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2015 (12) TMI 687 - ITAT CHANDIGARH

2015 (12) TMI 687 - ITAT CHANDIGARH - TMI - Registration granted u/s 12A rejected - Held that:- The accounts of the assessee club being maintained in a casual manner, which is one of the observations of the Commissioner of Income Tax cannot be the basis for cancellation. It is not the prerogative of the Commissioner of Income Tax to compare the data of two years as has been done by him as these are the matters which are to be looked in by the Assessing Officer at the assessment stage. In view of .....

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vailing it. This exemption under section 11 of the Act together with the frills attached with it are subject matter of assessments on year to year basis. This is not the end, further conditions and checks are provided under section 13 of the Act also, which provides for 'section 11 not to apply in certain cases'. Provisions of this section are also under the jurisdiction of the Assessing Officer to be carried on during the assessment proceedings. In fact, the whole exemption for the year is forf .....

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he introduction of proviso to section 2(15) of the Act, perhaps, which was at the back of the mind of the learned Commissioner of Income Tax at the point of initiation of these cancellation proceeding. However, that otherwise also, cannot be the basis for cancellation.

The learned Commissioner of Income Tax has also relied upon the judgment CIT Vs. Queen's Educational Society (2007 (9) TMI 347 - UTTARAKHAND HIGH COURT) which is also not applicable to the present case in view of the fa .....

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of Income Tax-I, Chandigarh dated 6.3.2013 passed under section 12AA(3) of the Income Tax Act, 1961 (in short 'the Act'). 2. The facts of the case are that the assessee is a club registered under section 12A of the Act vide order dated 19.12.2000 by the Commissioner of Income Tax, Chandigarh. The assessee received a notice under section 12AA(3) of the Act dated 30.11.2012 by the Commissioner of Income Tax, Chandigarh proposing to cancel registration under section 12A granted to the asses .....

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arned Commissioner of Income Tax in show cause notice. It was further observed that the assessee club is indulged in the activities which are commercial in nature i.e. running of a bar and restaurant, advertisement and publicity, interest income, festival income, rental income, etc. Further, citing the judgment of the Hon'ble Supreme Court in the case of MCD Vs. Children Book Trust (1992) 3SSC 390, wherein the Hon'ble Court held that where a society or body is making systematic profit, e .....

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Income Tax vide his order dated 6.3.2013 held that the activities of the assessee club are not genuine and are not being carried out in accordance with the objects of the trust or institution in terms of section 12AA(3) of the Act. In this way, he cancelled the registration granted to the assessee trust under section 12A of the Act. 4. Aggrieved by the said order, the assessee has come up in appeal before us. 5. During the course of hearing, the learned counsel for the assessee pointed out that .....

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ce is dated 30.11.2012, which is only eight months after the order dropping the earlier show cause. What prompted the learned Commissioner of Income Tax to change his stance within a period of eight months is really doubtful. Further, it was submitted that the main basis of the learned Commissioner of Income Tax rejecting the registration under section 12A of the Act was the proviso inserted to section 2(15) of the Act. While there are a number of orders of the various Benches of the Tribunal, w .....

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are being carried on not as per the objects on the basis of which registration under section 12A of the Act was granted to it or the activities carried on by the assessee are not genuine. Neither of these conditions are fulfilled in this case. Therefore, it was prayed that the order under section 12AA(3) of the Act made by the learned Commissioner of Income Tax be quashed. 6. The learned D.R. relied upon the order of the Commissioner of Income Tax and further submitted that the assessee club is .....

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rd the learned representatives of both the parties, perused the findings of the authorities below and considered the material available on record. Before adjudicating the issue in question, we would like to summarize the reasons given by the learned Commissioner of Income Tax in his order for cancellation of registration under section 12A of the Act. We have very carefully perused the order of the learned Commissioner of Income Tax running into 23 pages, which starts with stating the fact that t .....

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ct of general public utility" would no longer be a charitable purpose if it involved carrying on of any activity in nature of trade, commerce or business. Thereafter the learned Commissioner of Income Tax referred to the fact that on an earlier occasion also, a show cause notice under section 12AA(3) of the Act was issued to the assessee, which was later on dropped by the Commissioner of Income Tax, Chandigarh vide his order dated 29.3.2012. After that the Commissioner of Income Tax analyze .....

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pay such a huge amount. iv) Exorbitant fee is to be paid by a person while playing the golf. A charitable institute is usually envisaged as providing services either free of cost or on subsidized or discounted rates and not for gain. v) The contention of the assessee that the club being a mutual association, the learned Commissioner of Income Tax distinguished it stating that similar treatment is given to the members as well as non members. vi) The assessee club is earning income from the activi .....

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he assessee club has earned substantial interest income also. ix) The accounts of assessee club are being maintained in a very casual manner. 8. After discussing all the above issues in detail stating the facts and figures of various years, the Commissioner of Income Tax further compared the data of two years i.e. assessment years 2011-12 and 2012-13 and held that the assessee club is not primarily working for the promotion of game of golf but in the garb, it is rampantly engaged in providing it .....

