Andhra Pradesh Foods, Hyderabad V. DIT(Exemptions), Hyderabad, Hyderabad

ITA 1759/HYD/2014

• Counselvise Citation: 175922514 RSA 2014
• Duration Of Justice: 5 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-05-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 07-05-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 20-11-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D SUDHAKAR RAO
• Assessee Lawyers: B SATYANARAYANA MURTY
• Keywords: Charitable institution; Assessment record; Cancellation of registration
• Section: 143(3); 12A; 12AA

Judgement Text

ITA NO 1759 OF 2014 ANDHRA PRADESH FOODS HYDERABAD PAGE 1 OF 11 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD B BENCH, HYDERABAD BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER & SMT.ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO.1759/HYD/2014 (ASSESSMENT YEAR: 2005-06) ANDHRA PRADESH FOODS IDA, NACHARAM HYDERABAD 500076 PAN-AAATA 4938 R VS. DIRECTOR OF INCOME TAX (EXEMPTIONS), AAYAKAR BHAVAN HYDERABAD 500004 (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI B. SATYANARAYANA MURTY FOR REVENUE : SHRI D. SUDHAKAR RAO, CIT (DR) DATE OF HEAR ING : 07/05/2015 DATE OF PRONOUNCEMENT : 15 /05/2015 O R D E R PER SMT. ASHA VIJAYARAGHAVAN, J.M. THIS IS AN APPEAL PREFERRED BY THE ASSESSEE AGAINST THE ORDER OF THE DIRECTOR OF INCOME TAX (EXEMPTIONS), H YDERABAD DATED 25.09.2014 U/S 12AA(3) OF THE INCOME TAX ACT, 1961. 2. BRIEFLY STATED, THE DIT (EXEMPTION), THROUGH NOTI CE DATED 28.03.2014, PROPOSED TO CANCEL THE REGISTRATION U/S .12A OF THE INCOME TAX ACT, ON THE GROUND THAT THE ASSESSEE IS ENGAGED IN BUSINESS ACTIVITIES, THAT THE ACTIVITIES OF THE ASS ESSEE RESULTING IN HIGH MARGINS AND THAT THE ASSESSEE IS NOT A CHARITA BLE ORGANISATION AS IT IS ENGAGED IN THE BUSINESS ACTIVITY AS A COMMERCIAL CONCERN AND THAT IT IS A CONTRACTOR TO T HE GOVERNMENT OF ANDHRA PRADESH. 3. THE GOVERNMENT OF ANDHRA PRADESH HAS INSTITUTED THE ICDS ITA NO 1759 OF 2014 ANDHRA PRADESH FOODS HYDERABAD PAGE 2 OF 11 (INTEGRATED CHILD DEVELOPMENT SCHEMES) IN VARIOUS D ISTRICTS WITH A VIEW TO IMPLEMENT VARIOUS SOCIAL WELFARE SCHEMES. 