2014 (2) TMI 644 - AT - Income Tax

Assessee's Appeals Succeed: Registration under Section 12AA and Recognition under Section 80G Restored

The Tribunal allowed both appeals by the assessee, restoring the registration under Section 12AA and the recognition under Section 80G. The judgment was ... Cancellation of registration u/s 12AA of the Act - Denial of Exemption u/s 80G of the Act – Held that:- The assessee, the definition of 'charitable purpose' has several limbs - Proviso to section 2(15) of the Act is applicable only in respect of a charitable institution which has the object of 'any other object of general public utility' - Relying upon Krupanidhi Educational Trust v. DIT (E) 2012 (11) TMI 460 - ITAT BANGALORE] - in case of charitable purpose of providing education, the fact that educational institutions are being run on a commercial scale cannot be a ground to invoke the provisions of section 12AA(3) of the Act and cancel registration granted to a trust - the assessee has been pursuing the objects as per the objectives of the trust viz., providing medical relief. There is no whisper about the genuineness of the activities of the assessee in the order – thus, the two conditions for invoking the provisions of section 12AA(3) of the Act are totally absent - the complaint of the revenue in the order is only with reference to the hospital being run on commercial lines - so long as the income of the trust is applied for charitable purpose, there can be no question of any tax liability on the assessee - If there is any shortcoming in the application of income for charitable purpose, then to that extent the Assessing Officer in the assessment of the assessee, is free to tax such income which is not applied for charitable purpose – thus, canceling the registration u/s. 12AA of the Act would not be the appropriate course of action for the revenue - the order u/s. 12AA(3) of the Act deserves to be cancelled – thus, the order for restoring registration u/s. 12AA of the Act, recognition granted u/s. 80G of the Act should also be restored – Decided in favour of Assessee. Issues Involved:1. Cancellation of registration under Section 12AA of the Income Tax Act.2. Withdrawal of recognition under Section 80G of the Income Tax Act.Detailed Analysis:1. Cancellation of Registration under Section 12AA:The assessee, a trust established by a trust deed dated 01.03.1996, was granted registration under Section 12AA of the Income Tax Act, effective from 01.03.1996. The Commissioner of Income Tax (CIT), Hubli, issued a show cause notice on 14.05.2012 proposing to withdraw this registration. The CIT's decision was based on a report from the Joint Commissioner of Income Tax (Jt. CIT), which stated that the trust's activities were not charitable as defined in Section 2(15) of the Act. The CIT concluded that the trust was carrying on commercial activities rather than charitable ones, citing several reasons:(a) The definition of 'charitable purpose' in Section 2(15) includes relief of the poor, education, medical relief, and other objects of general public utility. However, the proviso states that activities involving trade, commerce, or business for a fee or consideration do not qualify as charitable.(b) The CIT observed that the trust charged higher fees than private hospitals in the same area.(c) The trust reinvested its income in purchasing machinery, which the CIT argued was not charitable.(d) The concessions provided to patients were deemed insignificant compared to the professional receipts.Based on these observations, the CIT concluded that the trust's activities were commercial and not charitable, leading to the cancellation of its registration under Section 12AA.2. Withdrawal of Recognition under Section 80G:Following the cancellation of registration under Section 12AA, the CIT also withdrew the recognition granted under Section 80G of the Act, which provides tax benefits for donations to charitable organizations.Tribunal's Analysis and Judgment:The Tribunal considered the submissions of the assessee's counsel, who argued that the trust was engaged in providing medical relief, which qualifies as a charitable purpose under Section 2(15) of the Act. The counsel contended that the proviso to Section 2(15) applies only to trusts with objects of general public utility, not to those providing medical relief. Furthermore, the counsel argued that the CIT's decision did not allege that the trust's activities were not genuine or not in accordance with its objects, which are the only grounds for cancellation under Section 12AA(3).The Tribunal referred to several judgments, including the Karnataka High Court's decision in DIT(E) v. M/s. Venkatesha Education Society, which held that commercial motives alone are not grounds for cancellation if the trust's activities are genuine and in line with its objects. The Tribunal also cited its own decision in Krupanidhi Educational Trust, which emphasized that providing services for a fee does not disqualify an organization from being charitable if the income is applied for charitable purposes.Conclusion:The Tribunal found that the CIT's order did not demonstrate that the trust's activities were not genuine or not in accordance with its objects. The Tribunal noted that the trust was indeed providing medical relief, and the income was applied for charitable purposes. Therefore, the conditions for invoking Section 12AA(3) were not met. The Tribunal canceled the CIT's order withdrawing registration under Section 12AA and, consequently, restored the recognition under Section 80G.Final Judgment:Both appeals by the assessee were allowed, restoring the registration under Section 12AA and the recognition under Section 80G. The judgment was pronounced in the open court on 7th February 2014.