Registration u/s 12AA cannot be denied by invoking provisions of section 2(15)

Issue before tribunal:

The sole issue involved in appeal before tribunal is that whether registration u/s 12 AA can be withdraw by invoking provision of section 2 (15) of the IT Act.

Brief facts:

• Assessee trust was incorporate under Punjab Town Improvement Act, 1922 on 22.09.2005.
• Assessee filed application to seek registration u/s 12 AA which was rejected by CIT (A) but on appeal ITAT held assessee entitled to the benefit of registration. Revenue challenged order before High Court but did not succeed.
• Subsequently CIT, in view of amendment in section 2(15) of IT Act and relying on the decision of ITAT, Amritsar in the case of Improvement Trust Phagwara, cancelled the registration of the trust u/s 12AA w.e.f. 01.04.2009 by holding that assessee is not doing activities of charitable purposes.

Contention of the revenue:

• As per provisions of second proviso to section 2(15) section 13(8) and proviso to 143(3) of I.T. Act the assessee has to be treated as a taxable entity, as it is now here brought on records that in any of the AYs its receipts are below Rs.25 Lacs. In any case when after amendments as referred above and in view of the decisions of Hon’ble ITAT, Amritsar (supra) the benefit of exemption u/s. 12AA of I.T. Act is not available to assessee.
• The activities of the assessee are not charitable in nature within the meaning of proviso to section 2 (15) of the IT Act.
• The advancement of any object of general public utility shall not be a charitable purpose if it involves the carrying on any activity in the nature of trade, commerce & business.
• Assessee is engaged in the trade of real estate business with a profit motive, its engagement in any of the activities as stated above will not affect its character as such since the proviso provides that the advancement of any other object of general public utility shall not be regarded as charitable purpose.

Contention of the assessee:

• The scope of powers of the Commissioner under section 12AA (3) for cancellation of registration already granted is very limited in scope inasmuch as it can only be invoked only when (i) that the activities of the trust are not genuine, and (ii) that the activities of the trust or the institution are not being carried out in accordance with the objects of the trust or the institution.

• The assessee pointed out that Section 12AA (3) mandates cancellation of registration on satisfaction of the two conditions mentioned above.
• As per CBDT Circular no. 11/2008 “What is the advancement of any other object of general public utility is a question of fact that whether an entity is carrying on an activity in the nature of trade, commerce or business is a question of fact which will be decided on the nature, scope, extent and frequency of the activity. In para 3.2 of this circular it is further mentioned that each case would, therefore, be decided on its own facts and no generalization is possible”.
• Hon’ble High Court of Punjab & Haryana have already held and approved object of the improvement trust as charitable in appeal filed by revenue against the order of ITAT granting registration to assessee.

Held by the court:

• Tribunal while allowing appeal held that the scope of powers of commissioner u/s 12 AA (3) for cancellation of registration already granted is limited in scope and it can be invoked only in two situations.
• 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.
• 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 assessment year, the assessee will be subjected to undue hardship.
• Proviso to section 2 (15) cannot be applied to the case of assessee as condition mentioned in second proviso is not fulfilled where it is mentioned that “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”.

Comments:

Once the registration u/s 12AA granted to trust and the activities of the trust are genuine and as per object of the trust, CIT or any other authority empowered in this behalf cannot cancel registration on ground of involvement of trust in any activity other than charitable purpose. Proviso to section 2 (15) cannot be invoked in case of assessee and the applicability of this proviso should be assessed on year to year basis and not on the entire income of the trust.