Norka Roots, Trivandrum V. The CIT, Trivandrum

ITA 179/COCH/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 86424 (ITAT-COCHIN)
• Duration Of Justice: 10 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-03-2015
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 08-01-2015
• Assessment Year: misc
• Appeal Filed On: 22-04-2014
• Court: TRIBUNAL
• Department Lawyers: M ANIL KUMAR
• Assessee Lawyers: MOHAN PULICKKAL
• Keywords: Charitable institution; Source of fund
• Section: 12A; 12AA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND CHANDRA POOJ ARI, AM I.T.A. NO.179 /COCH/2014 NORKA ROOTS, NORKA CENTRE, THYCAUD, TRIVANDRUM-695014. [PAN: AACCR 7531A] VS. THE COMMISSIONER OF INCOME-TAX, TRIVANDRUM. (ASSESSEE-APPELLANT) (REVENUE-RESPONDENT) ASSESSEE BY SHRI MOHAN PULICKKAL, ADV. REVENUE BY SHRI M. ANIL KUMAR CIT/DR DATE OF HEARING 08/01/2015 DATE OF PRONOUNCEMENT 06/03/2015 O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER DATED 9 TH JANUARY, 2014 PASSED BY THE CIT, TRIVANDRUM, REJECT ING THE APPLICATION FOR REGISTRATION U/S. 12AA OF THE I.T. ACT. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A GOVERNMENT OF KERALA COMPANY REGISTERED UNDER SECTION 25 OF THE COMPANY ACT FOR PROTECTING THE INTERESTS OF NON-RESIDENT KERALITES. ORIGINALLY, TH E ASSESSEES APPLICATION FOR REGISTRATION UNDER SECTION 12AA OF THE I.T. ACT DAT ED 12-04-2004 WAS REJECTED BY THE CIT VIDE ORDER DATED 07-03-2005. AGAINST THE R EJECTION, THE ASSESSEE WENT IN I.T.A. NO.179/COCH/2014 2 APPEAL BEFORE THE TRIBUNAL, COCHIN BENCH WHICH REMI TTED THE MATTER BACK TO THE FILE OF THE CIT VIDE ORDER IN I.T.A. NO. 570/COCH/2006 DATED 05/06/2006. ON REMISSION BY THE TRIBUNAL, THE CIT PASSED FRESH ORDER DATED 0 6/02/2007 AND ONCE AGAIN, THE CIT REFUSED TO GRANT REGISTRATION UNDER SECTION 12A A OF THE ACT. AGAINST THIS, THE ASSESSEE WENT IN APPEAL BEFORE THE TRIBUNAL. THE T RIBUNAL VIDE ITS ORDER DATED 5 TH SEPTEMBER, 2008 CONFIRMED THE DENIAL OF REGISTRATIO N BY CIT UNDER SECTION 12AA OF THE ACT. AGAINST THIS, THE ASSESSEE WENT IN APPEAL BEFORE THE HIGH COURT. THE HIGH COURT VIDE JUDGMENT IN 31/2009 DATED 19 TH MARCH 2009 OBSERVED THAT A GOVERNMENT AGENCY PROMOTED BY THE GOVERNMENT TO PRO TECT THE INTERESTS OF NON- RESIDENT KERALITES WHO ARE OUT OF KERALA AND INDIA IS CERTAINLY AN OBJECT OF GENERAL PUBLIC UTILITY. ACCORDINGLY, THE FINDING OF THE LO WER AUTHORITIES WAS SET ASIDE. FURTHER, THE COURT OBSERVED THAT FOR DECIDING THE I SSUE OF ENTITLEMENT FOR REGISTRATION AS A CHARITABLE INSTITUTION, THE CIT SHOULD VERIFY THE SOURCE OF FUND AND UTILIZATION OF THE SAME AND THE OBJECT OF THE CHARITABLE INSTITUTI ON SHOULD BE ASCERTAINED WITH REFERENCE TO SOURCE OF FUND AND APPLICATION OF THE SAME. THE COURT FURTHER OBSERVED THAT IF UNDER COVER OF PROMOTING INTERESTS OF NON-RESIDENT KERALITES, THE ASSESSEE IS ENGAGED IN COLLECTION OF CHARGES FROM T HEM AND MAKING PROFITS, THEN CERTAINLY IT IS A PROFITABLE ORGANIZATION NO MATTER NO DIVIDEND IS DECLARED BY VIRTUE OF REGISTRATION GRANTED UNDER SECTION 25 OF THE COMPAN IES ACT. THE COURT ALSO OBSERVED THAT IF FUNDS ARE EXPENDED FOR UNNECESSARY TRAVEL AND EXTRAVAGANZA, THEN THE SAME WILL REFLECT UPON THE TRUE PURPOSE OF THE ORGANIZATION. WITH