VANITA SAMAJ, MUMBAI V. D.I.T. (EXEMPTION), MUMBAI

ITA 1034/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75782 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-02-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 18-02-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 13-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJESH RANJAN PRASAD
• Assessee Lawyers: ASHOK J PATIL
• Keywords: Charitable institution; Retrospective amendment; Benefit of exemption; Cancellation of registration
• Section: 12A; 12AA; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'F' BENCH, MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER ITA NO. 1034/MUM/2012 (ASSESSMENT YEAR: 2009-10) M/S. VANITA SAMAJ DIRECTOR OF INCOME TAX (E) VEER SAVARKAR MARG I.T. OFFICE, LALBAUG DADAR (E), MUMBAI 400028 VS. MUMBAI 400012 PAN - AAATV0071G APPELLANT RESPONDENT APPELLANT BY: SHRI ASHOK J. PATIL RESPONDENT BY: SHRI RAJESH RANJAN PRASAD DATE OF HEARING: 19.02.2014 DATE OF PRONOUNCEMENT: 26.02.2014 O R D E R PER D. MANMOHAN, V.P. THIS APPEAL BY THE ASSESSEE TRUST IS DIRECTED AGAIN ST THE ORDER PASSED BY THE DIRECTOR OF INCOME TAX (EXEMPTION) WHEREIN T HE DIT (EXEMPTION) OBSERVED THAT THE ASSESSEE TRUST/INSTITUTION, HAVIN G CARRIED ON THE BUSINESS OF SPORTS MATERIAL, FLOUR MILL, MISCELLANEOUS EDIBL ES AND GIVING HALL ON HIRE FOR MARRIAGE, ETC. AND ITS GROSS RECEIPTS HAVING EX CEEDED ` 10,00,000/-, BY VIRTUE OF FIRST AND SECOND PROVISO TO SECTION 2(15) OF THE ACT IT LOOSES ITS CHARITABLE CHARACTER AND BY VIRTUE OF THIS CHANGE I N THE STATUS IT CAN NO LONGER BE CONSIDERED AS A TRUST CONSTITUTED FOR CHA RITABLE PURPOSES. THE LEARNED DIT (EXEMPTION) FURTHER OBSERVED THAT CONSE QUENTLY THE TRUST BECOMES NON-GENUINE FOR THE PURPOSE SECTION 11 OF T HE I.T. ACT AND BY INVOKING THE PROVISIONS OF SECTION 12AA(3) OF THE A CT HE IS ENTITLED TO CANCEL/WITHDRAW THE REGISTRATION ORIGINALLY GRANTED . 2. THE CASE OF THE ASSESSEE, ON THE OTHER HAND, WAS TH AT THERE IS NO CHANGE IN THE STATUS OF THE TRUST. AS PER THE ORIGI NAL CONSTITUTION OF THE TRUST THE SAME ACTIVITIES WERE CARRIED ON FROM 1953 ONWARDS AND IT CONTINUED TO CARRY ON THE SAME ACTIVITIES EVEN TILL DATE. IT WAS ALSO SUBMITTED THAT THE OBJECTIVES OF THE ASSESSEE TRUST ARE TO ST ART LIBRARY AND NEWSPAPER ITA NO. 1034/MUM/2012 M/S. VANITA SAMAJ 2 READINGS FOR STUDY, LECTURES, ORGANISING COMPETITIO NS AND SIMILAR OTHER ACTIVITIES. TO ATTAIN THE OBJECTIVES OF THE TRUST I T REQUIRES FINANCES AND THE RECEIPTS FROM THE ACTIVITIES CARRIED ON BY THE ASSE SSEE ARE HARDLY SUFFICIENT TO COVER THE EXPENDITURE TOWARDS MEDICAL RELIEF, EDUCA TION, RELIEF TO POOR, ETC. WHICH ARE OF GENERAL PUBLIC UTILITY AND THE CHARGES FOR VARIOUS ACTIVITIES ARE NOMINAL AND HENCE IT CANNOT BE CONSIDERED AS NON-CH ARITABLE