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n the said paragraph of his order, the learned Commissioner of Income Tax held that the activities of the assessee are not genuine and are not being carried out in accordance with the objects of the trust or institution in terms of section 12AA(3) of the Act and so the registration granted under section 12A to the assessee was cancelled. 9. It is a fact on record that the assessee club was formed for the purpose of providing facilities for development of golf. It was provided registration under .....

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ch is also there in the impugned order. The said show cause notice was dropped by the learned Commissioner of Income Tax vide order dated 29.3.2012, which was annexed at page 106 of the Paper Book. In this order, it has been stated that the show cause was being dropped after considering the position of laws, facts of the case as applicable to the assessee and reply of various issues given by the assessee. We also observe that in a gap of only eight months another show cause under section 12AA of .....

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Book, which is only one page registration certificate. Since the certificate is dated 19.12.2000, we see that the condition mentioned by the learned Commissioner of Income Tax at point No.(viii) that the assessee shall not indulge in any activity within the meaning of proviso to section 2(15) of the Act, cannot be one of the conditions of granting registration, as the proviso to section 2(15) of the Act has only been inserted by the Finance Act, 2008 only. The registration being granted in the .....

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ons for the learned Commissioner of Income Tax to cancel the registration granted under section 12A of the Act. However, we may point out that the proviso to section 2(15) of the Act cannot be the basis for cancellation of registration under section 12A of the Act. The reliance placed by the learned counsel for the assessee on the order of the Amritsar Bench in the case of Kapurthala Improvement Trust (supra) is not out of place, whereby in very clear terms it has been held that the basis for ca .....

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2AA [(3) Where a trust or an institution has been granted registration under clause (b) of sub-section (1) [or has obtained registration at any time under section 12A [as it stood before its amendment by the Finance (No. 2) Act, 1996 (33 of 1996)]] and subsequently the [Principal Commissioner or] Commissioner 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 .....

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r institution are genuine or not and whether the activities are being carried on in accordance with the objects of the trust. The cancellation of registration earlier granted under section 12A of the Act, invoking the provision of section 12AA(3) of the Act, can be done only on satisfaction of the Commissioner of Income Tax, on any of the following conditions : i) The activities of the trust are not being carried out as per the objects for which registration under section 12A of the Act was gran .....

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d an overall view of all the facts and circumstances has to be taken. For illustrative purposes, we can perceive a situation where in the garb of charity benefit to specific persons are being provided or no charity at all is being done or charity is being camouflaged for the purposes of some other ulterior motive. Therefore, the Commissioner of Income Tax while canceling the registration has to give a finding, if the activities of the trust are not genuine or these activities are not being carri .....

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s prior to the issue of show cause under section 12AA(3) of the Act by the Commissioner of Income Tax. The assessment order, Commissioner of Income Tax (Appeals) orders and the orders of the I.T.A.T. for various assessment years are part of the Paper Book filed by the assessee and in all the years the activities of the assessee club are held to be charitable in nature. Therefore, we cannot question the nature of the activities of the club not being charitable. 15. Though in the present case, the .....

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o drawn by him is correct or not. 16. From the perusal of the said allegations made by the learned Commissioner of Income Tax, we see that the learned Commissioner of Income Tax is heavily weighed down by the fact that the assessee club is earning money by different ways including membership fee, rent, interest, etc. Nowhere in his order the learned Commissioner of Income Tax has been able to bring on record that the activities of the club are not for the furtherance of the development of the ga .....

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that the income or receipts accruing to the assessee are being applied for the benefit of some specific person. The learned Commissioner of Income Tax himself has stated at page 17 in para 24 of his order that it is a fact that no activity can be carried on efficiently and properly unless and until it is carried out on business principles. Somewhere else in his order, he himself has stated that there is no discrimination between members and non-members with regard to the admission to the club. .....

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registration granted under section 12A of the Act. If any of the activities of the club seems to be commercial in nature to the Commissioner of Income Tax, which is not a dominant activity of the assessee, it is for the Assessing Officer to consider while giving exemption under section 11 of the Act and not for the Commissioner of Income Tax for cancellation of registration once granted under section 12A of the Act. At most, this can be considered at the time of granting registration under secti .....

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tivities for which the club could not have indulged into. The accounts of the assessee club being maintained in a casual manner, which is one of the observations of the Commissioner of Income Tax cannot be the basis for cancellation. It is not the prerogative of the Commissioner of Income Tax to compare the data of two years as has been done by him as these are the matters which are to be looked in by the Assessing Officer at the assessment stage. In view of these, we do not find that the conclu .....

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any assessee under section 12A of the Act does not give it a blanket permission to avail exemption under section 11 of the Act. Section 11 provides for exemption of 'income from property held for charitable or religious purposes'. This gives the computational provision for availing exemption, which is not free from conditions and provision at every stage of availing it. This exemption under section 11 of the Act together with the frills attached with it are subject matter of assessments .....

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