The Hyderabad bench of the Income Tax Appellate Tribunal, in a recent decision held that the registration granted to a Charitable society under s. 12AA of the Income Tax Act, 1961 can be revoked by the Department if the society is involved in commercial activities and has lost its ‘charitable nature’. The Tribunal, following the High Court decision in the assessee’s case, observed that indulging in commercial activities will attract the provisions of s. 2(15) of the IT Act and it is valid ground for withdrawing registration already granted.
The assessee in the instant case, is a charitable society engaged in the activities of welfare of farmers. The assessee was registered under section 12AA of the Income Tax Act, and also was granted with registration under s. 10(23C)(iv) vide CBDT Notification 11.03.2004. During the relevant assessment year, the DIT(E)found that the assessee is engaged in commercial activities by rendering different services for which they are collecting various charges from traders/societies. Based on this, the DIT(E),through its order, withdrawn the registration granted to the assessee on the following two grounds. Firstly, the assessee society has lost its character as a charitable organizationas per s.2(15) of the Act since they are involved in business activities through which the traders are more benefitted than the farmers. Secondly, the assessee is not carrying on activities in accordance with the objectives of the society.
The matter was brought before the Tribunal on appeal. Before the Tribunal, the assessee contended that the registration once granted cannot be withdrawn unless there is change in the society’s objectives or the activities carried on by the assessee are in contravention of its objectives. The Tribunal found that as per the CBDT Circular 27.05.2016, the registration granted to a charitable institution u/s 12AA of the Act need not be cancelled or withdrawn merely on ground of s.2(15).
Further, the Tribunal noticed the decision of the High court in assesses own case, in which it was found that the assessee is not a charitable institution in view of the second limb of the proviso to section 2(15) of the Act.The Court found that the assessee is certifying the seeds onthe application of a society or an agent with whom the seed growers have entered into an agreement and who, after securing such certification, sells such seeds to farmers at market price determined by them. In the opinion of the Court, this involves a commercial activity which isnot for the “advancement of any other object of general public utility” therefore, the provsions of s. 2(15) will apply.
Following the decision of the jurisdictional High Court, the ITAT confirmed the withdrawal of registration and resultantly, dismissed the appeal filed by the assessee.
Read the full text of the order below.
