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2014 (4) TMI 201 - AT - Income TaxCancelling registration u/s. 12A - Whether, Registration once granted to Assessee being a charitable institution cannot be cancelled because of newly inserted proviso to section 2(15) of Act Held that - Not mentioned that first proviso will not apply if total receipts from charitable activities exceeds limit of Rs.10.00 lacs during any year - Does not mean that such benefits will not be available to institution for all other assessment years during which its receipts does not cross limit of Rs.10.00 lacs. - Insertion of second proviso has not made definition restrictive or rigorous rather with insertion of second proviso to section 2(15) of Act - For previous year, during which gross receipt income crosses limit of Rs.10.00 lacs, trust will not get exemption or benefit of its being charitable in nature despite its carrying out charitable activities - However, it will get such benefit if it is registered as charitable institution and income from business activities, as mentioned in first proviso to section 2(15), does not cross limit of Rs.10.00 lacs - Action of CIT(A) relying upon newly inserted proviso from 01.04.2009 in cancelling registration of trust, is not correct or justified - Cancellation of registration granted to Assessee u/s. 12A is hereby set aside Decided in favor of Assessee.
Issues Involved:
1. Cancellation of registration under section 12A of the Income Tax Act. 2. Interpretation and applicability of section 2(15) and its provisos. 3. Determination of whether the activities of the Assessee fall under "charitable purposes." Issue-wise Detailed Analysis: 1. Cancellation of Registration under Section 12A: The Assessee, a club registered as a charitable trust under section 12A, appealed against the Director of Income Tax (Exemptions) [DIT(E)], Mumbai's order dated 14.12.2011, which canceled its registration under section 12AA(3) of the Income Tax Act. The cancellation was based on the observation that the Assessee's activities were in the nature of trade, commerce, or business, and its gross receipts exceeded Rs.10.00 lacs, invoking the newly added proviso to section 2(15) effective from 01.04.2009. 2. Interpretation and Applicability of Section 2(15) and its Provisos: Section 2(15) defines "charitable purpose" and includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility. The first proviso excludes activities in the nature of trade, commerce, or business if the gross receipts exceed Rs.10.00 lacs. The second proviso, effective from 01.04.2009, allows such activities if the gross receipts are Rs.10.00 lacs or less. The DIT(E) canceled the registration because the Assessee's receipts from various sources like royalty, catering, restaurant fees, venue hiring, and game fees exceeded Rs.10.00 lacs, which he considered business income. Therefore, he concluded that the Assessee's activities did not fall under "charitable purposes" and declared the trust non-genuine, invoking section 12AA(3). 3. Determination of Whether the Activities of the Assessee Fall Under "Charitable Purposes": The Assessee argued that its registration could not be canceled due to the newly inserted proviso to section 2(15). The Tribunal examined the rigorous nature of the first proviso and the diluting effect of the second proviso, which allows business activities if gross receipts do not exceed Rs.10.00 lacs. The Tribunal noted that the DIT(E) canceled the registration because the Assessee's total receipts exceeded Rs.10.00 lacs, thus not falling under "charitable purposes." However, the Tribunal clarified that section 12AA(3) allows cancellation of registration if the trust's activities are not genuine or not in accordance with its objects. The Tribunal found no evidence that the Assessee was not carrying out activities according to its objects. It emphasized that the second proviso to section 2(15) makes the definition of charitable purposes more liberal, focusing on the "previous year" rather than "any year." This means the Assessee may lose tax benefits for the year its receipts exceed Rs.10.00 lacs but not its overall charitable status. The Tribunal concluded that the DIT(E)'s reliance on the newly inserted proviso to cancel the registration was incorrect. The Assessee would not be entitled to tax benefits for the year its receipts exceeded Rs.10.00 lacs but would retain its charitable status for other years. Conclusion: The Tribunal set aside the DIT(E)'s order canceling the Assessee's registration under section 12A and restored the registration. The Assessee's appeal was allowed, and the order was pronounced in the open court on 23rd October 2013.
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