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2020 (2) TMI 1322 - HC - Income TaxExemption u/s 11 - assessee is registered under Section 12AA of the Act 1961 w.e.f. 1st April 2002 - CIT cancelling the registration under Section 12AA(3) of the Act w.e.f. 1st April 2008 applicable to the Assessment Year 2009-10 - activity of the assessee is related to levying various fees of charges from the users of the ports under various heads - Tribunal cancelling the order of the Commissioner (Appeals) passed under Section 12AA(3) in view of the amendment made under Section 2(15) of the Act brought into effect from 1st April 2009 - HELD THAT - 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, and (b) The activities of the 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 genuine one. As could be seen from the profits they have generated, the said profit is earned by carrying on the activities in accordance with the object of the Trust. Therefore, the two conditions stipulated in sub-section (3) of Section 12AA of the Act, which empowers the authority to cancel the registration, do not exist in this case. 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. If the provisions of the first proviso to clause (15) of Section 2 becomes applicable in the case of such person in the said previous year, the Statute has protected the interest of the Revenue. Notwithstanding the fact that the assessee is conferred registration under Section 12A of the Act, unless the assessee falls within Section 2(15) of the Act, excluding the first proviso, the assessee would not be entitled to the benefit of exemption from tax. If the case of the assessee falls within first proviso to Section 2(15) of the Act, the benefit of registration which flow from Section 12A of the Act is not available. Anyhow, that is a matter to be considered by the Assessing Authority. But, on that ground, the registration cannot be cancelled, which is precisely the Tribunal has held. As decided in NH KAPADIA EDUCATION TRUST - EDUCATION TRUST 2018 (10) TMI 377 - GUJARAT HIGH COURT Proviso to sub-section (15) to section 2 of the Act was added by the Finance Act, 2010 providing that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business for cess or fee or any other consideration irrespective of the nature of use or application, or retention of the income from such activity. This proviso therefore applies to activity for the advancement of any other object of general public utility. Such activity would be excluded from the definition of charitable purpose if it involves carrying on any activity in the nature of trade, commerce or business or for cess or fee or any other consideration. Clearly, the legislature did not desire this condition or restriction to be attached to the remaining activities which were defined or categorized as charitable purpose under sub-section (15) which includes the education. - Decided in favour of assessee.
Issues Involved:
1. Cancellation of registration under Section 12AA(3) of the Income Tax Act, 1961. 2. Interpretation and application of the amended definition of "charitable purpose" under Section 2(15) of the Income Tax Act, 1961. 3. The power and conditions under which the Commissioner can cancel the registration of a charitable institution. Issue-Wise Detailed Analysis: 1. Cancellation of registration under Section 12AA(3) of the Income Tax Act, 1961 The Commissioner of Income Tax cancelled the registration of the respondent-assessee, a state entity managing minor ports, under Section 12AA(3) of the Income Tax Act, 1961. The Commissioner argued that the activities of the assessee were commercial in nature, generating profits from various business activities, and thus did not qualify as charitable under the amended Section 2(15) of the Act. The Tribunal, however, allowed the appeal of the respondent-assessee, stating that the cancellation was not justified as the activities were genuine and carried out in accordance with the objectives of the trust. The Tribunal emphasized that the conditions for cancellation under Section 12AA(3) were not met, as the activities were genuine and aligned with the trust's objectives. 2. Interpretation and application of the amended definition of "charitable purpose" under Section 2(15) of the Income Tax Act, 1961 The amendment to Section 2(15) introduced by the Finance Act, 2010, with retrospective effect from 1st April 2008, was central to the case. The amendment specified that entities engaged in activities in the nature of trade, commerce, or business, with gross receipts exceeding ?10 lakhs, would not qualify as charitable institutions under the fourth limb of "advancement of any other object of general public utility." The Commissioner used this amendment to argue that the respondent-assessee ceased to be a charitable organization. However, the Tribunal and the High Court emphasized that the amendment to Section 2(15) could not be a ground for cancellation of registration under Section 12AA(3), as the latter requires the activities to be non-genuine or not aligned with the trust's objectives, which was not the case here. 3. The power and conditions under which the Commissioner can cancel the registration of a charitable institution The High Court reiterated that the power to cancel registration under Section 12AA(3) can only be exercised if the activities of the trust are not genuine or not carried out in accordance with its objectives. The Court noted that the respondent-assessee's activities were genuine and aligned with its objectives, and the profits generated were incidental to these activities. The Court also referred to its earlier decisions and other judicial precedents to emphasize that mere generation of surplus does not imply a profit motive if the surplus is plowed back into the charitable activities. The Court concluded that the Tribunal was correct in its decision to reverse the cancellation of registration, as the conditions for such cancellation were not met. Conclusion: The High Court dismissed the appeal by the Revenue, upholding the Tribunal's decision to restore the registration of the respondent-assessee under Section 12AA(3). The Court clarified that the amended definition of "charitable purpose" under Section 2(15) could not be a ground for cancellation of registration, and emphasized that the activities of the trust were genuine and aligned with its objectives. The substantial question of law was answered in favor of the respondent-assessee and against the Revenue.
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