2016 (2) TMI 603 - AT - Income Tax

Registration granted under section 12AA(1) denied - receipts / earning of the assessee during the relevant previous year has exceeded prescribed limit - Held that - Only because the receipts / earning of the assessee during the relevant previous year has exceeded prescribed limit, for that reason alone the assessee institution cannot be considered as non-charitable. For cancellation / withdrawal of registration under section 12AA(3), the provisions of section 2(15) cannot be brought into play. More so, when there is no material brought on record by the learned DIT(E) to demonstrate / establish that either there is change in the objects of the appellant institutions on the basis of which registration was granted earlier or the activities of the institution are not in accordance with its stated objects. As held in the judicial pronouncements cited by the learned counsel, the first proviso to section 2(15), is not at all relevant for the purpose of cancellation / withdrawal of registration under section 12AA(3) though, it may be relevant for examining assessee s claim of exemption section under section 11 which can only be looked into during the assessment proceedings. In view of the aforesaid, we are inclined to set aside the order of the learned DIT(E) and direct him to restore registration granted under section 12AA(1) of the Act to the appellant institution from the date of cancellation. - Decided in favour of assessee

Summary

Issues Involved:
1. Cancellation of registration under section 12AA(3) of the Income Tax Act, 1961.
2. Denial of exemption under section 11 of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Cancellation of Registration under Section 12AA(3):

The appeal was directed against the order dated 16th December 2011, passed by the Director of Income Tax (Exemption), Mumbai, cancelling the registration granted under section 12AA(1) of the Income Tax Act, 1961. The appellant institution, initially registered as Bombay Chamber of Commerce and Industries, had its registration under section 12AA(1) cancelled on the grounds that it was carrying on activities in the nature of trade, commerce, or business with receipts exceeding Rs. 10 lakh, thus attracting the proviso to section 2(15) of the Act. The DIT(E) concluded that these activities were not for charitable purposes as defined under section 2(15) and hence, the institution lost its charitable character, invoking section 12AA(3) for cancellation.

The appellant argued that the registration could only be cancelled if the activities were not genuine or not carried out in accordance with its objects, neither of which was the case. The appellant maintained that there was no change in its objects and activities, which were the same as when the registration was initially granted. The appellant cited several judicial precedents to support its position that the conditions for cancellation under section 12AA(3) were not met.

The Tribunal observed that the primary reason for cancellation was the income from activities deemed to be in the nature of trade, commerce, or business. However, it noted that the appellant's objects had not changed since the initial registration and there was no evidence that the activities were not carried out in accordance with these objects. The Tribunal concluded that the conditions for cancellation under section 12AA(3) were not satisfied, as there was no material to suggest that the activities were non-genuine or deviated from the stated objects. The Tribunal emphasized that the proviso to section 2(15) could not be used to cancel registration under section 12AA(3), as it was relevant only for examining exemption claims under section 11 during assessment proceedings. Consequently, the Tribunal set aside the DIT(E)'s order and directed the restoration of the registration under section 12AA(1) from the date of cancellation.

2. Denial of Exemption under Section 11:

The second appeal concerned the denial of exemption under section 11 for the assessment year 2009-10, following the cancellation of registration under section 12AA(1). The Assessing Officer (AO) had treated the income from seminars, conferences, exhibitions, and advertisements as business income, thereby denying the exemption. The Commissioner (Appeals) upheld the AO's decision.

The Tribunal noted that the primary reason for denying the exemption was the cancellation of registration under section 12AA(3). Given that the Tribunal had already restored the registration, it remanded the matter back to the AO to reconsider the issue afresh, taking into account the Tribunal's decision to restore the registration. The AO was directed to independently assess the exemption claim under section 11, considering the appellant's submissions and relevant case laws, and to provide a reasonable opportunity for the appellant to be heard.

Conclusion:

The Tribunal allowed the appeal concerning the cancellation of registration under section 12AA(3), directing the restoration of the registration. It also remanded the issue of exemption under section 11 back to the AO for fresh consideration in light of the restored registration. The appellant's appeals were thus allowed, with the second appeal being allowed for statistical purposes.