2016 (3) TMI 828 - AT - Income Tax

Registration granted u/s 12AA cancelled - revenue submitted that the assessee is engaged in rendering service to the trade and commerce, therefore, the assessee is not entitled for registration u/s 12AA - Held that - Issuing certificate of origin in respect of the goods exported is incidental to the main charitable activity of the assessee. Therefore, as observed by the Delhi High Court in the case of India Trade Promotion Organization(2015 (1) TMI 928 - DELHI HIGH COURT), proviso to sec. 2(15) may not be applicable to the assessee s case. Therefore, we are unable to uphold the order of the DIT(E). Accordingly, the same is set aside. - Decided in favour of assessee.

Summary

Issues:
1. Condonation of delay in filing the appeal against cancellation of registration u/s 12AA of the Income-tax Act, 1961.
2. Whether the activity of issuing certificates of origin by the assessee trust is charitable in nature.
3. Interpretation of the first proviso to sec. 2(15) of the Act in relation to rendering service to trade and commerce.
4. Determining if the activity of issuing certificates of origin is incidental or the dominant object of the trust.

Issue 1: Condonation of Delay
The appeal was filed by the assessee against the order cancelling the registration granted u/s 12AA of the Income-tax Act, 1961, with a delay of 189 days. The Tribunal, after hearing both parties, found sufficient cause for the delay and thus condoned it, allowing the appeal to be admitted.

Issue 2: Charitable Nature of Activity
The assessee trust was engaged in activities like issuing certificates of origin and conducting seminars. The Director of Income-tax (Exemptions) cancelled the registration, stating that the trust's activities were not charitable due to receiving commercial receipts exceeding a specified limit. The trust argued that issuing certificates of origin was incidental to its charitable activities, citing a judgment by the Madras High Court. The Tribunal agreed, finding the activity to be charitable and set aside the cancellation order.

Issue 3: Interpretation of First Proviso to sec. 2(15)
The Departmental Representative contended that the trust's activity of issuing certificates of origin did not qualify as charitable under the first proviso to sec. 2(15) of the Act, as it involved rendering service to trade and commerce. However, the Tribunal, referencing a Delhi High Court judgment, interpreted the proviso restrictively, stating that incidental activities furthering the trust's charitable object did not fall under 'business', 'trade', or 'commerce'.

Issue 4: Dominant Object vs. Incidental Activity
The Tribunal considered whether issuing certificates of origin was the dominant object of the trust or merely incidental. Citing a judgment by the Madras High Court, it concluded that the activity was incidental to the trust's main charitable purpose. As per the binding judgment, the trust's activity of issuing certificates of origin in respect of exported goods was found to be incidental to its charitable activities, and thus, the cancellation of registration was set aside.

In conclusion, the Tribunal allowed the appeal of the assessee, finding that the activity of issuing certificates of origin was charitable in nature and incidental to the trust's main charitable purpose, as per relevant legal interpretations and judgments.