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2016 (6) TMI 489 - BOMBAY HIGH COURT

2016 (6) TMI 489 - BOMBAY HIGH COURT - [2016] 385 ITR 162 - Registration u/s. 12A - whether in view of amended Section 2(15) of the Act, restricting the definition “charitable purpose”, by excluding carrying on any trade, commerce and business in receipt of an amount in excess of ₹ 25 lakhs would by itself entitle the Director of Income Tax to cancel a Registration under Section 12AA (3) of the Act? - Held that:- Circular No.21 of 2016 clearly provides that mere receipts on account of busi .....

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sessment Years, the receipts would fall below ₹ 25 lakhs and therefore, the Commissioner is entitled to cancel the Registration. The aforesaid submission made on behalf of the Revenue is based not on facts as existing but on probability of future events. We are unable to accept the submission based on clairvoyance. Further, we are unable to understand what prejudice is caused to the Revenue since whenever the receipts on account of commercial activities is in excess of the limits provided .....

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anklecha And A. K. Menon, JJ. For the Appellant : Mr. A. R. Malhotra with Mr. N. A. Kazi For the Respondent : Mr. Nitesh Joshi with Mr. A. K. Jasani ORDER P. C. This Appeal under Section 260A of the Income Tax Act, 1961 (the Act), challenges the order dated 10th July, 2013 passed by the Income Tax Appellate Tribunal (the Tribunal)for the Assessment Year 2009-10. 2 The Revenue urges the following questions of law for our consideration: (a) Whether on the facts and in the circumstance of the case .....

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holding that the assessee is entitled for continued registration u/s. 12A of the IT Act, 1961 brushing aside the nature of activities of the assessee viz. Sale of liquor, canteen compensation, guest fees, cards/daily games amounting to ₹ 1,45,99,037/, ₹ 20,67,806/, ₹ 31,50,078/and ₹ 81,883/respectively and in the process ignoring the assessee's proven intention to make profit? (c) Whether on the facts and in the circumstance of the case and in law, the Tribunal was ri .....

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t of an amount in excess of ₹ 25 lakhs would by itself entitle the Director of Income Tax to cancel a Registration under Section 12AA (3) of the Act. 5 The impugned order of the Tribunal allowed RespondentAssesee's appeal by setting aside the cancellation of Registration under Section 12AA (3) of the Act done by the Director of Income Tax (Exemption). This by holding that cancellation of a registration under Section 12AA(3) of the Act is permissible only when the activities of the trus .....

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de, commerce or business. For the present, it is submitted that even if it is assumed to be carrying on trade, commerce or business, the appeal cannot be pressed by the Revenue in view of the binding Circular No.21 of 2016. 7 It would be appropriate to reproduce the above Circular No.21 of 2016 in its entirety as under: (1) Sections 11 and 12 of the Income Tax Act, 1961 ('Act') exempt income of charitable trusts or institutions, if such income is applied for charitable purpose and such i .....

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itution 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 such commercial activities does not exceed ₹ 25,00,000/in the previous year, the purpose of such trust/ institution shall be deemed as 'charitable' despite it deriving consideration from such activities. However, if the aggregate value of these receipts exceeds the spe .....

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15) get substituted by the new proviso introduced w.e.f. 01042016 vide Finance Act, 2015, changing the cutoff benchmark as 20% of the total receipts instead of the fixed limit of ₹ 25,00,000/as it existed earlier. (3) Temporary excess of receipts beyond the specified cutoff in one year may not necessarily be the outcome of alteration in the very nature of the activities of the trust or institution. Hence, section 13 of the Act has been amended vide Finance Act, 2012 by inserting a new subs .....

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ready granted u/s. 12AA to a charitable institution merely on the ground that the cutoff specified in the provision to section 2(15) of the Act is exercised in a particular year without there being any change in the nature of activities of the institution. If in any particular year, the specified cutoff 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) .....

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e 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 12AA(3) and 12AA(4) after carefully examining the applicability of these provisions. (emphasis supplied) It is evident from the aforesaid Circular No .....

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so to section 2(15) of the Act comes into play as receipts are in excess of ₹ 25 lakhs in a year. It also refers to Section 13(8) of the Act which provides that where the receipts on account of commercial activities is in excess of the limit of R.25 lacs provided in second proviso to section 2(15) of the Act, then the Assessing Officer would deny the benefit of registration as a Trust for the subject Assessment Year while framing the Assessment. 9 In response, Mr. Malhotra, learned Counsel .....

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om ₹ 25,00,000/to 20% of the total receipts in respect of its commercial activities. It is also submitted that looking at the quantum of receipts on account of commercial activities it is unlikely/ improbable that in the subsequent Assessment Year, the receipts are to fall below ₹ 25 lakhs. Therefore, the Commissioner is entitled to cancel the Registration under Section 12AA (3) of the Act. 10 We find that the Circular No.21 of 2016 when read as a whole, specifically lists out in par .....

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the Registration granted to the Trust would continue even when the receipts on account of business is in excess of ₹ 25 lakhs. In such case, the Assessing Officer while framing the Assessment for the subject Assessment Year would be entitled to deny the benefit of exemption to such a Trust for that year. 11 The submission made on behalf of the Revenue that the Circular No.21 of 2016 would have only prospective effect in respect of Assessment made subsequent to the amendment under Section .....

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the Officer of the Revenue not to cancel Registration only because the receipts on account of business are in excess of the limits in the proviso to Section 2(15) of the Act would also apply in the present case. The impugned order has held that cancellation of a Registration under Section 12AA(3) of the Act, can only take place in case where the activities of trust or institution are not genuine and/or not carried on in accordance with its objects. The aforesaid Circular No.21 of 2016 is in lin .....

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