ACTIVITY AND, AT ANY RATE, IT CANNOT BE SAID THAT THE TRUST IS NO N-GENUINE. IT WAS ALSO SUBMITTED THAT SECTION 12AA(3) WAS WRONGLY INVOKED BY THE AO SINCE PROVISO 1 AND 2 TO SECTION 2(15) HAVE BEEN INCORPORATED IN THE STATUE W.E.F. 01.04.2009 WITH THE SOLE PURPOSE THAT AS AND WHEN T HE AGGREGATE VALUE OF RECEIPTS EXCEED THE STIPULATED LIMIT PRESCRIBED IN THE SECOND PROVISO THE ACTIVITIES CARRIED ON BY THE ASSESSEE FOR EARNING I NCOME SHOULD BE TREATED AS FALLING OUT SIDE SECTION 2(15) IRRESPECTIVE OF THE NATURE OF USE OR APPLICATION, OR RETENTION, OF THE INCOME FROM SUCH ACTIVITY WHIC H IMPLIES THAT THOUGH THE TRUST WILL NOT LOOSE ITS CHARACTER AS CHARITABLE TR UST BUT ONLY IN THE YEARS WHERE THE RECEIPTS EXCEED THE STIPULATED LIMITED IT LOOSES THE BENEFIT OF EXEMPTION. THE LEARNED DIT WAS, HOWEVER, OF THE OPI NION THAT BY VIRTUE OF THE NEW PROVISO INTRODUCED W.E.F. 01.04.2009 THE AC TIVITIES OF THE TRUST CANNOT BE CONSIDERED AS CHARITABLE IN NATURE AND HE NCE THE TRUST ITSELF BECOME NON-GENUINE. ACCORDINGLY THE REGISTRATION AL LOWED TO IT IN EARLIER YEARS UNDER SECTION 12AA WAS CANCELLED/WITHDRAWN FR OM 2009-10 AND THE ASSESSEE TRUST WAS HELD TO BE NON-CHARITABLE TRUST/ INSTITUTION. 3. AGGRIEVED, ASSESSEE CONTENTED BEFORE THE TRIBUNAL T HAT THE DIT (EXEMPTION) SHOULD HAVE FULFILLED THE REQUIREMENTS OF SECTION 12AA(3) BEFORE CANCELLING THE REGISTRATION GRANTED TO THE APPELLAN T EARLIER UNDER SECTION 12A OF THE I.T. ACT AND HE HAS NOT CONSIDERED THE PROVI SIONS OF SECTION 11(1)(B) OF THE I.T. ACT PROPERLY. 4. AT THE TIME OF HEARING THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THERE IS NO CHANGE IN THE OBJECTS OF THE TRUST OR THE ACTIVITIES OF THE TRUST SINCE INCEPTION AND THE TRUST WAS ALREADY GRA NTED REGISTRATION. BY VIRTUE OF THE FIRST PROVISO INTRODUCED TO SECTION 2 (15) OF THE ACT W.E.F. 01.04.2009, CARRYING ON ANY ACTIVITY IN THE NATURE OF TRADE, ETC. WAS DEEMED TO BE NOT AN ACTIVITY FOR CHARITABLE PURPOSE BUT UP ON INTRODUCTION OF THE FIRST ITA NO. 1034/MUM/2012 M/S. VANITA SAMAJ 3 PROVISO THE LEGISLATURE, IN ITS WISDOM, NOTICED THA T IT AFFECTS THE GENUINENESS OF SMALL TRUSTS WHO HAVE TO SURVIVE ON SUCH INCOME SO AS TO APPLY THE RECEIPTS FOR ITS CHARITABLE ACTIVITIES AND IMMEDIAT ELY THEREAFTER, BY FINANCE (NO.2) ACT WITH RETROSPECTIVE EFFECT FROM 01.04.200 9, INTRODUCED THE SECOND PROVISO WHEREBY IT WAS CLARIFIED THAT FIRST PROVISO SHALL NOT BE APPLIED IF THE AGGREGATE VALUE OF THE RECEIPTS FROM THE ACTIVITIES REFERRED TO THEREIN IS ` 10,00,000/- OR LESS IN THE PREVIOUS YEAR AND THIS M ONITORY LIMIT WAS INCREASED IN THE SUBSEQUENT YEARS. STRONG RELIANCE WAS PLACED UPON THE DECISION OF THE ITAT G BENCH, MUMBAI IN THE CASE OF GHATKOPAR GYMKHANA VS. DIT(E) 40 TAXMANN.COM 207 WHEREIN THE BENCH, CONSIDERING IDENTICAL