M/s Kodava Samaja, Bangalore V. DIT, Bangalore

ITA 200/BANG/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 0636 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-02-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 31-01-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 08-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ETWA MUNDA CITIIIDR
• Assessee Lawyers: MANOJ D PUKALE; SARANGAN
• Keywords: Business income; Charitable institution; Opportunity of being heard; Earning of tax free income; Retrospective amendment; Benefit of exemption; Cancellation of registration
• Section: 80G; 12A; 12AA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI N. BARATHVAJA SANKAR, VICE PRESIDENT AND SHRI N.V. VASUDEVAN, JUDICIAL MEMBER ITA NO.200/BANG/2012 ASSESSMENT YEAR : 2009-10 M/S. KODAVA SAMAJA, NO.7, 1 ST MAIN ROAD, VASANTHNAGAR, BENGALURU 560 002. PAN : AAATK 1208L VS. THE DIRECTOR OF INCOME TAX (EXEMPTION), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI SARANGAN, SR. ADVOCATE & SHRI MANOJ D. PUKALE, ADVOCATE RESPONDENT BY : SHRI ETWA MUNDA, CIT-III(DR) DATE OF HEARING : 31.01.2013 DATE OF PRONOUNCEMENT : 08.02.2013 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORD ER DATED 15.12.2011 OF THE DIT(EXEMPTIONS), PASSED U/S. 12AA(3) OF THE INCOME-TAX ACT, 1961 [HEREINAFTER REFERRED TO AS THE ACT IN SHORT], W HEREBY THE DIT(E) CANCELLED THE REGISTRATION ALREADY GRANTED TO THE A SSESSEE U/S. 12A OF THE ACT. ITA NO.200/BANG/2012 PAGE 2 OF 17 2. THE ASSESSEE IS A SOCIETY REGISTERED UNDER THE SOCIETIES REGISTRATION ACT. IT WAS GRANTED A CERTIFICATE OF REGISTRATION U/S. 12A OF THE ACT VIDE ORDER UNDER NO.PRO/718/10A/VOL.A-II/K.386 DATED 27.06.1980. THE MAIN OBJECTIONS FOR WHICH THE ASSESSEE WAS FORM ED AS PER ITS MEMORANDUM OF ASSOCIATION WAS AS FOLLOWS:- A) TO PRESERVE, PROTECT AND MAINTAIN, THE TRADITI ONAL CUSTOMS, CULTURE, HERITAGE AND LANGUAGE OF THE KODAVAS. B) TO PROMOTE AND ADVANCE THE SOCIAL, CULTURAL ECO NOMIC, EDUCATIONAL, PHYSICAL AND SPIRITUAL PROGRESS AND DE VELOPMENT OF THE MEMBERS OF THE SAMAJA. C) TO PROMOTE EDUCATIONAL INSTITUTIONS SUCH AS SCH OOLS, COLLEGES AND PROFESSIONAL COLLEGES OF MEDICAL, ENGINEERING, AGRICULTURE AND OTHER ALLIED SUBJECTS. TO PROMOTE H IGHER EDUCATION AND TO IMPART TRAINING AND COMPETENCE TO THE YOUTH FOR ENTRY IN CIVIL AND DEFENCE SERVICES AND T O PROVIDE THEM WITH PLACEMENT SERVICES. D) TO PROVIDE FOR CONSTRUCTION AND RUNNING OF COMM UNITY HALLS, AUDITORIUM, OPEN AIR THEATRES, SCHOOLS, COLL EGES, SOCIAL SERVICE CAMPS, HOSPITALS, NURSING HOMES, OLD AGE HOMES, WORKING WOMENS AND STUDENT HOSTELS, SPORTS AND GAMES CENTERS, SOCIAL AND CULTURAL CENTERS FOR THE BENEFIT OF THE KODAVA COMMUNITY IN PARTICULAR AND THE GENERAL PUBLIC AT LARGE. E) TO PROMOTE SOCIAL WELFARE, HEALTH CARE, EMPLOYM ENT OPPORTUNITIES, INFRASTRUCTURE DEVELOPMENT, RESETTLE MENT OF EX-SERVICEMEN, PARA MILITARY PERSONNEL, WAR WIDOWS, DISABLED AND TO SUPPORT THOSE WHO ARE IN FINANCIAL NEED IN KODAVA COMMUNITY AND THE GENERAL PUBLIC AT LARGE. F) TO PROMOTE SPORTS, RECREATION CLUBS, LIBRARIES , PUBLIC READING ROOMS AND OTHER PLACES OF LEARNING. 