Socio Economic Development Association, CHENNAI V. ITO, Madurai

ITA 1228/CHNY/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 51949 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-10-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: misc
• Appeal Filed On: 04-07-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: K E B RENGARAJAN JR
• Assessee Lawyers: S SRIDHAR
• Keywords: Gift; Charitable institution; Opportunity of being heard
• Section: 80G; 12AA; 28; 11; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI [BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI N.S. SAINI, ACCOUNTANT MEMBER] I.T.A.NO.1228/MDS/2011 ASSESSMENT YEAR : N.A SOCIO ECONOMIC DEVELOPMENT ASSOCIATION NO.6/139, THIRUVANANTHAPURAM ROAD AZHAGIAMANDAPAM MULAGUMOODU 629 167 KANYAKUMARI DISTRICT VS THE INCOME TAX OFFICER WARD II(4) MADURAI [PAN AACTS6294A] (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI S.SRIDHAR, ADVOCATE RESPONDENT BY : SHRI K.E.B RENGARAJAN, JR. STANDING COUNSEL DATE OF HEARING : 28.09.2011 DATE OF PRONOUNCEMENT : 13.10.2011 O R D E R PER HARI OM MARATHA, JUDICIAL MEMBER: THIS APPEAL OF THE ASSESSEE-SOCIETY, IS DIRECTED AGAINST THE ORDER OF THE LD. CIT, MADURAI, DATED 16.5.2011, VID E WHICH HE HAS REFUSED TO GRANT REGISTRATION U/S 12AA OF THE ACT. ITA 1228/11 :- 2 -: 2. THE ASSESSEE-SOCIETY HAD EARLIER BEEN GRANTED RE GISTRATION U/S 12AA BY THE THEN CIT, MADURAI, VIDE HIS ORDER IN C. NO.464/24/07- 08/CIT-I DATED 12.10.2007, FOR THE ASSESSMENT YEAR 2007-08 AND ONWARDS, BUT THE APPLICATION FOR RECOGNITION U/S 80 G WAS REJECTED BY THE SAME CIT VIDE HIS ORDER DATED 24.12.2008. THE SOCIETY FILED APPEAL BEFORE THE ITAT WHO REVERSED THE CITS ORDER . THE LD. CIT, WHILE GIVING EFFECT TO TRIBUNALS ORDER, GRANTED AP PROVAL U/S 80G OF THE ACT TO THE SOCIETY FOR THE PERIOD FROM 1.4.2008 TO 31.3.2010. IN THE MEANTIME, A SHOW CAUSE NOTICE U/S 12AA(3) OF TH E ACT WAS ISSUED TO THE SOCIETY ON 6.1.2011 AS THE LD. CIT FOUND THA T THE SOCIETY WAS ENGAGED IN BUSINESS ACTIVITIES. THE MAIN OBJECTS FOR WHICH THE SOCIETY WAS ESTABLISHED ARE AS UNDER: (1) TO PLAN AND WORK WITH THE DOWNTRODDEN COMMUNIT Y FOR THEIR ECONOMIC DEVELOPMENT AND TO CREATE SOCIAL CONSCIENC E IN THEM. (2) TO CREATE A SENSE OF SOCIAL AWARENESS AND THUS MAKE THEM AWARE OF THE NEED FOR LIBERATION FROM OPPRESS ION OF ANY KINDS. . (3) TO COMMUNICATE NEW IDEAS AND CONCEPTS ABOUT SOC IAL TRANSFORMATION ABOUT THE PEOPLE. 