CHEMBUR GYMKHANA, MUMBAI V. DIT (E), MUMBAI

ITA 1193/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 83869 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 7 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-09-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 30-12-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 21-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A C TEJPAL
• Assessee Lawyers: RAJESH S ATHAVALE
• Keywords: Business income; Charitable institution; Opportunity of being heard; Cancellation of registration
• Section: 12A; 12AA; 12; 11

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,MUMBAI - C BENCH. , ! , BEFORE S/SH.VIJAY PAL RAO, JUDICIAL MEM BER & RAJENDRA,ACCOUNTANT MEMBER /. ITA NO.1193/MUM/2012, ' ' ' ' # # # # / ASSESSMENT YEAR-2009-10 CHEMBUR GYMKHANA, THE CHEMBUR GYMKHANA, 16TH ROAD, CHEMBUR, MUMBAI-400071 PAN:AAATT4163F VS D IT (E) , 6TH FLOOR, PIRAMAL CHAMBERS, PAREL, MUMBAI-400012 ( $% / APPELLANT) ( &'$% / RESPONDENT) '() '() '() '() * * * * / ASSESSEE BY : SHRI RAJESH S. ATHAVALE + * / REVENUE BY : SHRI A.C.TEJPAL ' ' ' ' + ++ + ), ), ), ), / DATE OF HEARING : 29-09-2014 -.# + ), / DATE OF PRONOUNCEMENT : 29-09-2014 ' ' ' ' , 1961 + ++ + 254 )1( )/) )/) )/) )/) 0 0 0 0 ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA,AM ! ! ! ! ' ' ' ' : CHALLENGING THE ORDER DATED 28.12.2011 OF THE DIREC TOR OF INCOME TAX(EXEMPTIONS), MUMBAI,PASSED U/S.12AA(3)OF THE ACT,ASSESSEE-TRUST HAS FILED FOLLOWING GROUNDS OF APPEALS: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED DIRECTOR OF INCOME TAX (EXEMPTIONS) HAS ERRED IN CANCELLING/WITHDRAWING TH E REGISTRATION GRANTED TO THE ASSESSEE TRUST BY INVOKING THE PROVISIONS OF SECTION 12AA(3) OF THE I NCOME TAX ACT WITH EFFECT FROM A Y 2009-10. WITHOUT PREJUDICE TO THE GENERALITY, THE LEARNED DI RECTOR OF INCOME TAX (EXEMPTIONS), BESIDES HOLDING THAT NO ATTENDANCE WAS MADE ON THE DATE OF HEARING OF THE SHOW CAUSE NOTICE BY DISREGARDING SPECIFIC REQUEST MADE IN THE REPLY TO THE SHOW CAUSE NOTICE, HAS, ON THE MERITS OF THE CASE AND AS PER THE RECORDS, ERRED IN: A)ASSUMING JURISDICTION UNDER SECTION 12AA(3) OF TH E ACT; B)HOLDING THAT THE ASSESSEE TRUST HAS BECOME NON-GE NUINE FOR THE PURPOSE OF SECTION 11 OF THE ACT; YOUR APPELLANT PRAYS FOR THE LEAVE TO A DD TO OR ALTER OR AMEND THE ABOVE GROUNDS, IF NECES SARY. BRIEF FACTS OF THE CASE: 2. AS PER THE DIRECTOR OF INCOME-TAX-EXEMPTION,MUMBAI( DIT-E),HE RECEIVED A PROPOSAL FROM THE