4. THE GOVERNMENT HAS DECIDED TO INSTALL A CENTRALL Y MANUFACTURED UNIT FOR PRODUCTION OF NUTRITIOUS FOOD WITH THE ASSISTANCE OF CARE & UNICEF IN THE YEAR 1971. AS A RESULT, THE AP FOODS WAS SET UP FOR PRODUCTION OF NUTRITIOUS FO OD TO SUPPLY THE READY-TO-EAT FOOD TO THE BENEFICIARIES AS MENTI ONED IN ABOVE PARA WITH THE OBJECTIVE TO SERVE THE GOVERNMENT NOB LE CAUSE ON NO PROFIT NO LOSS BASIS. THE GOVERNMENT FROM TIME T O TIME ALLOCATES THE BENEFICIARIES EVERY YEAR AND COMMUNIC ATES TO AP FOODS. ACCORDINGLY, THE READY-TO-EAT FOOD IS MANUFA CTURED AND SUPPLIED SINCE LAST 30 YEARS TO THE GOVERNMENT SOCI AL WELFARE PROGRAMMES. THE AP.FOODS IS CHARGING ONLY THE MANUF ACTURING COST FOR THE FOOD SUPPLIES MADE TO VARIOUS ICOS PRO JECTS AND GETTING REIMBURSEMENT FROM THE BENEFICIARY DEPARTME NTS. 5. M/S. AP FOODS IS REGISTERED U/S.12A OF THE INCOM E TAX VIDE PROCEEDINGS OF HOTRS II/12A& 80G/79/86-87 , WITH THE MAIN OBJECT OF PROVIDING RELIEF TO THE POOR AND MEDICAL RELIEF. THE DIT (E) CLAIMED THAT HE HAD PERUSED ASSESSMENT PROCEEDI NGS FOR 2005-06 AND THAT AS PER FORM 3CD, IT IS SHOWN THAT THE ASSESSEE IS CARRYING ON THE BUSINESS OF MANUFACTURING AND SU PPLYING OF RTE NUTRITIOUS FOOD UNDER GOVT. SPONSORED NUTRITION PROGRAMMES. THE DIT (E) FURTHER STATED THAT IN THE NOTES TO THE COMPUTATION, IT IS INDICATED THAT THE INSTITUTION W AS GRANTED 12A THAT INCOME CONSTITUTES INCOME FROM BUSINESS THAT T HE TURNOVER IS MORE THAN RS.40,00,000 AND SO TAX AUDIT IS CARRI ED OUT AND THUS, IT WAS ADMITTED THAT IT IS CARRYING ON BUSINE SS. HE REFERRED TO ASSESSMENT RECORDS FOR 2006-07, 2007-08 WITH SIM ILAR FACTS. ACCORDING TO THE DIT (E) THE ASSESSEE BY CARRYING O N THE ITA NO 1759 OF 2014 ANDHRA PRADESH FOODS HYDERABAD PAGE 3 OF 11 BUSINESS, FORFEITS THE EXEMPTION IN SECTION 11 OF T HE INCOME TAX ACT. 6. THE LD AR OF THE ASSESSEE EXPLAINED THAT BUSINES S IS INCIDENTAL TO ATTAINING THE OBJECTS OF THE TRUST AN D IS PERMISSIBLE U/S 11(4A). 7. THE LD AR ALSO EXPLAINED THAT THE OBJECT OF THE INSTITUTION IS RELIEF OF POOR AND MEDICAL RELIEF AND THAT THE AM ENDMENT TO SECTION 2(15) W.E.F. 1.4.2009 DOES NOT DISENTITLE T HE EXEMPTION U/S 11. 8. THE LD AR ALSO REFERRED TO THE ORDER OF THE CIT (A) FOR AY 2005-06, 2006-07, 2007-08 AND 2010-11 WHEREIN 12A REGISTRATION HAS BEEN GRANTED. 9. THE DIT (E) FURTHER HELD AS FOLLOWS: 3. FURTHER IT WAS NOTICED FROM A BRIEF NOTE FILED ON ANDHRA PRADESH FOODS (ANNEXURE-A), DURING THE ASSESSMENT PROCEEDINGS FOR A.Y 2007-08, UNDER COL. NO.11 PERTAINING TO BUDGET/GRANT, IT IS MENTIONED, A.P. FOODS DOES NOT RECEIVE ANY BUDGET PROVISION DIRECTLY FROM THE GOVT. THE NUTRITION BUDGET IS BEI NG PROVIDED TO THE GOVT. DEPARTMENTS SUCH AS DIRECTORA TE OF WOMEN & CHILD WELFARE, DIRECTORATE OF MUNICIPAL ADMINISTRATION OF