THESE OBSERVATIONS, THE HIGH COURT REMITTED THE MATTER BA CK TO THE FILE OF THE CIT FOR FRESH I.T.A. NO.179/COCH/2014 3 CONSIDERATION. ON THE ABOVE DIRECTION OF THE HIGH COURT, THE CIT TOOK UP THE MATTER FOR HEARING. HOWEVER, THE CIT WAS NOT CONVINCED WI TH THE ACTIVITIES CARRIED OUT BY THE ASSESSEE AND DOUBTED THE GENUINENESS OF THE CHA RITABLE ACTIVITIES, HENCE, HE REFUSED TO GRANT REGISTRATION UNDER SECTION 12AA OF THE ACT. AGAINST THIS, THE ASSESSEEE IS ONCE AGAIN IN APPEAL BEFORE US. 3. THE LD. AR SUBMITTED THAT THE ASSESSEE ORGANIZAT ION WAS FORMED BY THE GOVERNMENT OF KERALA FOR A SPECIFIC PURPOSE AND EVE N THE CHARGES TAKEN FOR VARIOUS SERVICES RENDERED BY THE ASSESSEE ARE DECIDED/APPRO VED BY THE GOVERNMENT. THE LD. AR RELIED ON THE FOLLOWING CASE LAW: (I) DIRECTOR OF INCOME TAX (EXEMPTION) VS. SABARMA TI ASHRAM GAUSHALA TRUST (2014) (362 ITR 539) (GUJ.) (II) ADDL. CIT VS. SURAT ART SILK CLOTH MFRS. ASSO CN. (1980)(121 ITR 1) (SC). (III)NIRMAL TRADING CO. VS. CIT (121 ITR 54) (SC). (IV) CIT VS. SAMYUKTHA GOWDA SARASWATHA SABHA (200 0) (245 ITR 242) (MAD.) 4. ON THE OTHER HAND, THE LD. DR RELIED ON THE ORDE R OF THE CIT. 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE R ECORD. WE HAVE CAREFULLY GONE THROUGH THE MAIN OBJECTS OF THE ORGANIZATION W HICH AS PER THE MEMORANDUM OF ASSOCIATION ARE: (A) TO PROVIDE ASSISTANCE OF ALL KINDS TO NON-RESID ENT KERALITES IN THE STATE OF KERALA OR ANYWHERE ELSE IN INDIA OR ABROAD AND T O TAKE UP WITH GOVERNMENT OF KERALA AND GOVERNMENT OF INDIA OR OTH ER I.T.A. NO.179/COCH/2014 4 INSTITUTIONS/ORGANIZATIONS BOTH IN INDIA AND ABROAD , ANY MATTER CONCERNING THE NON-RESIDENT KERALITES. (B) TO SET UP PROJECT/SCHEMES INCLUDING PENSION SCH EME FOR THE WELFARE OF NON-RESIDENT KERALITES AND TO EVOLVE STRATEGIES FOR THE RE-SETTLEMENT, ESTABLISHMENT AND RE-INTEGRATION OF NON-RESIDENT KE RALITES RETURNING TO KERALA AND OTHER STATES IN INDIA. (C) TO GIVE A THRUST TO THE INDUSTRIAL DEVELOPMENT OF THE STATE BY CHANNELIZING THE RESOURCES AND EXPERTISE OF NON-RES IDENT KERALITES AND TO HELP THEM TO SET UP PROJECTS/VENTURES/ENTERPRISES I N KERALA. (D) TO FACILITATE THE CREATION OF A HIGH CALIBER HU MAN RESOURCE POOL, UTILIZING THE EDUCATIONAL AND TRADITIONAL ADVANTAGE S INHERENT IN THE STATE, TO MEET THE CHANGING GLOBAL REQUIREMENTS BY HELPING TO SET UP HIGHER AND SPECIALIZED CENTRES OF LEARNING AND TRAINING AIMED AT SKILL UPGRADATION AND TO ASSIST AND MONITOR HUMAN RESOURCE EXPORT THROUGH TRANSPARENT AND LAWFUL METHODS. (E) TO UNDERTAKE THE ESTABLISHMENT, MANAGEMENT AND MONITORING OF A WORLDWIDE NETWORK OF ASSOCIATIONS, ORGANIZATIONS, A ND GROUPS OF KERALITES RESIDING AND WORKING OUTSIDE THE STATE, ASSIST AND ENCOURAGE THEIR ACTIVITIES AND TO CHANNELIZE THE CONTRIBUTION OF N ON-RESIDENT KERALITES FOR THE ALL ROUND DEVELOPMENT OF THE STATE. WITH NO IN TENTION TO DISTRIBUTE THE SURPLUS, IF ANY, AND ANY SURPLUS MONEY GENERATED SH ALL BE PLOUGHED BACK FOR THE DEVELOPMENT AND THE FUNCTIONING OF THE COMP ANY. IN ADDITION TO THE ABOVE OBJECTS, THE TRUST HAS SEV ERAL OTHER OBJECTS THAT ARE INCIDENTAL OR ANCILLARY TO THE ATTAINMENT OF THE MA IN OBJECTS. 