By TIOL News Service

MUMBAI, JUNE 13, 2016: THE issue is - Whether in view of the amended Section 2(15) of I-T Act, restricting the definition "charitable purpose", by excluding carrying on any trade, commerce & business in receipt of an amount in excess of Rs.25 lakhs, would by itself entitle the Revenue Authority to cancel the registration u/s 12AA (3), when the activities of the trust are genuine. NO is the verdict.

Facts of the case:

The assessee Revenue had preferred the present appeal challenging the order, whereby the Tribunal had allowed assesee's appeal by setting aside the cancellation of Registration u/s 12AA(3) done by the Director of Income Tax (Exemption). The Tribunal had done so, by holding that cancellation of a registration u/s 12AA(3) was permissible only when the activities of the trust/institution were not genuine or were not being carried out in accordance with its objects.

After hearing the parties, the High Court had held that,

++ the counsel for assessee submitted that in view of the CBDT Circular having Circular No. 21 of 2016 dated 27th May, 2016, the Revenue cannot press this appeal. This submission is without prejudice to its submission that it is not carrying on any trade, commerce or business. For the present, it is submitted that even if it is assumed to be carrying on trade, commerce or business, the appeal cannot be pressed by the Revenue in view of the binding Circular No.21 of 2016, which clarified that it shall not be mandatory to cancel the registration already granted u/s. 12AA to a charitable institution merely on the ground that the cutoff specified in the provision to section 2(15) is exercised in a particular year without there being any change in the nature of activities of the institution. If in any particular year, the specified cutoff is exceeded, the tax exemption would be denied to the institution in that year and cancellation of registration would not be mandatory unless such cancellation becomes necessary on the ground(s) prescribed under the Act. It is evident from the aforesaid Circular No.21 of 2016 that the amendment to the definition of charitable purpose by adding of the proviso, would not ipso facto give jurisdiction to the CIT to cancel the Registration u/s 12AA(3). The jurisdiction to cancel the Registration would only arise if there is any change in the nature of activities of the institution. The above Circular clearly directs the authorities not to cancel the Registration of the charitable institution just because the proviso to section 2(15) comes into play as receipts are in excess of Rs.25 lakhs in a year. It also refers to Section 13(8) which provides that where the receipts on account of commercial activities is in excess of the limit of Rs.25 lacs provided in second proviso to section 2(15), then the AO would deny the benefit of registration as a Trust for the subject A.Y while framing the assessment. We find that the Circular No.21 of 2016 when read as a whole, specifically lists that the Registration granted u/s 12AA could not be cancelled, only when the receipts on account of business exceeded the cutoff, specified in the proviso to section 2(15). 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) 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 AO while framing the Assessment for the subject A.Y would be entitled to deny the benefit of exemption to such a Trust for that year;

++ the submission on behalf of the Revenue that the Trust is not genuine because it is hit by proviso to Section 2(15), is in fact, negatived by Circular No.21 of 2016. In fact, the above Circular No.21 of 2016 clearly provides that mere receipts on account of business being in excess of the limits in the proviso would not result in cancellation of Registration granted u/s 12AA unless there is a change in nature of activities of the institution. Admittedly, there is no change in nature of activities of the institution during the subject A.Y. The further submission on behalf of the Revenue that looking at the quantum of receipts on account of commercial activities, it is unlikely/improbable that in the subsequent A.Ys, the receipts would fall below Rs.25 lakhs and therefore, the Commissioner is entitled to cancel the Registration. The aforesaid submission made on behalf of the Revenue is based not on facts as existing but on probability of future events. Further, we are unable to understand what prejudice is caused to the Revenue since whenever the receipts on account of commercial activities is in excess of the limits provided in proviso to Section 2(15), the AO is mandated/required to deny exemption u/s 11 of the Act as provided in Circular No.21 of 2016. In view of the issue being covered by the CBDT Circular No.21 of 2016, no grievance against the impugned order can be made by the Revenue.

(See 2016-TIOL-1126-HC-MUM-IT)