12 (A) CHARITY : TO PERFORM WORKS OF CHARITY FOR THOSE IN NEED, IRRESPECTIVE OF RACE CASTE, COMMUNITY OR CREED (B) SOCIAL SERVICE. (C) FOR THE BETTERMENT OF THE VILLAGERS AND DOWNTRODDEN POOR PEOPLE AND UNEMPLOYED YOUTH SOCIETY. ITA 1228/11 :- 3 -: 13. TO RECRUIT, TRAIN AND EMPLOY WORKERS FOR THE RU NNING OF THE SOCIETY. 14. TO RAISE NECESSARY FUNDS BY FEES, SUBSCRIPTION S, ACCEPTANCE OF GIFTS FROM WITHIN AND OUTSIDE INDIA AND LOANS WHETH ER SECURED OR UNSECURED OR IN SUCH OTHER MANNER AS THE SOCIETY MA Y THINK FIT. 3. THE CASE OF THE SOCIETY IS THAT IT IS ENGAGED ONLY IN CHARITABLE ACTIVITIES AND NO BUSINESS ACTIVITY WHATSOEVER HAS BEEN DONE ON BY IT. A PERUSAL OF THE STATEMENTS OF ACCOUNTS FOR THE YEA RS ENDING 31.3.2007, 31.3.2008, 31.3.2009 AND 31.3.2010, REVE ALES THAT THE SOCIETY IS ENGAGED IN MICRO FINANCE ACTIVITIES. THE CASE OF THE ASSESSEE IS THAT IN ORDER TO PURSUE ITS OBJECTS IT HAS TO W ORK AS AN EXTENDED HAND OF GOVERNMENT IN PROJECTS AND SCHEMES SPONSORE D BY VARIOUS DEPARTMENTS AND MINISTRIES OF GOVERNMENT, THE SOCIE TY JOINED HANDS WITH MINISTRY OF TEXTILES (AHVY), NABARD, RASHTRIYA MAHILA KOSH, INSURANCE FOR RURAL ARTISANS, NATIONAL MINORITIES D EVELOPMENT FINANCE CORPORATION, TSUNAMI RELIEF, MAHALIR THITTAM, ETC. IT WAS FURTHER STATED THAT THE SOCIETY RECEIVED GRANTS FROM GOVERN MENT DEPARTMENTS AND CARRIED THE PROJECTS AS PER THEIR DIRECTIONS IN UPLIFTING THE RURAL ARTISANS, AND THE HANDICRAFTS MANUFACTURED BY THE R URAL ARTISANS ARE BEING MARKETED BY IT. THE STATEMENTS OF ACCOUNTS F OR THE YEARS ENDING ITA 1228/11 :- 4 -: 31.3.2007, 31.3.2008, 31.3.2009 AND 31.3.2010 REVEA L THE FOLLOWING POSITION: SL. NO. CONTENTS YEARS ENDING 31.3.2007 31.3.2008 31.3.2009 31.3.2010 1. BALANCE SHEET ASSETS : MICRO FINANCE LOAN TO SHG LIABILITIES MICRO FINANCE LOAN FROM BANK ` 1459800 1456870 ` 4118506 4116560 ` 1769181 1810905 ` 2091563 2819158 4. IT WAS FOUND THAT THE SOCIETY WAS RECEIVING INCOM E FROM LACES AND EMBROIDERY ARTICLES, INCOME FROM COCONUT SHELL, SHG CONTRIBUTION, OWN CONTRIBUTION, GRANTS RECEIVED, DONATIONS RECEIV ED, INTEREST RECEIVED ETC. THE SURPLUS FOR THESE YEARS WERE ` 64,618/-, ` 4,10,916/-, ` 2,78,148/- AND ` 1,70,476/-, RESPECTIVELY. FROM THESE, THE LD. CIT CONCLUDED THAT THE SOCIETY IS ENGAGED I N MICRO FINANCE ACTIVITIES ON COMMERCIAL BASIS UNDER THE GUISE OF C HARITY BY WAY OF RECEIPT OF INTEREST AND SERVICE CHARGES. AFTER DIS CUSSING THE DEFINITION OF