2015 (4) TMI 871 - HC - Income Tax

Registration under Section 12A cancelled - examination of records shows that the Mandali has earned a huge net profit of ₹ 30,72,028/- for the assessment year 2008-09 and ₹ 42,23,142/- for the assessment year 2009-10 and activity carried on by the assesse is in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business - Held that - Registration granted under Section 12A can be cancelled under two circumstances i.e., (i) If the activities of such trust or institution are not genuine and (ii) The activities of trust or institution not being carried out in accordance with the object of the trust or institution. It is not in dispute that the Director of Income Tax (Exemption) has not recorded any such finding about the violation of the two conditions stated above. The Tribunal while deciding the matter has rightly recorded a finding that a perusal of impugned order shows that Director of Income Tax (Exemption) has not arrived at any such finding. The fact that the receipts from commercial activities are more compared to the overall receipts of the charitable organization can neither lead to the conclusion that the activities of the trust or institution are not genuine nor it can be said that the activities of the trust or institution are not being carried out in accordance with the objects of the trust or institution and therefore, the two conditions stipulated under the provisions of Sub-section (3) of Section 12AA of the Act, which empowers the authority to cancel the registration, do not exist in the present case. Decided in favour of assessee.

Summary

Issues:
Challenge to order cancelling registration of a Charitable Trust under Section 12A of the Income Tax Act, 1961.

Analysis:
1. The appeal was filed by the revenue challenging the order passed by the Tribunal setting aside the cancellation of registration of a Charitable Trust. The assessee had earned profits, leading to cancellation of registration under Section 12A of the Act by the Director of Income Tax (Exemptions). The Tribunal found that registration cannot be revoked solely based on commercial activities, emphasizing the genuineness of activities. The revenue contended that the activities were commercial post-amendment to Section 2(15) of the Act, justifying the cancellation.

2. The key questions were whether the Tribunal correctly allowed the registration under Section 12A, despite commercial activities, and if the Director failed to find genuineness or alignment with trust objects. The revenue argued that post-amendment, the activities were commercial, while the assessee maintained that only Section 12AA(3) violations could warrant denial of benefits.

3. The Court analyzed Section 12AA(3) of the Act, which mandates cancellation if activities are not genuine or do not align with trust objects. Noting the absence of such findings by the Director, the Court held that mere commercial activities exceeding charitable receipts do not justify cancellation. The Court emphasized that the amendment to Section 2(15) does not provide grounds for cancellation, and the benefit of exemption depends on falling within Section 2(15) provisions.

4. Ultimately, the Court dismissed the appeal, ruling in favor of the assessee. The Court emphasized that cancellation under Section 12AA(3) requires specific grounds, absent in this case. The Court highlighted the need for activities to align with trust objects for cancellation, which was not proven. The Court upheld the Tribunal's decision, emphasizing that the mere presence of commercial activities does not warrant cancellation under Section 12A.

This detailed analysis of the judgment provides a comprehensive understanding of the issues involved and the Court's reasoning in dismissing the appeal.