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Income Tax Appellate Tribunal, DELHI BENCH “A”: NEW DELHI
Before: SMT DIVA SINGH & SHRI PRASHANT MAHARISHI
O R D E R PER PRASHANT MAHARISHI, A. M. 1. This appeal is filed by the assessee against the order of the ld CIT (A)-XXI, New Delhi dated 25.10.2012 for the Assessment Year 2009-10. 2. The assessee has raised the following grounds of appeal:- “1. The order of the learned CIT (A) is contrary to law, facts and circumstances of the case.
2. The ld CIT (A) ought to have appreciated that the main object of AIRDA is to promote and develop Holiday ownership and timeshare concept in India, thereby enhancing the development of Tourism Industry in India. Therefore, the object would fall within the ambit of the fourth limb of definition of Charitable purpose u/s 2(15) viz advancement of any other object of general public utility”.
3. The learned CIT (A) erred in appreciating the cases cited in support of the stand of the appellant. (i) CIT Vs. Andhra Chamber of Commerce (1965) 55 ITR 722. (ii) Federation of Chambers of Commerce & Industry 130 ITR 186 (SC)
4. The appellant therefore prays that the proposal to be made by the learned CIT (A) for withdrawal of registration u/s 12A may be reversed.”
3. The above appeal is recalled by the order of the coordinate bench in MA No. 55/del/2014 dated 19/09/2014. The brief facts of the issue are that Page 2 of 6 appellant is an Association of persons registered as a society under the Societies Registration Act, 1860 vide registration certificate dated 24/11/1997. It is formed by organization who owns hotels and resorts and registered as a public trust under section 12 A of the income tax act, 1961 W.e.f. 01/04/2004. The main object of the appellant is to create sense of brotherhood, cooperation, mutual harmony, love and affection amongst the members of the society and among the general public and to promote and develop holiday ownership and timeshare concept in India. It provides information and advice to consumers reviewing options in vacation ownership and timeshare. It facilitates protection of consumer rights through education and awareness. It invest time and effort to form a common platform of growth for resort, hotels , and customers and stakeholders through education, communication and public relations. For the impugned assessment year appellant filed its return of income on 09/10/2009 declaring nil income. In its return of income. The assessee has claimed that it is the charitable organization and activities of the nature of for charitable charitable purpose that therefor claims exemption under section 11 and 12 of the income tax act. According to the Ld. assessing officer activity carried out by the assessee is not for the public at large, but it is for a small class of people. Therefore he held activities of the assessee are not for the charitable purposes. Therefore, he denied the claim of the assessee as a charitable organization and exemption under section 11 was rejected. However, he stated that as the assessee is also receiving consideration from the members and fixed deposits in bank in the form of subscription and interest and the income has also been applied towards the benefit of members therefore the income is not taxable in view of the principles of mutuality. Therefore, accordingly, the income of the assessee was assessed at nil and he mentioned that a proposal to the director of income tax (E) is also forwarded to withdraw the registration granted under section 12 A of the income tax act. Aggrieved by the order of the Ld. assessing officer, the appellant preferred appeal before the Ld. Commissioner of income tax appeal. He held that appellant has been found to be in the nature of carrying on trade, commerce and business activity and therefore it is not covered by the provisions of section 2 (15) of the income tax act as charitable purposes and therefore he confirmed the order Page 3 of 6 of the Ld. assessing officer. Aggrieved by the order of the Ld. Commissioner of income tax appeal the assessee preferred appeal before us.
4. Ground No. 1 of the appeal of the assessee is general in nature and therefore it is dismissed.
5. Ground No. 2 of the appeal of the assessee is that the main object of assessee is falling within the ambit of the 4th limb of the definition of charitable purposes under section 2 (15) as advancement of any other object of general public utility and therefore the order of the Ld. Commissioner of income tax is erroneous. Ground No. 3 is with reference to two decisions on which the assessee has placed reliance upon and ground No. 4 of the appeal of the assessee is that proposal made by the Ld. Commissioner of income tax appeal for withdrawal of the registration under section 12 A may be reversed.
