In a recent Judgment the division bench of Bombay High Court has held that, the amendment to the definition of charitable purpose by adding of the proviso, would not ipso facto give jurisdiction to the Commissioner of Income Tax to cancel the Registration under Section 12AA (3) of the Income Tax Act.
The basic dispute arising in this appeal is whether in view of amended Section 2(15) of the Act, restricting the definition “charitable purpose”, by excluding carrying on any trade, commerce and business in receipt of an amount in excess of Rs.25 lakhs would by itself entitle the Director of Income Tax to cancel a Registration under Section 12AA (3) of the Act.
The impugned order of the Tribunal allowed Assesee’s appeal by setting aside the cancellation of Registration under Section 12AA (3) of the Act done by the Director of Income Tax (Exemption). The Tribunal held that cancellation of a registration under Section 12AA(3) of the Act is permissible only when the activities of the trust/ institution are not genuine or are not being carried out in accordance with its objects. Thus, holding that cancellation of Registration in the present facts, is not justified.
The bench comprising of Justices A.K Menon and M.S Sanklecha observed that, the jurisdiction to cancel the Registration would only arise if there is any change in the nature of activities of the institution. The Circular No. 21 of 2016 clearly directed the authorities not to cancel the Registration of the charitable institution just because the proviso to section 2(15) of the Act comes into play as receipts are in excess of Rs.25 lakhs in a year. It also refers to Section 13(8) of the Act which provides that where the receipts on account of commercial activities is in excess of the limit of R.25 lacs provided in second proviso to section 2(15) of the Act, then the Assessing Officer would deny the benefit of registration as a Trust for the subject Assessment Year while framing the Assessment.
While dismissing the appeal of Director of Income Tax (Exemptions) the Court also observed that, 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 such case, the Assessing Officer while framing the Assessment for the subject Assessment Year would be entitled to deny the benefit of exemption to such a Trust for that year.
Read the full text of the Judgment below.
