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2015 (9) TMI 1012 - ITAT AMRITSAR

2015 (9) TMI 1012 - ITAT AMRITSAR - TMI - Registration u/s 12AA(3) cancelled - some of the objects hit by the first proviso to Section 2(15) - Held that:- As decided in Kapurthala Improvement Trust vs. CIT [2015 (7) TMI 77 - ITAT AMRITSAR ] if the status of registration is to be declined to an assessee only on the ground that some of the objects may be hit by the first proviso to Section 2(15) but the assessee’s receipts from such activities donot exceed specified threshold in a particular asses .....

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threshold, no prejudice will be caused to the legitimate interests of the revenue because, notwithstanding the status of registration and by the virtue of section 13(8), the assessee will not be eligible for exemption under section 11 in respect of such income. It is only elementary that a statutory provision is to be interpreted ut res magis valeat quam pereat, i.e., to make it workable rather than redundant.

The considerations about the possibilities of the first proviso to Section .....

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se considerations, the very foundation of the learned Commissioner’s action is unsustainable in law and consists of reasons which are not at all relevant in the context of registration status under section 12A or 12AA of the Act. For this reason also, the action of the learned Commissioner is wholly devoid of any legally sustainable merits. - Decided in favour of assessee. - I.T.A. No.366/Asr/2012 - Dated:- 31-8-2015 - Pramod Kumar and A.D. Jain, JJ. For The Appellant ; Y.K. Sud For The Responde .....

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ances of the case the Learned Commissioner of Income Tax has erred in law and on facts while cancelling the registration already granted w.e.f. 12.06.2003. 3. That the learned Commissioner of income Tax has not appreciated the facts of the case, explanation offered, amended provisions of section 2(15) w.e.f. 01.04.2009 and proceeded to cancel the registration arbitrarily. 4. That the learned CIT has erred in holding that activities of the trust are in the nature of trade, commerce and business. .....

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d to be restored. 2. Before taking up the matter on merits, it is appropriate to point out that originally this appeal was disposed of by the Tribunal vide order dated 18.12.2012 but when the matter was carried in appeal before their Lordships of Hon ble Punjab & Haryana High Court, their Lordships were pleased to restore the order to the file of Tribunal by observing, inter alia, as follows :- 5. Learned counsel for the appellant submitted that in view of the provisions of 1922 Act, the mat .....

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and the matter is remanded to the Tribunal to decide the same afresh keeping in view the proviso to Section 2(15) of the Act inserted w.e.f. April 1, 2009 with reference to the provisions of the 1922 Act after affording an opportunity of hearing to the parties in accordance with law. Needless to say, anything observed hereinbefore shall not be taken to be expression of opinion on the merits of the controversy. Sincere efforts shall be made to decide the matter expeditiously. As a result, all the .....

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ee not be withdrawn. In response to the show cause notice, the assessee appeared from time to time and submitted that the facts and circumstances of the case do not warrant or justify such a cancellation of registration. However, unimpressed by the arguments of the assessee and having noted that the operations of the assessee are being carried on commercial line generating huge profit, ld. CIT withdrew the registration granted to the assessee on the ground that I am satisfied that the activities .....

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h was heard on 03.06.2015 will apply mutatis mutandis in this case as well. Ld. Departmental Representative, however, vehemently relied upon the stand of the ld. CIT and contended that since the assessee is carrying on the activities which are in the nature of trade, commerce and business, the assessee is not entitled to registration in view of specific provisions of section 2(15) of the Act. 7. We find that in the case of Kapurthala Improvement Trust vs. CIT (supra) vide our order dated 11.06.2 .....

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objects of the trust or the institution. Section 12AA(3) specifically provides that when the CIT is satisfied that the activities of such trust or institution are not genuine or are not being carried out in accordance with the objects of the trust or institution, as the case may be, he shall pass an order in writing cancelling the registration of such trust or institution . It is not even the case of the CIT that the activities of the assessee trust are not genuine or that the activities of the .....

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red on him by the statute. The assessee, therefore, must succeed in the appeal for this short reason alone. 10. There is, however, a much more fundamental a reason for the assessee succeeding in this appeal. In our considered view, the consideration with respect to the first proviso to Section 2(15) coming into the play and, for that reason, the objects of an assessee trust or institution being held to be not covered by the definition of charitable purposes , has no role to play in the matters r .....

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includes relief of the poor, education, medical relief, preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest,] and the advancement of any other object of general public utility: Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activi .....

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efinition 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 same activity can be hit by this rider in one year and thus the assessee trust or institution may not qualify to be existing for charitable purposes , and that very activity of the assessee trust or institution may remain unaffected by the same disabling provision for another year. The reason is that it is not only the .....

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:- Section 13- Section 11 not to apply in certain cases. ……………. (8) Nothing contained in section 11 or section 12 shall operate so as to exclude any income from the total income of the previous year of the person in receipt thereof if the provisions of the first proviso to clause (15) of section 2 become applicable in the case of such person in the said previous year . 13. While introducing this amendment, Explanatory Memorandum to the Finance Bill 2012 (http:/ .....

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Act provides definition of charitable purpose. It includes advancement of any other object of general public utility as charitable purpose provided that it does not involve carrying on of any activity in the nature of trade, commerce or business. 2nd proviso to said section provides that in case where the activity of any trust or institution is of the nature of advancement of any other object of general public utility, and it involves carrying on of any activity in the nature of trade, commerce .....

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from commercial activities. There is, therefore, need to expressly provide in law that no exemption would be available for a previous year, to a trust or institution to which first proviso of sub-section 2(15) become applicable for that particular previous year. However, this temporary excess in one year may not be treated as altering the very nature of the trust or institution so as to lead to cancellation of registration or withdrawal of approval or rescinding of notification issued in respec .....

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ld not be dependent on any withdrawal of approval or cancellation of registration or a notification being rescinded. It is, therefore, proposed to amend ……. section 13…….. of the Act to ensure that such organization does not get benefit of tax exemption in the year in which it s receipts from commercial activities exceed the threshold whether or not the registration or approval granted or notification issued is cancelled, withdrawn or rescinded. This amendment will ta .....

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ion will have no bearing on this denial of registration. As a corollary to this legal position, 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. 15. It is also important to bear in mind the fact that in terms of the second proviso to Section 2(15), which was introduced by the Finance Act 2010 with retrospective effect from 1st April 2009, the legal prescription s .....

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Section 2(15) but also the receipts of the assessee from such activities must exceed a specified limit. The second limb of this disability clause needs to be satisfied with respect to each assessment year. Obviously, therefore, this aspect of the matter cannot be examined at the stage of the grant or withdrawal of registration since the registration exercise is a one time exercise and not something which must be done for each assessment year separately. That is precisely the reason, as noted in .....

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emption under section 11. To the extent income of the assessee arises from the activities hit by the first proviso to Section 2(15) in any assessment year, the assessee will be disentitled for exemption under section 11 to that extent. It is also important to bear in mind the fact that the disentitlement for exemption under section 11, as a result of the activities of an assessee being held to be not for charitable purposes under section 2(15) read with proviso thereto, is in respect of entire i .....

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essee will be disentitled to exemption under section 11 due to denial of registration under section 12 A or 12AA which is sine qua non for admissibility of exemption under section 11. On the other hand, if the status of registration is granted to the assessee even when some of the objects may be hit by the first proviso to Section 2(15) and the assessee s receipts from such activities do exceed specified threshold, no prejudice will be caused to the legitimate interests of the revenue because, n .....

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