AO cannot cancel registration unless trust not carrying on activity as per its objects: ITAT

Case details: Visakhapatnam Port Trust v. CIT - [2021] 128 taxmann.com 143 (Visakhapatnam - Trib.)

Judiciary and Counsel Details

• • N.K. Choudhry | Judicial Member and D.S. Sunder Singh | Accountant Member
  • G.V.N. Hari, AR for the Appellant
  • T.S.N. Murthy, CIT (DR) for the Respondent

Facts of the Case

Assessee was registered under Section 12A. Subsequently, after the amendment in Section 2(15), the charitable activity was redefined in the first proviso to section 2(15). CIT issued a notice proposing to cancel the registration already granted to the assessee by observing that assessee was carrying on its activities on commercial principles and generating a huge income from operations with the turnover exceeding the threshold limit as envisaged in the proviso to Section 2(15). In response to the show-cause notice, assessee filed its reply stating that its activities were genuine and it was carrying on the activities in accordance with its objects. Therefore, assessee submitted that there was no case for cancellation of the registration already granted to it.

Not being convinced with the explanation of assessee, The CIT held that by virtue of the second proviso to section 2(15), since assessee’s threshold limit of turnover exceeded prescribed sum, assessee was hit by the provisions of section 2(15). Thus, the objects of assessee were no longer charitable. The CIT further viewed that if the institution’s objects were no longer charitable, such institution couldn’t said to exist genuinely for charitable purposes and registration under Section 12A was available only to the charitable institutions.

ITAT Held

On appeal, Visakhapatnam ITAT held that the CBDT in Circular No. 21/2016 dated 27-5-2016, has clarified that it is not mandatory to cancel the registration already granted to a charitable institution merely on the ground that the cut-off specified in the proviso to section 2(15) is exceeded in a particular year. In assessee’s case, registration was already granted. There was no dispute with regard to the genuineness of the activities, and there was no finding of CIT with regard to not carrying on the activities as per the objects of the trust. As per Circular No. 21/2016, there was no case for cancellation of registration. Therefore, the order passed by CIT was set aside, and the registration already granted to assessee was restored.

Case Review

• • DIT v. Karnataka Badminton Association [2017] 80 taxmann.com 138/[2015] 378 ITR 700 (Kar.) (para 5.3) followed
  • CIT v. Kandla Port Trust [2014] 46 taxmann.com 71/225 Taxman 145/364 ITR 164 (Guj.) (para 5.3) followed
  • Vishakhapatnam Metropolitan Region Development Authority v. Chief CIT [2020] 116 taxmann.com 711/183 ITD 121 (Vishakhapatnam) (para 5.3) followed
  • CIT v. Cochin Port Trust [2019] 104 taxmann.com 269/411 ITR 467 (Ker.) (para 5.2) distinguished
  • CIT v. Gujarat Maritime Board [2008] 166 Taxman 58/[2007] 295 ITR 561 (SC) (para 5.2) distinguished

List of Cases Referred to

• • Punjab Urban Planning & Development Authority v. CIT [2006] 103 TTJ 988 (CHD) (para 2.1)
  • CIT v. Cochin Port Trust [2019] 104 taxmann.com 269/411 ITR 467 (Ker.) (para 2.1)
  • DIT v. Karnataka Badminton Association [2017] 80 taxmann.com 138/[2015] 378 ITR 700 (Kar.) (para 2.1)
  • CIT v. Kandla Port Trust [2014] 46 taxmann.com 71/225 Taxman 145/364 ITR 164 (Guj.) (para 2.1)
  • Vishakhapatnam Metropolitan Region Development Authority v. Chief CIT [2020] 116 taxmann.com 711/183 ITD 121 (Vishakhapatnam – Trib.) (para 5.1)
  • CIT v. Gujarat Maritime Board [2008] 166 Taxman 58/[2007] 295 ITR 561 (SC) (para 5.2)