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2015 (1) TMI 696 - AT - Income TaxWithdrawal/cancellation of registration granted u/s 12A - Held that - None of its receipts can be said to be arising or accruing from the activities which can be said to be for the purpose of business or in the nature of trade or commerce. Here in this case all the activities are carried out in accordance with the objects and none of its activities have been found to be non genuine. The assessee s explanation before the DIT regarding nature of receipts clearly shows that they have been received from the members while pursuing objects of the society, specifically mentioned in the objects for which it was granted registration u/s 12A. Otherwise also, if any transaction of the trust which are incidental or ancillary towards fulfillment of the objects of other general public utility, will not normally amount to business trade or commerce, unless there is some intention to carry out business, trade or commerce on a permanent basis or for a reasonable continuity. The LD. DIT has not brought any evidence or material on record to show that the assessee was carrying out the activities on business or commercial principle or outside its objects. Thus on the facts of the present case it cannot be held that assessee s case is hit by proviso to section 2(15) or the registration granted earlier can be canceled within the ambit of section 12AA(3). - Decided in favour of assessee.
Issues Involved:
1. Cancellation of registration under section 12AA(3) of the Income Tax Act. 2. Interpretation and application of proviso to section 2(15) of the Income Tax Act regarding charitable purposes. Issue-wise Detailed Analysis: 1. Cancellation of Registration under Section 12AA(3): The appeal concerns the withdrawal/cancellation of the registration granted to the Assessee under section 12A, effective from Assessment Year (A.Y.) 2009-10, by the Director of Income Tax [Exemption] (DIT(E)) Mumbai. The Assessee, a pan-India trade organization for the civil and construction industry, was initially granted registration under section 12A on 24.04.1989, which allowed its income and expenditure to be computed and exempted under sections 11 to 13 of the Income Tax Act. The DIT(E) received a proposal from ITO(E)1(1), Mumbai, suggesting the cancellation of this registration on grounds that the Assessee was engaged in activities resembling trade, commerce, or business, with gross receipts exceeding Rs. 10 lakhs, thus invoking the proviso to section 2(15). Consequently, a show-cause notice was issued to the Assessee. The Assessee argued that its activities, including membership subscriptions, exhibitions, conferences, seminars, and publishing journals, were aligned with its objectives and not commercial in nature. These activities were funded by contributions from its members and were intended for their benefit, not for profit. The DIT(E) rejected the Assessee's contentions, stating that the activities were in the nature of business income, violating the proviso to section 2(15). Therefore, the registration was cancelled under section 12AA(3). 2. Interpretation and Application of Proviso to Section 2(15): The Tribunal examined whether the Assessee's activities fell within the ambit of trade, commerce, or business as per the proviso to section 2(15). The proviso stipulates that an entity engaged in the advancement of general public utility ceases to be considered charitable if it undertakes activities in the nature of trade, commerce, or business for a fee or consideration. The Tribunal noted that the DIT(E) did not establish that the Assessee's activities were not genuine or were not carried out in accordance with its objects. The receipts from membership subscriptions, contributions for exhibitions, conferences, seminars, and other activities were deemed to be within the scope of the Assessee's objectives. These activities were primarily for the benefit of its members and not for commercial gain. The Tribunal referenced the Delhi High Court's decision in the case of Institute of Chartered Accountants of India Vs. DGIT (E), which clarified the interpretation of the proviso to section 2(15). It emphasized that the term "business" should be understood in the context of the section's purpose. An activity is considered "business" if undertaken with a profit motive, but this is not the sole determinant. The activity must be pursued with continuity and on recognized business principles. Applying these principles, the Tribunal concluded that the Assessee's activities did not constitute business, trade, or commerce. The activities were conducted as per the Assessee's objects and were for the benefit of its members, not for profit. Therefore, the Assessee's case was not hit by the proviso to section 2(15), and the registration could not be cancelled under section 12AA(3). The Tribunal allowed the Assessee's appeal, reinstating the registration under section 12A. Conclusion: The Tribunal ruled in favor of the Assessee, holding that the activities were in line with its charitable objectives and did not constitute trade, commerce, or business. Consequently, the cancellation of the registration under section 12AA(3) was not justified. The appeal was allowed, and the registration was reinstated.
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