2013 (12) TMI 833 - HC - Income Tax

Trust qualifies as charitable under Section 2(15); improper cancellation of registration under Section 12AA(3) overturned

The HC held that the trust qualifies as an object of general public utility under Section 2(15) of the Act and thus constitutes a charitable purpose. The ... Cancellation of registration under Section 12AA(3) on the ground that the activities of the appellant could not be said to be genuine after the amendment of the definition of 'charitable purpose'? - Cricket Association - Genuineness of Activities - advancement of an object of general public utility - Held that:- he trust falls under the head of 'any other object of general public utility' and hence falls within the meaning of charitable purpose under Section 2(15) of the Act. The anxiety of the Parliament in introducing the proviso to Section 2(15) of the Act is only to check those institution, which attempt to gain exemption under the cloak of a trust. Revenue granted registration under Section 12AA of the Act satisfying itself as to the objects of the association befitting the status as charitable purpose as defined under Section 2(15), as it stood in 2003 and after granting the registration, if the registration is to be cancelled, it must be only on the grounds stated under Section 12AA(3) of the Act with reference to the objects accepted and registered under Section 12AA, as per the law then stood under the definition of Section 2(15) of the Income Tax Act. The Income Tax Appellate Tribunal's view that it is an entertainment and hence offended Section 2(15) of the Act does not appear to be correct and the same is based on its own impression on free ticket, payment of entertainment tax and presence of cheer group and given the irrelevant consideration. These considerations are not germane in considering the question as to whether the activities are genuine or carried on in accordance with the objects of the Association. We can only say that the Income Tax Appellate Tribunal rested its decision on consideration which are not relevant for considering the test specified under Section 12AA(3) to impose commercial character to the activity of the Association. Thus, we agree with the assessee that the Revenue has not made out any ground to cancel the registration under Section 12AA(3) of the Act. - Decided in favor of assessee. Issues Involved:1. Whether the Tribunal was right in upholding the cancellation of registration under Section 12AA(3) of the Income Tax Act, 1961.2. Whether the Tribunal was right in holding that the activities of the appellant could be said to be 'not genuine'.3. Whether the Tribunal was right in not following the decisions of the jurisdictional High Court and coordinate benches of the Tribunal.Detailed Analysis:1. Cancellation of Registration under Section 12AA(3):The appellant, a Society registered under the Tamil Nadu Societies Registration Act, was granted registration under Section 12AA of the Income Tax Act, 1961 in 2003. The objects of the Society included promoting cricket, organizing tournaments, and providing facilities for cricketers. In 2011, the Director of Income Tax (Exemptions) issued a notice proposing to withdraw the registration, citing that the income derived from activities such as rent for hiring cricket grounds, fees for providing services to IPL, and income from advertisements were in the nature of trade or commerce, thus violating the amended definition of 'charitable purpose' under Section 2(15) of the Act.The Tribunal upheld the cancellation, stating that the activities of the Society were commercial in nature and did not advance any object of general public utility. The Tribunal emphasized that the conduct of matches was a commercial venture aimed at generating revenue, thus falling under the proviso to Section 2(15), which excludes activities in the nature of trade, commerce, or business from being considered charitable.2. Genuineness of Activities:The appellant contended that its activities remained consistent with its objects since its inception and that the income derived was incidental to its main charitable purpose. The Tribunal, however, held that the activities were not genuine, as they were commercial in nature and aimed at maximizing revenue. The Tribunal pointed out that a significant portion of the income came from advertisements and sponsorships, which were commercial activities.The High Court, however, noted that the genuineness of the objects and activities of the trust had been established at the time of granting registration. The Court emphasized that the cancellation of registration should be based on whether the activities are genuine and in accordance with the objects of the trust. The Court held that the mere fact that the income does not qualify for exemption under Section 11 does not justify the cancellation of registration under Section 12AA(3).3. Non-Following of Jurisdictional High Court and Coordinate Benches:The appellant argued that the Tribunal failed to follow the decisions of the jurisdictional High Court and coordinate benches, which had held that similar activities were charitable. The Tribunal distinguished these cases, stating that they did not consider the amended definition of 'charitable purpose' under Section 2(15).The High Court, however, held that the Tribunal should have followed the precedents set by the jurisdictional High Court and coordinate benches. The Court referred to the decision in CIT Vs. Sarvodaya Ilakkiya Pannai, which held that the cancellation of registration should be based on the genuineness of the activities and whether they are carried out in accordance with the objects of the trust.Conclusion:The High Court allowed the appeal, setting aside the order of the Tribunal. The Court held that the cancellation of registration under Section 12AA(3) was not justified, as the activities of the Society were genuine and in accordance with its objects. The Court emphasized that the genuineness of the activities should be assessed based on the objects of the trust as they stood at the time of registration, and not based on the subsequent amendment to Section 2(15). The Court also criticized the Tribunal for not following the precedents set by the jurisdictional High Court and coordinate benches.