Charitable registration cannot be cancelled merely for alleged commercial activity where development objects and functions continue.

Registration under section 12AA(3) may be cancelled only where the objects are not genuine or the activities are not carried out in accordance with those objects; a mere allegation of commercial activity is insufficient. The assessee's developmental and public utility functions, including housing, roads, civic amenities, parks and other area-development works, were treated as consistent with its statutory objects. Sale of land by auction and development agreements were also viewed as compatible with the governing urban development framework. The proviso to section 2(15) did not, by itself, justify cancellation of registration at that stage, and the cancellation order was set aside.

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Issues: Whether registration granted under section 12AA(3) could be cancelled on the ground that the assessee was carrying on commercial activities, acting contrary to its objects, and attracting the proviso to section 2(15) of the Income-tax Act, 1961.

Analysis: The registration could be cancelled only if the objects were not genuine or the activities were not carried out in accordance with the objects. The record showed continuing developmental and public utility activities such as housing for weaker sections, roads, amenities, parks, civic infrastructure and other area-development works. The sale of lands by auction and entry into development agreements were found to be consistent with the statutory framework governing the authority under the Andhra Pradesh Urban Areas (Development) Act, 1975, including the powers relating to development, disposal of land, government directions, and fund management. The finding that the assessee had abandoned its objects or acted as a realtor was held to be unsupported by material. The proviso to section 2(15) was also held not to justify cancellation of registration at this stage.

Conclusion: Cancellation of registration was not justified and the registration granted under section 12AA was restored.

Final Conclusion: The assessee was found to have continued its statutory and developmental objects, and the impugned cancellation order was set aside.

Ratio Decidendi: Registration under section 12AA(3) cannot be cancelled unless the revenue establishes that the objects are not genuine or that the activities are not being carried out in accordance with those objects; application of section 2(15) alone does not warrant cancellation.

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