ADIT-(E)(1)(2),MUMBAI FOR CANCELLATION OF REGISTRAT ION GRANTED TO THE ASSESSEE U/S.12A OF THE ACT ON THE GROUND THAT THE ASSESSEE-TRUST HAD BEEN CARR YING ON ACTIVITIES IN THE NATURE OF TRADE, COMMERCE OR BUSINESS AND GROSS RECEIPTS THERE-FROM WERE IN EXCESS OF RS. 10 LACS,THAT THE EXPENDITURE ACCOUNT SHOWED THAT THE ASSESSEE HAD RE CEIVED RS.50.12 LAKHS AS GOODWILL FROM CATERERS.DIT-E WAS OF THE OPINION THAT THE PROVISO TO SECTION 2(15) OF THE ACT WAS ATTRACTED IN THE CASE UNDER CONSIDERATION,THAT REGISTRATION GRANTED TO THE ASSESSEE HAD TO BE WITHDRAWN.HE ISSUED A SHOW CAUSE VIDE THIS OFFICE LETTER NO.DIT(E)/ITO(HQ )/ WITHDRAWAL/68/2011-12 DATED 20.12.2011 WAS ISSUED TO THE ASSESSEE AS TO WHY SHO ULD THE REGISTRATION AS GRANTED TO IT NOT BE WITHDRAWN. THE ASSESSEE IN RESPONSE TO THE SHOW CAU SE HAS FURNISHED ITS WRITTEN SUBMISSION VIDE ITS LETTER DATED 24.12. 2011.AFTER CONSIDERING THE REPLY OF THE ASSESSEE-TRUST,DIT-E HELD THAT AN AMOUNT OF RS.50,12,000/ WAS RECEIVED FROM FOUR CATE RERS,THAT THE AMOUNT CONSISTED OF FIXED 2 ITA NO. 1193/M/2012 CHEMBUR GYMKHANA MONTHLY RENTAL FOR USING THE PREMISES OF THE GYMKHA NA TO PROVIDE CATERING SERVICES TO MEMBERS AND FIXED ROYALTY PER FUNCTION FOR CATERING TO THE FUNCTION CONDUCTED BY MEMBERS INSIDE THE GYMKHANA PREMISES.REFERRING TO THE PROVISIONS OF TH E SECTION 2(15)OF THE ACT, HE FURTHER HELD THAT IF ANY TRUST;WHOSE MAIN OBJECT WAS FOR ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY;CARRIED OUT ANY ACTIVITIES WHICH WERE IN TH E NATURE OF ANY TRADE/COMMERCE/BUSINESS THEN ALL ACTIONS OF SUCH A TRUST WERE COVERED BY THE AFORESA ID PROVISO. HE FURTHER HELD THAT IN THE ASSESSEES CASE THERE WERE CLEAR-CUT EARNINGS WHICH WAS SHOWN AS INCOME BY WAY OF GOODWILL FROM CATERERS OF RS.50.12 LAKHS AND ADDITIONAL FACILITIES CHARGES FOR RS. 116.79 LAKS,THAT SUCH RECEIPTS WERE IN EXCESS OF RS.10 LACS,THAT THE ASSESSEE WAS RECEIVIN G INCOME TOWARDS COMMERCIAL EXPLOITATION OF ITS PROPERTY IN A SYSTEMATIC MANNER WHICH WAS NOTHI NG BUT A BUSINESS INCOME,THAT THE ASSESSEE TRUST WAS DIRECTLY HIT BY THE PROVISO TO SECTION 2( 15) WHICH HAD BEEN INTRODUCED FROM AY. 2009- 10,THAT ONCE A CHARITABLE TRUST WAS HIT BY AFORESAI D PROVISO THERE WAS CHANGE IN THE STATUS OF SUCH TRUST AND IT WAS TO BE HELD THAT IT WAS NOT FOR CHA RITABLE PURPOSE.HE FINALLY HELD THAT THE ASSESSEE TRUST HAD BECOME NON GENUINE FOR THE PURPOSES OF SE CTIN 11OF THE ACT AND THE REGISTRATION AS ALLOWED TO IT IN EARLIER YEARS U/S.12AA WAS TO BE C ANCELLED OR WITHDRAWN W.E.F. AY. 2009-10. 