2015 (5) TMI 853 - HC - Income Tax

Registration as a Charitable Trust under Section 12A cancelled - whether running of Bar/Restaurant renting out of rooms to its members/guests and letting out choultry on commercial basis are not charitable activities ? - Held that - Registration granted under Section 12A of the Act 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 assesse.

Summary

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

Detailed Analysis:

Issue 1:
The Tribunal's decision to set aside the cancellation of registration under Section 12A by the Director of Income Tax (Exemption).

Analysis:
The respondent-assessee, a charitable trust, had its registration under Section 12A cancelled due to earning profits in assessment years 2008-09 and 2009-10. The Director of Income Tax (Exemption) cited the change in the definition of Section 2(15) of the Act from 1.4.2009 as grounds for cancellation. However, the Tribunal found that registration cannot be revoked solely based on commercial activities unless the trust's activities are not genuine or not aligned with its charitable objectives. The Tribunal allowed the appeal, emphasizing that cancellation requires a finding that the trust's activities are not genuine or not in line with its objectives.

Issue 2:
Interpretation of Section 12AA(3) of the Act regarding the cancellation of registration.

Analysis:
Section 12AA(3) outlines the grounds for cancelling registration, including activities not being genuine or not aligned with the trust's objectives. The Tribunal found that the Director of Income Tax (Exemption) did not establish these grounds for cancellation. The Tribunal correctly noted that exceeding receipts from commercial activities does not automatically render trust activities non-genuine or misaligned with its objectives. The Tribunal's decision was based on the absence of grounds specified under Section 12AA(3) for cancellation.

Issue 3:
Evaluation of the impact of the amendment to Section 2(15) of the Act on the trust's charitable status.

Analysis:
The amendment to Section 2(15) altered the definition of charitable activities. Despite this change, the Tribunal emphasized that cancellation of registration requires specific grounds outlined in Section 12AA(3) to be met. The Tribunal highlighted that the trust's registration could not be cancelled solely based on the amendment to Section 2(15) without meeting the conditions specified in Section 12AA(3). The Tribunal's decision was based on the statutory requirements for cancellation of registration.

In conclusion, the High Court dismissed the appeal, affirming the Tribunal's decision to set aside the cancellation of the charitable trust's registration under Section 12A. The Court emphasized the necessity of meeting the statutory grounds for cancellation outlined in Section 12AA(3) and clarified that exceeding receipts from commercial activities alone does not warrant cancellation unless the trust's activities are proven to be non-genuine or misaligned with its objectives.