2013 (3) TMI 76 - HC - Income Tax

Registration u/s 12AA(3) cancelled - as per the revenue assessee in the assessment year 2005-2006 had invested in commercial property at Bangalore and it was not for a charitable purpose - Held that - Tribunal had correctly appreciated the law and has come to the conclusion that the assessee was entitled under Section 11(5)(x) to invest in immovable property out of the funds which were surplus with it. The Tribunal has also concluded that there was no evidence on the part of the department that the assessee had applied the rent received from the commercial property for non-charitable purpose. That being the case, the registration under Section 12 A could not have been cancelled - in favour of assessee.

Summary

Issues:
1. Appeal against cancellation of registration under Section 12AA(3) of the Income Tax Act, 1961.
2. Interpretation of provisions of Section 11(2)(b) and Section 11(5) regarding investment in immovable property for charitable purposes.
3. Determination of whether income generated from commercial property can be considered for charitable purposes.

Analysis:
1. The appeal was filed by the revenue against the cancellation of registration under Section 12AA(3) of the Income Tax Act, 1961. The respondent had appealed against the order of the Director of Income Tax cancelling the registration granted under Section 12(A). The revenue contended that the investment in commercial property was not for a charitable purpose, as no educational activity was carried out on the property. However, the respondent argued that the investment was permissible under Section 11(5) of the Act and the income generated was applied for charitable purposes. The Tribunal accepted the respondent's argument, stating that the surplus income could be invested in immovable property, including commercial property, for charitable purposes.

2. The Tribunal analyzed Section 11(2)(b) and Section 11(5) of the Act, emphasizing that 85% of the income should be applied to charitable purposes or set apart, and the accumulated funds could be invested in forms specified in subsection (5). It highlighted that investment in immovable property, including commercial property, was a permissible mode of investment for charitable organizations. The Tribunal concluded that as long as the income generated from the commercial property was applied to charitable objects, the investment could not be considered non-charitable. It noted that there was no evidence that the rent received from the commercial property was used for non-charitable purposes.

3. The High Court upheld the Tribunal's decision, stating that the respondent was entitled to invest in immovable property under Section 11(5)(x) for charitable purposes. It emphasized that the revenue failed to demonstrate that the rent from the commercial property was used for non-charitable purposes. Therefore, the Court found no reason to cancel the registration under Section 12A. It dismissed the appeal, concluding that no substantial question of law arose for consideration in this case.