2015 (12) TMI 687 - AT - Income Tax

Registration granted u/s 12A rejected - Held that - The accounts of the assessee club being maintained in a casual manner, which is one of the observations of the Commissioner of Income Tax cannot be the basis for cancellation. It is not the prerogative of the Commissioner of Income Tax to compare the data of two years as has been done by him as these are the matters which are to be looked in by the Assessing Officer at the assessment stage. In view of these, we do not find that the conclusion drawn by the learned Commissioner of Income Tax on the basis of these observations that the assessee is not carrying on the activities as per the objects or activities of the assessee are not genuine, is correct. Section 11 provides for exemption of income from property held for charitable or religious purposes . This gives the computational provision for availing exemption, which is not free from conditions and provision at every stage of availing it. This exemption under section 11 of the Act together with the frills attached with it are subject matter of assessments on year to year basis. This is not the end, further conditions and checks are provided under section 13 of the Act also, which provides for section 11 not to apply in certain cases . Provisions of this section are also under the jurisdiction of the Assessing Officer to be carried on during the assessment proceedings. In fact, the whole exemption for the year is forfeited in case of violation of any of the conditions provided in section 13. In such a scenario, we do not understand why the Commissioner of Income Tax is bothering himself to carry out such a cumbersome exercise in order to cancel the registration. The assessee being granted exemption under section 11 of the Act throughout and the way the assessee is carrying out the activities for the promotion of golf are the same from the beginning. This brings us to a point, where we can infer that it was the introduction of proviso to section 2(15) of the Act, perhaps, which was at the back of the mind of the learned Commissioner of Income Tax at the point of initiation of these cancellation proceeding. However, that otherwise also, cannot be the basis for cancellation. The learned Commissioner of Income Tax has also relied upon the judgment CIT Vs. Queen s Educational Society (2007 (9) TMI 347 - UTTARAKHAND HIGH COURT) which is also not applicable to the present case in view of the fact that the said judgment has been reversed by the Hon ble Supreme Court of India in the case of M/s Queen s Educational Society Vs. CIT (2015 (3) TMI 619 - SUPREME COURT ). - Decided in favour of assessee.

Summary

Issues Involved:
1. Cancellation of registration under section 12A of the Income Tax Act, 1961.
2. Proviso to section 2(15) of the Income Tax Act, 1961.
3. Determination of genuine activities and compliance with the objects of the trust under section 12AA(3).

Issue-wise Detailed Analysis:

1. Cancellation of registration under section 12A of the Income Tax Act, 1961:
The assessee, a club registered under section 12A of the Act since 19.12.2000, received a notice on 30.11.2012 from the Commissioner of Income Tax (CIT) proposing to cancel its registration. The CIT's primary reason was that the club's activities were commercial in nature and not charitable, citing the amended provisions of section 2(15). The CIT observed that the club was run by an elite class, providing facilities beyond the reach of the common man, and indulged in activities like running a bar and restaurant, which are commercial. Despite detailed submissions by the assessee, the CIT canceled the registration on 6.3.2013, stating the activities were not genuine and not in accordance with the trust's objects.

2. Proviso to section 2(15) of the Income Tax Act, 1961:
The CIT's basis for cancellation heavily relied on the proviso to section 2(15), which states that "advancement of any other object of general public utility" would not be considered charitable if it involved trade, commerce, or business activities. The assessee argued that this proviso should not be the basis for canceling registration, citing various Tribunal orders, including Kapurthala Improvement Trust Vs. CIT, where it was held that the proviso to section 2(15) could not be used to cancel registration. The Tribunal agreed, stating that the proviso's applicability should be addressed by the Assessing Officer during assessment proceedings, not by the CIT for canceling registration.

3. Determination of genuine activities and compliance with the objects of the trust under section 12AA(3):
Section 12AA(3) allows for the cancellation of registration if the CIT is satisfied that the trust's activities are not genuine or not in accordance with its objects. The Tribunal noted that the CIT's cancellation was based on the club earning income through various means, such as membership fees, rent, and interest, without proving that these activities deviated from the club's primary objective of promoting golf. The Tribunal emphasized that the CIT failed to demonstrate that the income was not applied for charitable purposes or benefited specific individuals. The Tribunal also pointed out that the club's activities had been consistently recognized as charitable in previous assessments and that the CIT's concerns were more relevant to assessment proceedings than to registration cancellation.

Conclusion:
The Tribunal concluded that the CIT's order canceling the registration was not legally tenable. The CIT's reliance on the proviso to section 2(15) was misplaced, and the CIT failed to prove that the club's activities were not genuine or not aligned with its charitable objectives. The Tribunal allowed the assessee's appeal, reinstating the registration under section 12A. The judgment underscored that issues related to the nature of activities and income application should be addressed during assessment, not through registration cancellation.