5.1 THE MAIN CONTENTION OF THE ASSESSEE IS THAT THE ORGANIZATION HAS BEEN RENDERING SERVICE TO THE NON-RESIDENT KERALITES AND THEIR ACTIVITY SHOULD BE CLASSIFIED AS RELIEF TO THE NEEDY PERSONS. HOWEVER, EXAMINATI ON OF THE DETAILS FILED BY THEM DO NOT SUPPORT THE CONTENTION THAT THEY ARE PROVIDING RELIEF TO GENERAL PUBLIC AND SPECIFICALLY NON-RESIDENT KERALITES. THE ORGANIZATI ON DO NOT CATER TO THE EMIGRANTS ALONE BUT TO THE BROADER NON-RESIDENT COMMUNITY, WH ICH CONSISTS OF ALL THREE CLASSES I.T.A. NO.179/COCH/2014 5 VIZ THE POOR, MIDDLE AS WELL AS THE RICH AND AFFLUE NT CLASS. IT IS SEEN THAT THE ORGANIZATION HAS NOT SPENT ANY OF ITS EARNINGS FOR RELIEF. EVEN THOUGH THE ORGANIZATION CLAIMED THAT THE TWO SCHEMES, VIZ. SAN THWANAM AND KARUNYAM ARE MEANT FOR THE POOR, HOWEVER, THE FINANCIAL RECORDS CLEARLY INDICATE THAT THE ORGANIZATION HAS NOT BEEN USING ANY OF ITS MONEY FO R THESE SCHEMES BUT TRANSFERS THE GRANT RECEIVED FROM THE GOVERNMENT OF KERALA. T HE DETAILS ARE PRODUCED IN A TABULAR FORM BELOW: TABLE 1 SL. NO.. FINANCIAL YEAR TOTAL GOVERNMENT FUNDING GRANTS SANTHWANAM KARUNAYAM SANTHWANAM KARUNAYAM % OF UTILISATION 1. 2006-07 NA 5,37,000 5,37,000 0 100% 2. 2007-08 17,88,799 17,89,000 5,93,000 0 33.1% 3. 2008-09 24,58,462 24.58 15,05,000 0 61.2% 4. 2009-10 70,09,065/- 70.09 35,42,000 0 50.5% 5. 2010-11 1,31,22,598 1,31,20,000 55,99,000 1.05 43.5% 6. 2011-12 1,16,31,737 0 54,59,500 50,000 47.36% 7. 2012-13 5,64,53,717 0 1,56,84,344 1,67,200 28.07% 5.2 ANALYSIS OF THE ABOVE DETAILS CLEARLY INDICATES THAT THE ORGANIZATION HAD NOT EVEN FULLY UTILIZED THE GRANT SANCTIONED BY THE GOV ERNMENT TOWARDS THESE SCHEMES. THEREFORE THERE IS NO JUSTIFICATION THAT THE ORGANI ZATION IS ENGAGED IN RELIEF FOR POOR. AT BEST, IT CAN BE SEEN AS AN AUTHORIZED AGENCY FOR EXECUTION OF THE GOVERNMENT SCHEMES SUCH AS SANTHWANAM AND KARUNYAM. THEREFORE , THE CLAIM THAT THEY ARE ENGAGED IN RELIEF TO THE POOR IS WITHOUT ANY BASIS. 5.3 THE ABOVE FACTS ILLUSTRATE THAT IN THE EARLIER YEARS, I.E., UPTO 2008-09 THE ORGANIZATION HAD NOT SPENT ANY OWN MONEY ON WELFARE OF THE POOR. THESE SPECIFIC I.T.A. NO.179/COCH/2014 6 SCHEMES MEANT FOR THE LOWER AND POORER SECTIONS OF THE SOCIETY WERE MET SOLELY FROM GOVERNMENT GRANTS AND THEREFORE THEIR CLAIM TH AT THEY ARE ENGAGED IN RELIEF TO POOR IS NOT FOUND ON FACTS OR SUPPORTED BY EVIDENCE S. THEY WERE MERELY AN AGENCY FOR EXECUTION OF THESE GOVERNMENT FORMULATED SCHEME S. THEREFORE, THE CLAIM OF RELIEF TO POOR IS AN INCORRECT AND INADMISSIBLE CLA IM. 5.4 PROCEEDING FURTHER THE ORGANIZATION HAS SUBMITT ED THE DETAILS OF VARIOUS PROGRAMMES IT HAS CONDUCTED BETWEEN THE YEARS 2007- 08 TO 2012-13. IT IS SEEN THAT APART FROM THE SCHEMES OF SANTHWANA AND KARUNY AM, OTHER PROGRAMMES SUCH AS PRE-DEPARTURE ORIENTATION, MASS PUBLICITY CAMPAI GN, AWARENESS CAMPAIGN, SKILL UPGRADATION ETC. WERE ALSO CARRIED OUT PURELY FROM GOVERNMENT FUNDS. VAST AMOUNTS OF MONEY FROM GOVERNMENT FUNDS HAVE BEEN SP ENT ON ORGANIZING KERALEEYA PRAVASI SANGAMAM AND PRAVASI BHARTIYA DIWAS. BEING SO, THESE EXPENSES CANNOT BE CLAIMED AS RELIEF FOR POOR AND M AY FALL WITHIN THE CATEGORY OF THE OBSERVATION OF THE HIGH COURT IF FUNDS ARE EXP ENDED FOR UNNECESSARY TRAVEL AND EXTRAVAGANZA, THOUGH INCURRED FROM GOVERNMENT FUND S. FURTHER, THERE IS NO DOUBT THAT THE ACTIVITIES OF THE ORGANIZATION ARE IN CONS ONANCE WITH THE JUDGMENT OF THE HIGH COURT THAT THE OBJECTS ARE OF GENERAL PUBLIC UTILITY. 