CIRCUMSTANCES, OBSERVED THAT ON A CONJOIN T READING OF FIRST PROVISO AS WELL AS THE SECOND PROVISO TO SECTION 2(15) ALON GWITH SECTION 12AA(3) OF THE ACT, THE ONLY CONCLUSION THAT COULD BE REACHED IS THAT THE ASSESSEE, WHOSE GROSS RECEIPTS CROSS THE STIPULATED LIMIT, WO ULD BE DENIED EXEMPTION IN THE YEAR IN WHICH THE GROSS RECEIPTS EXCEED THE STIPULATED LIMIT BUT THE TRUST AS SUCH CANNOT BE CONSIDERED AS NON-CHARITABL E/NON-GENUINE IN NATURE SO AS TO CANCEL THE REGISTRATION UNDER SECTI ON 12AA(3) OF THE ACT. IN PARA 5.4 OF THE AFOREMENTIONED ORDER THE BENCH OBSE RVED THAT REGISTRATION UNDER SECTION 12A OF THE ACT CAN BE CANCELLED ONLY UPON FINDING THAT THE ACTIVITIES OF THE TRUST ARE NON-GENUINE OR THE SAME WERE NOT CARRIED OUT IN ACCORDANCE WITH THE OBJECTS OF THE TRUST. IN OTHER WORDS, SO LONG AS THE ASSESSEE TRUST IS CARRYING OUT ITS ACTIVITIES IN AC CORDANCE WITH ITS OBJECTS, REVENUE CANNOT INVOKE PROVISIONS OF SECTION 12AA(3) OF THE ACT WHICH WAS INTRODUCED BY FINANCE (NO. 2) ACT, 2009 WITH RETROS PECTIVE EFFECT FROM 01.04.2009. AS COULD BE NOTICED FROM THE ABOVE PROV ISIONS, WHERE A TRUST OR AN INSTITUTION HAS BEEN GRANTED REGISTRATION EARLIE R, IT IS FOR THE COMMISSIONER TO RECORD SATISFACTION THAT THE ACTIVI TIES OF SUCH TRUST OR INSTITUTION ARE NOT GENUINE OR ARE NOT BEING CARRIE D OUT IN ACCORDANCE WITH THE OBJECTS OF THE TRUST OR INSTITUTION, AS OTHERWI SE HE IS NOT EMPOWERED TO INVOKE SUB-SECTION (3) OF SECTION 12AA OF THE ACT. HAVING REGARD TO THE CIRCUMSTANCES OF THE CASE THE BENCH OBSERVED THAT D ENIAL OF EXEMPTION CAN BE LIMITED TO THE YEARS WHERE THE GROSS RECEIPTS EX CEED THE STIPULATED MONITORY LIMIT BUT THE REGISTRATION AS SUCH CANNOT BE CANCELLED UNLESS THE TRUST IS HELD TO BE NON-GENUINE; IT IS FOR THE COMM ISSIONER TO SHOW THAT ITA NO. 1034/MUM/2012 M/S. VANITA SAMAJ 4 THERE IS CHANGE IN THE ACTIVITIES OF THE TRUST. THE LEARNED COUNSEL ADVERTED OUR ATTENTION TO THE ORDER PASSED BY THE DIT (EXEMP TION) TO HIGHLIGHT THAT THERE IS NO CHANGE IN THE ACTIVITIES OF THE TRUST F ROM ITS INCEPTION AND IT IS ONLY BY VIRTUE OF APPLICATION OF FIRST PROVISO, HAV ING REGARD TO THE FACT THAT IN THIS YEAR THE GROSS RECEIPTS EXCEEDED THE LIMIT PRO VIDED UNDER THE SECOND PROVISO, THE LEARNED DIT (EXEMPTION) PROCEEDED TO A SSUME THAT THE ASSESSEE TRUST BECOMES NON-GENUINE FOR THE PURPOSE OF SECTIO N 11 OF THE I.T. ACT WITHOUT GIVING ANY FINDING, WHATSOEVER, THAT THERE IS CHANGE IN THE OBJECTS OF THE TRUST. HE, THEREFORE, STRONGLY RELIED UPON THE ORDER PASSED BY THE ITAT MUMBAI BENCH TO CONTEND THAT THE GENERAL ORDER PASS ED BY THE DIT (EXEMPTION) TO CANCEL THE REGISTRATION IS NOT IN AC CORDANCE WITH LAW. 5. ON THE OTHER HAND, THE LEARNED D.R. RELIED UPON THE ORDER PASSED BY THE ITAT, AMRITSAR BENCH IN THE CASE OF JAMMU DEVEL OPMENT