Income Tax Appellate Tribunal - Chandigarh
Patiala Urban Planning And Development ... vs Assessee on 4 December, 2015
IN THE INCOME TAX APPELLATE TRIBUNAL
DIVISION BENCH, CHANDIGARH
BEFORE SHRI H.L.KARWA, VICE PRESIDENT
AND MS. RANO JAIN, ACCOUNTANT MEMBER
ITA No.775/Chd/2014
(Under section 12AA(3)
M/s Patiala Urban Planning Vs. The C.I.T.,
& Development Authority, Patiala.
Urban Estate, Phase-II,
Patiala.
PAN: AAALP0095J
(Appellant) (Respondent)
Appellant by : S/Shri Ravi Shankar
& Rohit Kaura
Respondent by : Shri S.K. Mittal, DR
Date of hearing : 09.10.2015
Date of Pronouncement : 04.12.2015
O R D E R
PER RANO JAIN, A.M. :
This appeal filed by the assessee is directed against the order of learned Commissioner of Income Tax, Patiala dated 4.7.2014 passed under section 12AA(3) of the Income Tax Act, 1961 (in short 'the Act') cancelling the registration under section 12AA of the Act.
2. Briefly, the facts of the case are that the registration under section 12AA of the Act was granted to 2 the assessee vide order dated 28.9.2005 by the Commissioner of Income Tax, Patiala.
3. A show cause notice dated 18.3.2014 was issued by the Commissioner of Income Tax proposing to cancel the registration under section 12A of the Act.
4. To bring home the reasons for withdrawal of registration under section 12AA of the Act, elaborate discussion was made by the Commissioner of Income Tax. In view of these observations, the learned Commissioner of Income Tax held that the activities of the assessee are clearly commercial in nature and not charitable right from the very beginning. Since the activities of the assessee fall in the category of "advancement of any other object of general public utility" and this phrase as provided in section 2(15) does not now constitute a charitable purpose, therefore the same is purely commercial in nature in view of the proviso appended to the section. In view of these findings, the learned Commissioner of Income Tax cancelled the registration granted to the assessee under section 12A of the Act.
5. Aggrieved by this order of the learned Commissioner of Income Tax, the assessee has come up in appeal before us. The only grievance of the assessee is that the canceling of registration under section 12AA(3) of the Act is not as per law.
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6. The first contention raised by the learned counsel for the assessee was that the only reason given by the learned Commissioner of Income Tax while withdrawing the registration granted under section 12A of the Act is the amendment brought on the Statute by the Finance Act, 2008 in section 2(15) of the Act. It was stated that the detailed analysis made by the learned Commissioner of Income Tax for withdrawal of the registration was intended to lead to the only conclusion that due to amendment to section 2(15) of the Act, the assessee has lost its nature of being a charitable organization. The argument of the learned counsel for the assessee was that the purpose of proviso to section 2(15) of the Act is to hit any assessee only to the extent that the assessee will not be eligible for exemption under section 11 of the Act, which has to be verified by the Assessing Officer on yearly basis during the assessment proceedings. The mere fact that the assessee has been granted registration under section 12A of the Act or 12AA of the Act as a charitable institution will have no bearing on the denial of registration. The fact that the object of the assessee may be hit by the provisions of section 2(15) of the Act cannot have any bearing on the grant, denial or withdrawal of the registration under section 12A of the Act. In the background of these submissions, it was prayed that the order passed by the learned Commissioner of Income Tax under section 12AA(3) of the Act for 4 cancellation of registration under section 12A of the Act be held to be not as per law.
7. The learned D.R. relied upon the order of the learned Commissioner of Income Tax and stated that in view of the amendment to section 2(15) of the Act and the detailed discussion made by the learned Commissioner of Income Tax, the assessee has certainly lost its character of being a charitable organization. Therefore, the order passed by the learned Commissioner of Income Tax is valid and as per law.
8. We have heard the learned representatives of both the parties, perused the findings of the authorities below and considered the material available on record. The undisputed facts of the case are that the assessee is a society registered under section 12AA of the Act, vide order passed by the learned Commissioner of Income Tax, Patiala dated 28.9.2005, the registration so granted to the assessee has now been withdrawn. From the perusal of the order of withdrawal of registration, we see that the only issue on the basis of which the order is framed is provisions of section 2(15) of the Act, as amended by the Finance Act, 2009, by inserting a proviso to the said section.
