2014 (4) TMI 525 - AT - Income Tax

Registration of Charitable Institution Cancelled for Profit-Making Activities

The Tribunal upheld the Commissioner of Income Tax (CIT), Bathinda's decision to cancel the registration of the applicant institution as a Charitable ... Cancellation of Registration u/s 12AA(3) – CIT(A) held that activities of applicant are not charitable in nature and applicant Institution does not qualify to be treated as Charitable Institution u/s 2(15) – Held that:- activities of assessee aimed at earning profit as it is carrying on activity in nature of trade, commerce or business - Main pre-dominant purpose of assessee is making profit, it is real object of assessee and also there is no spending of income exclusively for purpose of charitable activities - Profits of assessee not used for charitable purpose under terms of object and there is no obligation on part of assessee to spend it on 'charitable purposes' only – Apex Court in case of Asstt. CIT v. Thanthi Trust [2001 (1) TMI 80 - SUPREME Court] held that where certain activities of an assessee claiming exemption u/s 12AA of Act are such where profit motive is involved and where no charity towards general public is being done, applicability of section 2(15) is certainly established and benefits of exemption u/s 12AA of Act are not allowable to such an assessee - CIT, Bathinda, rightly cancelled registration granted to assessee under Section 12AA by passing impugned order under Section 12AA(3) of Act - Uphold impugned order passed by learned CIT, Bathinda – Decided against Assessee. Issues Involved:1. Qualification of the applicant institution as a Charitable Institution under Section 12AA of the Income Tax Act, 1961.2. Nature of activities carried out by the applicant institution and their alignment with 'charitable purpose' as defined under Section 2(15) of the Income Tax Act, 1961.3. Validity of the cancellation of registration under Section 12AA(3) by the Commissioner of Income Tax (CIT), Bathinda.Detailed Analysis:1. Qualification of the Applicant Institution as a Charitable Institution:The primary issue is whether the applicant institution qualifies as a Charitable Institution. The CIT, Bathinda, concluded that the institution does not qualify as charitable under Section 12AA(3) due to its predominant activities. The assessee-trust was initially granted registration under Section 12AA w.e.f. 12.06.2003. However, with the amended definition of Section 2(15) effective from 01.04.2009, the CIT issued show cause notices to the assessee, questioning the charitable nature of its activities.2. Nature of Activities and Charitable Purpose:The CIT, Bathinda, observed that the assessee-trust's main activity involved purchasing land at nominal cost, developing it, and selling plots at higher prices, thus earning substantial profits. This activity was evaluated under the provisions of Section 2(15) of the Act, which defines 'charitable purpose' and includes a proviso that excludes activities involving trade, commerce, or business from being considered charitable if they generate income through fees or other considerations.The CIT noted that the trust charged various fees and fines, including Composition Fees, Transfer Fees, and Sale of Trust Land, among others. These activities were deemed commercial rather than charitable. The CIT further emphasized that the trust's activities were akin to those of private real estate developers, involving significant value addition and profit generation through public auctions and extensive advertising.3. Cancellation of Registration under Section 12AA(3):The CIT, Bathinda, exercised the power under Section 12AA(3) to cancel the trust's registration, concluding that the trust's activities were not genuine or aligned with its stated charitable objectives. The CIT referenced various case laws, including the ITAT Chandigarh Bench's decision in PUDA Vs. CIT and the Supreme Court's ruling in Asstt. CIT v. Thanthi Trust, which supported the view that activities involving profit motives do not qualify as charitable.The Tribunal upheld the CIT's decision, agreeing that the trust's activities were primarily aimed at profit-making and did not fulfill the criteria for charitable purposes under the amended Section 2(15). The Tribunal noted that the trust's engagement in trade and business activities, coupled with the lack of obligation to spend income exclusively on charitable purposes, justified the cancellation of registration.Conclusion:The Tribunal dismissed the appeal filed by the assessee, affirming the CIT, Bathinda's order dated 18.02.2013, which canceled the registration under Section 12AA. The Tribunal concluded that the trust's activities were commercial in nature and did not qualify as charitable under the Income Tax Act, 1961. The appeal was dismissed, and the cancellation of registration was upheld.