2017 (3) TMI 37 - HC - Income Tax

Cancelling the registration of the Trust - Exercise of jurisdiction under Section 12AA(3) by the Director of Income Tax (Exemption) - Held that - Income is brought to tax to secure the Revenue s interest but it does not necessarily result in automatic cancellation of Registration. Therefore, the mere fact that in one particular year, the respondent assessee may have income receipts in excess of ₹ 10 lakhs or such other limit as provided in the proviso to Section 2(15) of the Act, that by itself would not warrant cancellation of the registration under Section 12AA(3) of the Act. A similar issue had arisen before us in Director of Income Tax (Exemption) Vs. Khar Gymkhana, 2016 (6) TMI 489 - BOMBAY HIGH COURT where rejected the Revenue s appeal as relied upon the CBDT Circular No.21 of 2016 dated 27th May, 2016 to conclude that the amendment to the definition of charitable purpose by addition of the proviso w.e.f. 12th April, 2009 would not ipso facto give jurisdiction to the Commissioner of Income Tax to cancel the registration. The Circular No.21 of 2016 in terms directed the Authorities not to cancel the registration of the Charitable Institution only because the proviso to Section 2(15) of the Act comes into play as the receipts are in excess of the specified limits therein. It also refers to Section 13(8) of the Act to support the view of the non cancellation. However, the issue of the trust not being genuine cannot be concluded by merely giving a finding in one year that income earned from activities of trade, business or commerce are in excess of the limit specified in the proviso to Section 2(15) of the Act. This is so held by us in Khar Gymkhana (supra). However, if this happens on continuous / regular basis, it could justify further probe / inquiry before concluding that the trust is not genuine. - Decided against revenue

Summary

Issues:
Challenge to order under Section 260A of the Income Tax Act, 1961 regarding cancellation of Trust registration under Section 12 of the Act for Assessment Year 2009-10.

Analysis:
1. The main issue in this case is whether the Tribunal was justified in holding that once registration under Section 12A of the Income Tax Act, 1961 is granted, it cannot be reviewed or withdrawn in the absence of stipulation in Section 12AA(3) of the Act. The respondent Trust's registration was canceled by the Director of Income Tax (Exemption) based on the introduction of provisos to Section 2(15) w.e.f. 1st April, 2009, which affected the Trust's charitable status due to income from commercial activities exceeding the specified limit.

2. The Tribunal, following a decision from a coordinate bench, allowed the appeal of the respondent Trust, stating that the Director of Income Tax (Exemption) did not have the power to cancel the registration of a Trust registered prior to 1st June, 2010. However, the Tribunal did not address the issue of whether the Trust was genuinely charitable. The appellant Revenue argued that the Trust was not genuine and charitable as it engaged in business-like activities exceeding the specified limit.

3. The High Court noted that the mere fact of income exceeding the specified limit in one year does not automatically warrant cancellation of registration under Section 12AA(3) of the Act. Referring to previous decisions and Circulars, the Court emphasized that cancellation should only occur if the Trust is not genuine or its activities are not in line with its charitable objects. Continuous or regular income exceeding the limit may justify further inquiry but does not conclusively prove lack of genuineness.

4. The Court cited precedents from Karnataka and Madras High Courts where similar issues were addressed, emphasizing that commercial activities' income exceeding charitable activities' income does not automatically imply lack of genuineness or deviation from charitable objectives. The Court dismissed the appeal, stating that the question raised did not give rise to any substantial legal issue in the present context.

In conclusion, the High Court upheld the Tribunal's decision and dismissed the appeal, emphasizing that cancellation of registration should only occur if the Trust is not genuine or its activities deviate from charitable purposes, not merely based on income exceeding specified limits in one year.