2014 (8) TMI 305 - AT - Income Tax

Cancellation of registration u/s 12AA(3) Object of general public utility Charitable or not u/s 2(15) Held that - The main object of the assessee is development of the area as per the mandate of U.P. Urban Planning & Development Act, 1973 - The activity undertaken by the Authority comes within the object of general public utility but it cannot be concluded that it involves the carrying on of any activity in the nature of trade, commerce or business - Unless the activity undertaken by the assessee comes within the ambit of trade, commerce or business, the proviso would not get attract - assessee-Authority has been created with the object of general public utility which is a charitable object within the meaning of section 2(15) and the proviso to section 2(15) is not applicable because assessee-Authority is not carrying out activity with any profit motive but the predominant object is welfare of people at large thus, the registration is to be restored - Decided in favour of Assessee. Rejection of application of condonation of delay Held that - The delay can be condoned by the Commissioner in case of Trust or institution - there is a provision for condoning the delay in making the registration u/s 12A - The proviso (i) to Section 12A(1)(a) contained a provision for condonation of delay - if an application for registration of the trust is made after the specified period, the Commissioner may register the trust or institution from the date of creation of the trust or the establishment of the institution if he is satisfied, for reasons to be recorded, that the person was prevented from making the application before the expiry of the period for sufficient reasons - original application u/s 12AA was filed on 28-11-2003 with the Commissioner, Dehradun, which had been rejected and thereafter in view of the changed legal position i.e. order dated 20-1-2009, u/s 12AA granting registration by the Commissioner - there was reasonable cause for delay in filing the application which should have been condoned instead of adopting a technical view as taken by CBDT Decided in favour of Assessee.

Summary

Issues Involved:
1. Cancellation of registration under section 12AA of the Income Tax Act.
2. Determination of whether the activities of the assessee are charitable under section 2(15) of the Income Tax Act.
3. Examination of whether the activities of the assessee involve trade, commerce, or business.
4. Consideration of the delay in filing the application for exemption under section 12AA and its condonation.

Detailed Analysis:

1. Cancellation of Registration under Section 12AA:
The primary issue revolves around the cancellation of the registration granted to the assessee under section 12AA of the Income Tax Act. The Commissioner of Income Tax (CIT) Dehradun had granted registration to the assessee on 9-3-2009. However, the CIT later observed that the assessee's activities seemed to involve trade, commerce, or business, violating the amended provisions of section 2(15) of the Act. Consequently, a show cause notice was issued, and the CIT eventually withdrew the registration based on the nature of the assessee's activities and the income generated from various fees.

2. Charitable Nature of Activities under Section 2(15):
The assessee argued that its activities, such as development of housing, roads, parks, and sewerage systems, were for the welfare of the district's people and thus fell under "general public utility" as defined in section 2(15). The assessee cited various ITAT decisions supporting similar authorities' activities as charitable. The CIT, however, did not accept this contention, emphasizing that the activities were commercial in nature and aimed at profit-making, thus not qualifying as charitable under the amended section 2(15).

3. Involvement in Trade, Commerce, or Business:
The CIT's findings highlighted that the assessee's activities, including acquiring and developing land for sale at higher rates, were commercial. The CIT referred to case laws and a CBDT circular explaining that entities carrying on commercial activities are not entitled to exemption under section 11. The CIT concluded that the assessee's activities were carried out with a profit motive, thus falling under the proviso to section 2(15), which excludes such activities from being considered charitable.

4. Delay in Filing Application for Exemption and Its Condonation:
The assessee sought exemption under section 12AA from 1-4-2002, but the CIT granted it only from the application date, 20-1-2009. The assessee's application to the CBDT for condonation of delay was rejected. The Tribunal, however, referred to the Hon'ble Allahabad High Court's decision in the case of Krishi Utpadan Mandi Samiti, which allowed for condonation of delay if sufficient reasons were provided. The Tribunal found reasonable cause for the delay and directed the CIT to grant registration from 1-4-2002.

Conclusion:
The Tribunal concluded that the assessee's activities were for the general public utility and did not involve trade, commerce, or business. It restored the registration under section 12AA and directed the CIT to grant exemption from 1-4-2002. For A.Y. 2006-07, the Tribunal restored the matter to the assessing officer for consideration in light of the exemption under section 12AA. The appeals were allowed, and the registration was restored.