3. BEFORE US,AUTHORISED REPRESENTATIVE(AR)SUBMITTED TH AT TRUST WAS REGISTERED IN APRIL,1981, THAT REGISTRATION WAS GRANTED TO THE ASSESSEE U/S.12A OF THE ACT,THAT THE IT WAS NOT COVERED BY THE PROVISIONS OF SECTION 12AA(3)OF THE ACT,THAT SAID P ROVISIONS WERE APPLICABLE FROM 01.06.2010 I.E.FROM AY. 2011-12 ONLY,THAT THERE WAS NO ELEMENT OF COMMERCIALLY INVOLVED AS THE AMOUNT RECEIVED WAS TOWARDS USING THE PROPERTY OF THE GYMK HANA TO PROVIDE SERVICES TO THE MEMBERS OF THE GYMKHANA,THAT THE GYMKHANA HAD RECEIVED AN AMOU NT OF RS.116.79 LAKHS TOWARDS ADDITIONAL FACILITY CHARGES,THAT THE AMOUNT WAS COLLECTED FROM MEMBERS TO PROVIDE ROOM FACILITY TO CONDUCT PERSONAL FUNCTION LIKE MARRIAGES, GET-TOGETHERS ETC .,THAT THE GYMKHANA PROVIDED THE FACILITIES ONLY TO MEMBERS AND HENCE THERE WAS NO COMMERCIALITY INV OLVED IN THOSE SERVICES,THAT CATERING AND ADDITIONAL FACILITY CHARGES WERE IN COMPLIANCE WITH ITEM NO. 3 OF DETAILS OF OBJECT.HE RELIED UPON THE CASES OF M/S.THE BOMBAY PRESIDENCY GOLF CLUB LT D.(ITA/319/M/2012),AGRA DEVELOPMENT AUTHORITY(141ITD 336), KODAVA SAMAJ(57SOT73)AND KHA R GYMKHANA(ITA/373/ MUM/2011).HE ALSO REFERRED TO THE PAGES NO.31,33,34 OF THE PAPER -BOOK. DEPARTMENTAL REPRESENTATIVE (DR) SUPPORTED THE ORDE R OF THE DIT-E. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.UNDISPUTED FACTS OF THE CASE UNDER CONSIDERATION ARE THAT THE ASSESSEE-TRUS T WAS GRANTED REGISTRATION ON 01 .04.1981,THAT DIT-E,VIDE HIS ORDER DTD.28.12.2011WITHDREW THE REG ISTRATION GRANTED TO IT FOR THE YEAR 2009 - 10,THAT THE AMENDED PROVISIONS OF SECTION12AA(3)WER E EFFECTIVE FROM AY.2011-12.WE ARE OF THE OPINION THAT THE DIT(E) COULD CANCEL THE REGISTRATI ON GRANTED U/S.12A OF THE ACT BY INVOKING THE PROVISIONS OF SECTION 12AA(3) OF THE ACT ONLY IF HE WAS SATISFIED THAT THE ACTIVITIES OF THE TRUST WERE NOT GENUINE OR THE ACTIVITIES OF THE TRUST WER E NOT BEING CARRIED OUT IN ACCORDANCE WITH THE OBJECTS OF THE TRUST,THAT SECTION 12AA(3) OF THE AC T DID NOT AUTHORISE THE DIT-E TO CANCEL REGISTRATION U/S.12A,IF HE WAS OF THE OPINION THAT THE ACTIVITIES OF THE ASSESSEE TRUST INVOLVED THE CARRYING ON OF ANY ACTIVITY IN THE NATURE OF TRADE, COMMERCE OR BUSINESS,THAT DIT-E HAD FAILED TO BRING OUT ANY FACT THAT THE ACTIVITIES OF THE ASSES SEE TRUST WERE NOT GENUINE OR WERE NOT CARRIED OUT AS PER THE OBJECTS OF THE TRUST. WE WILL ALSO LIKE TO MENTION THAT BECAUSE OF AMENDM ENT TO SECTION 2(15)W.E.F.01.04.2009 CERTAIN CHANGES