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2014 (4) TMI 102 - AT - Income TaxCharitable purpose u/s 2(15) - Withdrawing/cancelling registration u/s.12A Whether registration u/s.12A/12AA of Act could be cancelled or withdrawn u/s.12AA(3) - whether an object/s which is not or better can no longer be regarded as charitable in view of the amended law would yet entitle an entity for the continuation of its registration or not so under the Act - Held that - Both the assessee and the Revenue have made their contrary claims de hors and without any reference to any material on record. In fact for all we may know there may well be truth in both the statements so that both of them are true albeit partly. What we are concerned here with we may clarify is not the legal aspect of the matter but of the applicability of section 12AA(3) invoked by the Revenue on the facts of the case. Issue of applicability or otherwise of section 12AA(3) in instant case being factually indeterminate - Consider it fit and proper in facts and circumstances of case to restore this matter back to ld. DIT(E) for allowing assessee a reasonable opportunity to present its case - Ld. DIT(E) though not restricted to facts and figures for particular year shall restrict his inquiry to factual aspect of case i.e. qua satisfaction of condition/s of section 12AA(3) on facts - Assessee s case would require being examined by tribunal thereon only if same survives an examination on facts i.e. satisfies test of s. 12AA(3) on facts Matter remanded back - Decided in favor of Assessee.
Issues Involved:
1. Whether the registration under Section 12A/12AA of the Income Tax Act, 1961, could be cancelled or withdrawn under Section 12AA(3) in view of the amendment to Section 2(15) by the Finance Act, 2008. 2. Whether the assessee's activities, in view of interest and rent receipts, are to be regarded as arising in the course of and in furtherance of the objects for which it is established or as commercial exploitation of its resources. Issue-wise Detailed Analysis: 1. Legal Issue: Cancellation of Registration under Section 12AA(3) Post Amendment to Section 2(15): The assessee contended that the registration under the Act, once granted, could only be reviewed under the terms provided by law itself, i.e., Section 12AA(3). The provision requires satisfaction that the activities of the trust or institution are either not genuine or not carried out in accordance with its objects. The assessee argued that as long as the activities are genuine and in accordance with the objects, the competent authority has no scope to revisit the registration. The Revenue's inference that the activities involve trade or commerce does not make them non-genuine. The Revenue argued that if the objects of the registered entity are no longer regarded as charitable due to the first proviso to Section 2(15), the registration cannot subsist as it becomes inconsistent with the law. The change in law removes the fundamental basis on which the assessee's claim as a public charitable institution rests, warranting withdrawal of registration. The Revenue emphasized that the competent authority has the inherent power to interfere where the terms of registration no longer obtain, as conferred by Sections 12AA(3) and 293C of the Act. 2. Factual Issue: Nature of Assessee's Activities (Interest and Rent Receipts): The assessee, established under the Mumbai Metropolitan Region Development Act, 1974, argued that its interest and rent receipts arise from activities undertaken in furtherance of its objects. The interest income of Rs.174.12 crores and rent income of Rs.63.52 crores for the relevant year were claimed to be from loans to various organizations and renting out its property, respectively. The assessee maintained that these activities are integral to its functioning and within its mandate under its charter. The Revenue contended that the interest and rent income represented systematic, commercial exploitation of the assessee's assets, amounting to regular business activity. This reinforced the invocation of the first proviso to Section 2(15), justifying the withdrawal of registration. The Revenue cited the assessee's obligation under Section 24A of the MMRD Act to not operate at a loss, further supporting their stance. Findings: The tribunal noted that the factual aspect of whether the assessee's activities are in accordance with and in furtherance of its objects needs to be determined first. The assessee's main object is to secure the development of the Mumbai Metropolitan Region according to the regional plan. The tribunal observed that the assessee has not specified its revenue model or provided a balance-sheet or statement of sources and application of funds. The tribunal found that the interest and rent receipts would form part of the gross receipts and that the second proviso to Section 2(15) does not apply. The tribunal highlighted the need for the assessee to clarify how these receipts are integral to its functioning. The tribunal emphasized that the financing and rental activities must be considered as part of and together with other services provided by the assessee. Conclusion: The tribunal concluded that the issue of the applicability of Section 12AA(3) is factually indeterminate. Therefore, it restored the matter back to the Director of Income Tax (Exemptions) for a detailed examination of the factual aspect, i.e., whether the assessee's activities satisfy the conditions of Section 12AA(3). The DIT(E) is to decide per a speaking order and in accordance with law, without being influenced by the first proviso to Section 2(15). The tribunal's decision on the legal issue would only be required if the factual examination survives. Result: The assessee's appeal was allowed for statistical purposes, and the stay petition was dismissed as infructuous.
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