THE TERM CHARITY AND CHARITABLE ACTIVITIES A ND TAXATION OF PUBLIC CHARITY, THE LD. CIT HAS FINALLY COME TO A CONCLUSI ON THAT THE INCOME OF ITA 1228/11 :- 5 -: THE PUBLIC CHARITABLE TRUST MAY COMPRISE OF THE INC OME FROM ASSETS HELD BY IT AND ALSO INCLUDE THE FOLLOWING: (A) VOLUNTARY CONTRIBUTIONS FROM THE PUBLIC (INCL UDING THE FOUNDER OR THE TRUSTEES) - SECTION 12(1) (B) CAPITAL GAIN ARISING OUT OF THE SALE OF ASS ETS HELD BY THE TRUST - SECTION 11(1A), AND (C) ANY PROFITS OF ANY BUSINESS / COMMERCIAL ACTIVI TY CARRIED OUT BY THE TRUST WHICH IS INCIDENTAL TO THE OBJECT OF THE TRUST AND FOR WHICH, SEPARATE BOOKS OF ACCOUNT ARE MAINTAINED - SECTION 11 (4) / 11(4A) IN OTHER WORDS, IN THE INCOME & EXPENDITURE STATEME NT OF THE PUBLIC CHARITABLE TRUST, THE INCOME SIDE SHALL INCLUDE ANY OR ALL THESE THREE SOURCES OF RECEIPT. HOWEVER CORPUS DONATION, WHICH IS INCLUDED IN THE DEFINITIO N OF 'INCOME' U/S,2(24), BUT EXCLUDED FROM THE INCOME OF THE TRUST U/S, 12(1) WILL, HOWEVER, BE CONSIDERED FOR T HE PURPOSE OF EXEMPTION U/S, 11(1)(D) OF THE I. T. ACT SUBJECT TO SATISFACTION OF STATUTORY CONDITIONS MENTIONED I N SECTION 11,12 & 13 OF THE I.TACT ON THE EXPENDITURE SIDE, THE MINIMUM STATUTORY REQUIREMENT IS INDICATED IN SECTION 11(1)(A) OF THE I.T,ACT I,E AT LEAST 85% OF SUCH INCOME SHOULD BE UTILIZED FOR THE PURPOSE OF 'CHARITY'. HERE 'INCOME' IS OF COURSE U SED IN A COMMERCIAL SENSE - IMPLYING THEREBY THE NET INCOME AVAILABLE FOR CHARITY I,E, GROSS RECEIPTS LESS REAS ONABLE ADMINISTRATIVE EXPENSES, THEREFORE AT LEAST 85% OF SUCH AVAILABLE SURPLUS SHOULD BE UTILIZED FOR CHARITABLE ACTIVITIES AS MENTIONED IN SECTION 2(15) OF THE I.T ACT, AND THE BOTTOM LINE IS THAT SUCH ACTIVITY SHOULD BE CHA RITABLE I.E, PROVIDED FREE OF COST, COVERING THE SPECIFIED OBJECTS MENTIONED IN THE TRUST DEED AND AS PER SECTION 2(15 ), AND BENEFITING LARGE SECTION OF THE SOCIETY WITHOUT ANY DISCRIMINATION. ITA 1228/11 :- 6 -: 5. UNDER THESE CIRCUMSTANCES, THE LD. CIT HAS HELD THA T THE BASIC ELEMENT OF CHARITY IS NOT EXISTENT IN THIS CASE AND CARRYING ON GENUINE CHARITABLE ACTIVITIES IS ABSENT. ACCORDINGLY, HE H AS WITHDRAWN THE REGISTRATION ALREADY GRANTED. BEFORE US, FOLLOWING GROUNDS HAVE BEEN RAISED: 1. THE ORDER OF THE COMMISSIONER OF INCOME TAX I, MADURAI DATED 16.05.2011 IN C.NO.464/24/CIT-I/2007-:08 IN WITHDRAWING/CANCELING THE REGISTRATION GRANTED EARL IER ON 12.10.2007 IN TERMS OF SECTION 12AA OF THE ACT IS C ONTRARY TO LAW, FACTS, AND IN THE CIRCUMSTANCES OF THE CASE. 2. THE CIT ERRED IN WITHDRAWING /CANCELING THE REGI STRATION GRANTED EARLIER ON 12.10.2007 IN TERMS OF SECTION 1 2AA OF THE ACT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE WITHOUT ASSIGNING PROPER REASONS AND JUSTIFICATION. 