Ghatkopar Jolly Gymkhana vs. Director of Income tax (E) In the Income Tax Appellate Tribunal “G” Bench, Mumbai Before D. Karunakara Rao, (A. M.) and Sanjay Garg (J. M) ITA No.882/Mum/2012 Assessment year:2009 -10. Decided on 23/10/2013 Counsel for Assessee / Revenue : A. H. Dalal / Santosh Kumar

Facts
The assessee is a club registered u/s. 12A as a charitable trust. The DIT(E) noticed that the assessee was carrying on activities in the nature of trade, commerce or business and its gross receipts there from during the year were in excess of Rs.10 lacs, the limit then prescribed under second proviso to section 2(15). According to him since the activities of the assessee did not fall within the definition of charitable purpose as defined u/s. 2(15), the assessee trust became non-genuine and as such the provisions of section 12AA(3) got attracted. He accordingly cancelled the registration w.e.f assessment year 2009-10 and declared the assessee as non-charitable trust. Before the tribunal the revenue justified the order of the DIT(E).

Held
According to the tribunal, before the insertion of the second proviso from 01-04-2009, the definition of charitable purpose when read with first proviso was very restrictive. However, by the insertion of the second proviso the rigour of the first proviso has been diluted and is not applicable if the trust carries on business activities and the gross receipts therefrom is Rs. 10 lakh or less. Thus, according to the tribunal, from 01-04-2009 the carrying out of the activities of trade, commerce or business by a charitable trust is not barred so as to exclude its activities from the definition of charitable purposes. However, a limitation has been imposed to the effect that the gross receipts from such activities should not be more than Rs.10 lacs. The tribunal further noted that the use of the term “previous year” in the second proviso is also more relevant. It means the benefits will not be available to the assessee for the assessment year in which the gross receipts exceed the limit of Rs. 10 lakh. It does not mean that such benefits will not be available to the trust in the years during which its receipts does not exceed Rs. 10 lakh. According to the tribunal, in cases where the receipts from the activities in the nature of trade, commerce or business exceed the limit of Rs. 10 lakh, the registration of the trust as the charitable institution does not get affected, rather, it is the eligibility of the said trust to get tax exemption/benefits which gets affected that too for the relevant year during which the gross receipts of the trust crosses the limit of Rs. 10 lakh. For the said proposition, the tribunal also relied on the decision of the Jaipur bench of the Tribunal in the case of Rajasthan Housing Board vs. CIT (2012) 21 Taxmann.com77.

Accordingly, the tribunal held that the action of the CIT(A) in relying upon the second proviso to section 2(15) for cancelling the registration of the trust was not correct or justified. The only effect will be that the Assessee will not be entitled for exemption or tax benefits which otherwise would have been available to it being registered as charitable institution, for the relevant year during which its income has crossed the limit of Rs. 10 lakh. Subject to the same, the tribunal ordered the restoration of the registration granted to the trust.

(Editorial Note: By the Finance Act, 2011 the limit prescribed under second proviso to section 2(15) has been revised to Rs. 25 lakh w.e.f. 01.04.2012)