2022 (5) TMI 330 - AT - Income Tax

Exemption u/s 11 - denial of registration granted u/s 12AA/12A - Cancellation of registration with retrospective effect - Cancellation of registration based on Proviso to s.2(15) - HELD THAT - DIT (E) nowhere in the order dated 27.03.2014 observed that the activities of the Slum Rehabilitation Authority are not genuine or that the activities carried out are not in accordance with its objects. The requirement for rejecting the registration under Section 12AA(3) is that if the trust or institution is carrying out non-genuine activities and the activities beyond the scope of its defined objects. But in the present case, the DIT(E) has not pointed out any such violation of the conditions. DIT(E) is solely stated that the assessee is generating huge income by charging premium which over and above and the amount is invested in Fixed Deposit and not transmitted to the government body. As per the Maharashtra Slum Areas (Improvement, Clearance and Rehabilitation) Act, 1971 more specifically Section 3M, the Slum Rehabilitation Authority is utilizing and investing its fund as per the guidelines set out in the said Act. In the present case, the Slum Rehabilitation Authority has not changed its objects or deviated from its objects notified before the Revenue Authority at the time of registration under Section 12A of the Act i.e. from 01.04.2002. Therefore, withdrawing the registration with retrospective effect from the date of grant of registration (i.e. 01.04.2002) by the DIT(E) is bad in law and will not sustain in the eyes of law. It is pertinent to note here that where the receipts are coming under the purview of proviso to Section 2(15) of the Act, then the benefit of exemption to the income for the relevant previous year would not be available to the assessee and the Revenue can brought the said income to tax to secure the interest of the Revenue. But so far as the cancellation of registration with retrospective effect is concern, we are setting aside the order of the DIT(E) and allowing the appeal of the assessee.

Summary

Issues:
1. Cancellation of registration under s.12AA(3)
2. Cancellation of registration with retrospective effect
3. Cancellation of registration based on Proviso to s.2(15)

Cancellation of registration under s.12AA(3):
The appeal was filed against the order cancelling registration granted under s.12A.A/12A of the Income Tax Act, 1961. The appellant argued that the nature and purpose of the Slum Rehabilitation Authority had not changed, and the registration should be restored. The Director of Income Tax (Exemption) cancelled the registration based on the appellant's income sources, which were deemed non-charitable under the amended proviso to s.2(15). However, the Director did not find any violation of conditions regarding the activities of the Authority. The Tribunal emphasized that denial of exemption under s.11 was more appropriate than cancelling registration under s.12AA(3) due to commercial activities. The Tribunal referred to relevant case laws to support its decision.

Cancellation of registration with retrospective effect:
The appellant contended that the registration should not have been cancelled with retrospective effect as the nature and purpose of the Slum Rehabilitation Authority remained consistent. The Director of Income Tax (Exemption) based the cancellation on the appellant's income sources not being charitable under the amended proviso to s.2(15). The Tribunal noted that the Authority had not deviated from its original objects since registration in 2002. The Tribunal cited case law to highlight the distinction between registration and exemption, emphasizing that cancellation of registration was not warranted in this case. The Tribunal set aside the order of the Director and allowed the appeal.

Cancellation of registration based on Proviso to s.2(15):
The Director of Income Tax (Exemption) cancelled the registration of the Slum Rehabilitation Authority based on the amended proviso to s.2(15), which deemed the appellant's income as non-charitable. The appellant argued that the registration should be restored as the activities of the Authority remained in line with its original objects. The Tribunal emphasized that denial of exemption under s.11 was the appropriate action for non-charitable income, rather than cancelling registration under s.12AA(3). The Tribunal overturned the Director's decision, stating that cancelling registration with retrospective effect was unjustified, as the Authority had not deviated from its charitable purpose since registration in 2002.

In conclusion, the Tribunal allowed the appeal of the assessee, setting aside the order of the Director of Income Tax (Exemption) and reinstating the registration of the Slum Rehabilitation Authority. The Tribunal emphasized that denial of exemption under s.11 was more suitable for non-charitable income, and cancelling registration with retrospective effect was unwarranted in this case.