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2012 (7) TMI 734 - AT - Income TaxWithdrawal of registration u/s 12AA - amendment in section 2 (15) of the Act by Finance Act, 2008 - Held that - CIT had not considered the first proviso to section 2(15) as well as the second proviso to section 2(15) while making the order for grant of registration on 30.09.2009 - in view of the fact that section 10(20A) was omitted and an Explanation was added to section 10(20) of the Act, enumerating the Local Authorities contemplated by section 10(20), the assessee could not claim any benefit under those provisions after April 1, 2003. That the first proviso and second proviso of section 2(15) were added by the Finance Act, 2008 w.e.f. 01.04.2009, therefore, after insertion of the said proviso, any institution carrying on of any activity in the nature of trade, commerce or business etc. shall not be a charitable purpose - As per objects of the assessee, it is observed that the main object of the assessee is to promote and secure the development of local area and there is no charitable purpose or any activity for general public utility. The activities of the assessee are aimed at earning profit as it is carrying on activity in the nature of trade, commerce or business, and there is no obligation on the part of the assessee to spend income on charitable purpose only - even on dissolution or winding up by not having any restriction on application of asset for charitable purpose, the objects pursued by the assessee cannot be said to be a charitable in nature - CIT, Jammu, has rightly being satisfied held that the Jammu Development Authority is not entitled to registration and accordingly cancelled the registration so granted - against assessee.
Issues Involved:
1. Validity of invoking provisions of section 12AA(3) of the Income Tax Act, 1961. 2. Legitimacy of withdrawal of registration under section 12AA of the Income Tax Act, 1961. 3. Interpretation and application of amendments to section 2(15) of the Income Tax Act, 1961 by Finance Acts of 2008 and 2010. 4. Comparison of the appellant's activities with those of a real estate developer. 5. Jurisdiction and authority of the Commissioner of Income Tax (CIT) in reopening concluded proceedings. 6. The principle of consistency in legal decisions. 7. Applicability of judicial precedents and mischief rule. Detailed Analysis: 1. Validity of Invoking Provisions of Section 12AA(3): The appellant challenged the invocation of section 12AA(3) as invalid and void ab initio. The Tribunal noted that the CIT issued a show cause notice under section 12AA(3) citing that the appellant's activities were not in accordance with its objects and were aimed at earning profit, thus not qualifying as charitable under section 2(15) of the Act. 2. Legitimacy of Withdrawal of Registration under Section 12AA: The CIT withdrew the appellant's registration under section 12AA, arguing that the appellant engaged in activities in the nature of trade, commerce, or business, which disqualified them from being considered charitable. The Tribunal upheld this decision, emphasizing that the appellant's activities, such as selling developed land for profit, did not align with the charitable purpose required under section 2(15). 3. Interpretation and Application of Amendments to Section 2(15): The amendments to section 2(15) by the Finance Act, 2008, introduced a proviso stating that activities involving trade, commerce, or business would not be considered charitable. The Finance Act, 2010, added a second proviso, exempting entities with receipts under Rs. 10 lakh. The Tribunal found that the CIT had not considered these amendments when initially granting registration. The CIT's subsequent cancellation of registration was deemed appropriate as the appellant's receipts exceeded the specified limit and their activities were commercial in nature. 4. Comparison with Real Estate Developer: The CIT compared the appellant to a real estate developer, noting that unlike private developers, the appellant was a government agency. However, the Tribunal agreed with the CIT that the appellant's profit-driven activities were akin to those of a commercial entity, thus disqualifying them from charitable status. 5. Jurisdiction and Authority of CIT in Reopening Concluded Proceedings: The appellant argued that the CIT had no jurisdiction to reopen concluded proceedings. The Tribunal referenced the Supreme Court's decision in Distributors (Baroda) (P.) Ltd. v. Union of India, which allows correction of erroneous views in law. It was concluded that the CIT was within his rights to reassess and cancel the registration based on the amended legal provisions. 6. Principle of Consistency in Legal Decisions: The appellant cited the principle of consistency, arguing that the CIT should not change the previous decision. The Tribunal, however, upheld the view that an erroneous legal interpretation should not be perpetuated for the sake of consistency, referencing the ITAT decision in ITO v. Goverdhan Dass & Sons and the Supreme Court's stance in Radhasoami Satsang v. CIT. 7. Applicability of Judicial Precedents and Mischief Rule: The CIT applied the mischief rule, interpreting the legislative intent behind the amendments to section 2(15) as aimed at preventing entities operating on commercial lines from claiming charitable status. The Tribunal supported this interpretation, noting that the appellant's activities were commercial and profit-oriented, thus not aligning with the charitable purpose as defined by the amended section 2(15). Conclusion: The Tribunal dismissed the appellant's appeal, supporting the CIT's decision to cancel the registration under section 12AA. The Tribunal emphasized that the appellant's activities were commercial in nature and did not qualify as charitable under the amended provisions of section 2(15). The decision was based on a thorough interpretation of the legislative amendments, judicial precedents, and the principle that erroneous legal views should not be perpetuated.
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