9. On the issue that on the basis of amendment to section 2(15) of the Act, the learned Commissioner of Income Tax does not get the power to withdraw or cancel 5 the registration, we are guided by a latest order of the Amritsar Bench of the I.T.A.T. in the case of Kapurthala Improvement Trust Vs. CIT, 60 Taxmann.com 301 (Amritsar-Trib.), whereby it has been held that the consideration of first proviso to section 2(15) of the Act has no role to play in matters relating to registration of a trust or institution under section 12A of the Act in respect of granting or declining of registration or in respect of cancellation. On perusal of the said order, we see that after a detailed discussion on various provisions of the Income Tax Act relating to the charitable activities together with legislative history of the said provisions, the I.T.A.T., Amritsar Bench has held so. The relevant findings of I.T.A.T., Amritsar Bench are at paras 9 and 10 of the order, which read as under :
9. We find that, as learned counsel rightly points out. the scope of powers of the Commissioner under section 12AA(3) for cancellation of registration already granted is very limited in scope in as much as it can only be invoked only when (i) that the activities of the trust are not genuine, and( i i ) 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. Section 12AA(3) specifically provides that when the CIT "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".
It is not even the case of the CIT that the activities of the assessee trust arc "not genuine" or that the "activities of the assessee are not being carried out in accordance with the objects" of the assessee trust. The case of the CIT rests on the 6 first proviso to Section 2(15) coming into play on the facts of this case but then such a factor cannot warrant or justify the powers under section12AA(3)being invoked. We, therefore, uphold the grievance of the assessee that the action of the learned Commissioner, in withdrawing the registration under section 12AA(3), was well beyond the limited scope of the powers conferred on him by the statute. The assessee, therefore, must succeed in the appeal for this short reason alone.
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 close look at the scheme of the Act would unambiguously show this aspect of the matter."
10. On a closer look at the said order of the I.T.A.T., Amritsar Bench, we find that the proposition so laid down by the I.T.A.T., Amritsar Bench is based on the following reasons :
i) The scope of powers of the Commissioner under section 12AA(3) for cancellation of registration already granted is very limited in scope in as much as it can only be invoked only when (i) that the activities of the trust are not genuine, and ( i t ) 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.7
ii) The considerations of first proviso to section 2(15) 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.
iii) What is clear from the riders in the definition of charitable purposes' is that rider set out therein, under first proviso to section 2(15), can only come into play on year to year basis and not in absolute terms. The safeguard against the objects of the trust being vitiated insofar as their character of 'charitable activities' is concerned, is inbuilt in the provisions of section 13(8) which was brought into effect with effect from the same point of time when proviso, to section 2(15)was introduced - i.e. with effect from 1-4-2009, section 13(8).
iv) 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.
v) In order that the benefits under section 11 are declined to the assessee on the ground 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 activities must exceed a specified limit. The second limb of this disability clause needs to be satisfied with respect to each assessment year. Obviously, therefore, this aspect of the matter cannot be examined at the stage of the grant or withdrawal of registration since the registration exercise is a one time exercise and not something which must be done for each assessment year separately.
That is precisely the reason, as noted in the Explanatory Memorandum, as to why the remedy for the activities being hit by the first proviso to section 2(15) lies not in grant, decline or withdrawal of registration but in declining the benefits of exemption under section 11 on that count, on year to year basis, notwithstanding the status of registration. 8
vi) The disentitlement for exemption under section 11, as a result of the activities of an assessee being held to be not for charitable purposes under section 2(15) read with provisos thereto, is in respect of entire income of the assessee trust or institution but only for the assessment year in respect of which the first proviso to section 2(15) is triggered.
vii) If 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 do not exceed specified threshold in a particular assessment year, the assessee will be subjected to undue hardship in the sense that while the assessee will be disentitled to exemption under section 11 due to denial of registration under section 12A or 12AA which is sine qua non for admissibility of exemption under section 11.
viii) The considerations about the possibilities of first proviso to section 2(15) into play are wholly extraneous.
11. In view of the above, respectfully following the order of the Coordinate Bench of the I.T.A.T., Amritsar, we hold that the amendment to section 2(15) of the Act cannot be the basis for cancellation of registration granted earlier under section 12A of the Act.
12. On the second contention of the learned counsel for the assessee, we would also like to hold that the two basic requirements for cancellation of registration as provided under section 12AA(3) of the Act, viz, the findings of the learned Commissioner of Income Tax to the effect that the activities of the assessee are not genuine or the activities are not being carried out in 9 accordance with the objects on the basis of which registration under section 12A of the Act was granted to it, have also not been fulfilled in this case. The learned Commissioner of Income Tax has nowhere given a finding in this regard. It is not the case of the Commissioner of Income Tax that the activities of the assessee are not genuine or not being carried out in consonance with the objects of the assessee. In this view also, the action of the learned Commissioner of Income Tax in canceling the registration is not as per law.
13. In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on this 4th day of December, 2015.
Sd/- Sd/-
(H.L.KARWA) (RANO JAIN)
VICE PRESIDENT ACCOUNTANT MEMBER
Dated : 4 t h December, 2015
*Rati*
Copy to: The Appellant/The Respondent/The CIT(A)/The CIT/The DR.
Assistant Registrar, ITAT, Chandigarh 10