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2016 (6) TMI 1404 - AT - Income TaxExemption u/s 11 - Charitable activity u/s 2(15) - Scope of amendment to section 2(15) basis for cancellation of registration granted earlier u/s 12AA - HELD THAT:- Trust was carrying out activities in accordance with the statute under which it was created the same could be still considered to be non charitable in nature as per section 2(15) - we find has remanded the issue to the Tribunal for fresh examination of this aspect and has further categorically stated that anything observed in the order shall not be taken to be an expression on the merits of the controversy. At this juncture it is pertinent to point out that even the CBDT has vide its Circular No. 21/2016 dt. 27/05/2016 clarified that registration of a charitable institution granted u/s 12AA should not be cancelled merely on account of the proviso to section 2(15) coming into play. Sections 11 and 12 exempt income of charitable trusts or institutions, if such income is applied for charitable purpose and such institution is registered under section 12AA of the Act. An entity, pursuing advancement of object of general public utility, could be treated as a charitable institution in one year and not a charitable institution in the other year depending on the aggregate value of receipts from commercial activities, The position remains similar when the first and second provisos of section 2(15) get substituted by the new proviso introduced w.e.f. 01-04-2016 vide Finance Act, 2015, changing the cut-off benchmark as 20% of the total receipts instead of the fixed limit of ₹ 25,00,000/- as it existed earlier. The temporary excess of receipts beyond the specified cut-off in one year may not necessarily be the outcome of alteration in the very nature of the activities of the trust or institution requiring cancellation of registration already granted to the trust or institution. Hence, section 1 of the Act has been amended vide Finance Act, 2012 by inserting a new sub-section (8) therein to provide that such organization would not get benefit of tax exemption in the particular year in which its receipts from commercial activities exceed the threshold whether or not the registration granted is cancelled. This amendment has taken effect retrospectively from 1st April, 2009 and accordingly applies in relation to the assessment year 2009- 10 onwards. It shall not be mandatory to cancel the registration already granted u/s 11 to a charitable institution merely on the ground that the cut-off specified in the proviso to section 2(15) of the Act is exceeded in a particular year without there being any change in the nature of activities of the institution. If in any particular year, the specified cut-off is exceeded, the tax exemption would be denied to the institution in that year and cancellation of registration would not be mandatory unless such cancellation becomes necessary on the ground(s) prescribed under the Act. The cancellation of registration without justifiable reasons may, therefore, cause additional hardship to an assessee institution due to attraction of tax-liability on accreted income. The field authorities are, therefore, advised not to cancel the registration of a charitable institution granted u/s 12AA just because the proviso to section 2(15) comes into play. The process for cancellation of registration is to be initiated strictly in accordance with section 12 (3) and 12AA(4) after carefully examining the applicability of these provisions. We hold that amendment to section 2(15) of the Act cannot be the basis for cancellation of registration granted earlier under section 12AA of the Act. Thus we set aside the order under appeal and hold that CIT was not justified in canceling the registration in the present case. Appeal of assessee is allowed.
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