3. THE PROVISIONS OF SEC.2(15) OF THE ACT, WHICH D EFINES THE EXPRESSION CHARITABLE PURPOSE FOR THE PURPOSE OF THE ACT HAD UNDERGONE AN AMENDMENT BY THE FINANCE ACT, 2008 WITH EFFECT F ROM 01-04-2009. THE ITA NO.200/BANG/2012 PAGE 3 OF 17 EXPRESSION OF CHARITABLE PURPOSE, PRIOR TO THE AFOR ESAID AMENDMENT READ AS FOLLOWS:- (15) CHARITABLE PURPOSE INCLUDES RELIEF TO THE P OOR, EDUCATION, MEDICAL RELIEF AND THE ADVANCEMENT OF ANY OTHER OBJ ECT OF GENERAL PUBLIC UTILITY THE DEFINITION AFTER THE AMENDMENT READS AS FOLLOWS ; CHARITABLE PURPOSE INCLUDES RELIEF OF THE POOR, E DUCATION, MEDICAL RELIEF, (PRESERVATION OF ENVIRONMENT (INCLU DING WATERSHEDS, FORESTS AND WILDLIFE) AND PRESERVATION OF MONUMENTS OR PLACES OR OBJECTS OF ARTISTIC OR HISTORIC INTERE ST AND THE ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC U TILITY; PROVIDED THAT THE 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 NAT URE OF TRADE, COMMERCE OR BUSINESS OR ANY ACTIVITY OF RENDERING A NY SERVICE IN RELATION TO ANY TRADE, COMMERCE OR BUSINESS FOR A C ESS OR FEE OR ANY OTHER CONSIDERATION, IRRESPECTIVE OF THE NATURE OF USE OR APPLICATION, OR RETENTION OF THE INCOME FROM SUCH A CTIVITY. 4. IT CAN BE SEEN FROM THE PROVISO TO SEC.2(15) WHI CH CAME INTO EFFECT FROM 01-04-2009 THAT ADVANCEMENT OF ANY OTHER OBJEC T OF GENERAL PUBLIC UTILITY SHALL NOT BE A CHARITABLE PURPOSE, IF IT IN VOLVES THE CARRYING ON OF ANY ACTIVITY IN THE NATURE OF TRADE, COMMERCE OR BUSINE SS. IN VIEW OF THE AFORESAID AMENDMENT, THE DIT(E) WAS OF THE VIEW THA T THE CERTIFICATE OF REGISTRATION ALREADY GRANTED TO THE ASSESSEE U/S. 1 2A OF THE ACT SHOULD BE CANCELLED BY INVOKING THE PROVISIONS OF SECTION 12A A(3) OF THE ACT, BECAUSE THE ASSESSEE SOCIETY WAS CARRYING ON ACTIVITY IN TH E NATURE OF TRADE, COMMERCE OR BUSINESS. THE DIT(E) ENTERTAINED SUCH BELIEF FOR THE FOLLOWING REASONS. FROM A PERUSAL OF THE CONSOLIDA TED ACCOUNTS OF THE ITA NO.200/BANG/2012 PAGE 4 OF 17 ASSESSEE FOR THE YEAR ENDED 31.03.2009, THE DIT(E) OBSERVED THAT THE INCOME OF THE SOCIETY WAS FROM THE ACTIVITY OF LETT ING OUT A KALYANA MANTAPA OWNED BY IT ON RENT, FEES RECEIVED FROM THE MEMBERS ON SALE OF LIQUOR IN THE BAR RUN BY THE ASSESSEE. THE DIT(E) WAS OF THE VIE W THAT THERE WAS NO CHARITY INVOLVED IN PROVIDING SERVICES BY THE ASSES SEE TO ITS MEMBERS. IN THIS REGARD, HE HAS EXAMINED THE INCOME & EXPENDITU RE ACCOUNT OF THE ASSESSEE FOR THE YEAR ENDED 31.03.2009 & 31.03.2010 , FROM WHICH HE FOUND THAT THE EXCESS OF INCOME OVER EXPENDITURE OF THE ASSESSEE WAS RS.63,61,403 FOR A.Y. 2009-10 AND RS.82,54,493 FOR A.Y. 2010-11. THE DIT(E) THEREFORE ISSUED A SHOW CAUSE NOTICE DATED 2 2.11.2011 CALLING UPON THE ASSESSEE TO SHOW CAUSE AS TO WHY THE REGISTRATI ON ALREADY GRANTED TO IT U/S. 12A OF THE ACT SHOULD NOT BE CANCELLED. 