TMI Blog2016 (5) TMI 930X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the activities of the assessee were not genuine since it was not charitable in view of the first proviso to section 2(15) of the Act. The applicability of the proviso will have to be examined every year and thus cannot be the basis of granting or cancelling registration u/s 12AA. Moreover, the legislature has provided a safeguard against the objects being vitiated on account of the first proviso by virtue of section 13(8), which was brought into effect from the same point of time when proviso to section 2(15) was introduced i.e. w.e.f. 01.04.2009, which provides for denial of exemption of income u/s 11 in the year in which the first proviso becomes applicable. Thus, legally the impact of the proviso to section 2(15) being attracted is that the assessee will not be eligible for exemption u/s 11 of the Act. As a corollary to this legal position, registration u/s 12AA cannot be impacted by the object being hit by the first proviso to section 2(15). The grant of registration u/s 12AA(1)(b) requires satisfaction about the objects of the trust as well as genuineness of the activities, while for cancellation u/s 12AA(3) all that is insisted upon is the satisfaction as to whether ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 21.10.2010. Subsequently the definition of the term charitable purpose provided in clause (15) of section 2 was amended by Finance Act, 2008 w.e.f. A.Y. 2009-10 and a proviso was included which stated that advancement of any other object of general public utility would not be a charitable purpose if it involved the carrying on of any activity in the nature of trade, commerce or business. The Ld. CIT held that the activities carried out by the assessee were in the nature of commerce or business and therefore fell under the exclusion provided in the first proviso to section 2(15). He therefore, held that the activities of the assessee were not for charitable purpose and hence not genuine. He therefore cancelled the registration granted to the assessee u/s 12A by exercising his powers u/s 12AA(3) of the Act. 3. Aggrieved by the same the assessee filed the present appeal before us raising the following grounds : 1. That, having regard to the facts and circumstances of the case, the Ld. Commissioner of Income Tax-II (hereinafter referred to as CIT-II)has erred in canceling the registration U/s 12AA(3) and that too retrospectively from A.Y. 2009- 10. 2. That, in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the power of cancellation of registration u/s 12AA(3) can be exercised only when the Ld.CIT is satisfied that the activities of the trust or institution are not genuine or are not being carried out in accordance with the objects as available at the time of grant of registration. The proviso to section 2(15) cannot be applied to review / withdraw/ cancel registration u/s 12AA(3). Ld. AR stated that the assessee is carrying out activities in accordance with its objects and the receipts being earned by it are as prescribed by the state government, which the assessee has no power to change. 6. Ld. AR relied upon a number of case laws in support of its arguments: 1. CIT Vs. Varanasi Catholic Education Society [(2014) 47 Taxmann.com 184 (High Court, Allahabad)] 2. CIT Vs. Lucknow Development Authority [( 2013) 38 Taxmann.com 246 (High Court, Allahabad) 3. Agra Development Authority Vs. CIT [(2013) 31 Taxmann.com 40 (ITAT Agra Bench) 4. Mathura Development Authority Vs. CIT [(ITA No. 13/Agra/2013 dt. 19.07.2013 (ITAT Agra Bench)] 5. Jaipur Development Authority Vs. CIT [(2014) 52 Taxmann.com 25 (ITAT Jaipur Bench)] 6. Kapurthala Development Trust Vs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of amendment to section 2(15), the Commissioner has the power to cancel registration or not has been dealt by the Hon ble Madras High Court in the case of Tamil Nadu Cricket Association Vs. DIT (Exemption) (2013) 40 tamann.com 250, deciding the issue in favour of the assessee. The Hon ble High Court held that cancellation of Registration granted under section 12A could only be in terms of section 12AA(3) of the Income Tax Act, as per which if the Commissioner is satisfied that the activities of the institution are not genuine or they are not carried on in accordance with the trust / institution he could pass an order in writing cancelling the registration of such trust or institution. Thereafter, the Hon ble High Court held that the power of cancellation has to be seen with reference to the registration and the object satisfying the definition of charitable purpose as it stood at the time of registration. The Hon ble High Court held at para 43 45 and 48 of its order as follows: 43. Leaving that aside, there being no dispute raised by the Revenue as to the genuineness of the trust, or as to the activities of the trust not being in accordance with the object of the trust, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the association befitting the status as charitable purpose as defined under Section 2(15), as it stood in 2003 and after granting the registration, if the registration is to be canceled, it must be only on the grounds stated under Section 12AA(3) of the Act with reference to the objects accepted and registered under Section 12AA, as per the law then stood under the definition of Section 2(15) of the Income Tax Act. Even therein, Courts have defined as to when an institution could be held as one for advancement of any other object of general public utility. Thus, if a particular activity of the institution appeared to be commercial in character, and it is not dominant, then it is for the Assessing Officer to consider the effect of Section 11 of the Act in the matter of granting exemption on particular head of receipt. The mere fact that the said income does not fit in with Section 11 of the Act would not, by itself, herein lead to the conclusion that the registration granted under Section 12AA is bad and hence, to be cancelled. 