2018 (1) TMI 135 - AT - Income Tax

Withdrawing the registration granted u/s 12AA/12A vide order u/s 12AA(3) r.w.s. 293C from the initial year, the registration was granted - Held that - Hon ble Delhi High Court in case of DIT(Exemtion) Vs. Mool Chand Khairati Ram Trust (2011 (4) TMI 563 - DELHI HIGH COURT) is squarely applicable where it was held that power to cancel the registration once granted was only confined to the registration granted under cl. (b) of sub-s. (1) of s. 12AA till before 1st June, 2010. Of course, now w.e.f. 1st June, 2010, the power vests with the CIT even to cancel the registration granted under any of the clauses of sub-s. (1) of s. 12A. In that view of interpretation, there was no power vested with the CIT to cancel or withdraw the registration granted to the assessee under s. 12A(a) in the year 1974. Accordingly, we hold that the withdrawal of registration granted u/s 12A to the assessee since its inception is not as per law and to this extent the order passed by him to withdraw the registration from the initial year is not approved. Considering the fact that assessee is engaged in promoting the game of golf and having been granted registration u/s 12A w.e.f. 15.06.1999, we see no reasons to cancel the same particularly when the objects and the activities of assessee at the time of grant of registration and cancellation thereof remains the same. In these circumstances, we do not concur with the order of ld. CIT withdrawing, the registration u/s 12AA(3) of the Act. The ground of assessee is allowed.

Summary

Issues Involved:
1. Whether the Commissioner of Income Tax (CIT) has the power to withdraw the registration granted under Section 12A/12AA from the initial year.
2. Whether the activities of the assessee society are charitable in nature.

Issue-wise Detailed Analysis:

1. Power to Withdraw Registration from Initial Year:
The CIT withdrew the registration granted to the assessee under Section 12A/12AA, citing that the activities were not charitable. The assessee argued that the CIT's power to withdraw registration was only provided by the Finance (No.2) Act, 2004, effective from 01.10.2004, and further amended by the Finance Act, 2010, effective from 01.06.2010. Prior to these amendments, there was no provision for cancellation of registration once granted. The assessee cited several case laws, including DIT(Exemption) Vs. Mool Chand Khairati Ram Trust (2011) 339 ITR 0622 (Del.) (HC), which held that the power to cancel registration was only applicable prospectively and not retrospectively. The Tribunal agreed with the assessee, stating that the CIT did not have the power to withdraw registration retrospectively from the initial year. The withdrawal of registration from the initial year was deemed illegal and not in accordance with the law.

2. Charitable Nature of Activities:
The CIT argued that the assessee's activities were not charitable as they primarily benefited the members of the club rather than the public at large. The CIT highlighted that the club's income sources included subscriptions, fees, interest income, sponsorship, and income from bar and canteen, with expenditures mainly on salaries, maintenance, and entertainment of members. The CIT concluded that the club functioned for mutual benefit rather than charitable purposes. The assessee countered by emphasizing that its main object was to promote the game of golf, which is a recognized charitable activity. The assessee provided evidence that a significant portion of its income was spent on maintaining the golf course and promoting the sport. The Tribunal noted that similar activities by other golf clubs had been deemed charitable and that the assessee's activities had not changed since the initial grant of registration. The Tribunal concluded that the assessee's activities were indeed charitable and that the CIT's decision to withdraw registration was not justified.

Conclusion:
The Tribunal held that the CIT did not have the authority to retrospectively withdraw the registration granted under Section 12A/12AA from the initial year. It also concluded that the assessee's activities were charitable in nature, focusing on the promotion of the game of golf, which benefits the public. The appeal filed by the assessee was allowed, and the order to withdraw registration was set aside.