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2015 (2) TMI 287 - AT - Income TaxRegistration under Section 12A cancelled - whether or not the learned Commissioner was right in exercising his powers under section 12AA(3), in withdrawing the registration granted to the assessee under section 12AA? - objectives/activities of the appellant are not Charitable in nature - appellant is doing the activities for a cess or fee ? - Held that - As long as activities of the trust or the institution are being carried out in accordance with the objects of the trust or the institution, as these objects existed at the point of time when registration granted, it cannot be open to the Commissioner to fault the assessee so far as objects of the trust or the institution are concerned, and, on that basis, cancel the registration granted under section 12 AA(1). The words used in section 12AA(3) are free from any doubt or ambiguity, and, as held by Hon ble Uttarakhand High Court in the case of Welham Boys School Society Vs CBDT 2005 (10) TMI 66 - UTTARANCHAL High Court , the only power under which a Commissioner can cancel the registration is power under section 12AA(3) and validity of a an order cancelling the registration is to be examined on the touchstone of legal provisions set out therein. While learned Commissioner has, on the basis of elaborate reasoning set out in the impugned order, concluded that, the objective clauses of the authority .. are in the nature of business with a view to earn profits and that the activities of Muzaffarnagar Development Authority are not charitable in nature nor advancement of general public utility within the meanings of Section 2(15) of the Income Tax Act , none of these reasons, even if correct, can be legally sustainable basis for exercise of powers under section 12AA(3). The only occasion to examine whether or not the objects are charitable is when the registration is granted is when examining the application of registration under section 12AA(1) and once no adverse inference is drawn, vis - -vis the objects, at that stage, that aspect of the matter cannot be examined again in the course of exercise of powers under section 12AA(3). Mere selling some product at profit (as has been the allegation of the revenue) will not ipso facto hit the assessee by applying proviso to Section 2(15) and deny exemption available under section 11. Thus mere selling some product at profit (as has been the allegation of the revenue) will not ipso facto hit the assessee by applying proviso to Section 2(15) and deny exemption available under section 11 - Decided in favour of assessee.
Issues Involved:
1. Rejection of registration under Section 12A of the Income Tax Act, 1961. 2. Determination of whether the objectives/activities of the appellant are charitable. 3. Consideration of whether the appellant's activities are of general public utility within the meaning of Section 2(15) of the Income Tax Act, 1961. 4. Evaluation of whether the appellant's activities are commercial in nature. 5. Applicability of Section 11 and 12/12A to the appellant. 6. Continuance of registration under Section 12A/12AA. 7. Consideration of judicial precedents in similar cases. Detailed Analysis: 1. Rejection of Registration under Section 12A: The appellant challenged the order dated 16th May 2013, passed by the Commissioner, which rejected the registration under Section 12AA of the Income Tax Act, 1961. The appellant argued that the Commissioner erred in law and facts by applying incorrect reasoning and not considering the objectives of the appellant as charitable. 2. Charitable Nature of Objectives/Activities: The Commissioner held that the objectives/activities of the appellant were not charitable. The appellant contended that it was created for general public utility, which is a charitable object under Section 2(15) of the Income Tax Act, 1961. The Tribunal noted that the Commissioner failed to appreciate this aspect and did not provide any new facts to support the rejection. 3. General Public Utility: The appellant argued that its activities were for the systematic planning and development of the city, which falls under the category of general public utility. The Tribunal observed that similar development authorities had been granted registration under Section 12AA, and the Commissioner did not distinguish the appellant's case from those precedents. 4. Commercial Nature of Activities: The Commissioner concluded that the appellant's activities were carried out in a commercial manner, thus not qualifying for registration under Section 12A. The Tribunal found this reasoning flawed, noting that the appellant's activities were not for profit but for public utility, and the income was used exclusively for achieving its objectives. 5. Applicability of Section 11 and 12/12A: The Commissioner held that the appellant was neither a trust, society, nor institution, and thus, the provisions of Section 11 and 12/12A were not applicable. The Tribunal disagreed, noting that similar authorities had been granted registration, and the appellant should be treated similarly. 6. Continuance of Registration under Section 12A/12AA: The Tribunal noted that this was the fourth round of proceedings and the Commissioner had repeatedly failed to comply with the Tribunal's directions. The Tribunal emphasized that the Commissioner should have followed the judicial precedents and provided a logical explanation for any deviations. 7. Judicial Precedents: The Tribunal referred to several judicial precedents, including cases of local development authorities like Khurja Development Authority and U.P. Awas Evam Vikas Parishad, which were granted registration under Section 12AA. The Tribunal criticized the Commissioner for not considering these precedents and not providing reasons for treating the appellant's case differently. Conclusion: The Tribunal concluded that the Commissioner erred in canceling the registration under Section 12AA(3). It emphasized that the Commissioner should have been satisfied with the genuineness of the activities and their alignment with the charitable objectives at the time of granting registration. The Tribunal quashed the cancellation order dated 4th June 2008 and all subsequent orders, restoring the registration granted to the appellant under Section 12AA. The appeal was allowed, and the registration under Section 12AA was reinstated.
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