2017 (7) TMI 920 - HC - Income Tax

Cancellation of registration of assessee trust invoking power u/s 12AA(3) - Held that - It is apparent from the record that the Commissioner has invoked its powers under Section 12(AA)(3) of the Act. The said powers are circumscribed by the limitations imposed under Sub Section 3 of Section 12AA of the Act. The Commissioner, nowhere has given the finding that the activities of the Respondent institution are not genuine one or that the said activity carried out are not in consonance with the object of the institution. The Commissioner has merely relied on proviso to Sub-Section 2 of Section 15 of the Act, as it stood then. The said proviso has subsequently gone amendment. The CBDT Circular No.21 of 2016, dated 27th May, 2016, has been considered by the Division Bench of this Court in case of Khar Gymkhana (2016 (6) TMI 489 - BOMBAY HIGH COURT ). Even considering the proviso, as it stood then, the case has not been made out so as to invoke Section 12AA(3) of the Act. The Tribunal as rightly considered the said aspect - Decided against revenue.

Summary

Issues:
Cancellation of registration under Section 12AA(3) of the Income Tax Act, 1961 based on proviso to Section 2(15) - Applicability of CBDT Circular No.21 of 2016 and previous court judgments.

Analysis:

Cancellation of Registration under Section 12AA(3):
The Commissioner cancelled the registration of the Respondent under Section 12AA(3) of the Income Tax Act, 1961, based on the proviso to Section 2(15) which indicated that the Respondent's activities involved trade, commerce, or business, making it ineligible for charitable institution status. The Appellant argued that the Respondent's collection of fees and cess falls under the proviso to Section 2(15), justifying the cancellation. However, the Respondent contended that the Commissioner did not find their activities to be non-genuine or not aligned with the institution's objectives. The Tribunal's decision was in favor of the Respondent, considering the limitations imposed by Section 12AA(3) and the lack of substantial evidence to invoke the provision.

CBDT Circular No.21 of 2016 and Court Judgments:
The Respondent's counsel referred to the CBDT Circular No.21 of 2016 and a previous court judgment (Director of Income Tax vs. Khar Gymkhana) to support their argument. The Circular and the court decision were cited to emphasize that the Commissioner should have provided evidence that the Respondent's activities were not genuine or not in line with the institution's objectives before invoking Section 12AA(3). The Court acknowledged the Circular's relevance but ultimately upheld the Tribunal's decision, stating that even under the previous proviso to Section 2(15), there was insufficient justification to cancel the registration under Section 12AA(3).

Conclusion:
The High Court dismissed the appeal, ruling that there were no substantial questions of law raised. The Court affirmed the Tribunal's decision, noting that the Commissioner did not establish that the Respondent's activities were not genuine or aligned with the institution's objectives, as required under Section 12AA(3). Therefore, the cancellation of registration was not justified, and the appeal was dismissed without costs.