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TMI Blog2016 (6) TMI 1404X X X X Extracts X X X X X X X X Extracts X X X X ..... eneral public utility, could be treated as a charitable institution in one year and not a charitable institution in the other year depending on the aggregate value of receipts from commercial activities, The position remains similar when the first and second provisos of section 2(15) get substituted by the new proviso introduced w.e.f. 01-04-2016 vide Finance Act, 2015, changing the cut-off benchmark as 20% of the total receipts instead of the fixed limit of ₹ 25,00,000/- as it existed earlier. The temporary excess of receipts beyond the specified cut-off in one year may not necessarily be the outcome of alteration in the very nature of the activities of the trust or institution requiring cancellation of registration already granted to the trust or institution. Hence, section 1 of the Act has been amended vide Finance Act, 2012 by inserting a new sub-section (8) therein to provide that such organization would not get benefit of tax exemption in the particular year in which its receipts from commercial activities exceed the threshold whether or not the registration granted is cancelled. This amendment has taken effect retrospectively from 1st April, 2009 and accordingly app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able and of General Public utility in the case of Moga Improvement Trust. The CIT failed to appreciate that the order of the High Court was binding tooth nail and no finding on the objects could have been given. 3. That the CIT has failed to record his satisfaction on the two conditions prescribed in section 12AA(3) regarding its violation and has clearly exceeded his powers in the cancellation of the registration. 4. That the CIT failed to appreciate the amendment in law in section 13(8) and 143 B proviso made by the Finance Act 2012 w.e.f. 1.4.2009 and also the Board Circular No. 11 of 2880 dated 19.12.2008 which was binding upon him. 5. That the order of the CIT is against the law and facts of the case. 3. Brief facts related to the issue are that the assessee is a society created by the State Government u/s 3 of the Punjab Town Improvement Act, 1922 to carry out development of Patiala City. The main objects of the assessee was: - Utilisation of land allotment of plot and flats and multi storeyed house by draw of lots and sell the commercial plots / shops by auction. - Construction of roads and parks - Provided plots for housing to lower income group per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.2 While coming to the above conclusion the Ld CIT has relied on a host of judicial pronouncements which are squarely applicable to the facts of the case of the assessee. In this regard reliance is further placed on the following case laws: i. Decision of Hon'ble Punjab and Haryana High Court in the case of Bhatinda Improvement Trust (copy enclosed vide the paper book submitted by the assessee on 18.11.2015) In this decision the Hon'ble Court has directed the Hon'ble Tribunal, Amritsar vide para 5 of the order to: adjudicate whether the activities of the appellant trust were covered within the meaning of charitable in nature or not even after the insertion to section 2(15) of the Act w.e.f.1.4.2009 in respect of years 2009-10 onwards The above observation of the Hon'ble High Court leaves no doubt as to the applicability of first proviso to section 2(15) to the conditions laid down in section 12AA(3). In fact this is subject matter of consideration before the Hon'ble Supreme Court as discussed below. ii. Decision of Chennai Tribunal in the case of Tamil Nadu Cricket Association [2013] 32 taxmann.com 50 (Chennai - Trib.) wherein the Hon'ble Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the Hon'ble Supreme Court (supra) 7. Having heard the rival submissions after considering the entire material on record and after going through the order passed u/s 12AA(3), we find that registration u/s 12AA was granted in this case vide letter dated 26/28.04.2006, which was withdrawn u/s 12AA(3) by Ld. CIT in view of the amendment to section 2(15). This issue that whether registration granted u/s 12AA can be cancelled under sub-section 3 of that section in view of the section 2(15) was considered expansively by Amritsar Bench of ITAT in the case of Kapurthala Improvement Trust vs. CIT 60 taxmann.com 301 (Amritsar-Trib) Supra, whereby the Amritsar bench of the Tribunal held that the proviso to section 2(15) of the Act has no role to play in matter relating to registration of the Trust under section 12A of the Act in respect of granting or declining or cancelling registration. The relevant findings of the ITAT Amritsar Bench are as follows:- 9. We find that, as learned counsel rightly points out. the scope of powers of the Commissioner under section 12AA(3) for cancellation of registration already granted is very limited in scope in as much as it can only be invoked ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest,] and the advancement of any other object of general public utility: Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity; Provided further that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is twenty-five lakh rupees or less in the previous year; (Emphasis by underlining supplied by us) 12. What is clear from the riders in the above definition of chartable purposes is that rider set out therein, under first proviso to Section 2(15), can only come into play on year to year basis and not in absolute terms. The same activity can be hit by this rider in one year and thus the assessee trust or institution may not qualify to be existing for charitable purposes , and that very activity of the assessee trust or institution may remain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l public utility may be a charitable trust in one year and not a charitable trust in another year depending on the aggregate value of receipts from commercial activities. There is, therefore, need to expressly provide in law that no exemption would be available for a previous year, to a trust or institution to which first proviso of subsection 2(15) become applicable for that particular previous year. However, this temporary excess in one year may not be treated as altering the very nature of the trust or institution so as to lead to cancellation of registration or withdrawal of approval or rescinding of notification issued in respect of trust or institution. Therefore, there is need to ensure that if the purpose of a trust or institution does not remain charitable due to application of first proviso on account of commercial receipt threshold provided in second proviso in a previous year. Then, such trust or institution would not be entitled to get benefit of exemption in respect of its income for that previous year for which such proviso is applicable. Such denial of exemption shall be mandatory by operation of law and would not be dependent on any withdrawal of approval or cancel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reason, as noted in the Explanatory Memorandum, as to why the remedy for the activities being hit by the first proviso to Section 2(15) lies not in grant, decline or withdrawal of registration but in declining the benefits of exemption under section 11 on that count, on year to year basis, notwithstanding the status of registration. 