AUTHORITY (23 TAXMANN.COM 343) WHICH IN TURN WAS AFFIRMED BY THE HON'BLE HIGH COURT OF JAMMU AND KASHMIR AND SUBMITTED THAT SUBSEQUENT TO THE INTRODUCTION OF FIRST PROVISO TO SECTION 2(15) IT LOOSES ITS CHARAC TER AS CHARITABLE ACTIVITY IF A TRUST IS ENGAGED IN EARNING INCOME FROM TRADE OR AN Y SIMILAR ACTIVITY. HE ALSO RELIED UPON THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. SMT. GODAVARIDEVI SARAF 113 ITR 589 TO SUBMIT T HAT WHEN THERE IS A LONE HIGH COURT JUDGEMENT ON AN ISSUE ALL THE TRIBUNALS, ANYWHERE IN THE COUNTRY, HAVE TO RESPECT THE LAW LAID DOWN BY THE HIGH COURT , THOUGH OF A DIFFERENT STATE, SO LONG AS THERE IS NO CONTRARY DECISION OF ANY OTHER HIGH COURT ON THAT POINT. HE, THUS, STRONGLY SUPPORTED THE ORDER PASSE D BY THE DIT (EXEMPTION). 6. IN REPLY, THE LEARNED COUNSEL FOR THE ASSESSEE SUBM ITTED THAT THE FACTS IN THE CASE OF JAMMU DEVELOPMENT AUTHORITY ARE DIST INGUISHABLE. THE SAID AUTHORITY WAS ESTABLISHED TO PROMOTE AND SECURE THE DEVELOPMENT OF LOCAL AREA FOR WHICH IT WAS GRANTED REGISTRATION UNDER SE CTION 12A VIDE ITS ORDER DATED 30.09.2009 WHICH DATE FALLS AFTER THE INTRODU CTION OF FIRST PROVISO AS WELL AS SECOND PROVISO TO SECTION 2(15) OF THE ACT. THE LAW, AS IT EXISTS AS ON THAT DATE, CLEARLY SPECIFIES THAT ANY AUTHORITY WHI CH IS CARRYING ON ANY ACTIVITY IN THE NATURE OF TRADE CANNOT BE CONSIDERED AS ENGA GED IN A CHARITABLE ACTIVITY. AS SOON AS THE COMMISSIONER REALISED THE MISTAKE HE INVOKED PROVISIONS OF SECTION 12AA(3) OF THE ACT WHICH, IN THE SAID CIRCUMSTANCES, IS ITA NO. 1034/MUM/2012 M/S. VANITA SAMAJ 5 NOT IN ACCORDANCE WITH LAW; WHEREAS IN THE CASE OF THE ASSESSEE BEFORE US THE REGISTRATION ORIGINALLY GRANTED WAS IN ACCORDANCE W ITH LAW SINCE THE FIRST PROVISO AND SECOND PROVISO TO SECTION 2(15) WAS NOT ON STATUTE BOOK AT THE POINT OF TIME OF GRANTING REGISTRATION AND THE POWE RS OF THE COMMISSIONER UNDER SECTION 12AA(3) CAN BE INVOKED ONLY WHEN THER E IS CHANGE IN THE OBJECTS OF TRUST WHEREAS THERE IS NOTHING ON RECORD TO SUGGEST THAT THERE IS CHANGE IN THE OBJECTS OF THE TRUST OR THE TRUST HAS CARRIED OUT ANY NEW ACTIVITY. APART FROM THAT, IN THE CASE OF JAMMU DEV ELOPMENT AUTHORITY, IT WAS ORIGINALLY CONSIDERED AS LOCAL AUTHORITY BUT BY V IRTUE OF OMISSION OF SECTION 10(20A) BY FINANCE (NO.2) ACT, 2002 W.E.F. 01.04.20 03 THE ASSESSEE HAD TO COMPLY WITH PROVISIONS OF SECTION 2(15) AND CANNOT CLAIM EXEMPTION BY TREATING ITSELF AS LOCAL AUTHORITY. UNDER THESE CIR CUMSTANCES THE CASE LAW RELIED UPON BY THE REVENUE IS DISTINGUISHABLE ON FA CTS. NEITHER THE AMRITSAR BENCH OF ITAT NOR THE HIGH COURT OF JAMMU AND KASHM IR HAD TAKEN INTO CONSIDERATION THE SCOPE AND AMBIT OF SECTION 12AA(3 ) IN THE PECULIAR CIRCUMSTANCES OF THE CASE WHEREAS THIS PRECISE ISSU E WAS CONSIDERED BY THE MUMBAI BENCH OF THE ITAT AND THUS THE DECISION OF T HE ITAT. MUMBAI BENCH APPLIES, ON ALL FOURS, TO THE FACTS OF THIS CASE. 