2012 (5) TMI 183 - AT - Income Tax

Tribunal Grants Stay Pending Appeal Due to Direct Link with Outstanding Demand

Maharashtra Housing & Area Development Authority Versus Additional Director of Income-tax (Exemption) (1), Mumbai

The Tribunal allowed the stay application, citing a direct link between the outstanding demand and the appeal against registration cancellation. Finding a ... Stay application - Charitable purpose - Scope u/s 2(15) - maintenance of stay application - held that:- the outstanding demand for assessment year 2009-10 is the direct outcome of the order passed u/s.12AA(3) of the Act cancelling the registration granted to the assessee u/s.12A of the Act. Thus, the outstanding demand for assessment year 2009-10 is related to the appeal filed by the assessee before the Tribunal challenging the validity of the order passed u/s.12AA(3) of the Act. - Application is maintainable. Cancellation of registration - DIT(E) has exercised the power to cancel registration to the assessee for the sole reason that the assessee's activities are in the nature of trade, commerce or business. In this regard, the DIT(E) has referred to the fact that there were receipts of huge amounts out of sale of houses which is nothing but business and commercial activity, though with a low profit. The DIT(E) has also further held that the assessee was having income by way of lease rent which is nothing but business income by exploiting property commercially in a systematic manner. - held that:- the above reasons cannot be the basis to hold that the activities of the assessee are not genuine. - assessee has made out a prima facie case for grant of an order of stay. - stay granted. Issues:1. Stay of recovery of outstanding demand arising from the cancellation of registration under sec.12AA(3) of the Income Tax Act.2. Prima facie case, balance of convenience, and hardship assessment for granting a stay order.Issue 1: Stay of Recovery of Outstanding Demand:The assessee, a statutory authority under the Maharashtra Housing and Area Development Act, filed an application seeking a stay on the recovery of an outstanding demand of Rs.238,97,20,089 arising from the cancellation of registration under sec.12AA(3) of the Income Tax Act for the assessment year 2009-10. The cancellation was based on the amendment to sec.2(15) of the Act, which excluded activities in the nature of trade, commerce, or business from being considered charitable purposes. The DIT(E) issued a show cause notice leading to the cancellation of registration with retrospective effect. The assessee challenged this order by filing an appeal before the Tribunal. The question arose whether the assessee could seek a stay on the recovery of the outstanding demand related to the assessment year 2009-10, given the appeal against the cancellation of registration. Citing precedent, the Tribunal held that the application for stay was maintainable as the outstanding demand was a direct outcome of the registration cancellation.Issue 2: Prima Facie Case, Balance of Convenience, and Hardship Assessment:The Tribunal analyzed the reasons for the cancellation of registration by the DIT(E) and found that the grounds provided, such as the nature of activities being in trade or business, were insufficient to deem the assessee's activities as non-genuine. The Tribunal highlighted the conditions under sec.12AA(3) for canceling registration and noted that the DIT(E) had not met these conditions in the present case. Additionally, the Tribunal considered the objectives of the Maharashtra Housing and Area Development Act, emphasizing that engaging in business activities did not automatically render the activities non-genuine. The Tribunal concluded that the assessee had established a prima facie case for the grant of a stay order. Considering the balance of convenience and the potential hardship to the assessee if the outstanding demand was recovered, the Tribunal granted an order of stay for six months or until the appeal's disposal. The Tribunal scheduled an expedited hearing for the appeal without sending a separate notice to the parties.In summary, the Tribunal allowed the stay application, emphasizing the maintainability of the application due to its direct link to the appeal against the registration cancellation. The Tribunal found that the assessee had presented a prima facie case for the grant of a stay order, considering the balance of convenience and potential hardship. The Tribunal directed the stay to operate for six months or until the appeal's disposal, with an expedited hearing scheduled for the appeal.