2013 (2) TMI 70 - AT - Income Tax

Cancelled of registration granted u/s 12A(a) - assessee was hit by substituted Section 2(15) - receipts exceeding Rs. 10 lakhs - Held that - DIT(E) has clearly mentioned that assessee s objects were in the nature of advancement of object of general public utility coming within the ambit of Section 2(15) but he had cancelled the registration only for the reason that the receipts exceeded Rs. 10 lakhs. If the receipts exceeded Rs. 10 lakhs and if such receipts were of nature mentioned in first proviso to Section 2(15) AO would, no doubt, be justified in denying exemption under Sections 11 and 12. However, this will not be a sufficient reason for cancelling the registration granted to the assessee under Section 12A(a). If in the very next year, assessee s receipts are less than Rs. 10 lakhs, then it will have to be granted the exemption available under Sections 11 and 12 if other conditions are satisfied. Thus nature of objects of the assessee cannot fluctuate in tandem with the quantum of receipts mentioned in the first proviso. See Rajasthan Housing Board (2012 (5) TMI 100 - ITAT JAIPUR) and Gujarat Cricket Association (2013 (2) TMI 29 - ITAT AHMEDABAD) - DIT(E) fell in error in cancelling the registration granted to the assessee under Section 12A(a) - in favour of assessee.

Summary

Issues:
Cancellation of registration under Section 12A(a) of the Income Tax Act, 1961 based on sponsorship fees exceeding specified amount.

Analysis:
1. The appellant, a motor sports club registered as a society, had its registration under Section 12A(a) cancelled by the DIT(E) due to receipts exceeding Rs. 10 lakhs during the previous year. The DIT(E) contended that sponsorship proceeds were commercial receipts, impacting the charitable nature of the club's activities.

2. The appellant argued that despite exceeding the specified amount, its activities were still within the ambit of advancement of general public utility as per Section 2(15) of the Act. The appellant cited precedents to support the claim that registration should not be cancelled solely based on the amount of receipts.

3. The DIT(E) justified the cancellation by referring to the amended Section 2(15) which excluded activities involving trade, commerce, or business from charitable purposes if receipts exceeded Rs. 10 lakhs. The DIT(E) argued that even though the club's activities were of general public utility, the sponsorship fees rendered it ineligible for registration.

4. The Tribunal observed that the club had been granted registration since 1977 and its activities were considered charitable. The Tribunal analyzed the amended Section 2(15) and the impact of the provisos, noting that exceeding the specified amount did not automatically disqualify the club from being charitable.

5. The Tribunal concluded that the cancellation of registration based solely on exceeding the specified amount was not justifiable. It held that the nature of the club's activities should not fluctuate based on the quantum of receipts. Relying on previous decisions, the Tribunal quashed the DIT(E)'s order and allowed the appeal of the assessee.

In summary, the Tribunal ruled in favor of the appellant, stating that exceeding the specified amount of receipts should not automatically disqualify an organization from being considered charitable under the Income Tax Act. The nature of the activities should remain consistent, and registration should not be cancelled solely based on the amount of receipts.