5. IN REPLY, THE ASSESSEE SUBMITTED THAT ITS OBJECT S WERE CHARITABLE IN NATURE AND HAS ALREADY BEEN ACCEPTED TO BE SO BY TH E REVENUE BY GRANTING CERTIFICATE OF REGISTRATION U/S. 12A OF THE ACT. T HE ASSESSEE ALSO SUBMITTED THAT MARRIAGE HALL WAS LET OUT BY THE ASSESSEE TO A LL PERSONS IRRESPECTIVE OF THEIR CASTE OR RELIGION. THE ASSESSEE ALSO SUBMITT ED THAT LETTING OUT OF PROPERTIES AND DERIVING INCOME THEREFROM CANNOT BE TREATED AS BUSINESS INCOME AND IN THIS REGARD, RELIED UPON THE FOLLOWIN G DECISIONS:- (I) CIT V. SENGUNTHAR THIRUMANA MANDAPAM (2008) 298 ITR 330 (MAD) (II) CIT V. SRI RAO BAGHADUR ADK DHARMARAJA EDUCAT IONAL CHARITY TRUST (2008) 300 ITR 365 (MAD) (III) MARWAR TEXTILES (AGENCY) (P) LTD. V. ITO (20 08) 119 TTJ (MUMBAI) 131 ITA NO.200/BANG/2012 PAGE 5 OF 17 6. THE ASSESSEE ALSO POINTED OUT THAT IT ALSO CARRI ES ON SPORTS AND RECREATIONAL ACTIVITIES. THE ASSESSEE POINTED OUT THAT SALE OF LIQUOR WAS ONLY TO MEMBERS AND NOT TO OUTSIDERS AND THEREFORE PRINCIPLE OF MUTUALITY WOULD APPLY AND THE INCOME SO DERIVED CANNOT BE BRO UGHT TO TAX. IN PARTICULAR, THE ASSESSEE POINTED OUT THAT IT WAS AL SO CARRYING OUT THE ACTIVITY OF EDUCATION TO POOR AND MIDDLE CLASS PEOPLE OF KAR NATAKA. 7. THE DIT(E) HOWEVER WAS NOT CONVINCED WITH THE EX PLANATION GIVEN BY THE ASSESSEE. THE DIT(E), AFTER EXTRACTING THE OBJECTIONS OF THE ASSESSEE, WHICH WE HAVE ALREADY SET OUT IN THE EARL IER PART OF THIS ORDER AND AFTER REFERRING TO THE AMENDMENT TO DEFINITION OF CHARITABLE PURPOSE U/S. 2(15) OF THE ACT, WAS OF THE VIEW THAT THOUGH THE ASSESSEE WAS RUNNING SCHOOLS & COLLEGES, BUT ITS PREDOMINANT OBJECT WAS NOT EDUCATION. HE HELD THAT THE ASSESSEE WAS RUNNING A RECREATION CLUB HAV ING A LIQUOR BAR AND PROVIDED TABLES FOR PLAYING CARDS. HE HELD THAT SU CH ACTIVITIES CANNOT BE CALLED CHARITABLE. THE DIT(E) ALSO HELD THAT THE ASSESSEE CANNOT TAKE THE PLEA THAT IT IS A CHARITABLE ORGANIZATION SINCE IT IS RUNNING A SCHOOL AND THE SURPLUS IF ANY GENERATED FROM OTHER ACTIVITIES IS U TILIZED FOR THE DEVELOPMENT OF THE EDUCATION. IN THIS REGARD THE DIT(E ) REFERR ED TO THE FACT THAT BESIDES EXPENDITURE ON EDUCATIONAL ACTIVITIES, EXPENDITURE ON PROMOTION OF SPORTS, FUNCTION AND CULTURAL ACTIVITIES MEANT FOR PROMOTIN G/RETAINING KODAVA CULTURE, CUSTOMS, HERITAGE AND LANGUAGES WAS ONLY T O THE TUNE OF RS.15,50,373/- WHICH ACCORDING TO HIM WAS NEGLIGIBL E. HE ALSO HELD THAT EVEN FROM EDUCATIONAL ACTIVITIES THE ASSESSEE WAS M AKING HUGE SURPLUS YEAR AFTER YEAR AND THERE WAS NO APPLICATION OF SUR PLUS/INCOME FROM OTHER ACTIVITIES FOR EDUCATIONAL PURPOSE. HE WAS OF THE V IEW THAT IN ANY CASE ITA NO.200/BANG/2012 PAGE 6 OF 17 RETENTION OR APPLICATION OF SURPLUS FROM COMMERCIAL ACTIVITIES IS OF NO RELEVANCE. 