2022 (3) TMI 670 - AT - Income Tax

Exemption u/s 11 - withdrawing the registration u/s 12AA - provisions of Section 2(15) were invoked for denying the registration u/s 12AA - CIT(E) cancelled the registration of the assessee only on a finding that the assessee society is involved in the activities of the nature of business / commerce within the meaning of Section 2(15) only - DR contended that the assessee filed an application and later on suo moto withdrawal was filed when ld. CIT (E) went on examination of activities done by the assessee - HELD THAT - Finance Act 2017 has brought an amendment in Section 12A, effective from A.Y. 2018-19 by inserting a new sub-clause (ab) in sub-section(1) of Section 12A requiring the trust/ institution to file an application to ld. CIT(E) within 30 days of the adoption /modification of the object which do not conform the condition of registration. It is thus very clear and not disputed by ld. DR also that this amended provision was not in force when the amendment in the object carried out in 2013. This legislative development also vindicates the appellant s stand that there was no statutory requirement at the relevant time to intimate the amendment/ modification in the object of the institution claiming exemption u/s 11 of the Act.Since then there is no change in the facts and circumstances of the case, the fundamental facts accepted by the Department in past has to prevail as per principles of law laid down by the Hon'ble Supreme Court in Radhasoami Satsang vs CIT 1991 (11) TMI 2 - SUPREME COURT . We agree with the argument of assessee that the Registration u/s 12AA of the Act, once granted, remains valid until it is cancelled by the Commissioner, by due process of law laid down u/s 12AA(3)/12AA(4) of the Act. It cannot cease to be operative unless order u/s 12AA(3)/12AA(4) of the Act is passed by the ld. CIT(E) in accordance with the law for cancellation of registration and that too on an application made by assessee for intimation of amendment in the object which was subsequently withdrawn. Thus, the order passed u/s 12A(1)(ab) is bad in law as well as on facts merely on a ground that the assessee is doing activities of the nature of business/commerce. Looking to ld.AR s submission on merits explaining each activities specifying that they are within the definition of Section 2(15) and the comparison of the receipts alongwith the limb of Section 2(15), the GPU percentage is also less than 20%, the same is reproduced in assessee's submission hereinabove and thus even on merits the views of ld. CIT(E) is incorrect on facts . Decision that the ld. DR as pointed out in relation to the execution of commercial contract of Railways whereas in the case before us the same is implementation of various relief schemes and therefore, the same is differentiated. It is apparent and clear that the order passed by the ld. CIT(E) dated 20-03-2001 cancelling the registration of the Society u/s 12A(1)(ab) merely on a finding that the assessee is involved in the activities of the nature of business / commerce within the meaning of Section 2(15) of the Act is bad in law as well as on facts and therefore, the registration canceled is required to be continued and thus the appeal of the assessee is allowed.

Summary

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Withdrawal of registration under Section 12AA of the I.T. Act, 1961.
3. Applicability of Section 2(15) of the I.T. Act, 1961 to the assessee's activities.
4. Jurisdiction and procedural correctness of the CIT(E)'s order.

Detailed Analysis:

1. Condonation of Delay:
The assessee filed an appeal with a delay of 53 days due to the Covid-19 pandemic. The Bench acknowledged the pandemic as a sufficient cause for delay, citing the Hon'ble Supreme Court's principle that a liberal approach should be adopted to serve the ends of justice. Consequently, the delay was condoned.

2. Withdrawal of Registration under Section 12AA:
The assessee society, registered under the Rajasthan Societies Registration Act, was initially granted registration under Section 12AA in 2001. The society filed an application under Section 12A(1)(ab) in 2019 to comply with amended provisions but later sought to withdraw it. Despite the withdrawal, the CIT(E) examined the case and rejected the registration, stating that the assessee's activities were not charitable but commercial in nature, thus failing the conditions of Section 2(15).

3. Applicability of Section 2(15):
The CIT(E) argued that the assessee's activities under General Public Utility (GPU) involved substantial contractual payments, which constituted business/commercial receipts, thus violating the proviso to Section 2(15). The assessee countered that their activities were welfare-oriented and funded by the government, falling under different limbs of Section 2(15) such as medical relief, education, and relief of the poor. The Tribunal found that the assessee's activities were inseparably linked to government welfare schemes and did not constitute trade, commerce, or business.

4. Jurisdiction and Procedural Correctness:
The Tribunal noted that the CIT(E) lacked jurisdiction to cancel the registration based solely on the proviso to Section 2(15), as the grounds for cancellation under Section 12AA(3) and 12AA(4) were not met. The Tribunal emphasized that the registration remains valid unless canceled by due process. The Tribunal also referenced the CBDT Circular No. 21/2016, which clarified that exceeding the cut-off specified in the proviso to Section 2(15) does not mandate cancellation of registration unless necessary grounds are established.

Conclusion:
The Tribunal concluded that the order passed by the CIT(E) canceling the registration under Section 12A(1)(ab) was bad in law and on facts. The assessee's activities were deemed charitable, and the registration under Section 12AA was ordered to be continued. The appeal of the assessee was allowed.

Order:
The appeal of the assessee is allowed, and the registration under Section 12AA is to be continued.

Pronouncement:
Order pronounced in the open court on 11/03/2022.