A.P. GOVT. A.P. FOODS SUPPLIES NUTRITIOUS FOOD TO THESE DEPARTMENTS AND THE COST O F FOOD SUPPLIES ARE REIMBURSED FROM THE BUDGETARY PROVISION MADE TO THESE DEPARTMENTS. THUS, AS PER SUCH NOTE FURNISHED DURING ASSESSMENT PROCEEDINGS, IT IS STATED THAT THE ASSESSEE INSTITUTION IS BEING REIMBURSED BY THE CONCERNED DEPARTMENTS THE COST OF MANUFACTURED FOOD SUPPLIED BY IT. HOWEVER, FROM THE AUDITED STATEMENT OF ACCOUNTS FURNISHED BY ANDHRA PRADESH FOODS, FILED WITH THE RETURNS OF INCOME FOR A.Y 2005-06 TO 2007-08, IT IS SEEN THAT THE ASSESSE E INSTITUTION IS OPERATING AS A BUSINESS CONCERN WITH PROFIT MOTIVE. IN COL.NO.32(B) OF THE TAX AUDIT REP ORT ITA NO 1759 OF 2014 ANDHRA PRADESH FOODS HYDERABAD PAGE 4 OF 11 FURNISHED IN FORM 3CD FOR A.Y 2005-06 THE NET PROFI T MARGIN ON TURNOVER IS SHOWN AT 6.36%. SUCH NET PROF IT FOR A.Y 2006-07 IS SHOWN AT 7.18%. SUCH NET PROFIT FOR THE A.Y 2007-08 IS SHOWN AT HIGH MARGIN OF 12.67%. IN THE FACE OF SUCH HIGH NET PROFIT FROM THE TURNOV ER MADE BY THE ASSESSEE INSTITUTION DURING DIFFERENT YEARS, IT CLEARLY SHOWS THAT ANDHRA PRADESH FOODS I S RUNNING PURELY AS A COMMERCIAL ORGANIZATION AND HENCE, NOT ENTITLED FOR REGISTRATION U/S 12A OF THE ACT. 10. IN REPLY, THE LD AR OF THE ASSESSEE SUBMITTED T HAT THE PRICES OF THE PRODUCTS OF THE ASSESSEE ARE FIXED BY THE ST ATE GOVT. AND ARE REVISED FROM TIME TO TIME AND THEREFORE, THE FI NANCIAL RESULTS OF THE ASSESSEE CANNOT BE CONTROLLED BY THE ASSESSE E. IT WAS POINTED OUT THAT THE PROFITS ARE PLOUGHED BACK AND USED FOR CARRYING OUT THE OBJECTS OF THE ASSESSEE. 11. THE DIRECTOR OF EXEMPTION FURTHER OBJECTED FOR GRANTING REGISTRATION U/S 12A IN THE SHOW CAUSE NOTICE ON TH E GROUND THAT THE ASSESSEE IS ONLY A CONTRACTOR CARRYING THE JOB ENTRUSTED TO IT. THE LD AR REPLIED THAT THE ASSESSEE MANUFACTURE FOO D FOR NEEDY AND SUPPLY TO BENEFICIARIES SPECIFIED BY THE GOVT. AT QUANTITIES FIXED BY THE GOVT. AND IT IS CARRYING OUT THIS AT C OST SPECIFIED BY THE SUPREME COURT. 12. IN REPLY, IT WAS SUBMITTED THAT THE ASSESSEE SU PPLIES THE READY-TO-EAT FOOD TO PREGNANT WOMEN, UNDER-NOURISHE D CHILDREN AND LACTATING MOTHERS. THE ORGANIZATION IS FULFILLI NG ITS OBJECTS BY SUPPLYING FOOD SO PRODUCED TO THE BENEFICIARIES FOR THE IMPLEMENTATION OF SCHEMES PROMOTED BY WOMEN & CHILD WELFARE DEPARTMENT OF THE GOVT. OF ANDHRA PRADESH AND OTHER SUCH RELATED PROGRAMMES. THE NUTRITIOUS FOOD PRODUCED BY THE ASSESSEE IS NOT SOLD IN THE COMMERCIAL MARKET NOR I T