3. THE CIT FAILED TO APPRECIATE THAT THE PROVISIONS OF SECTION 12AA(3) OF THE ACT HAD NO APPLICATION TO THE FACTS OF THE CASE INASMUCH AS THE CIRCUMSTANCES ENUMERATED IN THE SAI D SUB SECTION VESTING SUCH POWERS FOR WITHDRAWAL OF REGIS TRATION GRANTED EARLIER WERE NOT POINTED OUT WITH REFERENCE TO THE FACTS OF THE CASE TO JUSTIFY PASSING OF THE IMPUGNED ORDE R. 4. THE CIT FAILED TO APPRECIATE THAT THE REGISTRATI ON GRANTED EARLIER WAS CORRECT AND PROPER ON THE SCOPE OF THE PROVISIONS GOVERNING THERETO AND THE ORDER OF WITHDRAWAL UNDER CONSIDERATION WAS ERRONEOUS AND INVALID. 5. THE CIT FAILED TO APPRECIATE THAT THE ORDER OF WITHDRAWAL/CANCELLATION WAS PASSED OUT OF TIME, INV ALID, PASSED WITHOUT JURISDICTION AND NOT SUSTAINABLE BOT H ON FACTS AND IN LAW. 6 . THE CIT FAIL E D TO APP R EC I A T E THAT THE MICRO FINANCE ACT I V I T I ES ITA 1228/11 :- 7 -: S H O ULD NOT BE CONST R UED AS COMMERC I A L ACTIV I TIES ON THE FACT S OF THE CASE A ND SUCH ACT I V I TIES WERE C A RR I ED ON TO ACH I EVE TH E OB J ECT I VES O F TH E APPE LL A NT WITHIN TH E S C O P E O F SE CTI O N 2 ( 15 ) OF THE ACT . 7 . TH E C IT F A IL ED TO APP R EC I AT E T H AT TH E F I ND IN GS R ECO R DED I N THIS R EGA R D IN PA R A 7 TO 9 OF THE I MPUGNED O R DER WE R E WRONG , IN CO RRECT , UNJU ST IFI E D , E RR O N EO U S AND NOT SUSTA I NABLE BOTH ON FACTS AND I N L AW . 8 . TH E CIT F A I LE D TO APP R EC I ATE T HAT GOING BY THE SEQUEN C E OF EV ENTS W ITH R E F E RENC E T O TH E PASSING OF THE IM P U GNED OR D E R , THE W I T HD R A W A L/ CA N CE LL AT I O N OF THE REG I STRATION UNDE R CONSIDE R AT I O N W A S E RR O NEOUS A ND IN VA LID . 9 . TH E CIT F A IL E D TO APPREC I ATE THAT THE WRITTEN S U B MI SS I O N S FIL E D O N 10 . 3 . 2011 WE R E NOT TAKE N I NTO CONS I DERATION I N P R OPER PE R SPECT IVE . 10 . THE CIT FA IL ED T O APPRECIATE THAT THERE WAS N O PROPER OPPO RTUNITY G I VEN B E F O R E P ASS I NG THE I MPUGNED ORDER AND A N Y ORDE R PASSE D I N V I O L AT I ON OF TH E P RIN C I P L ES OF N ATU R AL J UST I CE I S NULLIT Y I N L AW . 11 . THE APP E LL A NT C R A V ES L EA V E TO FIL E ADD I T I O N A L GR O UN DS / A R G UMENTS AT THE T I ME OF H EA RIN G . 