2016 (2) TMI 802 - HC - Income Tax

Registration as a Charitable Trust under Section 12A cancelled - Whether the Tribunal was correct in holding that the assessee is entitled to continue registration under Section 12A? - Held that - Subject matter involved in this appeal is directly covered by the judgment passed by the Division Bench in (The Director of Income Tax (Exemption) and another Vs. Karnataka Industrial Area Development Board 2015 (7) TMI 169 - KARNATAKA HIGH COURT wherein 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.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. - Decided in favour of assessee.

Summary

Issues:
1. Entitlement for registration under section 12A of the Act - Objects of KSRTC and BMTC under section 2(15) of the IT Act.
2. Entitlement for registration under section 12A of the Act - Functions of BMTC including providing casual contract and chartered services.
3. Entitlement for registration under section 12A of the Act - KSRTC's Nonoperating revenue and commercial purpose.
4. Entitlement for registration under section 12A of the Act - Formation and operation of BMTC.
5. Interpretation of the first proviso to section 2(15) - Impact on registration under section 12AA(3).
6. Application of first proviso to section 2(15) and authority to deny exemption under section 13(8).
7. Conditions for cancellation of registration under section 12AA(3).
8. Benefit of registration under section 12AA and exemption under sections 11 and 12.
9. Cancellation of registration by the registering authority and charitable nature of activities.

Analysis:
1. The appeal questioned the correctness of the Tribunal's decision to grant registration under section 12A of the Act to the assessee, considering the nature of activities conducted by KSRTC and BMTC falling under the ambit of "any other object of General Public Utility" as per section 2(15) of the IT Act. The Tribunal's ruling was challenged based on the commercial nature of services provided by BMTC and the generation of substantial surplus, leading to doubts about entitlement for registration.

2. Another issue raised was the inclusion of functions by BMTC such as providing casual contract and chartered services, including luxury buses, on a commercial basis. The appellant contested the registration under section 12A, highlighting the deviation from the primary objective of providing transport services due to commercial activities like advertising space rentals and luxury services.

3. The Tribunal's decision regarding KSRTC's Nonoperating revenue and the commercial purpose behind activities like advertisement and transportation services was also under scrutiny. The appellant questioned the registration under section 12A, emphasizing the commercial nature of these revenue streams and the charging for services rendered, indicating a departure from charitable objectives.

4. The formation and operational model of BMTC as a public limited company under the Indian Companies Act were central to the appeal. The appellant argued that BMTC, being run on a commercial basis akin to private transporters, should not be entitled to registration under section 12A, especially in light of the amended provisions of Section 2(15).

5. The interpretation of the first proviso to section 2(15) and its impact on registration under section 12AA(3) was a key aspect of the appeal. The Tribunal's reliance on the judgment in the case of the Karnataka Industrial Area Development Board (KIADB) was contested, questioning the applicability of the proviso in canceling registration based on commercial activities.

6. The application of the first proviso to section 2(15) and the authority vested in the Assessing Authority under section 13(8) to deny exemption were debated. The appellant challenged the Tribunal's decision to follow the KIADB judgment, arguing that the power to deny exemption should rest with the Assessing Authority rather than the registering authority.

7. The conditions for cancellation of registration under section 12AA(3) were analyzed, with the appellant disputing the Tribunal's alignment with the KIADB judgment. The existence of the stipulated conditions empowering the registering authority to cancel registration was a focal point of contention.

8. The interplay between the benefit of registration under section 12AA and the exemption under sections 11 and 12 was deliberated. The appellant raised concerns about the statutory position regarding the continuity of benefits during the pursuit of original trust deed objectives and the registering authority's power to review registration post-amendment of objectives.

9. Lastly, the appellant challenged the Tribunal's decision to dismiss the appeal based on the KIADB judgment without considering the charitable nature of activities and the threshold limit of receipts. The disagreement stemmed from the perceived failure to appreciate the impact of amended provisions on the charitable status and receipt values of the assessee's activities.