IS SUPPLIED TO THE PARTIES OTHER THAN THE BENEFICIARIES UNDER T HE SCHEMES REFERRED TO ABOVE. IT CANNOT BE REFERRED TO AS A CO NTRACTOR TO THE GOVT. OF A.P AS IT IS INVOLVED IN MANUFACTURE AND S UPPLY OF THE ITA NO 1759 OF 2014 ANDHRA PRADESH FOODS HYDERABAD PAGE 5 OF 11 FOOD TO THE BENEFICIARIES. ONLY, THE SUPERVISORY AC TIVITIES IS CARRIED ON BY THE GOVT. OF A.P. IN BRINGING OUT SCH EMES FOR THE BENEFIT OF THE BENEFICIARIES AND FIXING A SUITABLE PRICE TO MEET THE COST OF MANUFACTURING AND OTHER OVERHEADS. 13. IT WAS ALSO SUBMITTED THAT THE ASSESSEE IS PROM OTED MAINLY FOR THE PURPOSE OF TACKLING MALNUTRITION AMONG THE PREGNANT WOMEN, UNDER-NOURISHED CHILDREN AND LACTATING MOTHE RS. THEREFORE, IT IS AN ORGANIZATION PRODUCING NUTRITIO US FOOD AND SUPPLYING IT TO THE BENEFICIARIES. IT WAS ARGUED TH AT SIMPLY BECAUSE THESE ACTIVITIES ARE SUPERVISED AND SUPPORT ED BY THE GOVT. THE DIT (E) CANNOT TERM THE ASSESSEE AS A CON TRACTOR. 14. THE LD DIT (E) POINTED OUT IN THE SHOW CAUSE NO TICE THAT THE ASSESSEE IS PAYING THE TAXES SUCH AS SALES TAX, SER VICE TAX AND VAT ETC., AS ANY OTHER COMMERCIAL ORGANIZATION. THE LD AR REITERATED THAT U/S 11(4A) THE ASSESSEE WILL NOT BE DENIED EXEMPTION U/S 12A IN PAYING THE OTHER TAXES. 15. THE LD AR ALSO SUBMITTED BEFORE THE DIT (E) THE OBJECTS OF THE INSTITUTION WHICH ARE CHARITABLE IN NATURE. THE AR STATED THE FACTS THAT THE SOCIETY IS REGISTERED IN THE NAME OF A.P. NUTRITION COUNCIL AND THE FACTORY IS RUN BY THE COUNCIL IN T HE NAME OF A.P. FOODS. THE PAN NO. AND 12A REGISTRATIONS WERE APPLIED IN THE TRADE NAME ANDHRA PRADESH FOODS. THE A.P. NUTRI TIOUS COUNCIL HAS NO OTHER ACTIVITY EXCEPT THE RUNNING OF A.P. FOODS. THE ASSESSEE RECEIVES A SCHEDULE BEFORE THE BEGINNI NG OF THE YEAR SHOWING THE BENEFICIARIES AND THE QUANTITIES AND NA TURE OF PRODUCTS TO BE SUPPLIED AND THE LIST OF ANGANWADIS. ON THE BASIS OF THE SCHEDULE, THE ASSESSEE MANUFACTURES AND SUPP LIES THE PRODUCTS, AND GETS A REIMBURSEMENT AT THE PREDETERM INED COSTS. THERE ARE ABOUT 90,000 ANGANWADIS IN THE STATE OF A .P. THUS THE ASSESSEE IS A CHARITABLE INSTITUTION MEETING THE NE EDS OF POOR. ITA NO 1759 OF 2014 ANDHRA PRADESH FOODS HYDERABAD PAGE 6 OF 11 16. THE LD AR ALSO POINTED OUT THAT THE ISSUES RAIS ED BY THE DIT (E) HAVE ALREADY BEEN DECIDED BY THE CIT (A) AND HE NCE THE DIT(E) HAS NO JURISDICTION TO PASS ORDER ON THE SAM E ISSUES. 