5.5 ON VERIFICATION OF THE RECORDS AND THE MATERIAL S FURNISHED BY THE ASSESSEE, IT IS SEEN THAT THE ORGANIZATION IS DERIVING INCOME FR OM PROVIDING CERTIFICATION SERVICE, PROJECT ID CARD, GOVERNMENT GRANTS, BANK INTEREST A ND OTHER INCOME WHICH INCLUDED I.T.A. NO.179/COCH/2014 7 FEES COLLECTED FROM VARIOUS CENTRES OF HRD, REGISTR ATION CHARGES AND SERVICES CHARGES. FURTHER, OTHER INCOME COMPRISED OF INCOM E FROM PHOTOSTAT COLLECTION, COVER SALES, REGISTRATION FEE ETC. WHICH ARE TABULA TED BELOW: TABLE 2 RECEIPT OF INCOME 2006-07 2007-08 2008-09 2009-10 INCOME FROM CERTIFICATION 1,16,96,620 1,68,53,590 2 ,01,15,550 1,90,05,710 BANK INTEREST 15,49,846 21,80,210 30,80,000 49,48,460 PROJECT IDENTITY CARD 0 0 38,57 ,792 83,45,655 OTHER INCOME* 2,33,471 12,24,819 2,52,396 3,51,262 *PHOTOSTAT 0 0 45,036 0 *COVER SALES 0 0 1,12,395 0 TOTAL 1,40,16,937 2,20,47,480 2 ,99,21,651 3,96,60,152 5.6 FOR THE SUBSEQUENT YEARS ALSO, THE ORGANIZATION HAS COMMERCIAL RECEIPTS EXCEEDING CRORES OF RUPEES AS DETAILED BELOW: TABLE-3 YEAR RECEIPTS 2010-11 4,30,56,034 2011-12 3,19,72,595 2012-13 3,33,42,452 2013-14 NOT AVAILABLE THUS IT IS EVIDENT THAT THE ORGANIZATION IS IN RECE IPT OF COMMERCIAL RECEIPTS OF A SUBSTANTIAL ORDER RUNNING INTO CRORES. I.T.A. NO.179/COCH/2014 8 5.7 FURTHER, THE EXPENDITURE INCURRED BY THE ORGANI ZATION FOR THE YEARS 2006- 07 TO 2009-10 ARE TABULATED BELOW: TABLE-4 PARTICULARS 2009-10 2008-09 2007-08 2006-07 SALARIES & ALLOWANCES 89,49,377 79,03,199 76,98,202 64,37,285 OTHER ADMINISTRATIVE EXPENSES 58,92,077 50,66,848 42 ,38,510 49,91,912 PERCENTAGE OF ADMN. EXPENSES TO TOTAL EXPENDITURE 37% 43% 52% 80% 5.8 IT IS SEEN THAT THE MAJOR ITEM OF EXPENDITURE I S ON ADMINISTRATION WHICH IS FAR IN EXCESS OF AMOUNT SPENT ON THE OBJECTIVES. CO MPARATIVE FIGURES OF EXPENDITURE INCURRED ON ADMINISTRATION AND OBJECTIV ES OF THE ORGANIZATION ARE TABULATED BELOW: TABLE-5 YEAR RECEIPTS ADMINISTRATIVE EXPENSES OWN FUND PROG RAMMES (% OF COMMERCIAL RECEIPTS) 2006-07 1,34,79,937 NOT AVAILABLE 0 2007-08 2,02,58,681 NOT AVAILABLE 0 2008-09 2,74,63,189 4238510(15.43%) 0 2009-10 3,26,51,087 5066848 (15.52%) 661000 (2. 02%) 2010-11 2,99,33,436 7761009 (25.93%) 975000 (3. 26%) 2011-12 3,19,72,595 11502385 (35%) 1668000 (5.2%) 2012-13 3,33,42,452 10166559 (30.5%) 7482652 (22% ) 2012-13 NOT AVAILABLE 10739030 NOT AVAILABLE 5.9 ANALYSIS OF THE ABOVE TABLE CLEARLY INDICATES T HAT THE ORGANIZATION HAS BEEN EXPENDING A VERY SMALL PROPORTION OF ITS OWN F UNDS BUT MERELY EXECUTING I.T.A. NO.179/COCH/2014 9 SCHEMES FOR THE GOVERNMENT OF KERALA. THE ORGANIZA TION HAS SPENT A MERE 0%, 0%, 1.6%, 2.2%, 5.2% AND 22% FOR THE YEAR FROM 2006 -07 TO 2012-13 AND AGAINST THIS, THE ADMINISTRATIVE EXPENDITURE AMOUNT S TO 14.16%, 12.7%, 18%, 35% AND 30.5% FOR THE RESPECTIVE YEARS. IN VIEW O F THE ABOVE FACTS, IT IS EVIDENT THAT VERY LITTLE HAS BEEN DONE BY THE ORGAN IZATION TOWARDS ITS CHARITABLE OBJECTIVES AND SUBSTANTIAL AMOUNTS HAVE BEEN SPENT TO EARN PROFITS. THOUGH THE ORGANIZATION IS AN AGENCY FOR GOVERNMENT SPONSORED SCHEMES, BUT IT IS ALSO A COMMERCIAL ORGANIZATION EARNING SUBSTANTIAL MONEY F ROM COMMERCIAL OPERATION SUCH AS CERTIFICATION, ISSUE OF IDENTITY CARDS ETC. THUS IT TAKES THE CHARACTER OF A COMMERCIAL ENTERPRISE MAKING PROFITS. 