2015 (10) TMI 822 - HC - Income Tax

Registration under Section 12AA denied - activity of letting out of the premises to a lessee which is carrying on purely commercial activities, is contrary to the objects of the Assessee society - ITAT allowed the claim - Held that - While an appeal has probably been filed by the Revenue for AY 2008-09, such appeal does not seem to have been numbered or listed before the Court even once. She states that for the subsequent AY 2011-12, the AO has himself granted exemption under Sections 11 and 12 of the Act. She pointed out that the fact of the building having been let out by the Assessee was known to the Revenue even at the stage of grant of registration under Section 12 A with effect from April, 2004. With there being no proper enquiry conducted by the AO into the facts of the case to determine if the manner of application of the income by the Assessee would disentitle it to exemption under Sections 11 and 12 of the Act, the Court is unable to discern any legal infirmity in the impugned orders of the CIT (A) or the ITAT. For the same reason, the Court is also not inclined to remand the matter to the AO to de novo start the exercise afresh. - Decided in favour of assessee.

Summary

Issues:
1. Interpretation of Section 2(15) of the Income Tax Act, 1961.
2. Taxability of income from commercial activities by a society registered under Section 12A.
3. Validity of cancellation of registration under Section 12AA.
4. Applicability of Sections 11 and 12 for tax exemption.

Analysis:

1. The primary issue in this case revolves around the interpretation of Section 2(15) of the Income Tax Act, 1961. The Assessing Officer contended that the activities of the Assessee society were of a non-charitable nature, falling under the proviso of Section 2(15), thereby making the income taxable. However, the ITAT, in its earlier orders, concluded that the society's activities did not involve engaging in trade, commerce, or business, thus exempting it from taxation under Section 2(15).

2. Another crucial aspect of this case is the taxability of income derived from commercial activities by a society registered under Section 12A. The AO argued that the Assessee was engaged in commercial activities, leading to the cancellation of its registration under Section 12AA and imposition of tax on the income generated. Conversely, the CIT (A) and ITAT held that the Assessee's activities did not disqualify it from availing exemptions under Sections 11 and 12 of the Act, especially considering the nature of the society's objectives and past favorable judgments.

3. The validity of the cancellation of the Assessee's registration under Section 12AA was also a point of contention. The CIT (A) noted that the ITAT had set aside the cancellation of registration, emphasizing the Assessee's constitution by the Government and the favorable treatment in previous assessment years. This raised questions about the consistency and legality of the cancellation, further supporting the Assessee's position.

4. Lastly, the applicability of Sections 11 and 12 for tax exemption was crucial in determining the Assessee's tax liability. The Court observed that the AO had not conducted a thorough inquiry into the Assessee's income application to disqualify it from exemptions under these sections. As a result, the Court upheld the decisions of the CIT (A) and ITAT, dismissing the appeal and affirming the Assessee's entitlement to tax exemptions under Sections 11 and 12 based on the facts and circumstances of the case.