6. Before us, the Ld. authorized representative submitted the activities of the appellant and referred to the main objects of the society. He submitted that the appellant is not carrying on any business activity as there is no intention to on profit and utilize it for the commercial purposes. It was submitted that the assessee is solely utilize the income from activities of the trust for fulfillment of the object for which it is intended. He further relied upon the decision of the coordinate bench in case of CEO clubs India versus DDIT exemptions in ITA number 03/05/2003/M/2011 dated 16/05/2012 and DDIT exemptions versus Khar Gymkhana 385 ITR 162 of the Hon’ble Bombay high court. He further submitted that the assessee is registered under section 12 A of the income tax act w.e.f. 26/09/2005 and admittedly there is no change in the nature of the activities of the assessee during the assessment year in question compared to earlier years. He further referred to the circular of the Central board of direct taxes dated 27th of May 2016 in circular No. 21/2016 wherein it has been stated that if there is no change in the nature of the activities of the institution then the registration granted under section 12 A to a charitable institution merely on the ground that the cut-off specified in provisions of section 2 (15) of the income tax act has exceeded in a particular year, cannot be cancelled. He further submitted that registration of the appellant has so far not been cancelled by the registering authority. Therefore he submitted that the action of the Ld. assessing officer of not allowing assessee exemption under section 11 and Page 4 of 6 12 of the income tax act is not proper and the Ld. CIT appeal has erred in confirming the same.
Ld. departmental representative relied upon the orders of the Ld. assessing officer and the Ld. CIT appeal and submitted that that assessee is not carrying on any activities as a charitable activities, but it is carrying on activities for the class of the society and therefore the object of the assessee is not for charitable purposes as defined under section 2 (15) of the income tax act.
We have carefully considered the rival contentions and perused the material available before us. The appellant is a society registered under the societies registration act in the year 1997 and has been granted the registration under section 12 A of the income tax act, w.e.f. 26/9 /2005. Main object of the assessee is to promote and develop holiday ownership and time-share concept in India. The appellant has at present 29 members as stated by the Ld. Commissioner of income tax appeal who are all hoteliers and the assessee is carrying on the activity of conducting consultancy services and taking membership fees from all these members for the purpose of its objects. This is not the 1st year of the assessee but it has been granted registration since 26th of September 2005 and Central board of direct taxes has issued a circular dated 27th of May 2016 vide circular No. 21/2016 wherein in para No. 2 of that circular it is stated that:- “2. Section 2(15) of the Act provides definition of "charitable purpose". It includes "advancement of any other object of general public utility" provided it does not involve carrying on of any activity in the nature of trade, commerce or business etc. for financial consideration. The 2nd proviso to said section, introduced w.e.f. 1-4- 2009 vide Finance Act 2010, provides that in case where the activities of any trust or institution is of the nature of advancement of any other object of general public utility and it involves carrying on of any activity in the nature of trade, commerce or business; but the aggregate value of receipts from such commercial activities does not exceed Rs. 25,00,000/- in the previous year, the purpose of such trust/institution shall be deemed as "charitable" despite it deriving consideration from such activities. However, if the aggregate value of these receipts exceeds the specified cut- off, the activity would no longer be considered as charitable and the income of the trust/institution would not be eligible for tax exemption in that year. Thus an entity, pursuing advancement of object of general public utility, could be treated as a charitable institution in one year and not a charitable institution in the other year depending on the aggregate value of receipts from commercial activities. The position remains similar when the first and second provisos of section 2(15) get substituted by the new proviso introduced w.e.f. 1-4-2016 vide Finance Act, 2015, changing the cut-off benchmark as 20% of the total receipts instead of the fixed limit of Rs.25,00,000/- as it existed earlier.
Page 5 of 6 3. The temporary excess of receipts beyond the specified cut-off in one year may not necessarily be the outcome of alteration in the very nature of the activities of the trust or institution requiring cancellation of registration already granted to the trust or institution. Hence, section 13 of the Act has been amended vide Finance Act, 2012 by inserting a new sub-section (8) therein to provide that such organization would not get benefit of tax exemption in the particular year in which its receipts from commercial activities exceed the threshold whether or not the registration granted is cancelled. This amendment has taken effect retrospectively from 1st April, 2009 and accordingly applies in relation to the assessment year 2009-10 onwards.
In view of the aforesaid position, it is 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 cut-off specified in the proviso to section 2(15) of the Act is exceeded in a particular year without there being any change in the nature of activities of the institution. If in any particular year, the specified cut-off 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.
With the introduction of Chapter XII-EB in the Act vide Finance Act, 2016, prescribing special provisions relating to tax on accreted income of certain trusts and institutions, cancellation of registration granted u/s 12AA may lead to a charitable institution getting hit by sub-section (3) of section 115TD and becoming liable to tax on accreted income. The cancellation of registration without justifiable reasons may, therefore, cause additional hardship to an assessee institution due to attraction of tax-liability on accreted income. The field authorities are, therefore, advised not to cancel the registration of a charitable institution granted u/s 12AA just because the proviso to section 2(15) comes into play. The process for cancellation of registration is to be initiated strictly in accordance with section 12AA(3) and 12AA(4) after carefully examining the applicability of these provisions.”