed. The insertion of section 13(8) by the Finance Act, 2012 (w.e.f. 1.4.2009, i.e., A.Y. 2009-10 onwards), from which period the changed section 2(15) becomes operative, removes the matter beyond the pale of any doubt. The matter/issue of exemption u/s. 11 would thus have to be reviewed by the Assessing Officer in assessment on a year to year basis. The gross receipts having exceeded the stipulated monitory limit provided in the second proviso to section 2(15) of the Act, the assessee is not entitled to claim exemption in this year but that fact alone cannot make the Trust non-genuine for the purpose of invoking section 12AA(3) of the Act. Relying upon - the registration has wrongly been withdrawn and the order passed by DIT(E) - decision of the Mumbai Bench of the Tribunal in the case of M/s Vanita Samaj 2014 (3) TMI 320 - ITAT MUMBAI followed Decided in favour of Assessee.

Summary

Issues Involved:
1. Legality of the withdrawal/cancellation of registration under section 12AA(3) of the Income Tax Act, 1961.
2. Determination of whether the activities of the appellant trust are for charitable purposes.
3. Applicability of the proviso to section 2(15) of the Income Tax Act to the appellant trust.
4. Retrospective effect of the withdrawal of registration from AY 2009-10.

Issue-wise Detailed Analysis:

1. Legality of the Withdrawal/Cancellation of Registration under Section 12AA(3):
The assessee appealed against the Director of Income Tax (Exemption), Mumbai's order dated 7.12.2011, which withdrew the registration granted under section 12AA(3). The grounds of appeal stated that the withdrawal was "bad in law, void ab-initio and contrary to the provisions of Income Tax Act, 1961 and rules made thereunder." The Tribunal examined the scope and ambit of section 12AA(3), which allows the Commissioner to withdraw registration if the activities of the trust are not genuine or not carried out in accordance with its objects. The Tribunal concluded that the DIT(E) was not justified in withdrawing the registration merely due to the insertion of provisos in section 2(15) with effect from 1.4.2009.

2. Determination of Whether the Activities of the Appellant Trust are for Charitable Purposes:
The appellant trust, constituted by the Government of India and SIDBI, aimed to provide effective credit guarantees for SSI loans without collateral securities. The trust was initially granted registration under section 12A on 18.10.2001. The DIT(E) argued that the trust's activities were in the nature of trade, commerce, or business, thus contravening section 2(15). However, the Tribunal noted that the trust's activities had not changed and were genuinely carried out in accordance with its charitable objects. The Tribunal cited previous decisions, including Maharashtra Housing and Area Development Authority V/s ADIT(E), which held that registration could not be withdrawn if the activities remained genuine and aligned with the trust's objects.

3. Applicability of the Proviso to Section 2(15) of the Income Tax Act:
The DIT(E) contended that the trust's activities fell under the proviso to section 2(15), which excludes entities engaged in trade, commerce, or business from being considered charitable if their receipts exceed a specified limit. The Tribunal, referencing the CBDT Circular No.11/2008, clarified that the proviso does not apply to entities engaged in "relief of the poor, education, or medical relief." The Tribunal emphasized that the trust's activities were for the benefit of the underprivileged and did not have a profit motive, thus falling within the definition of "charitable purposes" under section 2(15).

4. Retrospective Effect of the Withdrawal of Registration from AY 2009-10:
The DIT(E) withdrew the registration with retrospective effect from AY 2009-10, citing the amended provisions of section 2(15). The Tribunal found this action contrary to the principles of law, as the registration once granted under section 12A could not be withdrawn retrospectively based solely on subsequent amendments. The Tribunal reiterated that the power to withdraw registration under section 12AA(3) is limited to instances where the trust's activities are not genuine or not carried out in accordance with its objects, neither of which was applicable in this case.

Conclusion:
The Tribunal allowed the appeal, setting aside the order passed by the DIT(E) and restoring the registration of the appellant trust. The Tribunal held that the withdrawal of registration was not justified under the provisions of section 12AA(3) and that the trust's activities remained charitable in nature. The decision emphasized that the insertion of provisos in section 2(15) did not warrant the retrospective cancellation of registration. The appeal was thus decided in favor of the assessee, and the order was pronounced on 28th May 2014.