5.10 THE ENTIRE SPECTRUM OF DATA AVAILABLE FROM 200 6-07 TO 2012-13 INDICATE THAT EVEN BEFORE THE INTRODUCTION OF THE RESTRICTIO N OF THE PROVISO ON OBJECT OF GENERAL UTILITY, THE ORGANIZATION WAS CARRYING ON PROFIT MAKING ACTIVITIES WITH LITTLE OR NO APPLICATION TO CHARITABLE ACTIVITIES A ND WHATEVER ACTIVITY THAT WAS CLAIMED TO HAVE BEEN CARRIED OUT WAS GOVERNMENT SCH EMES SOLELY FUNDED THOUGH GOVERNMENT FUNDS. THEREFORE, THE ASSESSEE CANNOT SHELTER ITS COMMERCIAL OPERATIONS, BEHIND THE COVER OF GOVERNMENT FUNDED C HARITIES. BEING SO, THE ASSESSEE IS NOT ENTITLED FOR REGISTRATION U/S. 12AA AS THE FACTS OF THE INSTANT CASE DO NOT FALL WITHIN THE MEANING OF THE INCOME TAX AC T AND THE ORGANIZATION IS COMMERCIAL IN CHARACTER MAKING EXTENSIVE PROFITS. I.T.A. NO.179/COCH/2014 10 5.11 THUS IT IS SEEN FROM THE CIT ORDER THAT THE ON LY ACTIVITY PERFORMED BY THE ASSESSEE IS EXECUTION OF THE GOVERNMENT SCHEMES SUC H AS SANTHWANAM AND KARUNYAM. THE ASSESSEE HAS ALSO UNDERTAKEN THE ACT IVITIES OF CERTIFICATE ATTESTATION FOR WHICH THE ASSESSEE HAS CHARGED SEPA RATE FEES AS ENUMERATED IN TABLE 3. THE ASSESSEE HAS ALSO SPENT MONEY TOWARDS ADMINISTRATIVE EXPENSES AND AS ENUMERATED IN TABLE 4 & 5, THE ASSESSEE HAS DONE VERY LITTLE TOWARDS THE OBJECT STATED IN THE MEMORANDUM OF ASSOCIATION BUT HAS SPENT SUBSTANTIAL AMOUNT TO EARN PROFITS. THUS THE RECEIPTS IN TABLE 3 AND EXPENDITURE IN TABLE 4 & 5 RELATE ONLY TO THE ACTIVITIES WHICH ARE COMMERC IAL IN NATURE. THUS DURING THE YEARS 2006-07 TO 2011-12 EXCEPT FOR 2012-13, THE AS SESSEE HAS NOT INCURRED ANY EXPENDITURE ON ITS OBJECTS STATED IN THE MEMORANDUM OF ASSOCIATION. 6. IT WAS THE CASE OF THE DEPARTMENT THAT THE ACTIV ITY CARRIED OUT BY THE ASSESSEE WAS COMMERCIAL IN NATURE AND THE ASSESSEE HAS CHARGED FEES TO ATTEST THE CERTIFICATES. THE ACTIVITY OF THE ASSESSEE WAS SYSTEMATIC AND ORGANIZED AND WAS THUS A COMMERCIAL ACTIVITY. THE OBSERVATION OF THE CIT THAT THE ASSESSEE IS ENGAGED IN THE ACTIVITY OF MAKING PROFIT IS CORRECT IN THE FACTS OF THE CASE. CARRYING ON ACTIVITY IN AN ORGANIZED MANNER WAS COM MERCIAL ACTIVITY. NO DOUBT, FOR THE PURPOSE OF ATTAINING THE OBJECTS THE ASSESS EE COULD DO SUCH ACTIVITY IF IT WAS INCIDENTAL TO THE CHARITABLE OBJECTS, BUT AT TH E SAME TIME, IT HAS TO CARRY OUT THE CHARITABLE ACTIVITIES ALSO TO FULFIL THE OBJECT S STATED IN THE MEMORANDUM OF ASSOCIATION. NO DOCUMENT OR EVIDENCE HAD BEEN PLAC ED ON RECORD BY THE I.T.A. NO.179/COCH/2014 11 ASSESSEE TO SHOW THAT ANY ACTIVITY OF CHARITABLE NA TURE HAS BEEN CARRIED OUT BY THE ASSESSEE WHICH WAS IN THE FULFILLMENT OF THE OB JECTS OF THE ASSESSEE FOR WHICH IT HAS BEEN FORMED. NO DOUBT, AT THE TIME OF GRANT OF REGISTRATION U/S. 12AA, THE CIT/DIT OR THE CONCERNED AUTHORITY IS REQUIRED TO E XAMINE THE FACT THAT WHETHER OR NOT THE OBJECTS OF THE INSTITUTION ARE CHARITABL E IN NATURE AND IF THOSE OBJECTS FALL WITHIN THE DEFINITION OF CHARITABLE PURPOSES , THEN HE CANNOT REFUSE REGISTRATION TO THAT INSTITUTION AS THE QUESTION RE GARDING WHETHER THE ASSESSEE FULFILS OTHER CONDITIONS LAID DOWN IN SECTION 11 OF THE ACT CAN BE EXAMINED AT THE TIME OF FRAMING THE ASSESSMENT. BUT AT THE SAME TIM E, ALONGWITH EXAMINING THE OBJECTS OF THE TRUST OR INSTITUTION, THE CONCERNED AUTHORITY HAS ALSO TO SATISFY HIMSELF ABOUT THE GENUINENESS OF THE ACTIVITY OF TH AT INSTITUTION. 