8. THEREAFTER, THE DIT(E) EXAMINED THE RECEIPTS OF THE ASSESSEE AND OBSERVED AS FOLLOWS:- IT IS ALSO PERTINENT TO NOTE THAT THE RECEIPTS DUR ING THE FY:2008- 09 ACCOUNTED BY THE SAMAJA FROM LETTING OUT OF CHOU LTRY- RS.51,93,372, RENT FROM TENANTS - RS.16,79,197 AND KITCHEN RENT - RS.2,92,500/- ARE COMMERCIAL IN NATURE. APART FROM THIS, KODAVA SAMAJA SPORT AND RECREATION CLUB HAS SHOWN AN INCOM E OF RS.25,90,958/- FROM SALE OF LIQUOR, RS.3,70,002/- F ROM SALE OF SODA SOFT DRINKS ETC., ROOM RENT RS.8,36,480/- AND CARD ROOM COLLECTION RS.2,57,531/-. SIMILARLY, IN THE FY:2009 -10 ALSO THERE ARE SUBSTANTIAL RECEIPTS FROM THESE ACTIVITIES. SOM E OF THE PREDOMINANT ACTIVITIES OF SAMAJA ARE EVIDENTLY RUNN ING OF BAR/RESTAURANT AND RENTING OUT OF THE ROOMS TO ITS MEMBERS/THEIR GUESTS AND FROM LETTING OUT OF CHOULTRY ON DAILY BA SIS. THE SAMAJAS CONTENTION THAT LETTING OUT OF CHOULTRY IS NOT BUSINESS ACTIVITY AND PROVISO TO SECTION 2(15) OF THE ACT AR E NOT APPLICABLE IS NOT ACCEPTABLE. 9. THE DIT(E) ALSO DISTINGUISHED THE CASES RELIED U PON BY THE ASSESSEE. THE DIT(E) WAS OF THE VIEW THAT THE DECI SION OF HONBLE MADRAS HIGH COURT IN THE CASE OF SENGUNTHAR THIRUMANA MANDAPAM (SUPRA) , WAS A CASE OF WHERE THE QUESTION INVOLVED WAS UTI LIZATION SURPLUS FUNDS FOR OTHER CHARITABLE PURPOSES. SIMILARLY, HE HELD THAT THE DECISION OF THE MADRAS HIGH COURT IN THE CASE OF SRI RAO BAHADUR ADK DHARMARAJA EDUCATIONAL CHARITY TRUST (SUPRA) WAS A CASE, WHERE THE LETTING OUT OF PROPERTY WAS ON LEASE BASIS AND NOT ON DAILY BASIS WHEREAS IN THE CASE OF THE ASSESSEE LETTING OF THE PROPERTY WAS ON A DAILY ITA NO.200/BANG/2012 PAGE 7 OF 17 BASIS. ON SIMILAR REASONING, THE DIT DISTINGUISHED THE DECISION OF THE MUMBAI ITAT DECISION IN THE CASE OF MARWAR TEXTILES (SUPRA) . 10. THE DIT(E) ALSO MADE A REFERENCE TO THE JUDGMEN T OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF SRI SUBHARAM TRUST IN ITA NO.380/2009 DATED 30.5.2011 , WHEREIN THE HONBLE KARNATAKA HIGH COURT HELD THAT LEASING KALYANA MANTAP IS COMMERCIA L IN NATURE AND SUCH OBJECTS ARE NOT WHOLLY CHARITABLE. HE ALSO HELD TH AT WHERE THERE ARE CHARITABLE AND NON-CHARITABLE ACTIVITIES, ONE HAS T O LOOK AT THE PREDOMINANT ACTIVITIES OF THE ASSESSEE AND IN THIS REGARD REFER RED TO THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF DAULAT RAM PUBLIC TRUST V. CIT, 112 TAXMAN 128 (DEL) . THE DIT(E) ALSO HELD THAT THE PLEA OF THE ASSESSEE THAT INCOME FROM CLUB FACILITIES IS EXEMPT ON THE PRINCIPLE OF MUTUALITY CANNOT BE ACCEPTED, BECAUSE EVEN NON-MEMB ERS CAN AVAIL THE FACILITIES OF THE CLUB BY VISITING THE CLUB AS A GU EST OF A MEMBER. FOR ALL THE ABOVE REASONS, THE DIT(E) CANCELLED THE REGISTRATIO N ALREADY GRANTED TO THE ASSESSEE U/S. 12A OF THE ACT. 11. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE SUB MITTED THAT IT WAS NOT OPEN TO THE DIT(E) IN PROCEEDINGS U/S. 12AA(3) OF T HE ACT TO RE-EXAMINE THE OBJECTS OF THE TRUST AND COME TO THE CONCLUSION THA T THEY ARE NOT CHARITABLE. IN THIS REGARD, OUR ATTENTION WAS DRAWN TO THE FOLL OWING DECISIONS:- (I) CIT V. SARVODAYA ILAKKIYA PANNAI, 343 ITR 300 (MAD) IN THIS CASE, THE HONBLE MADRAS HIGH COURT TOOK A VIEW THAT ONCE A CERTIFICATE OF REGISTRATION U/S. 12A OF THE ACT IS