2019 (9) TMI 753 - AT - Income Tax

Tribunal reinstates trust's registration under Section 12A, citing lack of jurisdiction & continuity of charitable activities.

Barnala Improvement Trust, Barnala. Versus The C.I.T., Patiala.

The Tribunal held that the Commissioner of Income Tax (CIT) lacked jurisdiction to cancel the registration granted under Section 12A of the Income Tax Act ... Registration u/s 12AA withdrawn - Reason for withdrawing the exemption is the amendment made to section 2(15) of the Act providing that the advancement of any other object of general public utility shall not be a charitable purpose if it involves carrying on and activities in the nature of trade, commerce or business - HELD THAT:- The issue before us being identical to that in the case of Khar Gymkhana [2016 (6) TMI 489 - BOMBAY HIGH COURT] , therefore, we hold, had no jurisdiction to cancel registration granted u/s 12A of the Act, with no change in the object or activities carried out by the assessee trust so as to hold it in-genuine and considering the Circular No.20 of 2016 issued by the CBDT stating so in very clear terms. Considering the entire facts and circumstances of the case, the Ld.CIT had no jurisdiction to cancel the registration granted to the assessee trust u/s 12A - Decided in favour of assessee Issues Involved:1. Cancellation of registration granted under Section 12AA of the Income Tax Act, 1961.2. Interpretation of 'charitable purpose' under Section 2(15) of the Income Tax Act, 1961.3. Applicability of amendments made by the Finance Act, 2008 to the definition of charitable purpose.4. Jurisdiction of the Commissioner of Income Tax (CIT) to cancel the registration.5. Relevance of the CBDT Circular No. 21 of 2016.Detailed Analysis:1. Cancellation of Registration Granted Under Section 12AA:The assessee appealed against the order of the CIT, Patiala, dated 19.1.2012, which withdrew the exemption granted under Section 12A of the Income Tax Act, 1961. The CIT had originally granted registration under Section 12A on 26.4.2006. The withdrawal was based on the observation that the assessee's activities were in the nature of trade, commerce, or business, as evidenced by the auctioning of properties to fetch competitive prices, indicating a profit motive.2. Interpretation of 'Charitable Purpose' Under Section 2(15):The CIT's decision was influenced by the amendment to Section 2(15) of the Act by the Finance Act, 2008, effective from 1.4.2009. The amendment introduced a proviso stating that activities of general public utility would not be considered charitable if they involved trade, commerce, or business. The CIT noted that the assessee's activities, such as selling plots through auction, suggested a commercial motive, leading to the withdrawal of registration.3. Applicability of Amendments Made by the Finance Act, 2008:The assessee contended that its activities had not changed since its registration and were in line with the objectives of the Punjab Town Improvement Trust Act, 1922. The assessee argued that its activities were aimed at town improvement and were not commercial. The Tribunal referred to the Hon'ble Jurisdictional High Court's decision in Improvement Trust Moga Vs. CIT (Exemptions), which held that the trust's activities qualified as charitable.4. Jurisdiction of the CIT to Cancel the Registration:The Tribunal examined whether the CIT had the jurisdiction to cancel the registration under Section 12AA(3) of the Act. The Tribunal referred to the Hon'ble Bombay High Court's decisions in Director of Income Tax (Exemption) vs North Indian Association and Director of Income Tax (Exemption) vs Khar Gymkhana, which held that registration could only be canceled if there was a change in the nature of activities or if the activities were not genuine. The Tribunal noted that there was no change in the assessee's activities and that the CIT's decision was based on the quantum of commercial receipts, which was not a valid ground for cancellation.5. Relevance of the CBDT Circular No. 21 of 2016:The Tribunal highlighted the CBDT Circular No. 21 of 2016, which directed that registration should not be canceled merely because the receipts from commercial activities exceeded the prescribed limit. The Circular clarified that the Assessing Officer could deny exemption for the relevant year if the receipts exceeded the limit, but this did not warrant cancellation of registration. The Tribunal found that the CIT's order contradicted this Circular and lacked jurisdiction.Conclusion:The Tribunal concluded that the CIT had no jurisdiction to cancel the registration granted under Section 12A of the Act, as there was no change in the nature of the assessee's activities. The Tribunal set aside the CIT's order and allowed the appeal, reinstating the registration of the assessee trust under Section 12A of the Act. The Tribunal's decision was based on the principles of judicial precedence, the CBDT Circular, and the absence of any change in the assessee's charitable activities.