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HAVE P ERUSED THE ENTIRE MATERIAL AVAILABLE ON RECORD. ORIGINALLY, R EGISTRATION U/S 12AA OF THE ACT WAS GRANTED TO THE ASSESSEE ON THE BASIS OF OBJECTS OF THE SOCIETY, AS DISCLOSED IN ITS MEMORANDUM OF ASSOCIAT ION AND ITS BYE- LAWS, BEFORE THE REGISTRAR OF SOCIETIES UNDER THE T AMIL NADU SOCIETIES ITA 1228/11 :- 8 -: REGISTRATION ACT, 1975, WHICH WERE TREATED AS CHARI TABLE IN NATURE SOLELY BY FOLLOWING THE FACTUM OF ITS REGISTRATION UNDER THE SOCIETIES ACT. LATER ON, WHEN IT WAS FOUND THAT THE ACTIVITI ES OF THE SOCIETY ARE NOT GENUINE AND ITS OBJECTS ARE NOT BEING PURSUED F OR CHARITABLE ACTIVITIES, THE CIT REFUSED TO RENEW APPROVAL U/S 80G(5). THE SOCIETY APPEALED AGAINST THAT REFUSAL ORDER AND THE HON'BLE TRIBUNAL DIRECTED THE CIT TO GRANT APPROVAL U/S 80G(5) ON THE PREMISE THAT WHEN THE SOCIETY STANDS REGISTERED U/S 12AA, HOW ITS OBJECTS CAN NOW BE DISPUTED AND CHRISTENED AS NOT CHARITABLE IN NATURE . TAKING A CUE FROM THIS FINDING, THE LD. CIT HAS INITIATED ACTION U/S 12AA(3) AND AFTER ACCORDING OPPORTUNITY OF BEING HEARD, HAS CANCELLED ITS REGISTRATION VIDE THE IMPUGNED ORDER, AGAINST WHICH THE PRESENT APPEAL HAS BEEN FILED. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS VIS--VIS THE EVIDENCE ON RECORD. WE HAVE TO EXAMINE THE FACTUAL MATRIX OF T HIS APPEAL FOR THE PURPOSE OF DETERMINING IF THE CIRCUMSTANCES EXIST T O WITHDRAW THE REGISTRATION GRANTED EARLIER OR NOT. BEFORE WE EXA MINE THE FACTS AND FIGURES LET US READ THE RELEVANT PROVISION ENVISAGE D IN THIS REGARD. SECTION 12AA(3) OF THE ACT READS AS UNDER: [(3) WHERE A TRUST OR AN INSTITUTION HAS BEEN GRAN TED REGISTRATION UNDER CLAUSE ( B ) OF SUB-SECTION (1) AND ITA 1228/11 :- 9 -: SUBSEQUENTLY THE COMMISSIONER IS SATISFIED THAT THE ACTIVITIES OF SUCH TRUST OR INSTITUTION ARE NOT GEN UINE OR ARE NOT BEING CARRIED OUT IN ACCORDANCE WITH THE OBJECT S OF THE TRUST OR INSTITUTION, AS THE CASE MAY BE, HE SHALL PASS AN ORDER IN WRITING CANCELLING THE REGISTRATION OF SUC H TRUST OR INSTITUTION: PROVIDED THAT NO ORDER UNDER THIS SUB-SECTION SHALL BE PASSED UNLESS SUCH TRUST OR INSTITUTION HAS BEEN GI VEN A REASONABLE OPPORTUNITY OF BEING HEARD.] 