2015 (1) TMI 155 - AT - Income Tax

Cancellation of registration u/s 12AA(3) Effect of introduction of section 2(15) w.e.f. 26.12.2011 - Introduction of proviso to section 2(15) of the Act stating that organization remained charitable or not Held that - In case commercial receipts exceeding the specified threshold, the intention of the legislature is not to cancel the registration u/s 12AA of the Act wherever receipts of an institution exceeds threshold limit as specified in proviso to section 2(15) of the Act in Tamil Nadu Cricket Association Vs. Director of Income Tax (Exemptions) 2013 (12) TMI 833 - MADRAS HIGH COURT it has been held that cancellation of registration should be with reference to the objects satisfying definition of charitable purpose at the time of registration and not by subsequent amendment to section 2(15) - since the assessee s objects and activities are genuine registration cannot be cancelled merely because receipts are exceeding threshold limit as provided under second proviso to section 2(15) of the Act - It is open to the AO to deny exemption u/s 11 on the receipts of the assessee, if the AO feels that activities of the assessee are for general public utility and it is indulging in trade or commerce etc. thus, the order of the DIT(E) is set aside Decided in favour of assessee.

Summary

Issues:
Appeal against cancellation of registration under section 12AA(3) based on exceeding receipts and nature of activities.

Analysis:
The appellant, a society formed for educational activities in mobility engineering, appealed against the cancellation of its registration under section 12AA(3) due to exceeding receipts over the prescribed limit and being categorized as a general public utility organization. The appellant argued that its activities were educational, including programs for school children and engineering competitions, falling under the purview of education. The appellant contended that even if its activities were considered general public utility, the registration should not be withdrawn solely based on exceeding the financial threshold. The Departmental Representative supported the cancellation. The Tribunal noted that the appellant's activities, such as conferences and competitions, did not strictly align with educational objectives but rather fell under general public utility. The cancellation was primarily due to the appellant's significant receipts from commercial activities. However, the Tribunal emphasized that as long as the appellant's objects and activities were genuine, the registration should not be canceled based solely on exceeding financial thresholds.

The Tribunal referred to the memorandum explaining the provisions in the Finance Bill, 2012, which highlighted that the intention of the legislature was not to cancel registration automatically when an institution's receipts exceeded the specified threshold. Citing the case of Tamil Nadu Cricket Association, the Tribunal emphasized that registration should be evaluated based on the objects at the time of registration, not subsequent amendments. The Court held that cancellation should only occur if the objects accepted and registered at the time of registration did not align with charitable purposes. The Tribunal concluded that since the appellant's objects and activities were genuine, the registration should not be canceled solely due to exceeding financial thresholds. It was noted that the Assessing Officer could deny exemption under section 11 if the activities were deemed for general public utility without affecting the registration under section 12AA. Consequently, the Tribunal set aside the Director's order and allowed the appellant's appeal.

Overall, the Tribunal's decision emphasized the importance of evaluating registration based on the genuine nature of the institution's objects and activities, rather than solely on financial thresholds. The judgment highlighted the distinction between educational and general public utility activities and reaffirmed that exceeding financial limits should not automatically result in the cancellation of registration under section 12AA.