2014 (7) TMI 754 - AT - Income Tax

Lack of adequate opportunity Cancellation of registration u/s 12A Held that - Activities carried out by the assessee in earlier years were continuing in the year - DIT-E has not brought on record any fact demonstrating the discontinuation of such activities - assessee was conducting exams and was supplying study material to students - These activities were held to be educational activities by the Tribunal on more than one occasions and the orders of the ITAT have become final - without bringing something positive on record to distinguish the facts of earlier year and current year, view has to be taken that assessee was in the field of education. Assessee is also carrying out similar kind of activities i.e. educational activities, proviso to section 2(15) is not applicable to it - there is reason as why to not to treat it as educational institution - issue of real surplus or deficit of the income and expenditure account has not been looked in to by the DIT-E, though he had considered various figures while deciding the issue against the assessee - In absence of a finding of fact that there was change the activities of the assessee during the year or that the assessee was not carrying out its activities as per the MOA, the views of the DIT-E cannot be accepted Decided in favour of Assessee.

Summary

Issues:
1. Challenge to order passed under section 12AA(3) of the Act by the Director of Income-tax (Exemption).
2. Registration cancellation under Section 12A.

Issue 1: Challenge to order passed under section 12AA(3) of the Act:

The appellant challenged the order passed under section 12AA(3) by the Director of Income-tax (Exemption) on various grounds. The appellant argued that they were not granted adequate time and opportunity during the assessment proceedings. They also contended that the Director erred in not considering their written submissions. The main issue revolved around the cancellation of the appellant's registration under Section 12A. The Director held that the appellant's activities did not fall under the realm of education but were categorized under "advancement of any other object of general public utility." The Director relied on the amendment to Section 2(15) from April 1, 2009, which impacted the charitable purpose definition. Additionally, the Director referred to the Chief Commissioner's order rejecting the appellant's claim for exemption under Section 10(23Cflvi) to justify canceling the 12A registration certificate. The appellant sought to add, alter, or amend their grounds of appeal.

Issue 2: Registration cancellation under Section 12A:

The appellant, a company incorporated under the Indian Companies Act, faced registration cancellation under Section 12A. The Assessing Officer proposed cancellation, alleging the appellant engaged in trading, commerce, or business activities with gross receipts exceeding Rs. 10 lakhs. The Director issued a show cause notice based on these grounds. The appellant argued that their activities were educational and fell within the charitable purpose definition. The Director, however, held that the appellant's activities were not genuine and were more aligned with general public utility. The Director emphasized the significant income earned by the appellant, including charges, examination fees, income from investments, and other sources, as business income. The Director concluded that the appellant was not conducting charitable activities and canceled the registration from AY 2009-10.

In the appeal, the Authorized Representative highlighted that the appellant's activities remained consistent with previous years and were considered educational by the Tribunal. They argued against the applicability of the proviso to Section 2(15) and cited similar cases to support their position. The Departmental Representative contended that the appellant's activities aimed at profit-making and were not charitable. The appellant clarified that they operated at a deficit and followed legal investment requirements. The Tribunal noted that registration could only be canceled if trust activities were not genuine or aligned with its objectives. As the appellant's educational activities were consistent and not profit-driven, the Tribunal ruled in favor of the appellant, allowing the appeal.

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