8. THE MACROSCOPIC ANALYSIS OF THE ABOVE PROVISION, I T IS CLEAR THAT THE LD. CIT HAS BEEN EMPOWERED TO EITHER CONTINUE REGISTRATION, ONCE GRANTED U/S 12A(A) OR ELSE, HE CAN CANCEL THE SAME IF THE REQUISITE CONDITIONS ARE NO LONGER FOUND TO BE FULFILLED. ADM ITTEDLY, BEFORE TAKING ACTION UNDER CLAUSE (3) , THE LD. CIT HAS GAVE OPP ORTUNITY OF BEING HEARD TO THE SOCIETY IN RELATION TO THE PROPOSED CA NCELLATION OF REGISTRATION GRANTED EARLIER. WHAT IS TO BE NOW SE EN, WHETHER THE SATISFACTION OF THE COMMISSIONER THAT THE ACTIVIT IES OF THE SOCIETY ARE NOT GENUINE OR ARE NOT , OR ARE NOT BEING CARRIED O UT IN ACCORDANCE WITH ITS OBJECTS IS JUSTIFIED IN THE GIVEN FACTS AN D THE CIRCUMSTANCES OF THIS CASE OR NOT. THERE IS NO DOUBT ABOUT THE POWE R VESTED IN LD. CIT TO SATISFY HIMSELF ABOUT THE ACTIVITIES OF THE TRUS T/SOCIETY AS HAS BEEN ENVISAGED IN SECTION 12AA OF THE ACT. IT IS THE SA TISFACTION OF THE LD. CIT THAT MATTERS, BUT HIS SATISFACTION CANNOT BE M ERELY SUBJECTIVE, BUT ITA 1228/11 :- 10 - : IT HAS TO BE TESTED WITH RESPECT TO OBJECTIVE MATER IAL/PROOF ON THE BASIS OF WHICH ANY ORDINARY PRUDENT MAN COME TO THIS ONLY CONCLUSION. ADMITTEDLY, IN THIS CASE, THE CIT CALLED FOR THE ST ATEMENTS OF ACCOUNTS FOR THE YEARS ENDING 31.3.2007, 31.3.2008, 21.3.200 9 AND 31.3.2010, THE RESULTS OF WHICH HAVE BEEN INCORPORATED IN THE EARLIER PART OF THIS ORDER. FROM THE INCOME AND EXPENDITURE ACCOUNT OF THESE YEARS, IT IS CLEARLY SEEN THAT THE SOCIETY WAS RECEIVING INCOME FROM LACES AND EMBROIDERY ARTICLES, INCOME FROM COCONUT SHELL, SHG S CONTRIBUTION, OWN CONTRIBUTION, GRANTS RECEIVED, DONATIONS RECEIV ED, INTEREST RECEIVED, ETC. THE FINANCING ACTIVITIES UNDERTAKEN BY THE SOCIETY IS CLEARLY EVIDENCED FROM THESE FACTS. THE RECEIPT OF SGHS CONTRIBUTION IS TOWARDS FINANCING ACTIVITY OF THE SOCIETY. SO, DEF INITELY, THE SOCIETY IS ENGAGED IN MICRO FINANCING ACTIVITIES ON COMMERCIAL BASIS UNDER THE GUISE OF CHARITY BY WAY OF RECEIPT OF INTEREST AN D SERVICE CHARGES. ALTHOUGH THE PROVISIONS OF SECTIONS 11 TO 13 ARE A COMPLETE CODE IN ITSELF WHICH DEAL WITH THE CONCEPT OF INCOME AND C ONCEPT OF EXEMPTION WHEN CERTAIN CONDITIONS ARE SATISFIED, A CHARITA BLE ACTIVITY WHICH IS DEFINED IN SECTION 2(15) OF THE ACT HAS AN INCLUSIV E DEFINITION AND IT INCLUDES RELIEF TO POOR, EDUCATION, MEDICAL RELIEF AND ADVANCEMENT OF ANY OTHER OBJECT OF THE GENERAL PUBLIC UTILITY, INT ER ALIA. THE WORD CHARITY SIGNIFIES VOLUNTARY GIVING OF MONEY OR HE LP TO NEEDY PERSONS. ITA 1228/11 :- 11 - : THE ELEMENT OF COMMERCIALITY FOR PERSONAL BENEFIT H AS NO PLACE IN SUCH CHARITABLE ACTIVITIES. IT