Registration of a charitable institution cannot be cancelled merely for carrying on commercial activities
The Hon’ble Bombay High court in the case of DIT (Appellant) vs. M/s. Khar Gymkhana (Respondent) being Income Tax Appeal No. 2349 of 2013 has held that registration of a charitable institution cannot be cancelled merely for carrying on commercial activities.
It has been further held that the registration of a charitable institution can be cancelled only if the acts of the trust are not genuine or are not carried according to its objects.
Mr. A. R. Malhotra with Mr. N. A. Kazi appeared on behalf of the appellant. Mr. Nitesh Joshi with Mr. A. K. Jasani appeared on behalf of the respondent.
Date of Hearing:
The hearing was conducted on various dates and lastly on 06.05. 2016.
Date of judgment:
The judgement was delivered on 06.05. 2016.
Backgrounds of the appeal:
The Appeal was filed under Section 260A of the Income Tax Act, 1961 challenging the order dated 10.7. 2013 passed by the Income Tax Appellate Tribunal in connection with the Assessment Year 2009-10.
Issues involved in the appeal:
The Revenue raised the following issue of law for consideration:
(1) Whether in the circumstance of the case and in law, the Tribunal was justified in holding that the assessee was entitled to continue its registration under section 12A of the Income Tax act without appreciating the fact that in view of the Amended act, the activities carried by the assessee were commercial and therefore, cannot be considered as those carried out for a “charitable purpose” under Section 2(15) of the Act?
(2) Whether on the facts of the case and in law, the Tribunal was justified in holding that the assessee was entitled to continue its registration under section12A of the Income Tax Act, 1961 keeping aside the nature of activities of the assessee such as Sale of liquor, daily games and ignoring the assessee’s established intention to make profit?
(3) Whether on the facts of the case and in law, the Tribunal was justified din not answering whether the assessee was carrying on any trade or business as defined under first proviso to Section 2(15) of the Income Tax Act, 1961?
View of the Tribunal:
It was pointed out that the Respondent was registered as a Trust w.e.f. 20.3.1984 under the Act.
The basic issue that arose for consideration in the appeal was whether as per amended Section 2(15) of the Act, restricting the scope of the term “charitable purpose”, by excluding carrying on any trade and business in receipt of any amount more than Rs.25 lacs would entitle the Director of Income Tax to cancel a Registration of a charitable institution under Section 12AA (3) of the Act.
The impugned order of the Tribunal allowed the appeal filed by the Respondent by setting aside the cancellation of Registration by the Director of Income Tax under Section 12AA (3) of the Act.
The Tribunal was of the view that cancellation of a registration under Section 12AA (3) of the Act can be only permitted if the acts of the trust or institution are not being carried out according to its objects.
Thus, holding that cancellation of Registration in the instant case was not justified.
Arguments of the parties:
The learned Counsel for the Respondent submitted that as per Circular No. 21 of 2016 dated 27.5. 2016 of the Central Board of Direct Taxes Circular, the Revenue cannot press the instant appeal. The submission was without prejudice to its submission that it was not carrying on any trade or business.
It was stated that even if it is assumed to be carrying on trade, commerce or business, the appeal cannot be pressed by the Revenue as per the contents of the Circular No.21 of 2016.
The Circular No.21 of 2016 stated that Sections 11 and 12 of the Income Tax Act, 1961 exempt income of charitable institutions, if it is applied for charitable purpose and such institution is registered under section 12AA of the Act.
It further stated that it was not mandatory to cancel the registration already granted to a charitable institution merely on the ground that there is any change in the nature of activities of the institution.
If in any year, the specified cut off is exceeded, the tax exemption would not be allowed to the institution in that year and cancellation of registration would not be mandatory unless it becomes necessary on the ground(s) provided in the Act. The Circular directs the authorities not to cancel the Registration of the charitable merely if the proviso to section 2(15) of the Act becomes applicable if receipts are more than Rs.25 lacs in a year.
The learned Counsel appearing for the Revenue submitted that the Circular dated 27.5.2016 should be read as a whole. It would be clear that Income Tax Department has jurisdiction to cancel the registration if the receipts from commercial activities are more than Rs.25 lacs. He further submitted that the Circular would have application prospectively.
It was admitted that there is no change in nature of activities of the institution in the relevant Assessment Year. The submission on behalf of the Revenue that looking at the amount of receipts for commercial activities, it cannot be concluded that in the subsequent Assessment Years, the receipts would be less than Rs.25 lacs as such, the Commissioner is entitled to cancel the Registration of the institution.
The submission made on behalf of the Revenue was based not on facts but on that of future events.
It was held by the High Court that the main issue stood covered in favour of the Revenue. As the issue was covered by the CBDT Circular No.21 of 2016, it was stated that no grievance against the impugned order can be allowed on behalf of the Revenue.
The question raised for consideration did not give rise to any substantial question of law. The Appeal was dismissed without any order as to costs.