2015 (2) TMI 1342 - AT - Income Tax

Cancellation of Registration u/s 12AA(3) - financial accounts of the assessee relating to the period relevant to Assessment Year 2009-10 reveal that the assessee had surplus of ₹ 57.70 Crores - On a perusal of the Website of the assessee, the ld. DIT (Exemptions),concluded that the assessee was providing buses for casual contracts and chartered services onhire, charging rates similar to those charged by private transporters and assessee permits commercial advertisements on its fleets. HELD THAT - In the case on hand the assessee is a public undertaking of the State Government of Karnataka - There is no finding rendered by the ld. DIT (Exemptions) that there was any violation of the two conditions by the assessee, and therefore the grounds which empower the ld. DIT (Exemptions) to cancel the registration u/s 12AA(3) of the Act, are absent. The registration cannot be cancelled in view of the amendment of the first proviso to section 2(15) of the Act, since it is not a ground specified in the statute for cancellation of registration under Section 12AA(3). If the case of an assessee falls within the ambit of the first proviso to section 2(15) of the Act, the benefits which arise from registration under Section 12AA of the Act will not be available to it, and this aspect is to be considered by the AO, but this would not be a ground for cancellation of registration. From an appreciation of the facts and circumstances of the case on hand, we find that the facts herein are similar both factually and legally to that of the cited case of DIT(Exemptions) V Karnataka Industrial Area Development Board 2015 (7) TMI 169 - KARNATAKA HIGH COURT and therefore respectfully following this decision, we hold that the impugned order of DIT (Exemptions) cancelling the assessee's registration by order under Section 12AA(3) of the Act dt.21.11.2011 is not sustainable and therefore cancel the same. - Decided in favour of assessee.

Summary

Issues:
Cancellation of registration under Section 12AA(3) of the Income Tax Act, 1961 based on financial surplus, commercial activities, and advertisements.

Analysis:
The judgment revolves around the cancellation of registration granted under Section 12A of the Act to a public sector undertaking by the Director of Income Tax (Exemptions) based on various grounds. The assessee was found to have a surplus of Rs. 57.70 Crores, providing buses for hire similar to private transporters, and allowing commercial advertisements on its fleets. The DIT (Exemptions) initiated proceedings under Section 12AA(3) to withdraw the registration, contending that the entity was engaged in trade, commerce, or business exceeding Rs. 25 lakhs, falling under the first proviso to section 2(15) of the Act.

During the proceedings, the assessee argued against the cancellation, citing a decision by the Hon'ble Karnataka High Court in a similar case. The Departmental Representative, however, supported the impugned order, referencing a Supreme Court dismissal of a related case. The Tribunal analyzed the case, considering the legal provisions and precedents cited. It highlighted that registration could only be canceled if the activities were not genuine or not in line with the trust's objects, which was not the case here.

The Tribunal referred to the High Court's decision in a similar case, emphasizing that cancellation could only occur under specific conditions. It noted the absence of any violation by the assessee and that the grounds for cancellation were not met, especially regarding the first proviso to section 2(15) of the Act. Ultimately, the Tribunal held that the cancellation of registration was not sustainable based on the legal provisions and precedents cited, and therefore allowed the assessee's appeal.

In conclusion, the Tribunal's detailed analysis of the legal provisions, precedents, and factual circumstances led to the decision to set aside the cancellation of registration under Section 12AA(3) of the Act, emphasizing the importance of meeting specific conditions for such cancellations.