GRANTED, THE SAME CAN BE CANCELLED ONLY ON SATISFAC TION OF TWO CONDITIONS LAID DOWN IN SECTION 12AA(3) OF THE ACT, ITA NO.200/BANG/2012 PAGE 8 OF 17 VIZ., (A) THAT THE ACTIVITIES OF THE TRUST OR INSTI TUTION ARE NOT GENUINE; AND (B) THAT THE ACTIVITIES OF THE TRUST O R INSTITUTION ARE NOT BEING CARRIED OUT IN ACCORDANCE WITH THE OB JECTS OF THE TRUST OR INSTITUTION. THE HONBLE HIGH COURT E XPRESSED THE VIEW THAT THERE MUST BE SPECIFIC FINDINGS WITH REGARD TO THE AFORESAID TWO CONDITIONS. (II) CHATURVEDI HAR PRASAD EDUCATIONAL SOCIETY V. CIT, 46 DTR (LUCKNOW) (TRIB) 121 (III) BHARAT JYOTI V. CIT, 63 DTR (LUCKNOW)(TRIB) 409 IN BOTH THESE DECISIONS, IT HAS BEEN LAID OUT THAT IN AN ACTION U/S. 12AA(3) OF THE ACT, THE OBJECTS OF THE CHARITABLE TRUST CANNOT BE RE-EXAMINED BY THE DIT A ND THAT THE TWO CONDITIONS LAID OUT IN SECTION 12AA(3) SHOU LD BE SATISFIED BEFORE REGISTRATION GRANTED CAN BE CANCEL LED. 12. THE LD. COUNSEL FOR THE ASSESSEE ALSO REITERATE D OTHER CONTENTIONS PUT FORTH BY THE ASSESSEE BEFORE THE DIT(E) WITH RE GARD TO THE NATURE OF INCOME FROM LETTING OUT THE KALYANA MANTAP, EDUCATI ON BEING ONE OF THE MAIN ACTIVITIES OF THE ASSESSEE, SUPPLY OF LIQUOR B EING NOT INCOME CHARGEABLE TO TAX ON THE PRINCIPLE OF MUTUALITY, ET C. 13. BESIDES THE ABOVE, OUR ATTENTION WAS ALSO DRAWN TO THE DECISION OF THE ITAT, BANGALORE BENCH IN THE CASE OF KARNATAKA BADMINTON ASSOCIATION V. DIT(E), ITA NO.1272/BANG/2011, ORDER DATED 22.11.2012 , WHEREIN AN IDENTICAL ISSUE HAS BEEN CONSIDERED BY THE TRIBUNAL. 14. THE LD. DR, ON THE OTHER HAND, RELIED ON THE OR DER OF THE DIT(E). HE ALSO RELIED ON THE DECISION OF THE HONBLE ANDHRA P RADESH HIGH COURT IN THE CASE OF ANDHRA PRADESH STATE SEED CERTIFICATION AGENCY V. C CIT, ITA NO.200/BANG/2012 PAGE 9 OF 17 [2012] 28 TAXMANN.COM (AP) . IN THIS DECISION, THE HONBLE ANDHRA PRADESH HIGH COURT CONSIDERED THE CLAIM MADE BY AN ASSESSEE WITH REGARD TO REJECTION OF AN APPLICATION FOR APPROVAL U/S. 10(23C)(IV) OF THE ACT, WHICH PROVIDES FOR EXEMPTION FROM TAX OF ANY INCOME RECEIVED BY ANY PERSON ON BEHALF OF INSTITUTION ESTABLISHED FOR CHA RITABLE PURPOSE WHICH IS APPROVED BY A PRESCRIBED AUTHORITY. THE HONBLE AN DHRA PRADESH HIGH COURT AFTER MAKING A REFERENCE TO THE DEFINITION OF CHARITABLE PURPOSE U/S. 2(15) OF THE ACT AS AMENDED BY THE FINANCE ACT, 200 9, HELD THAT THE ACTIVITY OF THE PETITIONER FACILITATED SALE OF CERTIFIED SEE DS TO FARMERS AND WAS FACILITATING TRADE, COMMERCE OR BUSINESS IN CERTIFI ED SEEDS AND WAS THEREFORE HIT BY THE PROVISO TO SECTION 2(15) OF TH E ACT. 15. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THE POWER TO CANCEL REGISTRATION ALREADY GRANTED U/S.12AA OF THE ACT IS CONTAINED IN SEC.12AA (3) OF THE ACT AND IT READS AS FOLLOWS: (3) WHERE A TRUST OR AN INSTITUTION HAS BEEN GRANT ED REGISTRATION UNDER CLAUSE (B) OF SUB-SECTION (1) AND SUBSEQUENTL Y THE COMMISSIONER IS SATISFIED THAT THE ACTIVITIES OF SU CH TRUST OR INSTITUTION ARE NOT GENUINE OR ARE NOT BEING CARRIE D OUT IN ACCORDANCE WITH THE OBJECTS OF THE TRUST OR INSTITU TION, AS THE CASE MAY BE, HE SHALL PASS AN ORDER IN WRITING CANCELLIN G THE REGISTRATION OF SUCH 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. 