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2020 (2) TMI 366 - HC - Income TaxExemption u/s 11 - cancellation of registration - Tribunal justification in comparing the appellant with a private builder and developer and in holding that the appellant was carrying on business for profit so as to attract proviso to Section 2(15) ? - Whether the Appellate Tribunal was justified on facts and in law in sustaining the order u/s 12AA(3) particularly on grounds alien to Section 12AA(3) - HELD THAT - There are no categorical findings that the activities of GIDC are not genuine or are not in accordance with the objects of the trust or the institution. Merely because, by reference to the amended provisions in Section 2(15), it may be possible to contend that the activities of GIDC are covered under the proviso, that, by itself, does not render the activities of GIDC as non-genuine activities so as to entitle the CIT to exercise powers under Section 12AA(3) of the said Act. We have really not gone into the question as to whether the activities of GIDC are indeed covered under the proviso to Section 2(15) of the said Act as amended. This is because we are satisfied that the substantial question of law at (b) is required to be answered in the favour of the appellant and against the Respondent Revenue. Once this is done, there is really no necessity to go into the other issue as is reflected in the substantial question of law at (a). We also add that the Circular No.21/2016 also, supports the contentions of Mr. Vaidya, inasmuch as it reiterates that the process of cancellation of registration has to be initiated strictly in accordance with the provisions under Section 12AA(3) and after carefully examining the application of the said provisions. The Circular, in the context of income limits under the proviso also explains that merely because in a particular year the limits may be exceeded is not a good ground to cancel the registration itself, though, all these aspects, can be taken into consideration at the stage of assessment. In fact in case of Khar Gymkhana 2016 (6) TMI 489 - BOMBAY HIGH COURT as also in Karnataka Industrial Area Development Board 2015 (7) TMI 169 - KARNATAKA HIGH COURT the Division Benches of our Court have taken the view that such matters can be evaluated in the course of assessment but this shall not be a ground for cancellation of the registration itself. We allow this appeal by answering the substantial question of law at (b) above in favour of the appellant and against the respondent Revenue.
Issues Involved:
1. Whether the Tribunal was justified in comparing the appellant with a private builder and developer and holding that the appellant was carrying on business for profit under the proviso to Section 2(15) of the Income Tax Act. 2. Whether the Appellate Tribunal was justified in sustaining the order under Section 12AA(3) on grounds alien to Section 12AA(3). Detailed Analysis: Issue 1: Comparison with Private Builder and Developer This issue was not directly addressed as the court decided to first resolve the second issue. The court noted that if the second issue was decided in favor of the appellant, it would render the first issue moot. Issue 2: Justification of Sustaining Order under Section 12AA(3) The appellant, a statutory corporation established under the Goa, Daman and Diu Industrial Development Corporation Act, 1965 (GIDC Act), was granted registration under Section 12A of the Income Tax Act, which is necessary for claiming exemptions on the ground that the income is expended for charitable purposes. This registration continued until the impugned orders were made. A show cause notice was issued to the appellant on 12.12.2011 to explain why the registration should not be canceled under Section 12AA(3) on the grounds that the appellant did not fulfill the conditions laid down under Section 2(15) of the Act, particularly after the introduction of the proviso to Section 2(15) with effect from 01.04.2009. The appellant responded, arguing that the CIT lacked jurisdiction to cancel the registration as the two pre-conditions for invoking Section 12AA(3) were absent. However, the CIT rejected the appellant's contentions and withdrew the registration, stating that the appellant's activities were interconnected with commerce or business. Upon appeal, the ITAT upheld the CIT's order. The appellant then appealed to the High Court. The High Court examined Section 12AA(3), which allows the CIT to cancel the registration if the activities of the trust or institution are not genuine or not carried out in accordance with its objects. The court found no categorical findings that the appellant's activities were not genuine or not in accordance with its objects. The court referenced several judgments to support the appellant's contentions: 1. Khar Gymkhana: The court noted that merely because an institution's receipts exceed ?25 lakhs due to commercial activities does not entitle the CIT to cancel the registration under Section 12AA(3). The jurisdiction to cancel registration arises only if there is a change in the nature of activities or if the activities are not genuine. 2. Maharashtra Housing & Area Development Authority (MHADA): The court observed that the Director had no reason to exercise the power to withdraw registration as there was no indication that the assessee was not a genuine institution or that its affairs were not carried out in accordance with its objects. 3. Karnataka Industrial Area Development Board: The court held that the registration could not be canceled due to the amendment of Section 2(15) as this is not a specified ground for cancellation. 4. Tamil Nadu Cricket Association: The court rejected the contention that post-amendment to Section 2(15), the activities could not be styled as genuine, thus not justifying the exercise of powers under Section 12AA(3). The High Court concluded that the CIT and ITAT's orders were based almost entirely on the proviso to Section 2(15) and not on the grounds specified in Section 12AA(3). The court emphasized that the Circular No.21/2016 supports the appellant's contentions, reiterating that the process of cancellation must be strictly in accordance with Section 12AA(3). Conclusion: The High Court allowed the appeal, answered the substantial question of law in favor of the appellant, and quashed the orders made by the CIT and ITAT. The registration held by the GIDC was ordered to be revived, with no order as to costs.
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