2013 (9) TMI 1284 - AT - Income Tax

Summary

Issues involved: Appeal against withdrawal/cancellation of registration u/s 12A of the Income Tax Act, 1961.

Summary:
The appeal was filed by the assessee against the order of the Director of Income Tax (Exemp.), Mumbai u/s 12AA(3) of the Act, withdrawing/cancelling the registration granted u/s 12A. The assessee, a public charitable trust, engaged in sports activities, faced cancellation of registration due to alleged trade/commerce activities exceeding Rs. 10,00,000, invoking the proviso to section 2(15).

The assessee argued that its activities were not hit by the proviso to section 2(15) as they were for the advancement of sports, falling under educational activities. The DIT observed that income from activities like royalty from a restaurant, decorators, etc., exceeded Rs. 10,00,000, indicating commercial exploitation. Citing precedents, the DIT held such income as business income, leading to cancellation of registration u/s 12AA(3) from AY 2009-10.

The assessee contended that its main activity was providing sports facilities and training, with ancillary services like a restaurant and lodging essential for the sports complex's operation. The DIT's order lacked scrutiny on whether these activities were incidental to the main sports objectives or purely for trade. The Tribunal emphasized that registration can be canceled only if trust activities are not genuine or not in line with its objects, as per section 12AA(3). Since the DIT did not establish this, the order was set aside for reevaluation.

The Tribunal remanded the case to the DIT for a fresh examination, emphasizing the need to determine if the trust's activities were genuine and aligned with its objectives. The appeal was treated as allowed for statistical purposes.

Conclusion:
The Tribunal directed a reevaluation by the DIT to determine if the trust's activities were genuine and aligned with its objectives before canceling the registration.