2016 (6) TMI 377 - AT - Income Tax

Cancellation of registration u/s 12A - assessee runs a diabetic centre under the name of Sunny Park Diabetic Endocrine Centre - whether the Learned DIT(E) is justified in cancelling the registration u/s 12AA(3) of the Act? - Held that - Learned DIT(E) himself had stated in his order that the activity of Solace would fall under the fourth limb of the definition of charitable purpose u/s 2(15) of the Act i.e advancement of any other object of general public utility . Hence in view of the aforesaid findings and judicial precedents relied upon and in view of the CBDT Circular No. 21/2016 dated 27.5.2016, we hold that the Learned DIT(E) should not have resorted to the act of cancellation of registration u/s 12AA(3) of the Act in the facts and circumstances of the case. The other issues, regarding whether the pranic healing activity would fall under the definition of medical relief or whether Solace is a health club/Spa or not, are left open as the same are not relevant for adjudication at present in this case - Decided in favour of assessee

Issues Involved:
1. Justification of the cancellation of registration under section 12AA(3) of the Income Tax Act, 1961.
2. Classification of the activities of the trust under the definition of "charitable purpose" as per section 2(15) of the Act.
3. Determination of whether the activities of the trust are genuine and in accordance with the objectives outlined in the Trust Deed.
4. Interpretation of "medical relief" within the context of the Income Tax Act.
5. Applicability of the proviso to section 2(15) regarding commercial activities and their impact on the charitable status of the trust.

Issue-wise Detailed Analysis:

1. Justification of the Cancellation of Registration under Section 12AA(3):
The primary issue was whether the Director of Income Tax (Exemptions) [DIT(E)] was justified in canceling the registration granted to the assessee trust under section 12AA(3) of the Income Tax Act. The tribunal noted that the trust had been carrying out its activities, including the fitness center 'Solace', from the assessment year 2002-03 onwards, and these activities had been accepted as genuine charitable activities in previous scrutiny proceedings. The tribunal emphasized that section 12AA(3) could be invoked only if the activities of the trust were not genuine or not carried out in accordance with the objects of the trust. The DIT(E) had accepted the objects of the trust as charitable but had categorized them under the fourth limb of section 2(15) - "advancement of any other object of general public utility". The tribunal held that this categorization did not justify the cancellation of registration under section 12AA(3). The tribunal also referenced the CBDT Circular No. 21/2016, which clarified that exceeding the specified cut-off for receipts from commercial activities did not mandate cancellation of registration unless the activities were not genuine or not in accordance with the trust's objects.

2. Classification of Activities under "Charitable Purpose":
The DIT(E) argued that the activities of 'Solace', the fitness center, did not fall under "medical relief" but rather under "advancement of any other object of general public utility" as per section 2(15) of the Act. The tribunal noted that the trust's activities had been accepted as charitable in nature in previous assessments, and the DIT(E) had not provided sufficient grounds to reclassify these activities. The tribunal held that the revenue could examine the applicability of the proviso to section 2(15) during assessment proceedings but this did not warrant cancellation of the trust's registration.

3. Determination of Genuine Activities:
The tribunal found that the DIT(E) had not demonstrated that the activities of the trust were not genuine. The trust had been pursuing its objectives since its inception and had been granted exemptions under section 11 of the Act in previous years. The tribunal emphasized that the genuineness of the activities had been accepted in earlier scrutiny assessments, and there was no change in the nature of the activities that would justify cancellation of the registration.

4. Interpretation of "Medical Relief":
The DIT(E) contended that "medical relief" should be limited to modern scientific methods and treatment of diseases through medication or surgery, and should not include facilities for maintaining or promoting general fitness. The tribunal did not delve deeply into this issue, as it was not directly relevant to the adjudication of the cancellation of registration. The tribunal noted that this issue could be examined in assessment proceedings if necessary.

5. Applicability of Proviso to Section 2(15):
The DIT(E) argued that the activities of 'Solace' were in the nature of trade, commerce, or business and exceeded the specified cut-off for receipts, thus falling under the proviso to section 2(15). The tribunal referenced the CBDT Circular No. 21/2016, which clarified that exceeding the cut-off did not mandate cancellation of registration but rather denial of tax exemption for that particular year. The tribunal held that the DIT(E) should not have canceled the registration based on the proviso to section 2(15) and that the applicability of the proviso should be examined during assessment proceedings.

Conclusion:
The tribunal concluded that the DIT(E) was not justified in canceling the registration of the trust under section 12AA(3) of the Act. The activities of the trust were deemed genuine and in accordance with its objectives. The tribunal allowed the appeal of the assessee and restored the registration. The other issues, such as the classification of pranic healing under "medical relief" and the nature of 'Solace' as a health club or spa, were left open for examination in assessment proceedings if necessary.

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