2014 (2) TMI 420 - AT - Income Tax

Trust's Registration Restored: ITAT Emphasizes Charitable Objectives and Precedents

Khar Gymkhana Versus DIT (E), Mumbai

The ITAT allowed the appeal, directing the revenue authorities to restore the registration of the trust under section 12A. The ITAT found that the ... Application for restoration of registration u/s 12A of the Act - Registration cancelled u/s 12AA(3) of the Act - The basic of cancellation of registration is the import of section 2(15), brought in by the legislature - the department has nowhere mentioned that 'social inter-course among members' was not one of the objects of the trust, when it was originally formed on 04.10.1934 – Relying upon Income-tax Officer(E) Versus Khar Gymkhana [2014 (1) TMI 745 - ITAT MUMBAI ]- The DIT should have taken into consideration the orders of the higher judicial authority, at least on the aspect of reliance on newly inserted provision of section 2(15), which he ignored - none of the revenue authorities have made any observation/comments on the objects recited as early as 04.10.1934 of the assessee trust, the twin conditions existing in section 12AA(3) and ignoring the existing orders of the coordinate Bench in the case of the assessee - the revenue authorities have erred in cancelling the registration u/s 12AA(3) - the revenue authorities is directed to restore the registration as granted u/s 12A – Decided in favour of Assessee. Issues Involved:Cancellation of registration of assessee society under section 12AA(3) of the Income Tax Act, 1961 based on the activities carried out by the trust.Detailed Analysis:1. Issue of Cancellation of Registration:The appeal was filed against the order cancelling the registration of the assessee society by the DIT, citing that the activities of the trust were in the nature of trade, commerce, or business, which contravened the provisions of section 2(15) of the Income Tax Act, 1961. The AO observed various income sources of the trust, such as sale of liquor, canteen compensation, card games, guest fees, and income from banquet hall, and issued a show cause notice to explain why the registration should not be cancelled.2. Response of the Assessee:The assessee responded that the activities in question were incidental and ancillary to the main charitable objects of the trust, emphasizing that the income generated was utilized for the betterment of sports facilities and promotion of trust activities. The assessee argued that the dominant purpose of the trust was the promotion of sports and games, and the fees charged were not for commercial purposes but for providing sports facilities to the general public.3. Decision of the DIT:After considering the submissions, the DIT held that the activities of the trust, resulting in significant income, were in the nature of business income, which violated the provisions of section 2(15) of the Act. The DIT concluded that the trust had lost its charitable character due to engaging in business-like activities, leading to the cancellation of its registration under section 12AA.4. Appeal Before ITAT:The assessee appealed the DIT's order before the ITAT, arguing that the cancellation of registration solely based on the new provision of section 2(15) was not justified without a change in the trust's objects. The AR emphasized that the trust's activities were genuine and aligned with its charitable objectives.5. ITAT's Decision:The ITAT considered the legislative intent behind section 2(15) and observed that the department did not prove that the trust's activities were not genuine or deviated from its original charitable objects. The ITAT noted the lack of consideration given to the trust's historical objects and previous judicial decisions in the case. Consequently, the ITAT directed the revenue authorities to restore the registration of the trust under section 12A, as the cancellation was deemed erroneous.In conclusion, the ITAT allowed the appeal, emphasizing the importance of considering the trust's historical objects, adherence to charitable purposes, and previous judicial precedents before canceling registration solely based on income-generating activities.