7. THE READING OF SECTION 12AA WILL REVEAL THAT THE CONCERNED AUTHORITY WHILE EXAMINING THE CLAIM OF THE ASSESSEE U/S. 12AA IS EM POWERED TO CALL FOR SUCH DOCUMENTS OR INFORMATION FROM THE ASSESSEE WHICH HE THINKS NECESSARY TO SATISFY HIMSELF ABOUT THE GENUINENESS OF ACTIVITIES OF THE INSTITUTION AND, HE IS ALSO EMPOWERED TO MAKE INQUIRIES IN THAT REGARD AND IT I S ONLY AFTER SUCH SATISFACTION HE WILL EITHER ACCEPT THE CLAIM OF THE ASSESSEE OR REJECT THE SAME. THUS IT IS NOT A FORMALITY THAT THE CONCERNED AUTHORITY MERELY ON THE BASIS OF THE OBJECTS OF TRUST WILL GRANT THE CERTIFICATE OF REGISTRATION CA RRIED ON BY IT WHICH IT CLAIMED TO BE INCIDENTAL TO THE ATTAINMENT OF OBJECTIVES. IN OTHER WORDS, EVEN IF THE ASSESSEE CLAIMED THAT IT HAD ORGANIZED ACTIVITIES A S COMMERCIAL ACTIVITY FOR I.T.A. NO.179/COCH/2014 12 ATTAINMENT OF OBJECTIVES OF THE ASSESSEE, EVEN THEN IT WAS NECESSARY FOR IT TO SHOW THAT IN ADVANCEMENT OF ITS OBJECTIVES IT HAD I NCURRED CERTAIN EXPENDITURE ON THE OBJECTS STATED IN THE MEMORANDUM OF ASSOCIATION . IN FACT, THE ASSESSEE HAD NOT CARRIED OUT ANY CHARITABLE ACTIVITY. THE ENTIRE AMOUNT RECEIVED BY IT COULD NOT BE CONSIDERED AS INCOME AS THE INCOME IS ONLY THE S URPLUS OF THE TOTAL RECEIPTS MINUS EXPENDITURE INCURRED TO EARN THE TOTAL RECEIP TS. THE ENTIRE RECEIPTS COULD NOT BE CONSIDERED AS INCOME AND EXPENDITURE INCURRE D TO EARN THOSE RECEIPTS AND IT COULD NOT BE CONSIDERED AS APPLICATION OF INCOME FOR THE PURPOSE OF ATTAINING THE OBJECTS. THE ASSESSEE HAS NOT APPLIED ANY PART OF ITS NET INCOME ON THE OBJECTIVES STATED IN THE MEMORANDUM OF ASSOCIATION WHICH WERE FOR ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC U TILITY. THE ASSESSEE DID NOT CARRY OUT ANY CHARITABLE ACTIVITY IN THE RELEVANT Y EARS. THE ACTIVITY OF DISTRIBUTION OF FUNDS RECEIVED BY THE ASSESSEE FROM THE GOVERNME NT TO VARIOUS BENEFICIARIES CANNOT BE CONSIDERED AS CHARITABLE ACTIVITY. THERE FORE, THOUGH TECHNICALLY THE OBJECTS OF THE ASSESSEE MAY FALL WITHIN THE AMBIT O F ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY AS DESCRIBED IN SE CTION 2(15) AS IT EXISTED PRIOR TO ASSESSMENT YEAR 2009-10, BUT IT DID NOT CARRY OUT A NY CHARITABLE ACTIVITY. IN FACT, THE ONLY ACTIVITY WHICH WAS CARRIED OUT WAS FOR THE PURPOSE OF GENERATING INCOME WHICH IS NOT A CHARITABLE ACTIVITY IN ITSELF AND HE NCE THE ASSESSEE IS NOT ENTITLED FOR REGISTRATION UNDER SECTION 12AA OF THE ACT. IN OUR OPINION, THE CIT HAS RIGHTLY REJECTED THE CLAIM OF THE ASSESSEE REGARDING GRANT OF REGISTRATION UNDER SECTION 12AA OF THE ACT. ACCORDINGLY, WE UPHOLD THE ORDER OF THE LOWER AUTHORITIES. I.T.A. NO.179/COCH/2014 13 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 06/03/2015. SEPARATE ORDER SD/- (N.R.S.GANESAN) (CHANDRA POOJARI) JUDICIAL MEMBER ACC OUNTANT MEMBER PLACE: KOCHI DATED: 06/03/2015 GJ COPY TO: 1. NORKA ROOTS, NORKA CENTRE, THYCAUD, TRIVANDRUM-6 95014. 2. THE COMMISSIONER OF INCOME-TAX, TRIVANDRUM. