Charitable Institution’s Gross Receipts Surpass Threshold Prescribed u/s 2(15) of Income Tax Act; No Registration Cancellation Required: ITAT [Read Order]

The Delhi bench of Income Tax Appellate Tribunal ( ITAT ) has ruled that even if the gross receipts of the assessee exceeds the threshold limit prescribed in the proviso under Section 2(15) of the Income Tax  Act, 1961,  still there is no need for cancellation of the registration under Section 12AA(3).

The Meerut Development Authority (MDA), registered as a Charitable Institution under Section 12AA of the Income Tax Act, filed an appeal before the tribunal to contest the Commissioner of Income Tax, Meerut's order. The appeal raised specific grounds related to the cancellation of the assessee's registration.

The Commissioner of Income Tax noted that the purpose of the assessee was to carry out any activity for profit and that earning of profit was its real object which is evident from the fact that it had purchased land at a very low price and sold the same at a huge price to the general public.

The income tax officer also observed that this activity cannot be construed as mere incidental earning of profit for the sake of doing charity work but it is a clear case of earning huge profits without being engaged in any activity which could be termed as charity under the definition of charitable purpose under Section 2(15) of the Income Tax Act.

The commissioner aimed to retract the granted registration by invoking section 12AA(3) of the Income Tax Act, retrospectively from 01.04.2009. The basis for this action was the assertion that the assessee had been generating substantial profits, both in terms of quantity and percentage, and there was no evidence on record indicating that these substantial profits were incidental to the performance of charitable activities by the authority.

The bench noted the Supreme Court’s decision  in the case of  Meerut Development Authority, and Agra Development Authority and batches of Ahmedabad Urban Development Authority. The apex court had rejected the revenue’s Special Leave Petition (SLP) and had confirmed the charitable status of assessees under Section 2(15) of the Income Tax Act as falling under the limb of general public utility. It is pertinent to note that the assessee’s case and the case of Agra Development Authority were also part of the batch matters that were decided by the apex Court on 19.10.2022.

Considering the submissions of the both sides, the tribunal observed that “It is not in dispute that the assessee falls under the definition of charitable purpose u/s 2(15) of the Act under the limb ‘advancement of any other object of general public utility’. Pursuant to the aforesaid decision of Hon’ble Supreme Court in the case of Ahmedabad Urban Development Authority reported in 449 ITR 1, we hold that the activities carried out by the assessee would be charitable activity u/s 2(15) of the Act and in any case, the registration cannot be cancelled u/s 12AA(3) of the Act with retrospective effect from 01.04.2009.”

The bench of Anubhav Sharma (Judicial Member) and M. Balaganesh (Accountant Member) stated that for that particular year alone, the assessee’s activities would not to be construed as charitable activities and assessee would be subjected to tax as a normal business assessee. This fact is duly clarified by the CBDT No. 21/2016 dated 27.05.2016. Hence, the bench granted approval to the raised grounds and accepted the assessee's appeal.

To Read the full text of the Order CLICK HERE

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