2013 (8) TMI 590 - AT - Income Tax

Tribunal reinstates charity registration under Income Tax Act, rejects retrospective cancellation.

Mathura Vrindavan Development Authority Versus Commissioner of Income Tax

Mathura Vrindavan Development Authority Versus Commissioner of Income Tax - TMI Issues Involved:1. Cancellation of registration under Section 12AA(3) of the Income Tax Act.2. Retrospective application of cancellation from A.Y. 2009-10.3. Definition of 'charitable purpose' under Section 2(15) of the Income Tax Act.4. Nature of activities carried out by the assessee and their classification as trade, commerce, or business.5. Eligibility for exemption under Section 12AA of the Income Tax Act.6. Application of precedents and statutory interpretations.Detailed Analysis:1. Cancellation of Registration under Section 12AA(3):The primary issue revolves around the cancellation of the registration granted to the assessee under Section 12AA of the Income Tax Act. The CIT exercised power under Section 12AA(3) to cancel the registration retrospectively from A.Y. 2009-10. The tribunal noted that the power to cancel registration under Section 12AA(3) is confined to cases where the activities of the trust or institution are not genuine or are not being carried out in accordance with the objects of the trust or institution. The tribunal cited the case of Agra Development Authority, emphasizing that the CIT did not find the activities of the assessee to be non-genuine or not in accordance with its objects. Consequently, the tribunal set aside the CIT's order and restored the registration under Section 12AA.2. Retrospective Application of Cancellation from A.Y. 2009-10:The tribunal highlighted that the power to cancel registration under Section 12AA(3) was not applicable retrospectively before 01.06.2010. The CIT's cancellation of registration for A.Y. 2009-10 was deemed not in accordance with the law, as the amendment to Section 12AA(3) by the Finance Act, 2010, which allowed for such cancellations, was applicable only from A.Y. 2011-12. The tribunal relied on the CBDT Circular No. 1/2011, which clarified the applicability of the amendment.3. Definition of 'Charitable Purpose' under Section 2(15):The tribunal examined the change in the definition of 'charitable purpose' under Section 2(15) of the Income Tax Act, which was amended by the Finance Act, 2008. The CIT had concluded that the activities of the assessee fell under the fourth limb, i.e., advancement of any other object of general public utility, and were in the nature of trade, commerce, or business, thereby not qualifying as 'charitable purposes'. However, the tribunal did not express an opinion on this issue as the primary ground for cancellation was found to be legally untenable.4. Nature of Activities Carried Out by the Assessee:The CIT had determined that the activities of the assessee were in the nature of trade, commerce, or business, based on the income and expenditure statement. However, the tribunal noted that there was no finding that the activities were non-genuine or not in accordance with the objects of the trust. The tribunal emphasized that the activities and objects of the assessee remained consistent with those at the time of granting registration under Section 12AA.5. Eligibility for Exemption under Section 12AA:The tribunal concluded that the CIT's cancellation of registration under Section 12AA was not justified as the conditions stipulated under Section 12AA(3) were not met. The tribunal restored the registration, thereby affirming the assessee's eligibility for exemption under Section 12AA.6. Application of Precedents and Statutory Interpretations:The tribunal referred to various judicial precedents, including the Allahabad High Court's decision in CIT v. Manav Vikas Avam Sewa Sansthan and the Delhi High Court's decision in DIT(E) v. Mool Chand Khairati Ram Trust. It was noted that the power to cancel registration under Section 12AA(3) before 01.06.2010 was limited to registrations granted under Section 12AA(1)(b). The tribunal also distinguished the CIT's reliance on the Bombay High Court's decision in Sinhagad Technical Education Society, clarifying that the decision did not support retrospective cancellation for earlier assessment years.Conclusion:The tribunal allowed the appeal filed by the assessee, setting aside the CIT's order and restoring the registration under Section 12AA of the Income Tax Act. The tribunal's decision was based on the legal interpretation that the conditions for cancellation under Section 12AA(3) were not met and that the retrospective application of the cancellation was not permissible. The tribunal did not express an opinion on the merits of whether the activities of the assessee were charitable under the amended definition of Section 2(15).