17. THE DIT (E) HOWEVER, HELD IN HIS ORDER AS FOLLO WS: SINCE THE ASSESSEE IS NOT CARRYING ON ACTIVITY IN ACCORDANCE WITH CHARITABLE OBJECTS, BUT IT IS CARRY ING ON ACTIVITY FULLY AS A COMMERCIAL ORGANIZATION AS DISC USSED ABOVE, IT IS A FIT CASE FOR CANCELLATION OF REGISTR ATION U/S 12AA(3) OF THE ACT. HENCE, REGISTRATION GRANTED EAR LIER TO THE ASSESSEE INSTITUTION U/S 12A OF THE ACT VIDE TH AT ORDER DATED 23.3.1989 IN F.NO.H.QRS.II/12A&80G/ 79/1986-87 IS HEREBY CANCELLED W.E.F. 1.4.2005. 18. AGGRIEVED, ASSESSEE IS IN APPEAL BEFORE US. TH E LD COUNSEL FOR THE ASSESSEE SHRI SATYANARAYANA MURTHY SUBMITTE D AS FOLLOWS: AS CAN BE SEEN FROM THE PROVISIONS OF SUB SECTION (4A) OF SECTION 11 THAT EVEN IF AN ASSESSEE CARRIES ON BUSINESS, IT WILL BE ENTITLED TO THE EXEMPTION PROV IDED U/S 11 IF SUCH BUSINESS IS INCIDENTAL TO ATTAINMENT OF THE CHARITABLE OBJECTS OF THE ASSESSEE. THE QUANTUM OF PROFITS EARNED BY AN ASSESSEE FROM SUCH BUSINESS HA S NO BEARING TO THE PROVISIONS OF THE SECTION 11 AS D ETAILED HEREINABOVE. AS LONG AS THE PROFITS ARE UTILISED FO R THE ATTAINMENT OF THE OBJECTS OF THE ASSESSEE, IT CONTI NUES TO ENJOY THE BENEFITS PROVIDED U/S 11 OF THE INCOME TA X ACT. THE WORD 'CHARITABLE PURPOSE' IS DEFINED IN SECTION 2(15) AFTER THE AMENDMENT IN 2008, AND THE SAME IS REPRODUCED HEREUNDER : 'CHARITABLE PURPOSE' INCLUDES RELIEF OF THE POOR, EDUCATION, MEDICAL RELIEF, [PRESERVATION OF ENVIRON MENT (INCLUDING WATERSHEDS, FORESTS AND WILDLIFE) AND ITA NO 1759 OF 2014 ANDHRA PRADESH FOODS HYDERABAD PAGE 7 OF 11 PRESERVATION OF MONUMENTS OR PLACES OR OBJECTS OF A RTISTIC OR HISTORIC INTEREST.] AND THE ADVANCEMENT OF ANY O THER OBJECT OF GENERAL PUBLIC UTILITY: PROVIDED THAT TILE ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY SHALL NOT BE A CHARITABLE PU RPOSE, IF IT INVOLVES THE CARRYING ON OF ANY ACTIVITY IN THE NATURE OF TRADE, COMMERCE OR BUSINESS, OR ANY ACTIVITY OF REN DERING ANY SERVICE IN RELATION TO ANY TRADE, COMMERCE OR BUSINESS, FOR A CESS OR FEE OR ANY OTHER CONSIDERAT ION, IRRESPECTIVE OF THE NATURE OF USE OR APPLICATION, O R RETENTION, OF THE INCOME FROM SUCH ACTIVITY:] [PROVIDED FURTHER THAT THE FIRST PROVISO SHALL NOT APPLY IF THE AGGREGATE VALUE OF THE RECEIPTS FROM THE ACTIVI TIES REFERRED TO THEREIN IS [TWENTY-FIVE LAKH RUPEES] OR LESS IN THE PREVIOUS YEAR;] THE FINANCE ACT 2008 BROUGHT AN AMENDMENT IN THE DEFINITION OF CHARITABLE PURPOSE IN SECTION 2( 15) TO INCLUDE THE FIRST PROVISO AS DETAILED ABOVE. THE DE FINITION OF CHARITABLE PURPOSE PRIOR TO