High Court quashes CIT & ITAT orders, revives statutory corporation registration. No costs awarded.

The High Court allowed the appeal, quashing the orders made by the CIT and ITAT. The registration held by the statutory corporation was ordered to be revived, with no order as to costs.

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Issues Involved:
1. Whether the Tribunal was justified in comparing the appellant with a private builder and developer and holding that the appellant was carrying on business for profit under the proviso to Section 2(15) of the Income Tax Act.
2. Whether the Appellate Tribunal was justified in sustaining the order under Section 12AA(3) on grounds alien to Section 12AA(3).

Detailed Analysis:

Issue 1: Comparison with Private Builder and Developer
This issue was not directly addressed as the court decided to first resolve the second issue. The court noted that if the second issue was decided in favor of the appellant, it would render the first issue moot.

Issue 2: Justification of Sustaining Order under Section 12AA(3)
The appellant, a statutory corporation established under the Goa, Daman and Diu Industrial Development Corporation Act, 1965 (GIDC Act), was granted registration under Section 12A of the Income Tax Act, which is necessary for claiming exemptions on the ground that the income is expended for charitable purposes. This registration continued until the impugned orders were made.

A show cause notice was issued to the appellant on 12.12.2011 to explain why the registration should not be canceled under Section 12AA(3) on the grounds that the appellant did not fulfill the conditions laid down under Section 2(15) of the Act, particularly after the introduction of the proviso to Section 2(15) with effect from 01.04.2009.

The appellant responded, arguing that the CIT lacked jurisdiction to cancel the registration as the two pre-conditions for invoking Section 12AA(3) were absent. However, the CIT rejected the appellant's contentions and withdrew the registration, stating that the appellant's activities were interconnected with commerce or business.

Upon appeal, the ITAT upheld the CIT's order. The appellant then appealed to the High Court.

The High Court examined Section 12AA(3), which allows the CIT to cancel the registration if the activities of the trust or institution are not genuine or not carried out in accordance with its objects. The court found no categorical findings that the appellant's activities were not genuine or not in accordance with its objects.

The court referenced several judgments to support the appellant's contentions:
1. Khar Gymkhana: The court noted that merely because an institution's receipts exceed Rs. 25 lakhs due to commercial activities does not entitle the CIT to cancel the registration under Section 12AA(3). The jurisdiction to cancel registration arises only if there is a change in the nature of activities or if the activities are not genuine.
2. Maharashtra Housing & Area Development Authority (MHADA): The court observed that the Director had no reason to exercise the power to withdraw registration as there was no indication that the assessee was not a genuine institution or that its affairs were not carried out in accordance with its objects.
3. Karnataka Industrial Area Development Board: The court held that the registration could not be canceled due to the amendment of Section 2(15) as this is not a specified ground for cancellation.
4. Tamil Nadu Cricket Association: The court rejected the contention that post-amendment to Section 2(15), the activities could not be styled as genuine, thus not justifying the exercise of powers under Section 12AA(3).

The High Court concluded that the CIT and ITAT's orders were based almost entirely on the proviso to Section 2(15) and not on the grounds specified in Section 12AA(3). The court emphasized that the Circular No.21/2016 supports the appellant's contentions, reiterating that the process of cancellation must be strictly in accordance with Section 12AA(3).

Conclusion:
The High Court allowed the appeal, answered the substantial question of law in favor of the appellant, and quashed the orders made by the CIT and ITAT. The registration held by the GIDC was ordered to be revived, with no order as to costs.

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