2016 (7) TMI 136 - AT - Income Tax

Registration application u/s 12AA denied for 2 reasons, (I) delay in filing the registration application and (II) activities of the assessee-trust are in the nature of commerce and trade Held that - (I) Rejecting the registration application on the ground that it is filed late is not correct because, L d CIT has power to grant registration prospectively and exemption Sections 11 & 12 will be available from the first day of assessment year immediately following the financial year in which the application is made. (II) Registration can be rejected only when (a) activities of the trust are not genuine, and (b) that the activities of the trust or the institution are not being carried out in accordance with the objects of the trust or the institution. Whether the activities of the assessee-trust are in the nature of commerce and trade is not to be analysed at the time of granting the registration.

Issues Involved:
1. Delay in filing the appeal.
2. Rejection of registration application under Section 12AA of the Income Tax Act, 1961.
3. Nature of activities of the assessee-trust and their eligibility for charitable status under Section 2(15) of the Act.

Detailed Analysis:

1. Delay in Filing the Appeal:
The assessee-trust's appeal was delayed by 152 days due to wrong advice and the ill health of their advocate. The tribunal observed that the delay was suitably explained in the condonation petition and noted that the Departmental Representative (DR) raised no objection to the condonation. Consequently, the tribunal condoned the delay and proceeded to hear the appeal.

2. Rejection of Registration Application under Section 12AA:
The solitary ground raised by the assessee was that the Commissioner of Income Tax (CIT) erred in rejecting the registration application under Section 12AA on account of delay in filing and by holding that the activities of the assessee are non-charitable. The assessee, a Development Authority constituted under the West Bengal Town and Country (Planning & Development) Act, 1979, was engaged in developing public utilities and claimed exemption under Section 10(20A) until the Finance Act 2002 omitted this section effective from 01.04.2003. Subsequently, the assessee applied for registration under Section 12A on 19.03.2009, which was rejected by the CIT on the grounds of delay and the nature of activities being commercial.

The tribunal noted that the CIT's power to condone delays was withdrawn effective from 01.06.2007. However, the law states that for applications made on or after this date, the exemption would be available from the assessment year immediately following the financial year in which the application is made. Thus, the tribunal held that while the CIT could not condone the delay, they should have granted registration on a prospective basis. The tribunal found the CIT's rejection on the ground of delay incorrect, as the CIT had the power to grant registration prospectively.

3. Nature of Activities and Eligibility for Charitable Status:
The CIT had observed that the assessee's activities were in the nature of trade, commerce, or business, making them ineligible for registration under Section 12A as per the amended provisions of Section 2(15). The assessee argued that the land did not belong to them but to the Government of West Bengal, and they acted merely as custodians. They claimed immunity from union taxation under Article 289 of the Constitution of India, asserting that the income related to the land belonged to the state government.

The tribunal referred to various precedents, including the cases of Punjab Cricket Association v. CIT and Kapurthala Improvement Trust v. CIT, where it was held that the first proviso to Section 2(15) has no role in matters relating to the registration of a trust or institution under Section 12A. The tribunal emphasized that the considerations of the first proviso to Section 2(15) are relevant on a year-to-year basis and do not affect the grant or cancellation of registration under Section 12AA. The tribunal concluded that the CIT's action of rejecting the registration application based on the nature of activities was incorrect.

Conclusion:
The tribunal reversed the CIT's order and directed the grant of registration under Section 12AA, allowing the assessee's appeal. The tribunal held that the CIT should have granted registration prospectively despite the delay and that the nature of the assessee's activities did not preclude them from being considered charitable under the relevant provisions. The appeal was allowed, and the order was pronounced in the open court on 24/06/2016.

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