CIT(E) cannot pass an order denying registration u/s 12AA (without following the procedure of cancellation provided in the Act) from a particular assessment year by taking the ground that lease rental income exceeding Rs. 25 lakhs received from properties held by the trust violated provisions of section 2(15) when such registration was granted in the same order for prior assessment years

13. [2020] 77 ITR (Trib.) 407 (Cuttack)(Trib.) Orissa Olympic Association vs. CIT(E) ITA No.: 323/CTK/2017 A.Y.: 2009-10 Date of order: 6^th December, 2019

CIT(E) cannot pass an order denying registration u/s 12AA (without following the procedure of cancellation provided in the Act) from a particular assessment year by taking the ground that lease rental income exceeding Rs. 25 lakhs received from properties held by the trust violated provisions of section 2(15) when such registration was granted in the same order for prior assessment years

FACTS

The assessee was an association registered under the Societies Registration Act, 1860 since 1961. It had made an application for registration u/s 12A in the year 1997 which was pending disposal. On appeal against the order of assessment for A.Ys. 2002-03 to 2007-08, the Tribunal set aside the assessment pending the disposal of the petition filed by the assessee u/s 12A by the Income-tax authority. Accordingly, following the directions of the Tribunal, the CIT(E) called for information from the assessee society and after considering the submissions, rejected the application of the association. Aggrieved by this order, the assessee approached the Tribunal which, vide order in ITA 334/CTK/2011 directed the CIT(E) to look into the matter of registration afresh, considering the second proviso to section 2(15) as prospective from 1^st April, 2009.

Accordingly, after considering the objects of the assessee, the CIT(E) passed an order stating that the objects of the assessee were charitable in nature and the activities were not carried out with the object to earn profits. Registration was granted from A.Ys. 1998-99 to 2008-09. However, from A.Y. 2009-10 onwards, registration was denied on the ground that income received by the assessee as commercial lease rent was in the nature of trade, commerce, or business and it exceeded Rs. 25 lakhs in all the previous years, thereby violating the provisions of section 2(15) as amended w.e.f. 1^st April, 2009. The assessee filed an appeal against this order before the Tribunal.

HELD

The Tribunal noted that it was an undisputed fact that the CIT(E) had granted registration from A.Y. 1998-99 to 2008-09 after noting that the objects of the assessee were charitable in nature and were not carried out with an object to earn profits. It was held that the lease rent incomes received from the property held under the trust was wholly for charitable or religious purposes and were applied for charitable purposes, hence the same was not exempt in the hands of the assessee. Except lease rent incomes, there was no allegation of the CIT(E) to support that the incomes received by the assessee as commercial lease rent were in the nature of trade or commerce or trade. It was held that the income earned by the assessee from commercial lease rent, which was the only ground of denying the continuance of registration from A.Y. 2009-10 was not sustainable for denying the registration already granted.

It was observed that registration was granted for limited period but was denied thereafter without affording an opportunity to the assessee which was contrary to the mandate of section 12AA(3) and hence denial of registration was unsustainable.

Reliance was placed on the following:

1. Dahisar Sports Foundation vs. ITO [2017] 167 ITD 710 (Mum.)(Trib.) wherein it was held that if the objects of the trust are charitable, the fact that it collected certain charges or receipts (or income) does not alter the character of the trust.

2. DIT (Exemptions) vs. Khar Gymkhana [2016] 385 ITR 162 (Bom. HC) wherein it was held that where there is no change in the nature of activities of the trust and the registration is already granted u/s12A, then the same cannot be disqualified without examination where receipts from commercial activities exceed Rs. 25 lakhs as per CBDT Circular No. 21 of 2016 dated 27^th May, 2016.

3. Mumbai Port Trust vs. DIT (Exemptions) [IT Appeal No. 262 (Mum.) of 2012] wherein it was held that the process of cancellation of registration has to be done in accordance with the provisions of sections 12AA(3) and (4) after carefully examining the applicability of these provisions.

Accordingly, it was held that once the registration is granted, then the same is required to be continued till it is cancelled by following the procedure provided in sub-sections (3) and (4) of section 12AA; without following such procedure, the registration cannot be restricted and cannot be discontinued by way of cancelling the same for a subsequent period in the same order.