2015 (7) TMI 169 - HC - Income Tax

Registration as a Charitable Trust under Section 12A cancelled - case falls under first proviso to Section 2(15) of the Act - Whether the Tribunal was correct in holding that the assessee is entitled to continue registration under Section 12A? - Held that - A registration granted earlier under Section 12A of the Act can be cancelled under two circumstances; ( a) If the activities of such trust or institution are not genuine, (b) The activities of trust or institution not being carried out in accordance with the object of the trust or institution. Only on those two conditions being satisfied, the registration granted under Section 12A of the Act could be cancelled by the authorities. It is not in dispute that there is no violation of the said two conditions by the assessee. The activities carried on by the assessee is a genuine one. As could be seen from the profits they have generated, the said profit is earned by carrying on the activities in accordance with the object of the trust. Therefore, the two conditions stipulated in sub- section (3) of Section 12AA of the Act, which empowers the authority to cancel registration, do not exists in this 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) to Section 13 which is introduced by Financial Act, 2012 which came into effect from 1.4.2009 categorically provides that, nothing contained in Section 11 or Section 12 shall operate so as to exclude any income from the total income of the previous year or any receipt thereof. 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 revenue. Not withstanding the fact that the assessee is conferred registration under Section 12A of the Act, unless the assessee falls within Section 2(15) of the Act, excluding the first proviso, the assessee would not be entitled to the benefit of ex emption from the tax. If the case of the assessee falls with first proviso to Section 2(15) of the Act, the benefit of registration which flow from Section 12A of the Act is not available. Anyhow, that is a matter to be considered by the Assessing Authority. But on that ground, registration cannot be cancelled, which is precisely the Tribunal has held. - Decided in favour of assessee.

Summary

Issues:
Challenge to Tribunal's order setting aside cancellation of registration of assessee as Charitable Trust under Section 12A of the Income Tax Act, 1961.

Analysis:

Issue 1:
The Revenue appealed against the Tribunal's decision to set aside the cancellation of the registration of the assessee as a Charitable Trust under Section 12A of the Income Tax Act, challenging the commercial nature of the activities carried out by the assessee post-amendment to Section 2(15) of the Act in 2009.

Issue 2:
The primary contention revolved around whether the Tribunal erred in not considering the genuineness of the activities of the assessee and the compliance with the objects of the institution, especially in light of the changes in the definition of charitable institutions under Section 2(15) of the Act.

Detailed Analysis:
The Karnataka Industrial Area Development Board (KIADB) had its registration under Section 12A of the Act canceled due to substantial profits earned from various activities, leading the authorities to believe that the activities were commercial in nature rather than charitable. The Tribunal, however, referencing the Karnataka Badminton Association case, held that commercial activities did not warrant cancellation of registration under Section 12A if the conditions of Section 12AA(3) were not met.

The Tribunal's decision was challenged based on the argument that the assessee's activities fell under the first proviso to Section 2(15) of the Act post-amendment in 2009, disqualifying it as a charitable institution. The Revenue contended that the cancellation of registration was justified under Section 12AA(3) due to the commercial nature of the activities.

In response, the assessee's counsel emphasized that unless the case fell under Section 12AA(3), the benefit of registration under Section 12A should not be denied. The assessee's compliance with the conditions for cancellation under Section 12AA(3) was not established, and the assessment of whether the activities qualified as charitable should be left to the assessing authority.

The Court highlighted that the cancellation of registration under Section 12A could only occur if the activities were not genuine or not in line with the institution's objects. Since these conditions were not met in the case of the assessee, the cancellation based on the amended definition of charitable institutions was not valid. The protection of revenue interests under Section 13(8) of the Act further supported the Tribunal's decision.

Conclusively, the Court ruled in favor of the assessee, dismissing the appeal by the Revenue. The Tribunal's decision to set aside the cancellation of registration as a Charitable Trust under Section 12A was upheld, emphasizing the necessity for compliance with specific conditions for cancellation under the Act.