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T., COC HIN I.T.A. NO.179/COCH/2014 14 N.R.S.GANESAN 9. THE HIGH COURT BY JUDGMENT DATED 19-03-2009 IN I TA NO. 31 OF 2009 FOUND THAT THE GOVERNMENTAL AGENCY PROMOTED BY GOVE RNMENT TO PROTECT THE INTEREST OF NON RESIDENT KERALITES, WHO ARE OUT OF KERALA AND INDIA IS CERTAINLY AN OBJECT OF GENERAL PUBLIC UTILITY. ACC ORDINGLY, THE ORDER OF THIS TRIBUNAL WAS SET ASIDE BY THE HIGH COURT. HOWEVER, THE MATTER WAS REMANDED BACK TO THE FILE OF THE COMMISSIONER OF IN COME-TAX WITH A DIRECTION TO VERIFY THE SOURCE OF FUNDS AND UTILIZA TION OF THE SAME. THE HIGH COURT SPECIFICALLY OBSERVED THAT UNDER THE COVER OF PROMOTING INTEREST OF NON RESIDENT KERALITES, IF THE ASSESSEE IS ENGAGED IN COLLECTION OF CHARGES FROM THEM AND MAKING PROFIT, THEN CERTAINLY, IT IS A PROFITABLE ORGANIZATION; NO MATTER NO DIVIDEND DECLARED BY VIRTUE OF REGISTR ATION GRANTED U/S 25 OF THE COMPANIES ACT. THE HIGH COURT ALSO OBSERVED T HAT IF THE FUNDS WERE EXPENDED FOR UNNECESSARY TRAVEL AND EXTRAVAGANZA, T HEN THE SAME WILL REFLECT UPON THE TRUE PURPOSE OF THE ORGANIZATION. IN FACT, THE KERALA HIGH COURT HAS OBSERVED AS FOLLOWS IN THE JUDGMENT DATED 19-03-2009: 3. THEREFORE, A GOVERNMENTAL AGENCY PROMOTED BY THE GOVERNMENT TO PROTECT THE INTERESTS OF NON-R ESIDENT KERALITES WHO ARE OUT OF KERALA AND INDIA IS CERTAI NLY A OBJECT OF GENERAL PUBLIC UTILITY. THE FINDINGS OF THE AUT HORITIES BELOW TO THE CONTRARY ARE SET ASIDE. HOWEVER, WE FIND TH AT BEFORE DECIDING THE ENTITLEMENT FOR REGISTRATION AS CHARIT ABLE INSTITUTION, THE COMMISSIONER SHOULD VERIFY THE SOU RCE OF FUND I.T.A. NO.179/COCH/2014 15 AND UTILIZATION OF THE SAME. EVEN THOUGH THIS IS A N EXERCISE TO BE DONE EVERY YEAR IN THE COURSE OF ASSESSMENT, AFT ER GRANTING REGISTRATION, WE FEEL THE OBJECT OF THE IN STITUTION SHOULD BE ASCERTAINED WITH REFERENCE TO SOURCE OF FUND AND THE APPLICATION OF THE SAME. IF UNDER COVER OF PROMOTI NG INTERESTS OF NON-RESIDENT KERALITES, APPELLANT IS ENGAGED IN COLLECTION OF CHARGES FROM THEM AND MAKING PROFIT, THEN CERTAINLY IT IS A PROFITABLE ORGANIZATION NO MATTER NO DIVIDEND IS DE CLARED BY VIRTUE OF REGISTRATION GRANTED UNDER S3ECTION 25 OF THE COMPANIES ACT. IF FUNDS ARE EXPENDED FOR UNNECESSA RY TRAVEL AND EXTRAVAGANZA THEN THE SAME WILL REFLECT UPON TH E TRUE PURPOSE OF THE ORGANIZATION. THE QUESTION OF IMITA TION RAISED BY THE APPELLANT IS NEITHER TENABLE NOR WOULD ADVAN CE THE CASE OF THE APPELLANT BECAUSE IN THE FIRST ROUND, THE TR IBUNAL DID NOT ACCEPT THE LIMITATION, BUT SET ASIDE THE ORDER AND REMANDED THE MATTER FOR FRESH CONSIDERATION. SECONDLY BY GE TTING DECLARATION THAT THE MATTER IS TIME BARRED, APPELLA NT WILL NOT GET REGISTRATION MORE SO BECAUSE APPELLANTS APPLICATIO N IS NOT AN APPLICATION FOR RENEWAL AND AN APPLICATION FOR FRES H REGISTRATION. WE THEREFORE REJECT THIS CONTENTION ALSO. SINCE THESE ARE MATTERS NOT CONSIDERED BY THE COMMISSIONE R OR THE TRIBUNAL, AND SINCE AFTER REGISTRATION APPELLANT WA S ENGAGED IN SIX YEAR OF OPERATION, WE DISPOSE OF THE APPEAL BY SETTING ASIDE THE ORDERS OF THE TRIBUNAL AND THAT OF THE CO MMISSIONER AND BY RESTORING THE MATTER TO THE COMMISSIONER FOR FRESH DECISION, BUT COMMISSIONER IS