2016 (7) TMI 520 - AT - Income Tax

Continuance of registration under section 12AA denied - commercial v/s charitable activity - Held that - By introduction of proviso to section 2(15) of the Act with effect from 01.04.2009, the Charitable purpose has been well defined and includes relief of the poor, education, medical relief, preservation of environment including water sheds, forests and wildlife and preservation of monuments or places or objects of artistic or historic interest and the advancement of any other object of general public utility. While carefully going through the object of the applicant, the objects of the applicant are neither charitable in nature nor advancement of any general public utility but for the only benefit of the members of the company. With regard to principles of mutuality, the AR of the applicant has very well accepted in person before the ld. DIT(E) and also in the written submissions that the activities of the applicant was primarily aimed at benefitting the members and their sponsored persons. Before the ld. DIT(E), the ld. AR of the applicant has also accepted that there is no question of continuance of registration under section 12AA of the Act since the beneficiaries are only the members and benefit is not passed on to the public at large in any way. Therefore, the objects and activities of the applicant cannot be called as charitable within the definition of main provision of section 2(15) of the Act. Also in the written submissions before the ld. DIT(E), the applicant has very clearly accepted that catering charges, hall charges, etc. are given to members for their staff on commercial basis and, in fact, these activities are commercial in nature and on verification of records, such receipts exceeded ₹.10 lakhs in the financial year 2008-09 relevant to the assessment year 2009-10, which attracts first and second proviso to section 2(15) of the Act. In view of the above, the applicant s case is covered under the above said proviso and loses the character of charitable purposes. - Decided against assessee.

Summary

Issues:
1. Cancellation of registration under section 12AA(3) of the Income Tax Act, 1961.
2. Nature of receipts as commercial receipts and fees under proviso to Sec.2(15) of the Act.
3. Principles of mutuality and charitable purposes.
4. Interpretation of the proviso to Sec. 2(15) introduced from 1.4.2009.

Analysis:
1. The appeal challenged the cancellation of registration under section 12AA(3) of the Income Tax Act, 1961, relevant to the assessment year 2009-10. The ld. DIT(E) observed that the activities of the applicant, a registered company under section 25 of the Companies Act and section 12AA of the Income Tax Act, primarily benefitted its members and not the general public, leading to the withdrawal of registration effective from 01.04.2009.

2. The receipts of the applicant company, including catering charges, hall charges, etc., were deemed as commercial receipts or fees under the proviso to Sec.2(15) of the Act. The ld. DIT(E) issued a show cause notice under section 12AA(3) to explain the nature of these receipts. The applicant's submissions acknowledged the commercial nature of the receipts, exceeding &8377;10 lakhs, which attracted the proviso and resulted in the loss of charitable purposes.

3. The concept of mutuality was analyzed concerning the benefit conferred only upon the members of the company, not the public at large. The ld. DIT(E) concluded that the activities did not align with charitable purposes within the definition of Sec.2(15) of the Act. Despite arguments on the continuance of registration, the Tribunal upheld the withdrawal based on the commercial nature of the activities and the lack of charitable intent.

4. The introduction of the proviso to Sec. 2(15) from 1.4.2009 clarified that activities in the nature of trade, commerce, or business, exceeding a certain threshold, would not qualify as charitable purposes. The Tribunal determined that the applicant's activities, aimed at benefiting its members without broader public utility, did not meet the revised definition of charitable purposes post the amendment.

In conclusion, the Tribunal dismissed the appeal, affirming the withdrawal of registration based on the commercial nature of the receipts, lack of charitable intent, and the specific provisions introduced under the proviso to Sec. 2(15) of the Act from 1.4.2009.