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2014 (12) TMI 518 - AT - Income TaxRejection of application for registration u/s 12AA Whether the assessees are eligible for registration u/s 12A of the I.T. Act in view of insertion of proviso to section 2 (15) w.e.f. 1.4.2009 - Held that - As per situs of the AO is situated within the territorial jurisdiction of Hon ble Allahabad High Court, hence decision of the jurisdictional High Court is binding upon it - the activities of the assessee as charitable in nature - for the applicability of proviso to section 2 (15) the activities of the trust should be carried out on commercial lines with intention to make profit - Where the trust is carrying out its activities on non-commercial lines with no motive to earn profits, for fulfillment of its aims and objectives, which are charitable in nature and in the process earn some profits, the same would not be hit by proviso to section 2 (15) - The aims and objects of the assessee-trust are charitable in nature - Mere selling some product at a profit will not ipso facto hit assessee by applying proviso to section 2(15) and deny exemption available u/s 11 - The intention of the trustees and the manner in which the activities of the charitable trust institution are undertaken are highly relevant to decide the issue of applicability of proviso to Section 2 (15). The CIT was not justified in rejecting the application of the assesee for registration u/s 12AA of the Act in the case of Khurja Development Authority even after the matter was set aside by the Tribunal with its finding in favour of the assessee thus, the CIT is directed to grant the registration w.e.f. the requested date as per the provisions of the law in the case of Khurja Development Authority - So far as the appellant Bulandshahr Khurja Development Authority is concerned, while setting aside the order, the CIT is directed to restore the registration w.e.f. 1.4.2008 Decided in favour of assessee.
Issues Involved:
1. Rejection of application for registration under section 12AA of the Income Tax Act, 1961. 2. Cancellation/withdrawal of previously granted registration under section 12AA. Issue-wise Detailed Analysis: 1. Rejection of Application for Registration under Section 12AA: The appellants questioned the action of the CIT in rejecting their application for registration under section 12AA of the Income Tax Act, 1961. The Tribunal had previously set aside the matter for fresh consideration by the CIT, citing judicial precedents that local area development authorities were eligible for registration. However, the CIT again declined the registration, arguing that the activities of the appellants were not charitable but rather in the nature of trade within the meaning of section 2(15) of the Act. The appellants argued that their activities were for the advancement of general public utilities, were not profit-motivated, and were governed by a board comprising government officials and elected public members. They cited several decisions, including those of the Lucknow Bench of the Tribunal and the Delhi Bench in the case of Meerut Development Authority, which had held similar authorities eligible for registration. 2. Cancellation/Withdrawal of Previously Granted Registration: The appellants also challenged the CIT's action of canceling/withdrawing the registration that had been previously granted. The CIT had invoked provisions under section 12AA(3) of the Act, citing the insertion of the proviso to section 2(15) effective from 1.4.2009, which redefined charitable activities. The appellants contended that the CIT's withdrawal of registration was not justified, as the proviso to section 2(15) was not applicable to their case, and the registration could not be withdrawn retroactively. The Tribunal noted that the appellants were situated within the jurisdiction of the Allahabad High Court, which had held in the case of CIT vs. UP Housing and Development Board that the activities of the assessee were charitable in nature. The Tribunal also referenced the Supreme Court's decision in the case of Surat Art Silk Cloth Manufacturers Association, which established that the predominant object of an activity should be to subserve the charitable purpose, not to earn profit. The Tribunal found that the CIT had not examined the cases in light of these decisions and had not provided evidence that the appellants were conducting their affairs on commercial lines with a profit motive. The Tribunal also noted that the Delhi Bench of the Tribunal, in the case of Meerut Development Authority, had held that the CIT was not justified in canceling the registration retroactively. Conclusion: The Tribunal concluded that the CIT was not justified in rejecting the application for registration under section 12AA for Khurja Development Authority and in canceling the previously granted registration for Bulandshahr-Khurja Development Authority. The Tribunal directed the CIT to grant the registration to Khurja Development Authority and to restore the registration for Bulandshahr-Khurja Development Authority from 1.4.2008. The Tribunal also clarified that the Assessing Officer could examine the eligibility for exemption under section 11 and other relevant provisions of the Act during assessment. Order: The appeals were allowed, and the order was pronounced in the open court on 29th April, 2014.
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