Gross Receipts of Charitable Trust Exceeding Threshold Mentioned u/s 2(15) of Income Tax Act Not a Ground for Registration Cancellation: ITAT [Read Order]

In a major ruling, the Delhi bench of the Income Tax Appellate Tribunal (ITAT) noted that surpassing the threshold of gross receipts for charitable trusts as outlined in Section 2(15) of the Income Tax Act does not constitute sufficient grounds for the cancellation of registration.

The assessee was given approval for registration under section 12AA of the Income Tax Act by the Commissioner of Income Tax in Meerut on May 31, 2007. It appears that the Commissioner of Income Tax in Meerut attempted to cancel the previously granted registration under section 12AA of the Income Tax Act, citing section 12AA(3) of the Income Tax Act

The CIT( A) observed that this activity cannot be construed as mere incidental earning of profit for the sake of doing charity work but it was 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

 Accordingly, in addition that the assessee had engaged in commercial activity in the nature of trade and not engaged in the charitable activity within the meaning of section 2(15) of the Income Tax Act

The conditions to be fulfilled for registration under Section 12AA of the Income Tax Act, included that the activities of the trust or institution must be for charitable purposes. The income of the trust or institution must be applied solely for charitable purposes and not for the benefit of the trustees or members of the organization. The trust or institution must maintain proper books of accounts and get them audited annually. The trust or institution must not engage in any activity that was prohibited under the law.

The procedure for registration under Section 12AA of the Income Tax Act, required the submission of an application in Form 10A to the Commissioner of Income Tax (Exemptions) of the jurisdiction in which the trust or institution was located. The application must be accompanied by certain documents such as copies of the trust deed, annual accounts, and details of the activities of the trust or institution

After the considering submission of the counsels the two member bench of the tribunal observed that the assessee  fits within the criteria of charitable purpose as outlined in section 2(15) of the Income Tax Act, specifically under the category of 'advancement of any other object of general public utility.'

Furthermore, it was also affirmed that the activities undertaken by the assessee indeed qualify as charitable activities under section 2(15) of the Income Tax Act,  Consequently, any attempt to revoke the registration under section 12AA (3) of the Income Tax Act,  with retrospective effect from April 1, 2009, was deemed invalid.

In addition for that particular year alone, the assessee’s activities would not to be construed as charitable activities and the assessee would be subjected to tax as a normal business assessee.

The bench of Anubhav Sharma (Judicial member) and M. Bal Ganesh (Accountant member) held that the activities carried out by the assessee would be charitable activity under section 2(15) of the Act and in any case, the registration cannot be cancelled under Section 12AA (3) of the Income Tax Act with retrospective effect from 01.04.2009. Even if the gross receipts of the assessee exceeds the threshold limit prescribed in the proviso under Section 2(15) of the Act, still there is no need for cancellation of the registration under Section  12AA(3) of the Income Tax Act.

To Read the full text of the Order CLICK HERE

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