2015 (12) TMI 698 - AT - Income Tax

Tribunal Invalidates Registration Cancellation Under Income Tax Act

M/s Patiala Urban Planning & Development Authority, Patiala Versus The C.I.T.

The Tribunal ruled in favor of the assessee, holding that the cancellation of registration under section 12AA(3) of the Income Tax Act was invalid. It ... Registration under sect ion 12AA cancelled - as per CIT(A) activities of the assessee fall in the category of “advancement of any other object of general publicutility” and this phrase as provided in sect ion 2(15) does not now constitute a charitable purpose, therefore the same is purely commercial in nature in view of the proviso appended to the section - Held that:- The amendment to sect ion 2(15) of the Act cannot be the basis for cancellation of registration granted earlier under sect ion 12A of the Act . The two basic requirements for cancellation of registration as provided under section 12AA(3) of the Act , viz , the findings of the learned Commissioner of Income Tax to the effect that the activities of the assessee are not genuine or the activities are not being carried out in accordance with the objects on the basis of which registration under sect ion 12A of the Act was granted to it , have also not been fulfilled in this case. The learned Commissioner of Income Tax has nowhere given a finding in this regard. It is not the case of the Commissioner of Income Tax that the activities of the assessee are not genuine or not being carried out in consonance with the objects of the assessee. In this view also, the act ion of the learned Commissioner of Income Tax in cancelling the registration is not as per law. - Decided in favour of assessee. Issues:1. Cancellation of registration under section 12AA(3) of the Income Tax Act.2. Interpretation of the first proviso to section 2(15) of the Act.3. Scope of powers of the Commissioner under section 12AA(3).4. Requirements for cancellation of registration under section 12AA(3).Detailed Analysis:1. The appeal challenged the cancellation of registration under section 12AA(3) of the Income Tax Act, which was based on the Commissioner's view that the activities of the assessee were commercial and not charitable. The Commissioner cited the proviso in section 2(15) as the basis for the cancellation. The assessee contended that the withdrawal was not in accordance with the law, arguing that the proviso to section 2(15) should not affect the registration under section 12A or 12AA. The Tribunal examined the grounds for cancellation and held that the withdrawal was beyond the Commissioner's limited scope of powers conferred by the statute.2. The Tribunal analyzed the first proviso to section 2(15) and its impact on the registration of a trust or institution under section 12A or 12AA. It held that the proviso should not influence the granting, declining, or cancellation of registration. The Tribunal emphasized that the proviso's considerations should be assessed on a yearly basis and not as a one-time determinant for registration. Additionally, it noted that denial of exemption under section 11 due to the proviso should be on a year-to-year basis, not affecting the registration status.3. Regarding the scope of powers under section 12AA(3), the Tribunal clarified that the Commissioner can only cancel registration if the trust's activities are not genuine or not in line with its objects. The Tribunal highlighted that the Commissioner failed to establish that the trust's activities were not genuine or did not align with its objects, rendering the cancellation invalid.4. The Tribunal concluded that the amendment to section 2(15) could not serve as the basis for canceling registration granted under section 12A of the Act. It reiterated that the Commissioner's actions did not meet the requirements for cancellation under section 12AA(3), as the trust's activities were not found to be non-genuine or not in accordance with its objects. Therefore, the Tribunal allowed the appeal, ruling in favor of the assessee.In summary, the Tribunal's detailed analysis focused on the limited scope of the Commissioner's powers under section 12AA(3), the inapplicability of the first proviso to section 2(15) on registration matters, and the necessity to fulfill specific requirements for cancellation of registration under section 12AA(3). The judgment emphasized the need for findings on the genuineness of trust activities and alignment with its objects before canceling registration, ultimately ruling in favor of the assessee due to the Commissioner's failure to meet these criteria.