2018 (6) TMI 1656 - AT - Income Tax

Cancelling the registration already grated u/s 12AA(3) - charitable activity u/s 2(15) - main activities of the assessee s trust are providing swimming pool facilities for aquatic events and training facilities for other sports like squash, billiards, table tennis, etc. - HELD THAT - There is no change in activity of the assessee s trust, what was in prior assessment years, and hence, the registration of assessee s trust cannot be disputed merely because the proviso to section 2(15) of the Act has come into play. The effect of section 11 can be considered while framing assessment but registration has to be granted. The issue is squarely covered by Hon ble Bombay High Court decision in the case of Khar Gymkhana 2016 (6) TMI 489 - BOMBAY HIGH COURT respectfully following the same, we direct the DIT(Exemption) to grant registration. - Decided in favour of assessee.

Summary

Issues Involved:
1. Jurisdiction to cancel registration under section 12AA(3).
2. Applicability of proviso to section 2(15) regarding charitable purpose.
3. Nature of activities of the trust and their alignment with the trust's objectives.
4. Retrospective effect of cancellation of registration.

Issue-wise Detailed Analysis:

1. Jurisdiction to cancel registration under section 12AA(3):
The assessee argued that the Director of Income Tax (Exemptions) [DIT(E)] erred in holding jurisdiction to cancel the registration under section 12AA(3) of the Act. The section applies only if the activities of the trust are not genuine or not being carried out in accordance with the objects of the trust. The assessee maintained that for over 35 years, it had been entitled to exemption under section 11, indicating the genuineness of its activities.

2. Applicability of proviso to section 2(15) regarding charitable purpose:
The DIT(E) held that the assessee was hit by the proviso to section 2(15), which states that the advancement of any other object of general public utility shall not be a charitable purpose if it involves trade, commerce, or business activities. The DIT(E) concluded that the trust’s activities, such as providing swimming pool facilities and other sports facilities, were commercial in nature and thus, the trust could not be considered charitable. The assessee contested this, arguing that these activities were part of the trust's objectives and had been previously considered charitable.

3. Nature of activities of the trust and their alignment with the trust's objectives:
The DIT(E) observed that the trust's activities, including providing sports facilities and running a canteen, were not charitable and were in the nature of business income. The assessee argued that these activities were aligned with the trust’s objectives, which had been upheld by the Tribunal and the High Court in earlier assessments. The Tribunal noted that these activities had been consistently considered charitable in past assessments and were part of the trust's objectives as recognized by the Government of Maharashtra.

4. Retrospective effect of cancellation of registration:
The assessee argued that the cancellation of registration could not be applied retrospectively. The DIT(E) had cancelled the registration with effect from AY 2009-10, following the amendment to section 2(15). The Tribunal, referencing the Bombay High Court decision in the case of Khar Gymkhana, noted that the jurisdiction to cancel registration arises only if there is a change in the nature of activities or if the activities are not genuine. The Tribunal concluded that there was no change in the nature of the trust’s activities and that the effect of section 11 could be considered during assessment, but the registration should not be cancelled.

Conclusion:
The Tribunal found that the main activities of the assessee trust, such as providing sports facilities, were aligned with its objectives and had been previously considered charitable. The Tribunal held that the DIT(E) could not cancel the registration merely because the proviso to section 2(15) had come into play. The Tribunal directed the DIT(E) to grant the registration, following the precedent set by the Bombay High Court in the case of Khar Gymkhana. The appeal of the assessee was allowed, and the order was pronounced on 15-06-2018.