16. A PERUSAL OF THE ABOVE PROVISIONS SHOWS THAT TH E POWER TO CANCEL REGISTRATION ALREADY GRANTED CAN BE DONE IN TWO SIT UATIONS; ITA NO.200/BANG/2012 PAGE 10 OF 17 (A) SATISFACTION OF THE COMMISSIONER THAT THE ACTIV ITIES OF THE TRUST OR INSTITUTION ARE NOT GENUINE (B) SATISFACTION OF THE COMMISSIONER THAT THE ACTIV ITIES OF THE TRUST OR INSTITUTION ARE NOT BEING CARRIED OUT IN ACCORDA NCE WITH THE OBJECTS OF THE TRUST OR INSTITUTION. 17. IN THE IMPUGNED ORDER THERE IS NO FINDING ON TH E SATISFACTION OF ANY OF THE ABOVE TWO CONDITIONS. FROM THE FACT THAT THE I NCOME OF THE SOCIETY COMPRISED OF RECEIPTS FROM THE ACTIVITY OF LETTING OUT A KALYANA MANTAPA OWNED BY IT ON RENT, FEES RECEIVED FROM THE MEMBERS ON SALE OF LIQUOR IN THE BAR RUN BY THE ASSESSE, IT DOES NOT FOLLOW THAT THE ACTIVITIES OF THE ASSESSEE ARE NOT GENUINE OR THAT THE ACTIVITIES ARE NOT BEIN G CARRIED OUT IN ACCORDANCE WITH THE OBJECTS OF THE ASSESSEE. THE D IT(E ) IN THE IMPUGNED ORDER HAS ONLY COMMENTED ABOUT THE OBJECTS OF THE A SSESSEE NOT BEING CHARITABLE. THAT CANNOT BE A GROUND FOR THE DIT ( E) TO INVOKE THE PROVISIONS OF SEC.2(15) OF THE ACT. AS CAN BE SEEN FROM THE LATER PART OF THIS ORDER, BY REASON OF THE STATUTORY AMENDMENT TO THE DEFINITION OF CHARITABLE PURPOSE U/S.2(15) OF THE ACT BY INSER TION OF A SECOND PROVISO, BY THE FINANCE ACT, 2010 WITH RETROSPECTIVE EFFECT FROM 1.4.2009, EVEN IF THERE ARE RECEIPT FROM COMMERCIAL ACTIVITIES, IF BE LOW RS.25 LACS WILL STILL BE CONSIDERED AS CHARITABLE PURPOSE. BESIDES THE AB OVE, IT IS NOT OPEN TO THE DIT(E) IN AN ACTION U/S. 12AA(3) OF THE ACT TO EXAMINE THE OBJECTS OF THE TRUST TO SEE IF THE SAME WERE CHARITABLE IN NATURE. THAT HAS ALREADY BEEN DONE WHEN A REGISTRATION WAS GRANTED TO THE ASSESSE E U/S. 12AA(1) OF THE ACT. IT IS NOT OPEN TO THE DIT(E) TO RE-EXAMINE TH E OBJECTS OF THE TRUST IN PROCEEDINGS U/S.12AA(3) OF THE ACT. THE DECISIONS RELIED UPON BY THE LD. COUNSEL FOR THE ASSESSEE IN THIS REGARD SUPPORT THE PLEA OF THE ASSESSEE. ITA NO.200/BANG/2012 PAGE 11 OF 17 18. WITH REGARD TO RENTAL INCOME FROM LETTING OUT T HE COMMUNITY HALL, WE ARE OF THE VIEW THAT THE DECISION OF THE MADRAS HIG H COURT SQUARELY SUPPORTS THE PLEA OF THE ASSESSEE THAT THEY CANNOT BE REGARDED AS BUSINESS INCOME. IN OUR VIEW, DIT(E) HAS DISTINGUI SHED THOSE DECISIONS RELIED UPON BY THE ASSESSEE ON RATHER FLIMSY GROUND S. THE FACT THAT THE LETTING OUT WAS ON A DAILY BASIS OR FIXED PERIOD OF TIME, WILL NOT CHANGE THE CHARACTER OF INCOME. WE ARE ALSO OF THE VIEW THAT THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF SUBHARAM TRUST (SUPRA) ARE ON A TOTALLY DIFFERENT SET OF FACTS. IT WAS A CASE OF GRANT OF DEDUCTION U/S. 80G OF THE ACT. ON FACTS, IT WAS FOUND THAT T HE KALYANA MANTAP HAD