IS TRUE THAT CERTAIN AMO UNT OF COMMERCIAL ACTIVITY IS PERMITTED UNDER THE PROVISIONS OF THE A CT, BUT THIS HAS TO BE ONLY A BY-PRODUCT OF CHARITABLE ACTIVITIES WITH A CERTITUDE THAT SURPLUS SO GENERATED OUT OF COMMERCIAL ACTIVITY ARE UTILIZE D FOR THE CHARITABLE OBJECTS OF THE TRUST/SOCIETY AND NOT FOR PERSONAL U SE OF SETTLERS/BENEFICIARIES. THE INCOME OF THE PUBLIC C HARITABLE TRUST CAN BE FROM ASSETS HELD BY THE TRUST AND CAN ALSO INCLUDE VOLUNTARY CONTRIBUTIONS FROM PUBLIC INCLUDING THE FOUNDERS OF THE TRUST/SOCIETY OR THE TRUSTEES; CAPITAL GAIN ARISING OUT OF THE SALE OF ASSETS HELD BY THE TRUST AND ANY PROFITS OF ANY BUSINESS/COMMERCIAL AC TIVITY CARRIED OUT BY THE TRUST WHICH IS INCIDENTAL TO THE OBJECTS OF THE TRUST/SOCIETY AND FOR WHICH SEPARATE BOOKS OF ACCOUNT ARE MAINTAINED. NEVERTHELESS, SUCH ACTIVITIES OF GIVING MICRO-FINANCE AND EARNING INTEREST CAN BE OKAYED IN THE CASE OF COMPANIES REGISTERED U/S 25 O F THE COMPANIES ACT, 1956, BECAUSE IN THAT CASE, THE COMPANY INTEND S TO APPLY ITS PROFIT IN PROMOTING CHARITY. THIS ANALOGY CANNOT BE EXTEN DED TO SUCH SOCIETIES. THUS, IN THE INCOME AND EXPENDITURE STA TEMENT OF THE PUBLIC CHARITABLE TRUST, THE INCOME SHALL INCLUDE A NY OR ALL THOSE THREE SOURCES OF RECEIPT. BUT CORPUS DONATION WHICH IS I NCLUDED IN THE DEFINITION OF INCOME U/S 2(24), BUT EXCLUDED FROM T HE INCOME OF THE ITA 1228/11 :- 12 - : TRUST U/S 12(1) WILL, HOWEVER, BE CONSIDERED FOR TH E PURPOSE OF EXEMPTION U/S 11(1)(D) OF THE ACT SUBJECT TO SATISF ACTION OF THE STATUTORY CONDITIONS MENTIONED IN SECTIONS 11,12 AN D 13 OF THE ACT. ON EXPENDITURE SIDE, MINIMUM STATUTORY REQUIREMENT IS INDICATED IN SECTION 11(1)(A) OF THE ACT AS ATLEAST 85% OF SUCH INCOME SHOULD BE UTILIZED FOR THE PURPOSE OF CHARITY. SO, INCOME IS OF-COURSE USED IN THE COMMERCIAL SENSE, IMPLYING THEREBY THE NET INCO ME AVAILABLE FOR CHARITY I.E GROSS RECEIPTS MINUS REASONABLE ADMINIS TRATIVE EXPENSES. HENCE, ATLEAST 85% OF SUCH AVAILABLE SURPLUS HAS TO BE UTILIZED FOR CHARITABLE ACTIVITIES AS STATED ABOVE. THE ACTIV ITIES SHOULD BE SOLELY CHARITABLE WHICH SHOULD FURTHER UP THE OBJECTS OF THE TRUST AND SHOULD BENEFIT LARGE SECTION OF SOCIETY WITHOUT ANY DISCRI MINATION. ANY PUBLIC CHARITABLE TRUST CARRYING ON ANY COMMERCIAL/BUSINES S ACTIVITY, GENERATES PROFITS, HAS TO UTILIZE THE SAME FOR CHA RITABLE PURPOSES ONLY. FOR THAT PURPOSE, SEPARATE BOOKS OF ACCOUNT U/S 11( 4)/11(4A) HAS TO BE MAINTAINED