HAVE BEEN INTRODUCED IN THE PROVISIONS GOVE RNING THE TRUSTS AND THE DEFINITION OF THE PHRASE CHARITABLE ACTIVITIES HAS NOT REMAINED SAME. SIMILARLY,CERTAIN AMENDMENTS HAVE BEEN BROUGHT IN THE STATUTE,AS POWER WAS GIVEN TO THE DE PARTMENTAL AUTHORITIES TO CANCEL THE REGISTRATION AS PER THE PROVISIONS OF SECTION 12 AA(3)OF THE ACT .WE FIND THAT THE EXPLANATORY NOTES TO THE PROVISIONS OF THE FINANCE ACT, 2010( CIRCULAR NO.1/2011[F.NO.142/L/2011-SO(TPL)-I,DATED 6-4- 2011) HAS EXPLAINED THE BACKGROUND FOR BRINGING CHA NGE IN THE SECTION AS UNDER: 7.CANCELLATION OF REGISTRATION OBTAINED UNDER SECT ION 12A 3 ITA NO. 1193/M/2012 CHEMBUR GYMKHANA 7.1.SECTION 12AA PROVIDES THE PROCEDURE RELATING TO REGISTRATION OF A TRUST OR INSTITUTION ENGAGED IN CHARITABLE ACTIVITIES.SECTION 12AA(3)PREVIOUSLY PROVIDED THAT IF THE ACTIVITIES OF THE TRUST OR INSTITUTION ARE FOUND TO BE NON-GENUINE OR ITS ACTI VITIES ARE NOT IN ACCORDANCE WITH THE OBJECTS FOR WHICH SUCH TRUST OR INSTITUTION WAS ESTABLISHED,THE REGISTRATION GRANTED UNDER SECTION 12AA CAN BE CANCELLED BY THE COMMISSIONER AFTER PROVIDING THE T RUST OR INSTITUTION AN OPPORTUNITY OF BEING HEARD. 7.2.THE POWER OF CANCELLATION OF REGISTRATION IS IN HERENT AND FLOWS FROM THE AUTHORITY OF GRANTING REGISTRATION.HOWEVER,JUDICIAL RULINGS IN SOME CASES HAVE HELD THAT THE COMMISSIONER DOES NOT HAVE THE POWER TO CANCEL THE REGISTRATION WHICH WAS OBTAINED EARLIER BY ANY TRUST OR INSTITUTION UNDER PROVISIONS OF SECTION 12A AS IT IS NOT SPECIF ICALLY MENTIONED IN SECTION 12AA. 7.3.THEREFORE,SECTION 12AA HAS BEEN AMENDED TO PROV IDE THAT THE COMMISSIONER CAN ALSO CANCEL THE REGISTRATION OBTAINED UNDER SECTION 12A AS IT S TOOD BEFORE AMENDMENT BY FINANCE (NO.2) ACT,1996. 7.4.APPLICABILITY-THIS AMENDMENT HAS BEEN MADE APPL ICABLE WITH EFFECT FROM 1ST JUNE, 2010 AND SHALL ACCORDINGLY APPLY FOR ASSESSMENT YEAR2011-12 AND SUBSEQUENT ASSESSMENT YEARS. FROM THE ABOVE IT IS CLEAR THAT DIT(E)CAN CANCEL TH E REGISTRATION GRANTED TO A TRUST IF THE ACTIVITIES OF THE TRUST OR INSTITUTION ARE FOUND TO BE NON-GEN UINE OR ITS ACTIVITIES ARE NOT IN ACCORDANCE WITH THE OBJECTS FOR WHICH SUCH TRUST OR INSTITUTION WAS ESTABLISHED.IN THE CASE OF SARVODAYA ILAKKIYA PANNAJ(343ITR300)THE HONBLE MADRAS HIGH COURT TOOK A VIEW THAT ONCE A REGISTRATION U/S. 12A OF THE ACT WAS GRANTED, THE SAME COULD BE CANCELLED ONLY ON SATISFACTION OF TWO CONDITIONS LAID DOWN IN SECTION 12AA(3) OF THE ACT, VIZ.,(A) THAT T HE ACTIVITIES OF THE TRUST OR INSTITUTION