2015 (7) TMI 77 - AT - Income Tax

Registration of the trust granted u/s. 12AA withdrawn - Held that - If the status of registration is to be declined to an assessee only on the ground that some of the objects may be hit by the first proviso to Section 2(15) but the assessee s receipts from such activities donot exceed specified threshold in a particular assessment year, the assessee will be subjected to undue hardship in the sense that while the assessee will be disentitled to exemption under section 11 due to denial of registration under section 12 A or 12AA which is sine qua non for admissibility of exemption under section 11. On the other hand, if the status of registration is granted to the assessee even when some of the objects may be hit by the first proviso to Section 2(15) and the assessee s receipts from such activities do exceed specified threshold, no prejudice will be caused to the legitimate interests of the revenue because, notwithstanding the status of registration and by the virtue of section 13(8), the assessee will not be eligible for exemption under section 11 in respect of such income. It is only elementary that a statutory provision is to be interpreted ut res magis valeat quam pereat, i.e., to make it workable rather than redundant. The considerations about the possibilities of the first proviso to Section 2(15) coming into play affecting the grant, decline or withdrawal of registration under section 12AA will thus lead to wholly avoidable undue hardships to the assessee, will be unworkable in practice and be contrary to the scheme of the Act. Thus as the considerations about the possibilities of first proviso to Section 2(15) into play are wholly extraneous in the present context. As the withdrawal of registration is solely based on these considerations, the very foundation of the learned Commissioner s action is unsustainable in law and consists of reasons which are not at all relevant in the context of registration status under section 12A or 12AA of the Act. For this reason also, the action of the learned Commissioner is wholly devoid of any legally sustainable merits. - Decided in favour of assessee.

Issues Involved:
1. Justification for cancellation of registration under Section 12AA(3).
2. Consideration of assessee's submissions by the CIT.
3. Binding nature of the High Court's approval of the trust's objectives.
4. CIT's satisfaction on conditions prescribed in Section 12AA(3).
5. Applicability of amendments in law and Board Circular No. 11 of 2008.
6. Power of CIT to cancel registration with retrospective effect.
7. Legality and factual correctness of the CIT's order.

Issue-Wise Detailed Analysis:

1. Justification for Cancellation of Registration under Section 12AA(3):
The assessee challenged the correctness of the CIT's order dated 18th November 2013, which withdrew the registration under Section 12AA(3). The CIT's action was based on the amended definition of "charitable purpose" under Section 2(15) of the Income Tax Act, effective from 01.04.2009, which excludes activities involving trade, commerce, or business from being considered charitable if they generate income. The CIT concluded that the assessee's activities were commercial and profit-oriented, thus not charitable.

2. Consideration of Assessee's Submissions by the CIT:
The assessee argued that the CIT ignored their submissions in response to the show-cause notice and passed a mechanical order. The CIT's order did not address the assessee's contention that the conditions for cancellation under Section 12AA(3) were not satisfied, specifically that the activities were genuine and carried out according to the trust's objectives.

3. Binding Nature of the High Court's Approval of the Trust's Objectives:
The assessee contended that the CIT's cancellation of registration amounted to contempt of the Punjab & Haryana High Court, which had approved the trust's objectives as charitable and of general public utility in the case of Moga Improvement Trust. The CIT failed to appreciate that the High Court's order was binding.

4. CIT's Satisfaction on Conditions Prescribed in Section 12AA(3):
The CIT must be satisfied that the activities of the trust are not genuine or not carried out in accordance with its objectives to cancel the registration under Section 12AA(3). The assessee pointed out that neither of these conditions was satisfied in their case. The Tribunal agreed that the CIT's action was beyond the limited scope of powers conferred by the statute.

5. Applicability of Amendments in Law and Board Circular No. 11 of 2008:
The assessee argued that the CIT failed to appreciate the amendments in Section 13(8) and the proviso to Section 143(3) made by the Finance Act 2012, effective from 01.04.2009, and the binding nature of Board Circular No. 11 of 2008. The CIT dismissed the relevance of the circular, stating that it was issued before the amendment to Section 2(15).

6. Power of CIT to Cancel Registration with Retrospective Effect:
The assessee contended that the CIT had no power to cancel the registration with retrospective effect from 01.04.2009. The Tribunal found that the CIT's action was based on considerations extraneous to the context of registration status under Section 12A or 12AA.

7. Legality and Factual Correctness of the CIT's Order:
The Tribunal concluded that the CIT's action was unsustainable in law and devoid of legally sustainable merits. The Tribunal emphasized that the impact of the proviso to Section 2(15) affects eligibility for exemption under Section 11 on a year-to-year basis and not the registration status under Section 12AA. The Tribunal allowed the appeal, finding that the CIT's withdrawal of registration was not justified.

Conclusion:
The Tribunal allowed the appeal, holding that the CIT's action of withdrawing the registration under Section 12AA(3) was beyond the scope of powers conferred by the statute and based on irrelevant considerations. The Tribunal emphasized that the registration status under Section 12A or 12AA should not be influenced by the proviso to Section 2(15), which affects exemption eligibility on a year-to-year basis.

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