2014 (3) TMI 320 - AT - Income Tax

Cancellation of registration u/s 12AA(3) of the Act - Whether there was any change in the status of the Trust or not assessee contented that the DIT (Exemption) should have fulfilled the requirements of section 12AA(3) before cancelling the registration granted to the appellant earlier under section 12A of the I.T. Act and he has not considered the provisions of section 11(1)(b) of the I.T. Act properly - Held that - On a conjoint reading of the first proviso with second proviso to section 2(15) of the Act, a Trust can be denied exemption in the year where the gross receipts exceed the limit prescribed in the second proviso to section 2(15) and in all other years income from such activities should be considered for the benefits under section 2(15) if it is within the limit provided - thus, the denial/ cancellation of registration is not in accordance with law - the gross receipts having exceeded the stipulated monitory limit provided in the second proviso to section 2(15) of the Act, the assessee is not entitled to claim exemption in this year but that fact alone cannot make the Trust non-genuine for the purpose of invoking section 12AA(3) of the Act thus, the order passed by the DIT (Exemption) set aside Decided in favour of Assessee.

Summary

Issues:
1. Whether the Trust's activities make it non-charitable and non-genuine under section 2(15) of the Income Tax Act.
2. Whether the cancellation of the Trust's registration under section 12AA(3) was justified.
3. Whether the Trust fulfilled the requirements of section 12AA(3) properly.

Analysis:
1. The appeal was against the Director of Income Tax (Exemption)'s order, which stated that the Trust's activities, including business operations and renting halls for events, exceeded the income limit specified in section 2(15), affecting its charitable status. The Trust argued that its activities were consistent with its original constitution, focusing on education and public welfare, and that the income generated was insufficient for its charitable purposes. The Tribunal found that the Trust did not change its activities and that exceeding the income limit did not automatically make it non-genuine or non-charitable.

2. The Tribunal noted that cancellation of registration should only occur if the Trust's activities are non-genuine or not aligned with its objectives. The Trust cited legal precedents to support its stance that as long as it operates within its stated objectives, cancellation of registration under section 12AA(3) is unwarranted. The Tribunal agreed, emphasizing that the Trust's registration should not be revoked solely based on income exceeding the prescribed limit in a given year.

3. The Tribunal considered the Trust's compliance with section 12AA(3) requirements and found that the Trust's activities remained genuine and aligned with its charitable objectives. The Tribunal highlighted that the Trust's registration should not be canceled merely due to income exceeding the specified limit, emphasizing the importance of verifying other conditions for claiming exemption under section 12(15). Ultimately, the Tribunal set aside the Director's order and allowed the Trust's appeal, emphasizing the need for independent verification of the Trust's compliance with all relevant conditions.

This detailed analysis of the judgment showcases the Trust's argument against the cancellation of its registration and the Tribunal's decision based on legal interpretations and precedents.