ARE NOT GENUINE; AND (B) THAT THE ACTIVITIES OF THE TRUST O R INSTITUTION ARE NOT BEING CARRIED OUT IN ACCORDAN CE WITH THE OBJECTS OF THE TRUST OR INSTITUTION.THE HO NBLE HIGH COURT EXPRESSED THE VIEW THAT THERE MUST BE SPECIFIC FINDINGS WITH REGARD TO THE AFORES AID TWO CONDITIONS.WE FIND THAT THE DIT(E) HAS NOT GIVEN SPECIFIC FINDING AS REQUIRED BY THE HONB LE MADRAS HIGH COURT. RECEIPT OF RS.50.12 LAKHS FROM FOUR CATERERS CAN B E SUBJECT MATTER OF THE ASSESSMENT ORDER TO BE PASSED BY THE AO.BUT,SAME CANNOT BE,IN ANY CONDITIO N,THE BASIS FOR INVOKING PROVISIONS OF SECTION 12AA(3).CIRCULAR ISSUED BY THE CBDT ON 06.0 4.2011 CLEARLY MENTIONS THAT AMENDMENT WOULD BE APPLICABLE FROM THE AY.2011-12 AND SUBSEQU ENT ASSESSMENT YEARS.IN THE CASE OF AGRA DEVELOPMENT AUTHORITY(SUPRA)THE ASSESSEE WAS GRANTE D REGISTRATION UNDER SECTION 12A OF THE ACT W.E.F. 01.04.2003 AND SAID REGISTRATION WAS CANCELL ED BY THE CIT W.E.F. ASSESSMENT YEAR 2009- 10.DECIDING THE APPEAL,THE TRIBUNAL HELD AS UNDER: FROM THE CONJOINT READING OF SUB-SECTION (1) CLAUSE (B) AND SUB-SECTION (3) OF SECTION 12AA,IT WOULD BE SEEN THAT THE CANCELLATION OF THE REGISTRA TION WAS PROVIDED WHERE THE REGISTRATION WAS GRANTED UNDER CLAUSE (B) OF SUB-SECTION (1). FURTHE R CANCELLATION UNDER SUB-SECTION (3) WAS ALSO PROVIDED WHERE THE REGISTRATION WAS OBTAINED AT ANY TIME UNDER SECTION 12A [MAY BE UNDER CLAUSE (A) OR CLAUSE (AA) OF SUB-SECTION (1) OF SECTION 12 A]. BUT THIS POWER OF CANCELLATION OF REGISTRATION OBTAINED UNDER SECTION 12A CAME TO BE INCORPORATED BY WAY OF AMENDMENT INTRODUCED BY THE FINANCE ACT, 2010 WITH EFFECT FROM 01.06.2010. THAT BEING THE INTERPRETATION OF SUB-SECTION (3), IT IS AMPLY CLEAR THAT THE POWER TO CANCEL THE REGISTR ATION ONCE GRANTED WAS ONLY CONFINED TO THE REGISTRATION GRANTED UNDER CLAUSE (B) OF SUB-SECTIO N (1) OF SECTION 12AA TILL BEFORE 01.06.2010. OF COURSE, NOW WITH EFFECT FROM 01.06.2010, THE POWER VESTS WITH THE COMMISSIONER EVEN TO CANCEL THE REGISTRATION GRANTED UNDER ANY OF THE CLAUSES OF SU B-SECTION (1) OF SECTION 12ASECTION 12AA(3) OF THE ACT EMPOWERS THE CIT TO CANCEL SUCH REGISTRA TION IF HE SATISFY THAT ACTIVITIES OF THE TRUST OR INSTITUTIONS ARE NOT GENUINE OR ARE NOT BEING CARRI ED OUT IN ACCORDANCE WITH OBJECTS OF THE TRUST OR INSTITUTION AS THE CASE MAY BE. THE COMBINED READIN G OF BOTH THE SECTIONS MAKES IT CLEAR THAT BEFORE 01.06.2010 REGISTRATION CAN BE CANCELLED ONL Y ON THOSE CASES WHERE THE REGISTRATION HAS BEEN GRANTED UNDER