2013 (12) TMI 1701 - AT - Income Tax

Tribunal Remands Registration Cancellation Issue for Fresh Review

The Tribunal concluded that the issue of cancellation of registration under sections 12A/12AA due to amendments in the law requires further factual ... - Issues Involved:1. Whether the registration u/s 12A/12AA of the Income Tax Act, 1961, could be cancelled or withdrawn u/s 12AA(3) in view of the amendment in law by way of substitution of section 2(15) by Finance Act, 2008 w.e.f. 01.04.2009.2. Whether the assessee's activities, in view of interest and rent receipt, are to be regarded as arising in the course of and in furtherance of the objects for which it is established, or is it by way of a commercial exploitation of its resources.Summary:1. Legal Issue: Cancellation of Registration u/s 12A/12AA:The legal issue revolves around whether the registration granted u/s 12A/12AA can be cancelled or withdrawn u/s 12AA(3) due to the amendment in section 2(15) by Finance Act, 2008. The assessee contends that registration once granted can only be reviewed under the terms provided by law, specifically section 12AA(3), which requires a satisfaction that the activities of the trust are not genuine or not carried out in accordance with its objects. The Revenue argues that if the objects of the registered entity are no longer regarded as charitable due to the first proviso to section 2(15), the registration cannot subsist as it becomes inconsistent with the law. The Tribunal noted that the moot point is whether an object that is no longer regarded as charitable under the amended law would still entitle an entity to continue its registration under the Act.2. Factual Issue: Nature of Assessee's Activities:The factual controversy is whether the assessee's activities, particularly the interest and rent receipts, are in furtherance of its objects or constitute commercial exploitation. The assessee, an Authority established under the Mumbai Metropolitan Region Development Act, 1974, argues that its activities, including earning interest and rent, are in furtherance of its objects. The Revenue contends that these activities amount to systematic, commercial exploitation of its assets, thus justifying the withdrawal of registration. The Tribunal found that the assessee has not provided sufficient details to establish that the interest and rent receipts are integral to its functioning and in accordance with its objects.Findings and Conclusion:The Tribunal concluded that the issue of applicability of section 12AA(3) is factually indeterminate and restored the matter back to the Director of Income Tax (Exemptions) for a fresh examination. The DIT(E) is to allow the assessee a reasonable opportunity to present its case and decide the matter per a speaking order and in accordance with law. The DIT(E) should focus on the factual aspect of whether the conditions of section 12AA(3) are satisfied without being influenced by the first proviso to section 2(15). The Tribunal emphasized that the assessee's case would require examination by the tribunal only if it survives the factual test under section 12AA(3).Result:The assessee's appeal is allowed for statistical purposes, and its stay petition is dismissed. The order was pronounced in the open court on December 31, 2013.