Charitable Institution- Registration of a charitable institution granted u/s. 12AA – cancellation of registration is to be initiated strictly in accordance with sections 12AA (3) and 12AA (4):
The assessee came into being by virtue of Deed of Trust dated 04.10.1934 for the promotion of sports, physical culture and social inter-course among members. The assessee trust had facilities such as promotion and advancement of games like cricket, tennis, badminton, a library consisting of sports books and periodicals, other indoor and outdoor games facilities. The CIT, Bombay City IV, allowed the registration of the trust u/s. 12A(a). Since then, the assessee was enjoying the exemption granted by the Income Tax department.
In the assessment proceedings for AY : 2009-10, the AO came to a conclusion that the assessee trust was carrying on the activities, which were in the nature of trade, commerce, business etc. This, he concluded by noticing that out of the receipts, the assessee had earned income by the sale of liquor at Rs. 1,45,99,037/-, canteen compensation at Rs. 20,67,807/- card and daily games at Rs. 81,883/-, guests fee at Rs. 31,50,078/- and income from banquet hall. The AO, therefore, asked the assessee to explain as to why the registration may not be cancelled in view of the newly inserted proviso to section 2(15), applicable from 2009-10, as the objects are not merely the advancement of games and social interaction, and the activities were of nature set out in the proviso i.e.:
a) any activity in the nature of trade, commerce or business or
b) any activity of rendering any service in relation to any trade, commerce or business.
as prescribed by Circular No. 11/2008, dated 19.12.2008. The AO held that if any trust/Institution whose main object is “for advancement of any other object of general public utility” carries out any activities which are in the nature of any trade, commerce or business for a cess or fee , it brings all actions of a trust which are resulting in such receipts as part of its earnings under the ambit of aforesaid proviso. Since the receipts were in excess of monitory limit as led down in the aforesaid proviso, there was a clear cut contravention of the provisions of Section 2(15) r.w. proviso.
The Tribunal held that it was not the case of the department that the assessee crossed the twin conditions, as mentioned in the section 12AA(3), which are, ” … 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 …”. In the instant case, the department has nowhere mentioned that “social inter-course among members” was not one of the objects of the trust, when it was originally formed on 04.10.1934. The revenue authorities have erred in cancelling the registration u/s 12AA(3).
The Revenue filed an appeal before the High Court challenging the order of ITAT .
It was submitted by the assessee that in view of the CBDT Circular having Circular No. 21 of 2016 dated 27th May, 2016, the Revenue cannot press this appeal.
The Hon’ble Court observed the Circular No.21 of 2016 when read as a whole, specifically lists out in paragraphs 4 and 5 that the Registration granted under Section 12AA could not be cancelled, only when the receipts on account of business exceeded the cutoff, specified in the proviso to section 2(15) of the Act. The jurisdiction to cancel the Registration only arises if there is change in the nature of activities of the institution or the activities of the institution, are not genuine. The aforesaid Circular by placing reliance upon 13(8) of the Act inter alia provides that the Registration granted to the Trust would continue even when the receipts on account of business is in excess of Rs.25 lakhs.
In view of the issue being covered by the CBDT Circular No.21 of 2016, no grievance against the impugned order can be made by the Revenue. Therefore, the appeal of the revenue was dismissed.