SECTION 12AA(1)(B) OF THE ACT.BE FORE 01.06.2010 THIS SECTION 12AA(3) NOWHERE EMPOWERS THE CIT TO CANCEL OR WITHDRAW REGISTRATION UNDER SECTION 12A OF THE ACT. IN ABSENCE OF SUCH POWER,THE REGISTRATION GRANTED UNDER SECTION 1 2A CANNOT BE WITHDRAWN OR CANCELLED BEFORE 1.6.2010. THE POWER OF CANCELLATION OF REGISTRATION UNDER SECTION 12A OF THE ACT CAME TO BE INCORPORATED BY WAY OF AMENDMENT INTRODUCED BY FINA NCE ACT 2010 W.E.F. 01.06.2010. THE C.B.D.T. CIRCULAR NO.1/2011 DATED 06.04.2011 EXPLAI NS THAT THIS AMENDMENT WILL APPLY FOR A.Y. 4 ITA NO. 1193/M/2012 CHEMBUR GYMKHANA 2011-12 AND SUBSEQUENT YEARS. WHEREAS, IN THE CASE UNDER CONSIDERATION, THE CIT CANCELLED REGISTRATION UNDER SECTION 12A OF THE ACT FOR A.Y. 2009-10 WHICH IS NOT IN ACCORDANCE WITH THE LAW. FACTS OF THE CASE UNDER CONSIDERATION,ARE ALMOST SI MILAR TO THE FACTS OF THE MATTER OF AGRA DEVELOPMENT AUTHORITY(SUPRA).IN THIS CASE REGISTRAT ION WAS GRANTED IN 1981 AND WAS WITHDRAWN FOR THE AY.2009-10 I.E. BEFORE THE AY. 2011-12.AS T HE CANCELLATION IS AGAINST THE PROVISIONS OF LAW,SO SAME CANNOT BE ENDORSED.HERE,WE WOULD ALSO L IKE TO MENTION THE CASE OF MAHARASHTRA HOUSING AND AREA DEVELOPMENT AUTHORITY(33TAXMANN.CO M 604),DIT-E, MUMBAI HAD WITHDRAWN THE REGISTRATION GRANTED TO THE ASSESSEE ON THE SIM ILAR GROUNDS.WHILE DECIDING THE APPEAL IN FAVOUR OF THE ASSESSEE,TRIBUNAL HELD THAT EVEN THOUGH THE OBJECTS OF THE INSTITUTIONS WERE NO LONGER TOWARDS A CHARITABLE PURPOSE IN VIEW OF THE AMENDED LAW,REGISTRATION U/S.12A COULD NOT BE REVIEWED OR WITHDRAWN IN ABSENCE OF STIPULATION IN SECTION12AA(3)REGARDING CONTINUING SATISFACTION. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE ;DATE OF REGISTRATION OF THE TRUST AND THE EFFECTIVE DATE OF APPLICABILITY OF THE AMENDMENT;AN D FOLLOWING THE DECISIONS OF THE COORDINATING BENCHES WE DECIDED THE EFFECTIVE GROUND OF APPEAL I N FAVOUR OF THE ASSESSEE-TRUST. AS A RESULT,APPE AL FILED BY THE ASSESSEE STANDS ALLOWED. ( 1 '() + 2 + ) 34. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH SEPTEMBER,2014 . 0 + -.# 6 7' 29 FLRACJ FLRACJ FLRACJ FLRACJ , 201 4 . + / 8 SD/- SD/- ( / VIJAY PAL RAO) ( ! ! ! ! / RAJENDRA) / JUDICIAL MEMBER /ACCOUNTANT MEMBER / MUMBAI, 7' /DATE: 29.09 . 2014. SK 0 0 0 0 + ++ + &) &) &) &) 9 #) 9 #) 9 #) 9 #) / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / $% 2. RESPONDENT / &'$% 3. THE CONCERNED CIT(A)/ : ; , 4. THE CONCERNED CIT / : ; 5. DR C BENCH, ITAT, MUMBAI / / 3 DY./ASST. REGISTRAR , /ITAT, MUMBAI