BEEN LET OUT TO ONE OF THE TRUSTEES AND ON THOSE FA CTS, THE HONBLE HIGH COURT ACCEPTED THE VIEW OF THE TRIBUNAL THAT THE OB JECTS OF THE TRUST WERE NOT CHARITABLE AND CERTIFICATE U/S. 80-G OF THE ACT CAN NOT BE GRANTED. WE ARE OF THE VIEW THAT THE AFORESAID DECISION CANNOT HELP TH E CASE OF THE REVENUE IN SO FAR AS THE FACTS OF THE PRESENT CASE ARE CONCERN ED, WHERE THE LETTING OUT OF THE KALYANA MANDAP FOR USE BY THE GENERAL PUBLIC IS NOT DENIED. WE ARE ALSO OF THE VIEW THAT THE DECISION OF THE HONBLE D ELHI HIGH COURT IN THE CASE OF DAULAT RAM PUBLIC TRUST (SUPRA) IS TOTALLY ON DIFFERENT FACTS. IT WAS A CASE WHERE SOME OF THE OBJECTS OF THE TRUST WERE CHARITABLE AND SOME WERE NON-CHARITABLE. THE TRUSTEES HAD THE ABSOLUTE DISCRETION TO APPLY THE INCOME TO ANY OF THE OBJECTS. IT WAS ON THOSE FACT S THAT THE HONBLE DELHI HIGH COURT CAME TO THE CONCLUSION THAT THE ASSESSEE WAS NOT ENTITLED TO THE BENEFITS OF SECTION 11 OF THE ACT. 19. AS ALREADY STATED, THE REASONS SET OUT IN THE I MPUGNED ORDER BY THE DIT(E) FOR CANCELING THE REGISTRATION DOES NOT SATI SFY ANY OF THE CONDITIONS ITA NO.200/BANG/2012 PAGE 12 OF 17 LAID DOWN IN SECTION 12AA(3) OF THE ACT. AS FAR AS THE DECISION OF THE ANDHRA PRADESH HIGH COURT IN THE CASE OF ANDHRA PRADESH STATE SEED CERTIFICATION AGENCY V. CCIT, [2012] 28 TAXMANN.COM (AP) IS CONCERNED, WE ARE OF THE VIEW THAT THE SAID DECISIO N STANDS ON A TOTALLY DIFFERENT FOOTING. IT WAS A CASE OF EXEMPTION U/S. 10(23C)(IV) OF THE ACT. THE PRESENT CASE HAS TO BE DECIDED ON THE PARAMETER S LAID DOWN U/S.12AA(3) OF THE ACT. AS ALREADY OBSERVED, THE C ONDITIONS FOR INVOKING THOSE PROVISIONS ARE DIFFERENT. WE ARE THEREFORE OF THE VIEW THAT NONE OF THE REASONS GIVEN BY THE DIT(E) FOR CANCELLATION OF REGISTRATION ALREADY GRANTED TO THE ASSESSEE CAN BE SUSTAINED. 20. WE ARE ALSO OF THE VIEW THAT IN VIEW OF THE RET ROSPECTIVE AMENDMENT TO THE PROVISIONS OF SECTION 2(15) OF THE ACT BY IN TRODUCING THE SECOND PROVISO THERETO BY THE FINANCE ACT, 2010 W.E.F. 1.4 .2009, THE REVENUE CANNOT SEEK TO REVOKE THE REGISTRATION ALREADY GRAN TED TO A TRUST BY INVOKING SECTION 12AA(3) OF THE ACT, AS HELD BY THIS TRIBUNA L IN THE CASE OF KARNATAKA BADMINTON ASSOCIATION V. DIT(E), ITA NO.1272/BANG/2011, ORDER DATED 22.11.2012. THE TRIBUNAL IN THE AFORESAID DECISION TOOK THE VIEW THAT A FURTHER PRO VISO WAS INTRODUCED TO THE PROVISIONS OF SEC.2(15) OF THE ACT, BY THE FINANCE ACT 2010 WITH RETROSPECTIVE EFFECT FROM 01-04-2009, WHICH PROVIDE D AS FOLLOWS; PROVIDED FURTHER THAT THE FIRST PROVISO SHALL NOT A PPLY IF THE AGGREGATE VALUE OF THE RECEIPTS FROM THE ACTIVITIES REFERRED TO THEREIN IS TEN LAKH RUPEES OR LESS IN THE PREVIO US YEAR. ITA NO.200/BANG/2012 PAGE 13 OF 17 THE TRIBUNAL TOOK NOTE OF THE MEMORANDUM EXPLAINING THE PROVISIONS OF FINANCE BILL 2012 (REPORTED IN 343 ITR 234 (STAT.) AT PAGES 286 & 287) WHEREIN WHILE EXPLAINING THE RATIONALE BEHIND THE I NTRODUCTION OF SECOND PROVISO TO SEC.2(15) OF THE ACT, IT HAS