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE RECORD. IT IS NOT IN DISPUTE THAT THE TRUST HAD COM E INTO EXISTENCE IN 1953 AND IT WAS GRANTED REGISTRATION UNDER SECTION 12A O F THE ACT AND THERE IS NO CHANGE IN THE NATURE OF ACTIVITIES OF THE TRUST SIN CE THEN. IT IS NOT THE CASE OF THE DIT (EXEMPTION) THAT THE ACTIVITIES OF THE TRUS T ARE NOT GENUINE; IN FACT THE DIT (EXEMPTION) ASSUMED THAT BY VIRTUE OF THE F IRST PROVISO TO SECTION 2(15) OF THE ACT THE ACTIVITY OF THE TRUST SHOULD B E TREATED AS NOT GENUINE OVERLOOKING THE FACT THAT THERE IS NO CHANGE IN THE ACTIVITY SO AS TO INVOKE PROVISIONS OF SUB-SECTION (3) OF SECTION 12AA OF TH E ACT. IN OUR CONSIDERED OPINION, ON A CONJOINT READING OF THE FIRST PROVISO WITH SECOND PROVISO TO SECTION 2(15) OF THE ACT, A TRUST CAN BE DENIED EXE MPTION IN THE YEAR WHERE THE GROSS RECEIPTS EXCEED THE LIMIT PRESCRIBED IN T HE SECOND PROVISO TO SECTION 2(15) AND IN ALL OTHER YEARS INCOME FROM SU CH ACTIVITIES SHOULD BE CONSIDERED FOR THE BENEFITS UNDER SECTION 2(15) IF IT IS WITHIN THE LIMIT PROVIDED THEREIN. IF IT WAS TO BE INTERPRETED THAT ONCE THE INCOME OF THE TRUST ITA NO. 1034/MUM/2012 M/S. VANITA SAMAJ 6 IN ONE YEAR CROSSES THE LIMIT PROVIDED IN THE SECON D PROVISO, THE REGISTRATION ORIGINALLY GRANTED HAS TO BE CANCELLED, IT MAKES TH E SECOND PROVISO REDUNDANT FOR THE YEARS WHERE THE RECEIPTS ARE LESS THAN THE SPECIFIED LIMIT; THIS COULD NOT BE THE INTENTION OF THE LEGISLATURE. IN FACT, THE ACT DOES NOT PROVIDE FOR CLAIMING OF EXEMPTION ON YEAR TO YEAR B ASIS. 8. ON A CONSPECTUS OF THE MATTER WE, THEREFORE, HOLD T HAT DENIAL/ CANCELLATION OF REGISTRATION IN THE INSTANT CASE IS NOT IN ACCORDANCE WITH LAW. TO CLARIFY FURTHER THE GROSS RECEIPTS HAVING EXCEED ED THE STIPULATED MONITORY LIMIT PROVIDED IN THE SECOND PROVISO TO SECTION 2(1 5) OF THE ACT, THE ASSESSEE IS NOT ENTITLED TO CLAIM EXEMPTION IN THIS YEAR BUT THAT FACT ALONE CANNOT MAKE THE TRUST NON-GENUINE FOR THE PURPOSE OF INVOK ING SECTION 12AA(3) OF THE ACT. WE, THEREFORE, SET ASIDE THE ORDER PASSED BY THE DIT (EXEMPTION) AND ALLOW THE APPEAL FILED BY THE ASSESSEE. NEEDLES S TO OBSERVE THAT THE AO IS DUTY BOUND TO INDEPENDENTLY VERIFY AS TO WHETHER THE ASSESSEE FULFILLED THE OTHER CONDITIONS SUCH AS APPLICATION OF INCOME, ETC . SO AS TO CLAIM EXEMPTION UNDER SECTION 12(15). 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 26 TH FEBRUARY, 2014. SD/- SD/- (N.K. BILLAIYA) (D. MANMOHAN) ACCOUNTANT MEMBER VICE PRESIDENT MUMBAI, DATED: 26 TH FEBRUARY, 2014 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. DIT (EXEMPTIONS), MUMBAI 4. THE DR, F BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.