2017 (8) TMI 531 - HC - Income Tax

Cancellation of registration of assessee trust invoking power u/s 12AA(3) - Director of Income Tax (Exemptions) jurisdiction invoking its powers under section 12AA(3) - Held that - As decided in CIT vs. the Mumbai Metropolitan Regional Iron and Steel Market Committee 2017 (7) TMI 920 - BOMBAY HIGH COURT 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. 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:
1. Interpretation of provisions of section 215 along with its proviso for cancellation of registration under section 12AA(3) of the Income Tax Act, 1961.
2. Determination of whether the activities of the Assessee constitute trade, commerce, or business deriving systematic and huge income.
3. Evaluation of the Commissioner's powers under Section 12(AA)(3) and the limitations imposed under Sub Section 3 of Section 12AA of the Act.
4. Analysis of the genuineness of the activities of the Respondent institution and their alignment with the object of the institution.
5. Consideration of the CBDT Circular No.21 of 2016 and its relevance in similar cases.
6. Assessment of whether the grounds enumerated in section 12AA(3) of the Act are satisfied to cancel the registration.

1. Interpretation of provisions of section 215 along with its proviso for cancellation of registration under section 12AA(3) of the Income Tax Act, 1961:
The Appellant's counsel argued that the Director of Income Tax (Exemptions) rightfully canceled the registration under section 12AA(3) by considering the activities of the Assessee as being in the nature of trade, commerce, or business, especially due to the substantial receipts earned during the Assessment Year 2009-10.

2. Determination of whether the activities of the Assessee constitute trade, commerce, or business deriving systematic and huge income:
The Appellant's counsel highlighted various receipts in the Assessee's income and expenditure account, such as interest on investments, guarantee fees, annual services fees, pension interest income, and recoveries from MLI's on claim paid, to support the argument that the Assessee is engaging in activities that generate systematic and substantial income.

3. Evaluation of the Commissioner's powers under Section 12(AA)(3) and the limitations imposed under Sub Section 3 of Section 12AA of the Act:
In a previous judgment, it was noted that the Commissioner's powers under Section 12(AA)(3) are constrained by the restrictions set forth in Sub Section 3 of Section 12AA of the Act. The judgment emphasized the importance of not deviating from the genuine activities of the institution or engaging in activities incongruent with the institution's objectives when invoking such powers.

4. Analysis of the genuineness of the activities of the Respondent institution and their alignment with the object of the institution:
The Respondent's counsel supported the Tribunal's order, asserting that the Respondent had not strayed from its activities since its registration, indicating the continuity and genuineness of its operations aligned with the institution's objectives.

5. Consideration of the CBDT Circular No.21 of 2016 and its relevance in similar cases:
The judgment referred to the CBDT Circular No.21 of 2016 and its consideration in a previous case, emphasizing the importance of such circulars in guiding decisions related to the application of relevant provisions in cases similar to the one under review.

6. Assessment of whether the grounds enumerated in section 12AA(3) of the Act are satisfied to cancel the registration:
Ultimately, the Court found that the grounds specified in section 12AA(3) of the Act were not met to warrant the cancellation of registration, leading to the dismissal of the appeal without costs due to the absence of a substantial question of law.

This comprehensive analysis of the judgment delves into the various legal issues and arguments presented by both parties, providing a detailed overview of the Court's decision-making process and the factors considered in arriving at the final judgment.