THE PROPOSED AMENDME NT IS AS UNDER: 'CHARITABLE PURPOSE' INCLUDES RELIEF OF THE POOR, EDUCATION, MEDICAL RELIEF AND THE ADVANCEMENT OF AN Y OTHER OBJECT OF GENERAL PUBLIC UTILITY. THERE ARE FOUR LIMBS IN THE DEFINITION OF CHARITABL E PURPOSE. THEY ARE (1) RELIEF OF THE POOR, (2) EDUCATION, (3) MEDICAL RELIEF, AND 4) THE ADVANCEMENT OF ANY OTHER OBJECT OF GENERA L PUBLIC UTILITY AS IS EVIDENT FROM TILE AMENDMENT, THE FOURTH LIMB I.E. THE ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBL IC UTILITY IS HIT BY THE AMENDMENT. IT MEANS A CHARITA BLE ORGANIZATION CLAIMING EXEMPTION U/S.11 ,OF THE INCO ME TAX ACT BY CLAIMING THAT IT INDULGES IN AN ADVANCEM ENT OF GENERAL PUBLIC UTILITY, IF IT CARRIES ON BUSINES S, TRADE OR COMMERCE, WILL FORFEIT THE EXEMPTION PROVIDED THERE IN AFTER THIS AMENDMENT IF THE TRADE, BUSINESS OR COMM ERCE ITA NO 1759 OF 2014 ANDHRA PRADESH FOODS HYDERABAD PAGE 8 OF 11 IS CARRIED BY A CHARITABLE ORGANIZATION PURSUING OB JECTS COVERED BY FIRST 3 LIMBS I.E. RELIEF OF TILE POOR, EDUCATION AND MEDICAL RELIEF, IT WILL CONTINUE TO ENJOY THE EXEMPTION PROVIDED IN SECTION 11 EVEN AFTER THE AMENDMENT IN THE FINANCE ACT, 2008. THE RESTRICTION IS ONLY IN THE CASE OF INSTITUTIONS CLAIMING EXEMPTION U/S 11 UNDER THE FOURTH AND THE RESIDUARY LIMBS OF THE DEFINITION OF CHARITABLE PURPOSE. AN ANALYSIS OF ALL THE OBJECTS OF M/S AP FOODS, IND ICATE THAT THE ORGANIZATION IS NOT ONLY FOR THE WELFARE O F POOR BUT ALSO IS PURSUING OBJECTS OF MEDICAL RELIEF. AS ALL THE OBJECTS PERTAIN TO 'RELIEF OF THE POOR' AND 'MEDICA L RELIEF', THE ASSESSEE WILL CONTINUE TO ENJOY THE EXEMPTION E VEN AFTER THE AMENDMENT TO SECTION 2(15) OF THE INCOME TAX ACT. ALL THESE DETAILS WERE PLACED BEFORE THE ASSESSING OFFICER IN THE COURSE OF THE ASSESSMENTS FOR THE ASSESSMENT YEARS 2005-06, 2006-07, 2007-08, 2010- 11 AND 2011- 12. THUS, THERE IS NO PROHIBITION IN THE ACT THAT A CHA RITABLE INSTITUTION SHOULD NOT INDULGE IN ANY BUSINESS ACTI VITY. THE ONLY RESTRICTION IS THAT IT SHOULD CONFORM TO T HE PROVISIONS OF SUB-SECTIONS 4&4A OF SECTION 11 OF TH E INCOME TAX ACT AND THE ACTIVITY SHOULD COME WITHIN THE PROVISIONS OF SECTION 2(15) DEFINING THE CHARITABLE PURPOSES. 