DIRECTED TO CONSIDER ORIGINAL APPLICATION AFTER CALLING FOR PARTICULARS, PARTICUL ARLY STATEMENT OF ACCOUNTS, AS STATED ABOVE. I.T.A. NO.179/COCH/2014 16 10. WHILE CONSIDERING THE APPLICATION OF THE ASSESS EE FOR REGISTRATION U/S 12AA CONSEQUENT TO THE DIRECTION O F THE KERALA HIGH COURT, THE COMMISSIONER OF INCOME-TAX FOUND THAT TH E ASSESSEE IS COLLECTING HUGE MONEY UNDER THE COVER OF SERVICES S UCH AS CERTIFICATION, ISSUE OF IDENTITY CARD, ETC. IN FAC T, THE COMMISSIONER OF INCOME-TAX EXTRACTED THE RECEIPTS AT PAGE 12 OF HIS ORDER WHICH READS AS FOLLOWS: TABLE 2 RECEIPT OF INCOME 2006-07 2007-08 2008-09 2009-10 INCOME FROM CERTIFICATION 1,16,96,620 1,68,53,590 2,01,15,550 1,90,05,710 BANK INTEREST 15,49,846 21,80,210 30,80,020 49,48,460 PROJECT IDENTITY CARD 0 0 38,57,792 83,45,655 OTHER INCOME* 2,33,471 12,24,819 2,52,396 3,51,262 *PHOTOSTAT 0 0 45,036 0 *COVER SALES 0 0 1,12,395 0 TOTAL 1,40,16,937 2,20,47,480 2,99,21,651 3,96,60,152 11. FROM THE MATERIAL AVAILABLE ON RECORD IT IS SEE N THAT THE ASSESSEE IS MAKING HUGE PROFIT FROM COLLECTION MADE FROM THE NON RESIDENT KERALITES UNDER THE GUISE OF PROVIDING SER VICE TO THEM. AS FOUND BY THE KERALA HIGH COURT THE ASSESSEE WAS PRO MOTED BY GOVERNMENT OF KERALA WITH THE OBJECT OF PROTECTING THE INTEREST OF NON RESIDENT KERALITES WHO ARE OUT OF KERALA AND IN DIA. THE KERALA HIGH COURT SPECIFICALLY FOUND THAT THE GOVERNMENT A GENCY PROMOTED I.T.A. NO.179/COCH/2014 17 BY GOVERNMENT TO PROTECT THE INTEREST OF NON RESIDE NT KERALITES, WHO ARE OUT OF KERALA AND INDIA IS CERTAINLY AN OBJ ECT OF PUBLIC UTILITY. THIS TRIBUNAL MAY NOT BE ABLE TO GO BEYOND THE FIND ING OF THE HIGH COURT. THEREFORE, I AM OF THE CONSIDERED OPINION T HAT THE ASSESSEE IS A CHARITABLE INSTITUTION WITH AN OBJECT OF GENER AL PUBLIC UTILITY. 12. HOWEVER, THE HIGH COURT FOUND THAT BEFORE DECID ING THE ENTITLEMENT FOR REGISTRATION AS CHARITABLE INSTITUT ION, THE SOURCE OF FUND AND UTILIZATION HAS TO BE VERIFIED. AS EXTRAC TED ABOVE, THE SOURCE OF FUND IS THE CHARGES COLLECTED FROM THE NO N RESIDENT KERALITES FOR PROVIDING SERVICES SUCH AS CERTIFICAT ION, ISSUE OF IDENTITY CARD, ETC. THE ASSESSEE IS CLAIMING RS.8,57,677 TO WARDS TRAVELLING EXPENSES. HOWEVER, THE DETAILS OF TRAVELLING EXPEN DITURE ARE NOT AVAILABLE. IT IS NOT KNOWN WHETHER THE TRAVELS ARE REQUIRED FOR CARRYING OUT ALL THE OBJECT OF THE TRUST OR NOT? I N VIEW OF THE SPECIFIC DIRECTION OF THE HIGH COURT THAT THE COMMISSIONER O F INCOME-TAX HAS TO EXAMINE WHETHER THE FUNDS WERE USED FOR UNNECESS ARY TRAVELS AND EXTRAVAGANZA AND IN THE ABSENCE OF ANY MATERIAL TO SUGGEST THAT THESE EXPENSES CLAIMED BY THE ASSESSEE TOWARDS TRAV ELLING IS ABSOLUTELY NECESSARY TO CARRY OUT THE OBJECT OF THE TRUST, THE PRESUMPTION WOULD BE THAT IT MAY BE UNNECESSARY AND EXTRAVAGANT. SINCE THE ASSESSEE IS MAKING PROFIT OUT OF THE COLL ECTIONS MADE FROM I.T.A. NO.179/COCH/2014 18 THE NON RESIDENT KERALITES IT IS A PROFITABLE ORGAN IZATION AS HELD BY THE KERALA HIGH COURT. THEREFORE, I AM OF THE OPIN ION THAT THE ASSESSEE IS NOT ENTITLED FOR REGISTRATION U/S 12AA OF THE ACT. 13. IN THE RESULT, THE APPEAL OF THE ASSESSEE STAND S DISMISSED. SD/- (N.R.S. GANESAN) JUDICIL MEMBER COCHIN, DT : 6 TH MARCH, 2015 PK/-