2016 (1) TMI 978

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.... was engaged in commercial and business activities and, therefore, the activities were not charitable in nature as per the amended provisions of section 2(15) of the Act. The Assessing Officer also referred the matter to the Commissioner of Income Tax for cancellation of registration granted to it under section 12A of the Act. On receipt of a show cause notice dated 15.3.2012 by the Commissioner of Income Tax proposing to cancel the registration under section 12A of the Act, it was submitted by the assessee that the registration under section 12A of the Act was also cancelled earlier by the Commissioner of Income Tax-II, Chandigarh vide order dated 31.3.2009 on the grounds that the activities of the assessee were not charitable and that the said order has become subject matter of an appeal filed by the Department before the Hon'ble High Court of Punjab & Haryana High Court as the assessee had succeeded in an appeal before the I.T.A.T. Further, it was contended that the amendment effected in section 12AA(3) of the Act should become operative w.e.f. 1.6.2010 and not retrospectively. Hence, the assessee should at least continue to enjoy registration under section 12A of the Act ti....

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....ct, the assessee has lost the status of charitable organization as all its activities are being carried on commercial line for cess, fee or other consideration. (iv) The assessee society has lost the nature of charitable activities in view of the amendment in section 2(15) of the Act as this organization is running entire affairs on commercial lines. 4. To bring home these reasons for withdrawal of registration under section 12A of the Act, elaborate discussion was made by the then Commissioner of Income Tax. In view of these observations, the learned Commissioner of Income Tax held that the entire character and focus of PCA is purely of commercial intent with an eye on generating huge profits with no element of charity in such activities. The learned Commissioner of Income Tax also held that the assessee does not qualify to be regarded as a charitable society for the reasons discussed in detail by the earlier Commissioner of Income Tax in order dated 31.3.2009. Since the activities of the assessee fall in the category of "advancement of any other object of general public utility" and this phrase as provided in section 2(15) does not now constitute a charitable purpose,....

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....n nature in view of the insertion of the proviso to section 2(15) of the Act. The argument of the learned counsel for the assessee was that the purpose of proviso to section 2(15) of the Act is to hit any assessee only to the extent that the assessee will not be eligible for exemption under section 11 of the Act, which has to be verified by the Assessing Officer on yearly basis during the assessment proceedings. The mere fact that the assessee has been granted registration under section 12A of the Act or 12AA of the Act as a charitable institution will have no bearing on the denial of registration. The fact that the object of the assessee may be hit by the provisions of section 2(15) of the Act cannot have any bearing on the grant, denial or withdrawal of the registration under section 12A of the Act. In the background of these submissions, it was prayed that the order passed by the learned Commissioner of Income Tax under section 12AA(3) of the Act for cancellation of registration under section 12A of the Act be held to be not as per law. 7. The learned D.R. relied upon the order of the learned Commissioner of Income Tax and stated that in view of the amendment to section 2(15)....

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.... the assessee under section 12A of the Act in view of the fact that by virtue of amendment in section 12AA(3) of the Act by the Finance Act, 2010, the power has been conferred to the Commissioner of Income Tax to cancel the registration granted under section 12A of the Act also. 9. To that extent, we agree with the observation of the learned Commissioner of Income Tax that the appeal of the assessee being allowed by the Tribunal on earlier occasion on the basis of the fact that at that time, the learned Commissioner of Income Tax did not have any power to do so has no bearing on the power of the learned Commissioner of Income Tax after the said amendment. However, we also see that the amendment to section 12AA(3) of the Act giving power to the Commissioner of Income Tax to cancel the registration granted under section 12A of the Act has been conferred by the Finance Act,. 2010, which explicitly provides that the said powers are available to the Commissioner of Income Tax w.e.f. 1.6.2010 and the same accordingly can be applied for assessment year 2011-12 and subsequent assessment years. For this, our attention was invited to the explanatory notes to the provisions of Finance Act,....

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....ower to withdraw or cancel the registration, we are guided by a latest order of the Amritsar Bench of the I.T.A.T. in the case of Kapurthala Improvement Trust v. CIT [2015] 60 taxmann.com 301 (Amritsar-Trib), whereby it has been held that the consideration of first proviso to section 2(15) of the Act has no role to play in matters relating to registration of a trust or institution under section 12A of the Act in respect of granting or declining of registration or in respect of cancellation. On perusal of the said order, we see that after a detailed discussion on various provisions of the Income Tax Act relating to the charitable activities together with legislative history of the said provisions, the I.T.A.T., Amritsar Bench has held so. The relevant findings of I.T.A.T., Amritsar Bench are at paras 9 and 10 of the order, which read as under : 9. We find that, as learned counsel rightly points out. the scope of powers of the Commissioner under section 12AA(3) for cancellation of registration already granted is very limited in scope in as much as it can only be invoked only when (i) that the activities of the trust are not genuine, and(ii)that the activities of the trust or....

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....eing carried out in accordance with the objects of the trust or the institution. (ii) The considerations of first proviso to section 2(15) have no role to play in the matters relating to registration of a trust or institution under section 12A or 12AA -whether in respect of granting or declining of a registration or in respect of cancellation. (iii) What is clear from the riders in the definition of charitable purposes' is that rider set out therein, under first proviso to section 2(15), can only come into play on year to year basis and not in absolute terms. The safeguard against the objects of the trust being vitiated insofar as their character of 'charitable activities' is concerned, is inbuilt in the provisions of section 13(8) which was brought into effect with effect from the same point of time when proviso, to section 2(15)was introduced - i.e. with effect from 1-4- 2009, section 13(8). (iv) The fact that the objects of the assessee may be hit by the proviso to section 2(15) cannot have any bearing on the grant, denial or withdrawal of the registration under section 12AA. (v) In order that the benefits under section 11 are decl....