Case Law Details
Cancellation of registration of a charitable trust or an institution as per Section 12AA(3)
The proviso to section 2(15) of the Income Tax Act, 1961 (in short “the Act”) has been substituted by the Finance Act, 2015(w.e.f. 1-4-16) which is as follows: 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 activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity, unless—
(i) such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility; and
(ii) the aggregate receipts from such activity or activities during the previous year, do not exceed twenty per cent of the total receipts, of the trust or institution undertaking such activity or activities, of that previous year.
Prior to its substitution, provisos, as amended by the Finance Act, 2010, w.r.e.f. 1-4-2009 and the Finance Act, 2011, w.e.f. 1-4-2012, read as under :
“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 activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity:
Provided further that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is twenty-five lakh rupees or less in the previous year”
The second proviso as above was inserted by the Finance Act, 2010, w.e.f. 1-4-2009(with retrospective effect) and the Finance Act, 2011, w.e.f. 1-4-2012 enhanced the monetary limit to 25 lakh rupees from rupees 10 lakhs as given in the second proviso as above.
Sub-section (3) has been inserted by the Finance (No. 2) Act, 2004, w.e.f.1-10-2004 to section 12AA of the Act. At present, this sub-section incorporates that 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 shall pass an order in writing cancelling the registration of such trust or institution:
Provided that no order under this sub-section shall be passed unless such trust or institution has been given a reasonable opportunity of being heard.
The words ‘Principal Commissioner or’ in the above sub-section have been inserted by the Finance (No. 2) Act, 2014, w.r.e.f. 1-6-2013.
Recently, in CIT-II, Thane vs. The Mumbai Metropolitan Regional Iron and Steel Market Committee [ITA No. 43 of 2015, date of decision 17.07.2017], the Commissioner cancelled the registration of the Respondent invoking its power under Section 12AA(3) of the Act.
The learned counsel of the appellant submitted that notice was issued to the Assessee by the Commissioner for withdrawing registration granted to the Assessee under Section 12A of the Act by invoking its power under Section 12AA (3) of the Act. According to the learned counsel, the proviso to Section 2(15) of the Act as existed then had to be applied while considering the present matter and in view of the said proviso, as the activity of the Respondent involved the carrying on of an activity in the nature of trade, commerce or business, the Respondent did not remain a charitable institution. The action of the Commissioner was justifiable. The Respondent collected fees and cess. In view of that the proviso to Section 2(15), as it existed then, would clearly apply making the Assessee liable for cancellation of its registration. The said aspect had not been considered by the Tribunal in its correct perspective and thereby arrived at erroneous conclusion.
The learned counsel for the Respondent submitted that the Tribunal has rightly considered the provisions of Section 12AA(3) of the Act. The Commissioner had nowhere given a finding that activity of the Respondent was not genuine activity or the activity of the Respondent was not carried out in accordance with the object of the institution. The learned counsel further relied on the CBDT Circular No.21 of 2016, dated 27.05.2016 and the order of Bombay High Court in the case of DIT vs. Khar Gymkhana, reported in [2016] 385 ITR 162 (Bom).
After considering the rival submissions, Hon’ble Judges of the Bombay High Court observed that it was apparent from the record that the Commissioner had invoked its powers under Section 12(AA)(3) of the Act. The said powers are circumscribed by the limitations imposed under Sub Section 3 of Section 12AA of the Act. The Commissioner nowhere gave the finding that the activities of the Respondent institution were not genuine one or that the said activity carried out are not in consonance with the object of the institution. The Commissioner had merely relied on proviso to sub-section (15) of section 2 of the Act, as it stood then. The said proviso has subsequently gone amendment.
The CBDT Circular No.21 of 2016, dated 27.05.2016, has been considered by the Division Bench of Bombay High Court in case of Khar Gymkhana (supra). Even considering the proviso, as it stood then, the case had not been made out so as to invoke Section 12AA(3) of the Act. The Tribunal rightly considered the said aspect. Finally, the learned Judges held that in view of that the Appeal is bereft of any substantial questions of law.
