2015 (9) TMI 1012 - AT - Income Tax

Registration u/s 12AA(3) cancelled - some of the objects hit by the first proviso to Section 2(15) - Held that - As decided in Kapurthala Improvement Trust vs. CIT 2015 (7) TMI 77 - ITAT AMRITSAR if the status of registration is to be declined to an assessee only on the ground that some of the objects may be hit by the first proviso to Section 2(15) but the assessee s receipts from such activities donot exceed specified threshold in a particular assessment year, the assessee will be subjected to undue hardship in the sense that while the assessee will be disentitled to exemption under section 11 due to denial of registration under section 12 A or 12AA which is sine qua non for admissibility of exemption under section 11. On the other hand, if the status of registration is granted to the assessee even when some of the objects may be hit by the first proviso to Section 2(15) and the assessee s receipts from such activities do exceed specified threshold, no prejudice will be caused to the legitimate interests of the revenue because, notwithstanding the status of registration and by the virtue of section 13(8), the assessee will not be eligible for exemption under section 11 in respect of such income. It is only elementary that a statutory provision is to be interpreted ut res magis valeat quam pereat, i.e., to make it workable rather than redundant. The considerations about the possibilities of the first proviso to Section 2(15) coming into play affecting the grant, decline or withdrawal of registration under section 12AA will thus lead to wholly avoidable undue hardships to the assessee, will be unworkable in practice and be contrary to the scheme of the Act. In view of the above discussions, in our considered view, the considerations about the possibilities of first proviso to Section 2(15) into play are wholly extraneous in the present context. As the withdrawal of registration is solely based on these considerations, the very foundation of the learned Commissioner s action is unsustainable in law and consists of reasons which are not at all relevant in the context of registration status under section 12A or 12AA of the Act. For this reason also, the action of the learned Commissioner is wholly devoid of any legally sustainable merits. - Decided in favour of assessee.

Issues Involved:
1. Legality of the order canceling registration under section 12AA(3) of the Income Tax Act.
2. Appropriateness of the Commissioner of Income Tax's (CIT) decision to cancel the registration granted w.e.f. 12.06.2003.
3. Consideration of facts, explanations, and amended provisions of section 2(15) by the CIT.
4. Determination of whether the activities of the trust are in the nature of trade, commerce, and business.
5. Previous consideration of facts by ITAT in appeal no. 413(ASR) 2009.
6. Jurisdictional validity of the CIT's order in light of the merger with the ITAT order.

Detailed Analysis:

1. Legality of the Order Canceling Registration under Section 12AA(3):
The appellant challenged the correctness of the CIT's order dated 20.07.2012, which withdrew the registration granted under section 12AA(3) of the Income Tax Act, 1961. The Tribunal initially disposed of the appeal on 18.12.2012, but the Punjab & Haryana High Court remanded the matter back to the Tribunal for fresh adjudication, emphasizing the need to consider the proviso to Section 2(15) of the Act effective from 01.04.2009.

2. Appropriateness of the CIT's Decision to Cancel Registration:
The CIT's decision to cancel the registration was based on the observation that the appellant's activities were being carried out on commercial lines, generating significant profit, which, according to the CIT, did not align with the definition of charitable activities under the proviso to section 2(15). The Tribunal, however, found that the CIT's scope of power under section 12AA(3) is limited to instances where the activities of the trust are not genuine or not carried out in accordance with the trust's objectives. Since the CIT did not claim that the activities were not genuine or deviated from the trust's objectives, the Tribunal held that the cancellation was beyond the CIT's statutory powers.

3. Consideration of Facts, Explanations, and Amended Provisions of Section 2(15):
The Tribunal noted that the CIT did not adequately appreciate the facts, explanations offered, and the amended provisions of section 2(15) effective from 01.04.2009. The Tribunal emphasized that the proviso to section 2(15) should be applied on a year-to-year basis and not in absolute terms. Therefore, the activities of the trust could be considered charitable in one year and not in another, depending on the aggregate value of receipts from commercial activities.

4. Determination of Whether the Activities of the Trust are in the Nature of Trade, Commerce, and Business:
The CIT held that the activities of the trust were in the nature of trade, commerce, and business, thereby disqualifying it from being considered a charitable institution. However, the Tribunal highlighted that the proviso to section 2(15) and section 13(8) of the Act only affect the eligibility for exemption under section 11 and do not impact the registration status under section 12AA. The Tribunal concluded that the CIT's reliance on the proviso to section 2(15) was misplaced in the context of registration cancellation.

5. Previous Consideration of Facts by ITAT in Appeal No. 413(ASR) 2009:
The appellant argued that the facts leading to the cancellation of registration had already been considered by the ITAT in a previous appeal (no. 413(ASR) 2009). The Tribunal acknowledged this point, reinforcing that the CIT's action was not justified given the prior consideration and ruling by the ITAT.

6. Jurisdictional Validity of the CIT's Order:
The appellant contended that the order granting registration had merged with the ITAT's order, rendering the CIT's cancellation order illegal and without jurisdiction. The Tribunal supported this view, asserting that the CIT's action was beyond the limited scope of his statutory powers under section 12AA(3).

Conclusion:
The Tribunal, following the precedent set in the case of Kapurthala Improvement Trust vs. CIT, quashed the CIT's order canceling the registration and restored the registration granted to the appellant. The Tribunal emphasized that the considerations about the applicability of the first proviso to section 2(15) are extraneous in the context of registration status under section 12AA. The appeal was allowed, and the registration was restored.

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