2019 (12) TMI 496 - AT - Income Tax

Exemption u/s 11 - Contiued registration u/s 12AA denied - CIT(E) granted registration for the assessment years 1998-99 to 2008-09 and in the same order from assessment year 2009-2010 denied to continue the registration u/s.12AA - HELD THAT - In the present case, in the same order, the ld CIT(E) granted registration to the assessee from assessment year 1998-99 to 2008-09 and also denied continuance of registration w.e.f 2009-10 onwards without affording an opportunity to the assessee regarding the doubts arisen in the minds of the CIT(E). Therefore, keeping in view the fact that the assessee has already move upto the Tribunal in three rounds of proceedings seeking grant of registration u/s.12AA of the Act, we are of the considered view that it would be a great injustice to the appellant if the case is restored to the file of the CIT(E) for third time. Thus, we decline to accept the prayer of ld CIT DR for restoring the matter to the file of the CIT(E) for fresh consideration. Income earned by the assessee from commercial lease rent, which is the only point of denying the continuance of registration from assessment year 2009-2010 is not a sustainable ground for dis-continuing the registration already granted to the assesse. When the registration u/s.12A of the Act has been granted to the appellant and ld CIT (E) is satisfied that the activities of the assessee trust falls within the ambit of charitable and OF general public utility and on the same basis, he has granted registration u/s.12A of the Act to the appellant from the assessment years 1998-99 to 2008-09. The barriers created by the CIT(E) from 2009-2010 onwards, where he denied to continue the same registration is also not sustainable on this count that the assessee was not provided proper opportunity of hearing before passing such order denying continuance of registration as per mandate of sub-section(3) of Section 12AA of the Act. We dismiss the observation of ld CIT(E) recorded for the purpose of restricting the registration u/s.12AA of the Act from 2009-2010 onwards. CIT (E) has granted registration u/s.12A of the Act, then, same is required to be continued till it is cancelled by way of following the procedure provided in sub-section (3) (4) of Section 12AA of the Act and without following such procedure, the registration cannot be restricted or upto the specified time and cannot be discontinued by way of cancelling the same for subsequent period in the same order. Therefore, we set aside the order of ld CIT (E) and hold that the registration granted for the assessee w.e.f. A.Y. 1998-99 to 2008-09 is also continued direct him to grant registration from 2009-10 onwards. Hence, the grounds of appeal of the assessee are allowed in the terms as indicated above,.

Issues Involved:
1. Arbitrary and erroneous order by CIT(E).
2. Refusal of registration from AY 2009-10 onwards.
3. Applicability of proviso to section 2(15) of the Income Tax Act, 1961.
4. Ignorance of Circular No. 21/2016 issued by CBDT.
5. Ignorance of findings of Hon'ble ITAT, Cuttack.
6. Ignorance of previous exemption granted under section 12A of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Arbitrary and Erroneous Order by CIT(E):
The appellant contended that the CIT(E)'s order was arbitrary, erroneous, and lacked proper reasoning. The Tribunal found that the CIT(E) had indeed accepted the charitable nature of the Association's objectives and activities, yet refused registration from AY 2009-10 onwards based on the proviso to section 2(15) of the Income Tax Act, 1961. This was deemed inconsistent and unjustified.

2. Refusal of Registration from AY 2009-10 Onwards:
The CIT(E) had granted registration to the assessee up to AY 2008-09 but refused to continue it from AY 2009-10 onwards, citing the amended proviso to section 2(15) of the Income Tax Act, 1961. The Tribunal observed that the CIT(E) had not provided a proper opportunity for the assessee to be heard regarding the discontinuation of registration, which was against the mandate of sub-section (3) of Section 12AA of the Act.

3. Applicability of Proviso to Section 2(15) of the Income Tax Act, 1961:
The CIT(E) applied the amended proviso to section 2(15), which states that if the aggregate value of receipts from commercial activities exceeds ?25 lakhs, the activities would not be considered charitable. The Tribunal, however, noted that the income from commercial lease rent was applied for charitable purposes and did not alter the charitable nature of the institution. The Tribunal emphasized that the registration under section 12A should be continued until it is canceled following the procedure in sub-section (3) and (4) of Section 12AA.

4. Ignorance of Circular No. 21/2016 Issued by CBDT:
The CIT(E) ignored Circular No. 21/2016, which clarifies that registration already granted under section 12AA should not be canceled merely because the cut-off specified in the proviso to section 2(15) is exceeded, provided there is no change in the nature of activities. The Tribunal upheld this circular and directed the continuation of registration.

5. Ignorance of Findings of Hon'ble ITAT, Cuttack:
The CIT(E) disregarded the ITAT Cuttack's findings, which stated that the proviso to section 2(15) would not apply retrospectively. The Tribunal reiterated that the proviso, inserted w.e.f. 1.4.2009, should not affect the registration granted for activities carried out before this date.

6. Ignorance of Previous Exemption Granted Under Section 12A of the Income Tax Act, 1961:
The CIT(E) ignored the previous exemption granted to the assessee under section 12A, which had not been canceled. The Tribunal noted that the registration should continue based on the charitable nature of the activities, as previously recognized.

Conclusion:
The Tribunal concluded that the CIT(E)'s decision to refuse registration from AY 2009-10 onwards was not sustainable. The Tribunal directed that the registration granted from AY 1998-99 to 2008-09 should continue from AY 2009-10 onwards, emphasizing that any cancellation of registration must follow the procedure outlined in sub-section (3) and (4) of Section 12AA of the Act. The appeal of the assessee was allowed.

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