2015 (6) TMI 531 - HC - Income Tax

Registration of the Trust under Section 12A cancelled - Held that - The receipts from commercial activities are more compared to the overall receipts of the charitable organization can neither lead to the conclusion that the activities of the trust or institution are not genuine nor it can be said that the activities of the trust or institution are not being carried out in accordance with the objects of the trust or institution and therefore, the two conditions stipulated under the provisions of sub-section (3) of Section 12AA of the Act, which empowers the authority to cancel the registration, do not exist in the present case. The registration granted is cancelled in view of the amendment of first proviso to Section 2(15) of the Act. That is not a ground specified in the statute for cancellation of the registration. In fact, sub-section (8) of Section 13 of the Act which is introduced by Financial Act, 2012 which came into effect from 1.4.2009 categorically provides that, nothing contained in Section 11 or 12 shall operate so as to exclude any income from the total income of the previous year or any receipt there of. If the provisions of the first proviso to clause (15) of Section 2 becomes applicable in the case of such person in the said previous year, the statute has protected the interest of the revenue. Notwithstanding the fact that the assessee is conferred registration under the provisions of Section 12A of the Act, unless the assessee falls within the provisions of Section 2(15) of the Act, excluding the first proviso, the assessee would not be entitled to the benefit of exemption from the tax. - Decided in favour of assessee.

Summary

Issues:
Challenge to the cancellation of registration of a Trust as a Charitable Trust under Section 12A of the Income Tax Act, 1961.

Analysis:
1. The appeal was filed by the revenue challenging the order of the Tribunal canceling the registration of the Trust as a Charitable Trust under Section 12A of the Income Tax Act. The Director of Income Tax (Exemptions) canceled the registration due to the dominant activity of letting out a choultry on a daily rental basis, which was deemed as a business activity. The Tribunal, however, held that the registration cannot be revoked solely based on commercial activities unless the activities are not genuine or not in accordance with the Trust's objects.

2. The Tribunal found that the registration cannot be canceled based solely on commercial activities unless it is proven that the activities are not genuine or not in line with the Trust's objects. The revenue contended that the Trust's activities, such as renting out the choultry for various events, exceeded the threshold under Section 2(15) of the Act, making it ineligible for charitable status. The assessee argued that the registration can only be denied under Section 12AA(3) of the Act, and the assessing authority should determine the exemption eligibility based on the amended definition of 'charitable purpose.'

3. The Court analyzed Section 12AA(3) of the Act, which allows cancellation of registration if the activities are not genuine or not in line with the Trust's objects. It was noted that the Director of Income Tax did not find any violations of these conditions. The Court emphasized that the cancellation was based on the amended definition of 'charitable purpose' and not on the grounds specified for cancellation under the Act. The Court held that unless the Trust falls within Section 2(15) of the Act, excluding the first proviso, the benefit of tax exemption cannot be denied solely based on commercial activities.

4. Ultimately, the Court dismissed the appeal, ruling in favor of the assessee. It was concluded that the registration could not be canceled solely on the grounds of engaging in commercial activities, as long as the Trust's activities were genuine and aligned with its objects. The Court held that the assessing authority should determine the exemption eligibility based on the statutory provisions, and the Tribunal's decision to allow the appeal was upheld.