19. THE LD COUNSEL RELIED ON THE DECISION IN THE CA SE OF ACIT VS. THANTHI TRUST (247 ITR 785 (S.C). THE LD COUNSEL AL SO POINTED OUT THAT ALL THESE ASPECTS DEALT WITH BY THE DIT (E ) WERE CONSIDERED CIT (A)-IV HYDERABAD WHILE DISPOSING OFF THE GROUP APPEALS FOR THE AYS 2005-06 2006-07, 2007-08 AND 20 10-11 WHEREIN HE HAD HELD AS UNDER: '8.6 TO SUM UP, I HOLD THAT THE APPELLANT WAS ENGAGED IN CHARITABLE PURPOSES INTHE NATURE OF RELIEF TO TH E POOR, THAT CONSEQUENTLY, THE FIRST PROVISIO TO SECTION 2(15) DID NOT APPLY TO THE APPELLANT, AND THAT THE APPELLANT HAD SATISFIED THE CONDITIONS OF SECTION 11 (4A) FOR AY 2010- ITA NO 1759 OF 2014 ANDHRA PRADESH FOODS HYDERABAD PAGE 9 OF 11 11. THE APPELLANT IS, THEREFORE, ELIGIBLE FOR EXEMP TION U/S 11 FOR A Y 2010-11. 20. IT WAS SUBMITTED THAT THE SINCE THE ISSUES RAIS ED BY THE DIT (E) HAVE ALREADY BEEN DECIDED BY AN OFFICER OF THE RANK OF THE CIT (A), THE DIT (E) HAS NO JURISDICTION TO DECIDE ON T HE SAME ISSUES. 21 THE LD DR RELIED ON THE ORDER OF THE DIT (E). 22. WE HEARD BOTH THE PARTIES. WE FIND THAT CIRCULA R DATED 6.4.2011 CLEARLY STATES THAT SEC. 12AA (3) IS ONLY OPERATIVE W.E.F. A.Y 2011-12 ONWARDS. IN THE CASE OF DIT (E) VS. MO OLCHAND KHAIRATI RAM TRUST (339 ITR 622) IT HAS BEEN HELD A S FOLLOWS: IN SUB-SECTION (1) CLAUSE (B) AND SUB-SECTION (3) OF SECTION 12AA OF THE INCOME TAX ACT, 1961, CANCELLAT ION OF REGISTRATION WAS PROVIDED WHERE THE REGISTRATION WAS GRANTED UNDER CLAUSE (B) OF SUB-SECTION (1). FURTHER, CANCELLATION UNDER SUB-SECTION (3) WAS ALS O PROVIDED WHERE THE REGISTRATION WAS OBTAINED AT ANY TIME U/S 12A (WHETHER UNDER CLAUSE (A) OR CLAUSE (A A) OF SUB-SECTION (1) OF SECTION 12A). BUT THIS POWER OF CANCELLATION OF REGISTRATION U/S 12A CAME TO BE INCORPORATED BY WAY OF AMENDMENT INTRODUCED BY THE FINANCE ACT, 2010 W.E.F. JUNE 1, 2010. NOW W.E.F. JUNE 1, 2010, THE POWER VESTS WITH THE COMMISSIONER TO CANCEL THE REGISTRATION GRANTED UNDER ANY OF THE CLAUSES OF SUB-SECTION (1) OF SECTION 12A. THE ASSESSEE TRUST OBTAINED REGISTRATION IN DECEMBE R, 1974. BASED ON THIS THE ASSESSEE GOT EXEMPTION OF INCOME-TAX IN THE ASSESSMENTS U/S 143(3) OF THE ASSESSMENT YEARS 1996-97 TO 2005-06. THE DIRECTOR O F INCOME TAX CANCELLED THE REGISTRATION U/S 12AA(3) W.E.F. A.Y 2002-03 BY HIS ORDER DATED JUNE 30, 2009 . THE TRIBUNAL SET ASIDE THE ORDER OF CANCELLATION. O N APPEAL THE HIGH COURT: HELD, DISMISSING THE APPEAL, THAT THE CANCELLATION OF ITA NO 1759 OF 2014 ANDHRA PRADESH FOODS HYDERABAD PAGE 10 OF 11 REGISTRATION WAS NOT VALID. 23. WE ALSO ARE OF THE OPINION THAT FOR INVOKING TH E PROVISIONS OF SECTION 12AA(3) THE DIT (E) SHOULD ESTABLISH THA T: (A) THE ACTIVITIES OF THE ASSESSEE ARE NOT GENUINE (B) THE ACTIVITIES ARE NOT CARRIED ON IN ACCORDANCE WITH THE OBJECTS OF THE INSTITUTION. 