2015 (5) TMI 671 - AT - Income Tax

Tribunal Overturns CIT's Registration Withdrawal, Emphasizes Broader Charitable Purpose Interpretation

The Tribunal set aside the CIT's order withdrawing the registration under Section 12AA(3) and directed a fresh consideration of the issue. The Tribunal ... Withdrawal of registration u/s 12AA - whether proviso to Section 2(15) is not applicable to the assessee's case? - Held that:- The conclusion of order of ld. CIT in withdrawing the registration does not appear to conform to the specific conditions laid down in sec 12AA(3). An order withdrawing the registration of trust is a drastic action and the law provided a statutory mechanism of assessment, verification of trust activities, and apportionment of income and expenditure of various activities of the trust. Benefits of sec 11 and 12 can be extended on the basis of scrutiny and verification by the AO. Ld. CIT has not pointed out any specific instance of any activity, income or expenditure being non-genuine. Sec. 293C is not applicable to approvals which specifically provide manner of withdrawal of approval as held in the case of Jaipur Development Authority vs. CIT [2014 (10) TMI 219 - ITAT JAIPUR] Thus the impugned order of ld. CIT (Admn.) withdrawing the registration u/s 12AA(3) is not in conformity with the language of this section. We are of the view that ld. CIT(Admn) should revisit the issue of withdrawal of registration afresh after taking into consideration the legislative scheme of powers, incorporation of proviso, inclusive definition of the Charitable Objet as interpreted by plethora of judicial decisions and decide the issue of registration after giving the assessee an opportunity of being heard. Since we have set aside the issue, the additional ground as admitted by us with other pleadings for proper disposal of the same shall be considered by ld. CIT. - Decided in favour of assessee for statistical purposes. Issues Involved:1. Withdrawal of registration under Section 12AA(3) of the Income Tax Act, 1961.2. Applicability of the proviso to Section 2(15) to the assessee's case.3. Nature of the assessee's activities as trade, commerce, or business.4. Consideration of relief to the poor as a charitable activity under Section 2(15).5. Consideration of evidence and material brought on record by the assessee.6. Empowerment of the CIT to withdraw registration retrospectively under Section 12AA(3) from assessment year 2009-10 onwards.Issue-wise Detailed Analysis:1. Withdrawal of Registration under Section 12AA(3):The assessee challenged the withdrawal of its registration under Section 12AA(3) by the CIT. The CIT withdrew the registration on the grounds that the assessee's activities were not genuine and were not being carried out in accordance with the objects of the trust. The Tribunal found that the CIT's order did not conform to the specific conditions laid down in Section 12AA(3). The Tribunal emphasized that an order withdrawing registration is a drastic action and must adhere strictly to the conditions specified in the law. The Tribunal set aside the CIT's order and directed a fresh consideration of the issue.2. Applicability of Proviso to Section 2(15):The assessee contended that the proviso to Section 2(15) was not applicable to its case. The CIT had held that the assessee's activities were in the nature of trade, commerce, or business, and thus, the institution's objects could not be considered charitable from the assessment year 2009-10 onwards. The Tribunal noted that the proviso to Section 2(15) restricts the definition of 'charitable purpose' if it involves activities in the nature of trade, commerce, or business. However, the Tribunal found that the CIT's interpretation was too narrow and did not consider the broader connotations of 'charitable purpose.'3. Nature of Assessee's Activities:The CIT identified the assessee's activities, such as the sale of ghee, milk, and cattle feed, as being in the nature of trade, commerce, or business. The Tribunal, however, emphasized that the assessee's primary objects, such as the protection and promotion of cows, medical and educational activities, and environmental protection, were charitable in nature. The Tribunal referred to the Gujarat High Court's judgment in the case of Sabarmati Ashram Gaushala Trust, which held that incidental surpluses generated from charitable activities do not render the activities as trade or commerce.4. Relief to the Poor as Charitable Activity:The assessee argued that its activities provided relief to the poor, which is covered under the definition of charitable activities under Section 2(15). The Tribunal agreed with the assessee's contention and noted that the preservation and promotion of cows and other environmental activities are considered charitable purposes. The Tribunal found that the CIT had not properly appreciated the broader definition of 'charitable purpose' and had adopted a narrow view.5. Consideration of Evidence and Material:The assessee contended that the CIT had withdrawn the registration without considering the evidence and material brought on record. The Tribunal found merit in this argument and noted that the CIT had not pointed out any specific instance of non-genuine activities or income. The Tribunal emphasized that the assessment of the trust's activities and the apportionment of income and expenditure should be done by the Assessing Officer during the assessment process.6. Empowerment of CIT to Withdraw Registration Retrospectively:The assessee argued that the CIT was not empowered to withdraw the registration granted in 1974 retrospectively from the assessment year 2009-10 onwards, as Section 12AA(3) became operative only from 01-06-2010. The Tribunal admitted this additional ground and found that the CIT's action was not in conformity with the legislative scheme. The Tribunal directed the CIT to reconsider the issue of withdrawal of registration after taking into account the legislative scheme, judicial interpretations, and after giving the assessee an opportunity of being heard.Conclusion:The Tribunal set aside the CIT's order withdrawing the registration under Section 12AA(3) and directed a fresh consideration of the issue. The Tribunal emphasized the need for a broader interpretation of 'charitable purpose' and the proper assessment of the trust's activities by the Assessing Officer. The appeal of the assessee was allowed for statistical purposes.