2021 (3) TMI 520 - AT - Income Tax

Exemption u/s 11 - registration u/s 12AA cancelled already granted - HELD THAT - In the instant case, the registration was already granted by the Ld.CIT vide order dated 20.03.2008 w.e.f. 01.04.2002. There is no dispute with regard to genuineness of the activities and there is no finding of the Ld.CIT with regard to not carrying on the activities as per the objects of the trust. Therefore, as per Circular No.21/2016, there is no case for cancellation of registration. Though the Circular was issued on 27.05.2016, the same is clarificatory circular which has retrospective effect. In the circular, itself, it is mentioned that it has retrospective effect. By Finance Act, 2012, by inserting new sub section 8 in section 13, it has provided sufficient care not to get benefit of exemption in such year in which its receipts or commercial activities exceeds the threshold limit. Though the assessee continued to have the registration, the AO is not barred in examining the benefits of exemption claimed by the assessee u/s 11 and 12 as provided to u/s 13(8) or section 2(15) of the Act. Thus, the cancellation of registration is not mandatory as envisaged in Circular No.21/2016. Thus we hold that cancellation of registration u/s 12AA(3) by the Ld,CIT is bad in law, hence, we set aside the order of the Ld.CIT and restore the registration already granted to the assessee - Appeal filed by the assessee is allowed.

Issues Involved:
1. Cancellation of registration under section 12AA of the Income Tax Act, 1961.
2. Amendment to the definition of "charitable purpose" under section 2(15) of the Income Tax Act, 1961.
3. Applicability of section 13(8) of the Income Tax Act, 1961.
4. Clarificatory Circular No.21/2016 issued by CBDT.
5. Judicial precedents on cancellation of registration under section 12AA.

Detailed Analysis:

1. Cancellation of Registration under Section 12AA:
The primary issue is whether the Commissioner of Income Tax (CIT) is justified in canceling the registration granted to the assessee under section 12AA of the Income Tax Act, 1961, with effect from 01.04.2009. The CIT canceled the registration on the grounds that the assessee's activities were no longer charitable due to the amendment in the definition of "charitable purpose" under section 2(15) of the Act. The CIT held that the assessee's turnover exceeded the threshold limit specified in the proviso to section 2(15), thus making it a commercial enterprise rather than a charitable institution.

2. Amendment to the Definition of "Charitable Purpose":
The amendment to section 2(15) by the Finance Act, 2008, redefined "charitable purpose" to exclude activities carried out on commercial principles if the turnover exceeds a specified threshold. The CIT argued that due to this amendment, the assessee's activities were no longer charitable, and thus, the registration under section 12AA should be canceled. The assessee countered that the activities were genuine and in accordance with the trust's objectives, and the amendment does not necessitate the cancellation of registration.

3. Applicability of Section 13(8):
The assessee argued that section 13(8) of the Act, inserted by the Finance Act, 2012, with retrospective effect from 01.04.2009, addresses the issue of income exceeding the threshold limit. This section states that sections 11 and 12 will not apply if the provisions of the first proviso to section 2(15) are applicable. Therefore, the assessee contended that the Act itself takes care of the situation without requiring the cancellation of registration.

4. Clarificatory Circular No.21/2016:
The CBDT issued Circular No.21/2016, clarifying that it is not mandatory to cancel the registration under section 12AA merely because the receipts exceed the specified cut-off in a particular year. The circular states that the temporary excess of receipts does not necessarily alter the nature of the activities of the trust. The Tribunal cited this circular to support the view that the registration should not be canceled solely based on the amendment to section 2(15).

5. Judicial Precedents:
The Tribunal referred to several judicial precedents, including:
- Karnataka Badminton Association Case: The Karnataka High Court held that registration under section 12AA can only be canceled if the activities are not genuine or not carried out according to the trust's objectives. The mere fact that receipts from commercial activities exceed the threshold does not justify cancellation.
- Visakhapatnam Metropolitan Region Development Authority Case: The Tribunal held that once registration is granted, it cannot be canceled unless it is found that the activities are not genuine or not in accordance with the trust's objectives.
- Cochin Port Trust Case: Although distinguished by facts, it was mentioned to support the argument against cancellation.
- Kandla Port Trust Case: The Tribunal noted that the facts were distinguishable but cited it to support the overall argument.

Conclusion:
Based on the analysis of the issues, the Tribunal concluded that the cancellation of registration under section 12AA by the CIT was not justified. The Tribunal emphasized that the mere amendment to section 2(15) does not mandate the cancellation of registration. The Tribunal set aside the CIT's order and restored the registration granted to the assessee, allowing the appeal.

Result:
The appeal filed by the assessee was allowed, and the registration under section 12AA was restored. The order was pronounced in the open court on 12th March, 2021.

← Previous Next →