AND PROFITS THEREOF HAVE TO BE CALCUL ATED IN ACCORDANCE WITH THE PROVISIONS OF SECTIONS 28 TO 44 OF THE ACT . SUCH PROFITS SHOULD BE REFLECTED IN THE CREDIT SIDE IN THE INCOME AND EXPENDITURE ACCOUNT OF THE TRUST/SOCIETY AS ONE OF THE SOURCES OF INCOM E TO BE UTILIZED FOR CHARITABLE PURPOSES. IN SHORT, COMMERCIAL ACTIVITY IN SUCH CASES IS PERMISSIBLE AS PER THE REQUIREMENT OF SECTION 11(4) /11(4A) AND NOT AS ITA 1228/11 :- 13 - : PER THE PROVISIONS OF SECTION 11(1)(A) OF THE ACT. THE COMMERCIAL ACTIVITY SHOULD AIM AT ACHIEVING END OF THE TRUST W HICH IS FURTHERANCE OF ITS OBJECTS AND IT SHOULD NOT BE THE MOTIVE OF THE TRUST TO WORK FOR PROFIT. A CHARITABLE TRUST CARRYING ON COMMERCI AL ACTIVITIES SHOULD SATISFY THE PROVISIONS OF SECTION 11(1)(A) AND FOR THAT MATTER, ITS INCOME AND EXPENDITURE STATEMENT SHOWING THE RECEIP TS CONSISTING OF INCOME FROM ASSETS AS HELD BY THE TRUST/SOCIETY AN D THE APPLICATION OF THIS INCOME FOR CHARITABLE PURPOSES SHOULD BOTH B E REFLECTED. BUT STILL FURTHER, THE ENTIRE INCOME CAN BE EXEMPTED ONLY IF ATLEAST 85% OF THE AVAILABLE SURPLUS IS UTILIZED FOR CHARITY AND ITS ACCOUNTS ARE AUDITED U/S 12A(1)(B) OF THE ACT AND NO VIOLATION OF SECTIONS 1 3(1)(C) OR 13(1)(D) IS DONE. FROM THE AVAILABLE FACTS, WE HAVE FOUND THAT ACTIVITIES ARE CARRIED OUT MAINLY FOR COMMERCIAL PURPOSES. THE IN COME AND EXPENDITURE ACCOUNT DOES NOT REFLECT INCOME AND EXP ENDITURE AS STATED ABOVE AND THE SURPLUS HAS NOT BEEN UTILIZED FOR GENUINE CHARITABLE ACTIVITIES. THE MICRO FINANCE ACTIVITIE S OF THE ASSESSEE, PARTICULARLY IN THIS CASE, ARE FOUND TO BE ON COMME RCIAL BASIS. UNDER THESE CIRCUMSTANCES, WE ARE ALSO SATISFIED THAT THE SOCIETY HAS CEASED TO BE A GENUINE SOCIETY TO BE ELIGIBLE FOR REGISTRA TION U/S 12AA OF THE ACT. ACCORDINGLY, THE SOCIETY HAS ACTED IN VIOLATI ON OF THE PROVISIONS OF SECTION 12AA(3) AND IN OUR CONSIDERED OPINION, THE LD. CIT HAS RIGHTLY ITA 1228/11 :- 14 - : CANCELLED ITS REGISTRATION. THE ORDER OF THE LD. C IT IS QUITE JUDICIAL BASED ON VALID REASONS AND DESERVES TO BE UPHELD. ACCORDINGLY, WE CANNOT ALLOW THIS APPEAL OF THE ASSESSEE AND DISMIS S THE SAME. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE STANDS DI SMISSED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 13-10-2011. SD/- SD/- (N.S. SAINI) ACCOUNTANT MEMBER ( HARI OM MARATHA ) JUDICIAL MEMBER DATED: 13 TH OCTOBER, 2011 RD COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR