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2016 (5) TMI 930 - AT - Income TaxRegistration granted to the assessee u/s 12A cancelled - assessee is a body corporate formed under UP Urban Planning and Development Act, 1973 - Held that - The facts in the present case, we find, are identical to the facts in the case of Tamil Nadu Cricket Association (2013 (12) TMI 833 - MADRAS HIGH COURT ). In the present case the assessee had been granted registration u/s 12AA after considering its stated objects. Undeniably there has been no change in the objects of the assessee. The registration has been later on cancelled only on account of the proviso to section 2(15). It is not the case of the Ld. CIT that the activities are not being carried out in accordance with the objects of the assessee trust on the basis of which registration was granted under section 12A. Thus we find that the decision of the Hon ble Madras High Court squarely applies to the case of the assessee. We therefore hold that the amendment to section 2(15) of the Act cannot be the basis for cancellation of registration granted earlier under section 12A of the Act, and that the Ld. CIT had erred in holding that the activities of the assessee were not genuine since it was not charitable in view of the first proviso to section 2(15) of the Act. The applicability of the proviso will have to be examined every year and thus cannot be the basis of granting or cancelling registration u/s 12AA. Moreover, the legislature has provided a safeguard against the objects being vitiated on account of the first proviso by virtue of section 13(8), which was brought into effect from the same point of time when proviso to section 2(15) was introduced i.e. w.e.f. 01.04.2009, which provides for denial of exemption of income u/s 11 in the year in which the first proviso becomes applicable. Thus, legally the impact of the proviso to section 2(15) being attracted is that the assessee will not be eligible for exemption u/s 11 of the Act. As a corollary to this legal position, registration u/s 12AA cannot be impacted by the object being hit by the first proviso to section 2(15). The grant of registration u/s 12AA(1)(b) requires satisfaction about the objects of the trust as well as genuineness of the activities, while for cancellation u/s 12AA(3) all that is insisted upon is the satisfaction as to whether the activities of the trust or institution are genuine or not and whether the activities are being carried on in accordance with the objects of the trust. Further we find that on the issue under adjudication in the present case, there are decisions of the Hon ble Tribunal in favour of the assessee as pointed out by the Ld. AR and in such a situation it is settled law that the view favourable to the assessee has to be taken. Moreover the decision of the Hon ble Madras High Court has precedence on the decisions of the Hon ble Tribunal on this issue following the principles of judicial precedence. Thus in our considered view, the action of the Ld. Commissioner in canceling registration under section 12AA(3) is wholly devoid of any legally sustainable merit. - Decided in favour of assessee
Issues Involved:
1. Cancellation of registration under Section 12AA(3) of the Income Tax Act, 1961. 2. Application of the amended definition of "charitable purpose" under Section 2(15) of the Income Tax Act. 3. Retrospective application of the cancellation of registration. 4. Interpretation and application of judicial precedents and circulars issued by CBDT. Detailed Analysis: 1. Cancellation of Registration under Section 12AA(3): The primary issue in this case was whether the Commissioner of Income Tax (CIT) was justified in canceling the registration granted to the assessee under Section 12A of the Income Tax Act, 1961, by invoking Section 12AA(3). The CIT held that the activities carried out by the assessee were in the nature of commerce or business, thereby falling under the exclusion provided in the first proviso to Section 2(15). Consequently, the CIT deemed the activities not genuine and canceled the registration. 2. Application of the Amended Definition of "Charitable Purpose": The amendment to Section 2(15) by the Finance Act, 2008, effective from AY 2009-10, introduced a proviso stating that the advancement of any other object of general public utility would not be considered a charitable purpose if it involved trade, commerce, or business activities. The CIT applied this amended definition to conclude that the assessee's activities were not charitable. 3. Retrospective Application of the Cancellation: The assessee contended that the CIT had erred in canceling the registration retrospectively from AY 2009-10, arguing that there was no change in the objects or activities of the appellant that justified such cancellation. The assessee relied on established judicial precedents to argue that the proviso to Section 2(15) could not be applied to review, withdraw, or cancel registration under Section 12AA(3). 4. Interpretation and Application of Judicial Precedents and Circulars: The assessee cited several judicial precedents and circulars issued by the Central Board of Direct Taxes (CBDT) to support its case. Notably, the case of Tamil Nadu Cricket Association Vs. DIT (Exemption) was referenced, where the Hon’ble Madras High Court held that the power of cancellation under Section 12AA(3) should be seen with reference to the registration and the objects satisfying the definition of "charitable purpose" as it stood at the time of registration. The court ruled that the subsequent amendment to Section 2(15) could not be a basis for canceling registration. Tribunal's Findings: 1. Scope of Power under Section 12AA(3): The tribunal noted that the CIT’s power to cancel registration under Section 12AA(3) is limited to cases where the activities of the trust are not genuine or not carried out in accordance with its objects. The tribunal found that the CIT had canceled the registration based on the amended definition of "charitable purpose" under Section 2(15), which was not a valid ground for cancellation under Section 12AA(3). 2. Judicial Precedents: The tribunal extensively referred to the judgment in Tamil Nadu Cricket Association Vs. DIT (Exemption), which clarified that the registration could not be canceled based on the amended definition of "charitable purpose" under Section 2(15). The tribunal emphasized that the genuineness of the activities and adherence to the stated objects at the time of registration were the only criteria for cancellation. 3. Retrospective Application: The tribunal held that the CIT’s action of canceling the registration retrospectively was not justified. The tribunal pointed out that the objects of the assessee had not changed since the time of registration, and the CIT’s reliance on the amended Section 2(15) was misplaced. 4. Circulars and Consistency with Judicial Decisions: The tribunal observed that the CIT had ignored binding judicial precedents and CBDT circulars that clarified the application of Section 2(15) and Section 12AA(3). The tribunal reiterated that the first proviso to Section 2(15) could not be a basis for canceling registration under Section 12AA(3). Conclusion: The tribunal concluded that the CIT had erred in canceling the registration of the assessee under Section 12AA(3) based on the amended definition of "charitable purpose" under Section 2(15). The tribunal allowed the appeal of the assessee, holding that the registration could not be canceled on the grounds stated by the CIT. The tribunal’s decision was based on a thorough analysis of the relevant legal provisions, judicial precedents, and the specific facts of the case. Order: The appeal of the assessee was allowed, and the order canceling the registration under Section 12AA(3) was set aside. The tribunal pronounced the order in the open court.
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