16. The scheme of the Act, in this respect, is thus clear. The status of registration under section 12A or 12AA has no bearing, as recognized in Section 13(8), on the availability of exemption under section 11. To the extent income of the assessee arises from the activities hit by the first proviso to Section 2(15) in any assessment year, the assessee will be disentitled for exemption under section 11 to that extent. It is also important to bear in mind the fact that the disentitlement for exemption under section 11, as a result of the activities of an assessee being held to be not for charitable purposes under section 2(15) read with provisos thereto, is in respect of entire income of the assessee trust or institution but only for the assessment year in respect of which the first proviso to Section 2(15) is triggered. 17. If the status of registr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the proposition laid down by the ITAT, Amritsar Bench is based on the following reasons: i) The scope of powers of the Commissioner under section 12AA(3) for cancellation of registration already granted is very limited in scope in as much as it can only be invoked only when (i) the activities of the trust are not genuine, or (it) the activities of the trust or the institution are not being carried out in accordance with the objects of the trust or the institution. ii) The considerations of first proviso to section 2(15) have no role to play in the matters relating to registration of a trust or institution under section 12A or 12AA whether in respect of granting or declining of a registration or in respect of cancellation. What is clear from the riders in the definition of charitable purposes' is that rider set out therein under first proviso to section 2(15), can only come into play on year to year basis and not in absolute terms. In order that the benefits under section 11 are declined to the assessee on the ground that it is engaged in such activities as may be hit by the first proviso to section 2(15) not only the assessee must be engaged in carrying out such activitie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT that the activities of the trust are not in consonance with its stated objects. As outlined in the instrument of creation of the assessee trust, utilisation of land and allotment of plots and flats and multistoreyed house by draw of lots and sale of commercial plots / shops by auction was one of the stated objects of the assessee society. The same was taken into consideration by the CIT while granting registration under section 12A. And it is on considering these very activities, that the Ld. CIT has held that they are commercial in nature and hence not charitable. Once certain objects have been found to be charitable in nature, the activities carried out in accordance with the same cannot later be on said to be not in the nature of charity unless they are shown to be carried out not in consonance with the stated objects or are found to be not genuine. Further we find that it is also not the case of the Ld. CIT that the activities are not genuine. Therefore considering the powers granted to the Ld. CIT under section 12AA(3), the registration granted to the assessee in any case could not have been cancelled. Further as held by the Hon ble ITAT Amritsar Bench in the case of Kapu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was created the same could be still considered to be non charitable in nature as per section 2(15) of the Income Tax Act. The High Court we find has remanded the issue to the Tribunal for fresh examination of this aspect and has further categorically stated that anything observed in the order shall not be taken to be an expression on the merits of the controversy. Evidently no view has been expressed by the Hon ble High Court on the issue of cancellation of registration u/s 12AA on account of the proviso to section 2(15) being attracted and hence the decision has no relevance to the issue in hand in the present case. At this juncture it is pertinent to point out that even the CBDT has vide its Circular No. 21/2016 dt. 27/05/2016 clarified that registration of a charitable institution granted u/s 12AA should not be cancelled merely on account of the proviso to section 2(15) coming into play. The relevant circular is reproduced hereunder : Circular No. 21/2016 F.110.197/17/2016-1TA-1 Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes New Delhi, the 27th May, 2016 Subject Clarification regarding cancellation of registr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax exemption in the particular year in which its receipts from commercial activities exceed the threshold whether or not the registration granted is cancelled. This amendment has taken effect retrospectively from 1st April, 2009 and accordingly applies in relation to the assessment year 2009- 10 onwards. 4. In view of the aforesaid position, it is clarified that it shall not be mandatory to cancel the registration already granted u/s 11 to a charitable institution merely on the ground that the cut-off specified in the proviso to section 2(15) of the Act is exceeded in a particular year without there being any change in the nature of activities of the institution. If in any particular year, the specified cut-off is exceeded, the tax exemption would be denied to the institution in that year and cancellation of registration would not be mandatory unless such cancellation becomes necessary on the ground(s) prescribed under the Act. 5. With the introduction of Chapter XII-EB in the Act vide Finance Act, 2016, prescribing special provisions relating to tax on accreted income of certain trusts and institutions, cancellation of registration granted u/s 12AA may lead to a charitable ..... X X X X Extracts X X X X X X X X Extracts X X X X
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