48. It is no doubt true that the decision reported in the case of Surat City Gymkhana (supra) was in the context of Section 10(23) of the Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion under Section 11 of the Act. But this, by itself, does not result in straight rejection of the registration as trust under Section 12AA of the Act. Consequently, we reject the prayer of the Revenue that Section 12AA(1) of the Income Tax Act, 1961 must be read along with Section 12AA(3) of the Income Tax Act, 1961 before considering the cancellation. The court further held at para 51 of its order that the question whether a particular income (being income from holding of maches in the impugned case) qualified under section 11 of the Act was not the same as the activity being genuine or not and which was the issue to be addressed for the purpose of cancelling registration under section 12AA(3) of the Act. The court further held that undeniably the Commissioner having satisfied himself about the objects of the Trust and the genuineness of the activities as falling within the meaning of charitable purpose, while granting registration and there being no change in the objects of the assessee for invoking section 12AA r.w.s 2(15) of the Act, the Revenue would have to demonstrate that the activities did not fit with the objects of the Association and the dominant activities wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he recipient of the revenue. Thus, for invoking Section 12AA read with Section 2(15) of the Act, Revenue has to show that the activities are not fitting with the objects of the Association and that the dominant activities are in the nature of trade, commerce and business. We do not think that by the volume of receipt one can draw the inference that the activity is commercial. The Income Tax Appellate Tribunal s view that it is an entertainment and hence offended Section 2(15) of the Act does not appear to be correct and the same is based on its own impression on free ticket, payment of entertainment tax and presence of cheer group and given the irrelevant consideration. These considerations are not germane in considering the question as to whether the activities are genuine or carried on in accordance with the objects of the Association. We can only say that the Income Tax Appellate Tribunal rested its decision on consideration which are not relevant for considering the test specified under Section 12AA(3) to impose commercial character to the activity of the Association. In the circumstances, we agree with the assessee that the Revenue has not made out any ground to cancel the reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12AA cannot be impacted by the object being hit by the first proviso to section 2(15). This view has been upheld by the Amritsar Bench of ITAT in the case of Kapurthala Development Trust Vs. CIT in ITA No 732 of 2013 dt. 11/06/2015 wherein it was held as follows: 10. There is, however, a much more fundamental a reason for the assessee succeeding in this appeal. In our considered view, the considerations 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 , 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, even if otherwise permissible, of a registration. A closer look at the scheme of the Act would unambiguously show this aspect of the matter. 11. Let us begin by taking a look at Section 2(15) which defines charitable activities and first and second provisos thereto. These statutory provisions are as follows: (15) charitable purpose includes relief o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h person in the said previous year . 13. While introducing this amendment, Explanatory Memorandum to the Finance Bill 2012 (http://indiabudget.nic.in/budget2012-2013/ub2012-13/mem/mem1.pdf) explained the reasons and backdrop of this legislative amendment as follows: Assessment of charitable organization in case commercial receipts exceed the specified threshold Sections 11 and 12 of the Act exempt income of any charitable trust or institution, if such income is applied for charitable purposes in India and such institution is registered under section 12AA of the Act. ... Section 2(15) of the 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 or business; but the aggregate value of receipts from the commercial activities does ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tration under section 12 A or 12AA as a charitable institution 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 set out in first proviso to section 2(15) cannot come into play if the aggregate value of the receipts from the activities referred to therein is twenty-five lakh rupees or less in the previous year . Clearly, therefore, in order that the benefits under section 11 are declined to the assessee on the ground I.T.A. No. 732 (Asr) of 2013 Assessment year: 2009-10 Page 10 of 12 that it is engaged in such activities as may be hit by the first proviso to Section 2(15), not only the assessee must be engaged in carrying out such activities as may hit the first proviso to Section 2(15) but also the receipts of the assessee from such acti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment year: 2009-10 Page 11 of 12 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. 18. The considerations about the possibilities of the first proviso to Section 2(15) coming into play affecting the grant, decline or withdrawal of registration under section 12AA will thus lead to wholly avoidable undue hardships to the assessee, will be unworkable in practice and be contrary to the scheme of the Act. 19. In view of the above discussions, in our considered view, the considerations about the possibilities of first proviso to Section 2(15) into play are wholly extraneous in the present context. As the withdrawal of registration is solely based on these 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 registr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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