24. IN THE PRESENT CASE THE DIT (E) HAS NOT ESTABLI SHED THAT THE CONDITIONS (A) AND (B) MENTIONED IN SECTION 12AA(3) OF THE I.T. ACT ARE ATTRACTED. THEREFORE, WE FIND THE ORDER OF THE DIT (E) IMPROPER RELYING ON THE DECISION OF THE TAMIL NADU CRICKET A SSOCIATION VS. DIT (E) MADRAS (360 ITR 633). 25. WE ALSO FIND THAT THE DIRECTOR OF INCOME TAX HA S PROCEEDED TO HOLD THAT IF BUSINESS IS CARRIED ON BY A CHARITA BLE ORGANISATION, IT WILL FORFEIT ITS EXEMPTION. THE ASSESSEE IS PROD UCING NUTRITIOUS FOOD TO SUPPLY THE READY-TO-EAT FOOD TO PREGNANT WO MEN, UNDER- NOURISHED CHILDREN AND LACTATING MOTHERS. THE ORGAN ISATION IS FULFILLING ITS OBJECTS BY SUPPLYING FOOD SO PRODUCE D TO THE BENEFICIARIES FOR THE IMPLEMENTATION OF SCHEMES PRO MOTED BY THE WOMEN & CHILD WELFARE DEPARTMENT OF THE GOVERNMENT OF ANDHRA PRADESH AND OTHER SUCH RELATED PROGRAMMES. T HE NUTRITIOUS FOOD PRODUCED BY THE ASSESSEE IS NOT SOL D IN THE COMMERCIAL MARKET NOR IT IS SUPPLIED TO THE PARTIES OTHER THAN THE BENEFICIARIES UNDER THE SCHEMES REFERRED TO ABO VE. IT CANNOT BE REFERRED TO AS A CONTRACTOR TO THE GOVERNMENT OF ANDHRA PRADESH AS IT IS INVOLVED IN MANUFACTURE AND SUPPLY OF THE FOOD TO THE BENEFICIARIES. ONLY, THE SUPERVISORY ACTIVIT IES ARE CARRIED ON BY THE GOVERNMENT OF ANDHRA PRADESH, IN BRINGING OUT SCHEMES FOR THE BENEFIT OF THE BENEFICIARIES AND FI XING A SUITABLE PRICE TO MEET THE COST OF MANUFACTURING AND OTHER O VERHEADS. ITA NO 1759 OF 2014 ANDHRA PRADESH FOODS HYDERABAD PAGE 11 OF 11 26. THUS, THERE IS NO PROHIBITION IN THE ACT THAT A CHARITABLE INSTITUTION SHOULD NOT INDULGE IN ANY BUSINESS ACTI VITY. THE ONLY RESTRICTION IS THAT IT SHOULD CONFORM TO THE PROVIS IONS OF SUB- SECTIONS 4 & 4A OF SECTION 11 OF THE I.T. ACT AND T HE ACTIVITY SHOULD COME WITHIN THE PROVISIONS OF SECTION 2(15) DEFINING THE CHARITABLE PURPOSES. 27. FOR THE REASON GIVEN ABOVE, WE SET ASIDE THE IM PUGNED ORDER OF THE LD DIT (E) AND ALLOW THE APPEAL OF THE ASSESSEE. 28. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 15 TH MAY, 2015. SD/ - SD/ - (P.M. JAGTAP) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED 15 TH MAY, 2015. VNODAN/SPS COPY TO: 1. VENUGOPAL & CHENOY, CAS, 4-1-889/16/2 TILAK ROAD, HYDERABAD 500001 2. DIRECTOR OF INCOME TAX (EXEMPTIONS) AAYAKAR BHAVAN, HYDERABAD 500004 3. THE ADIT(E) HYDERABAD 4. THE DR, ITAT, HYDERABAD 5. GUARD FILE BY ORDER