2019 (7) TMI 1914 - AT - Income Tax

Trust's Commercial Activities Lead to Cancellation of Registration & Exemptions

The Tribunal upheld the cancellation of the registration granted to the assessee trust under section 12AA of the IT Act, as the trust's activities, ... Exemption u/s 11 - withdrawing/cancellation of the registration granted u/s 12AA - Whether CIT (E) has erred on facts and in law in cancelling the registration granted to the assessee trust u/s 12AA(3) by incorrectly holding that activities of the trust are not as per its objects and therefore not genuine? - HELD THAT:- CIT (Exemptions) has followed the decision of CIT vs. Annadan Trust [2018 (8) TMI 518 - KERALA HIGH COURT] which in our view is squarely applicable in the facts of the present case where the assessee is engaged in the activities which are sponsored by the Pharmaceutical companies (MNCs) in their regular business activity. Accordingly, in view of the above facts, we do not find any error or illegality in the impugned order of the ld. CIT (Exemptions). A/R has not disputed that the impugned order passed by the ld. CIT (Exemptions) is consequent to the order passed u/s 12AA(3) - In view of our finding on the appeal challenging the cancellation of registration u/s 12AA, the appeal challenging the order passed under section 80G(5) has no merit or substance. Issues Involved1. Cancellation of registration granted under section 12AA of the IT Act.2. Rejection of application for approval of exemptions under section 80G of the IT Act.Detailed Analysis1. Cancellation of Registration under Section 12AAThe primary issue in this appeal is whether the cancellation of the registration granted to the assessee trust under section 12AA by the CIT (Exemptions) was justified. The CIT (Exemptions) observed that the trust was engaging in activities that were not in accordance with its stated objects, specifically conducting clinical trials sponsored by multinational pharmaceutical companies (MNCs). The CIT (Exemptions) issued a show-cause notice and subsequently cancelled the registration, concluding that the activities were not genuine and were not carried out as per the trust's objectives.The assessee argued that the clinical trials were philanthropic activities aimed at medical advancement, which aligned with the trust's object of carrying out medical projects to alleviate human suffering. The assessee contended that the receipt of fees from MNCs did not alter the charitable nature of the activities, as the fees were utilized for conducting trials and organizing free medical camps.The Revenue countered that the clinical trials were conducted on behalf of MNCs, with the end products owned by these companies, thus constituting commercial activities rather than charitable ones. The Revenue emphasized that the assessee's activities were primarily business-oriented and not for public benefit.The Tribunal noted that the trust's objects included relief of poverty, medical relief, and advancement of education. However, the clinical trials were conducted under contracts with MNCs, with the outcomes owned by the sponsors, indicating a commercial nature. The Tribunal found that the predominant activity of the trust was conducting clinical trials, with minimal expenditure on other charitable activities. Consequently, the Tribunal upheld the CIT (Exemptions)'s decision to cancel the registration under section 12AA, citing the decision of the Kerala High Court in CIT vs. Annadan Trust, which held that activities benefiting commercial entities cannot be deemed charitable.2. Rejection of Application for Approval under Section 80GThe second issue pertains to the rejection of the assessee's application for approval of exemptions under section 80G. The CIT (Exemptions) rejected the application following the cancellation of the registration under section 12AA. The assessee argued that the rejection was erroneous.The Tribunal noted that the rejection of the section 80G approval was a direct consequence of the cancellation of the section 12AA registration. Given the Tribunal's decision to uphold the cancellation of the section 12AA registration, the appeal against the rejection of the section 80G application was also dismissed.ConclusionThe Tribunal found that the activities of the assessee trust, primarily conducting clinical trials for MNCs, were commercial in nature and not aligned with the trust's stated charitable objectives. Consequently, the cancellation of the registration under section 12AA and the rejection of the application for approval under section 80G were upheld. Both appeals by the assessee were dismissed.