2015 (1) TMI 1466 - HC - Income Tax

Exemption u/s 11 - cancelling the registration of the assessee as a Charitable Board u/s 12A already granted - Under what circumstances the registration granted earlier could be cancelled? - Tribunal recorded a finding that the registration granted u/s 12A cannot be revoked on account of commercial activities by the Board in pursuing the advancement of objects of general public utility and registration can be cancelled only on arriving at a finding that the activities of the Board are not genuine and not carried in accordance with the objects of the Board - HELD THAT - 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. In fact, Sub-section (8) of Section 13 of the Act which is introduced by Financial Act, 2012 which came into effect from 1.4.2009 categorically provides that, nothing contained in Section 11 or 12 shall operate so as to exclude any income from the total income of the previous year or any receipt there of. 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 the provisions of Section 12A of the Act, unless the assessee falls within the provisions of Section 2(15) of the Act, excluding the first proviso, the assessee would not be entitled to the benefit of exemption from the tax. If the case of the assessee falls in the 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 by allowing the appeal in the present impugned order. - Decided against revenue.

Summary

Issues:
Challenge to order canceling registration of assessee as Charitable Board under Section 12A of the Income Tax Act, 1961.

Analysis:
1. Background: The respondent, Karnataka Housing Board (KHB), was granted registration under Section 12A of the Income Tax Act in 2004. Subsequently, a notice was issued in 2011 to revoke the registration due to the Board's commercial activities.

2. Director's Order: The Director of Income Tax cancelled the registration in 2011, citing the Board's significant profits and commercial nature of activities post an amendment to Section 2(15) of the Act in 2009.

3. Tribunal's Decision: The Tribunal, in 2013, allowed the appeal, stating that registration cannot be revoked solely based on commercial activities unless the Board's activities are not genuine or not in accordance with its objects.

4. Substantial Questions of Law: The issues raised were whether the Board's activities were genuinely charitable and in line with its objects, considering the commercial nature post the 2009 amendment.

5. Revenue's Argument: The revenue contended that the Board's activities exceeded the monetary limit for charitable purposes, as per the amended definition, justifying the cancellation of registration.

6. Assessee's Defense: The assessee argued that the registration should only be denied under specific provisions of the Act, and the assessing authority should decide on granting tax exemption based on the nature of activities.

7. Court's Analysis: The Court examined Section 12AA(3) of the Act, which allows registration cancellation if activities are not genuine or not aligned with the trust's objects. The Court found no such findings by the Director or Tribunal in this case.

8. Conclusion: The Court held that the registration cannot be cancelled solely based on exceeding the monetary limit set by the amendment. The Tribunal's decision was upheld, emphasizing that the Board's activities were genuine and in line with its objects, warranting no interference. The appeal was dismissed in favor of the assessee.