BEEN MENTI ONED AS FOLLOWS; ASSESSMENT OF CHARITABLE ORGANIZATION IN CASE COMME RCIAL RECEIPTS EXCEED THE SPECIFIED THRESHOLD SEC.11 AND 12 OF THE ACT, EXEMPT INCOME OF ANY CHAR ITABLE TRUST OR INSTITUTION, IF SUCH INCOME IS APPLIED FOR CHARITABLE PURPOSES IN INDIA AND SUCH INSTITUTION IS REGISTERE D U/S 12AA OF THE AC, 1961. SEC. 10(23C) OF THE IT ACT, ALSO PR OVIDES EXEMPTION IN RESPECT OF APPROVED CHARITABLE FUNDS O R INSTITUTIONS. SEC.2(15) OF THE ACT PROVIDES DEFINITION OF CHARITA BLE PURPOSE. IT INCLUDES ADVANCEMENT OF ANY OTHER OBJECT OF GEN ERAL PUBLIC UTILITY AS CHARITABLE PURPOSE PROVIDED THAT IT DOE S NOT INVOLVE CARRYING ON OF ANY ACTIVITY IN THE NATURE OF TRADE, COMMERCE OR BUSINESS. THE SECOND PROVISO TO SAID SECTION PROVIDES THAT IN CASE WHERE THE ACTIVITY OF ANY TRUST OR INSTITUTION IS OF THE NATURE OF ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC, UTILITY, AND IT INVOLVES CARRYING ON OF ANY ACTIVITY IN THE NATU RE OF TRADE, COMMERCE OR BUSINESS, BUT THE AGGREGATE VALUE OF RE CEIPTS FROM THE COMMERCIAL ACTIVITIES DOS NOT EXCEED RS.25 ,00,000/- IN THE PREVIOUS YEAR, THEN THE PURPOSE OF SUCH INST ITUTION SHALL BE CONSIDERED AS CHARITABLE AND ACCORDINGLY, THE BE NEFITS OF EXEMPTION SHALL BE AVAILABLE TO IT. THUS, A CHARITABLE TRUST OR INSTITUTION PURSUING ADVANCEMENT OF OBJECT OF GENERAL PUBLIC UTILITY MAY BE A CHARITABLE TRUST IN ONE YEAR AND NOT A CHARITABLE T RUST IN ANOTHER YEAR DEPENDING ON THE AGGREGATE VALUE OF RE CEIPTS FROM COMMERCIAL ACTIVITIES. THERE IS, THEREFORE, NEED TO EXPRESSLY PROVIDE IN LAW THAT EXEMPTION WOULD BE AVAILABLE FOR A PREVIOUS YEAR, T O A TRUST OR INSTITUTION TO WHICH FIRS PROVISO OF SEC.2(15) B ECOME APPLICABLE FOR THAT PARTICULAR PREVIOUS YEAR. HOWEVER, THIS TEMPORARY EXCESS IN ONE YEAR MAY NOT BE TREATED AS ALTERING THE VERY NATURE OF THE TRUST OR INSTITUTION ITA NO.200/BANG/2012 PAGE 14 OF 17 SO AS TO LEAD TO CANCELLATION OF REGISTRATION OR WI THDRAWAL OF APPROVAL OR RESCINDING OF THE NOTIFICATION ISSUED I N RESPECT OF TRUST OR INSTITUTION. THEREFORE, THERE IS NEED TO ENSURE THAT IF THE PUR POSE OF A TRUST OR INSTITUTION DOES NOT REMAIN CHARITABLE DUE TO APPLICATION OF THE FIRST PROVISO ON ACCOUNT OF COMM ERCIAL RECEIPT THRESHOLD PROVIDED IN THE SECOND PROVISO IN A PREVIOUS YEAR. THEN, SUCH TRUST OR INSTITUTION WOULD NOT BE ENTITLED TO GET BENEFIT OF EXEMPTION IN RESPECT OF ITS INCOME F OR THAT PREVIOUS YEAR FOR WHICH SUCH PROVISO IS APPLICABLE. SUCH DENIAL OF EXEMPTION SHALL BE MANDATORY BY OPERATION OF LAW AND WOULD NOT BE DEPENDENT ON ANY WITHDRAWAL OF APP ROVAL OR CANCELLATION OF REGISTRATION OR A NOTIFICATION B EING RESCINDED. IT IS, THEREFORE, PROPOSED TO AMEND SEC.10(23C), S EC.13 AND SEC.143 OF THE ACT TO ENSURE THAT SUCH ORGANIZATION DOES NOT GET BENEFIT OF TAX EXEMPTION IN THE YEAR IN WHICH I TS RECEIPTS FROM COMMERCIAL ACTIVITIES EXCEED THE THRESHOLD WHE THER OR NOT THE REGISTRATION OR APPROVAL GRANTED OR THE NOT IFICATION ISSUED IS CANCELLED, WITHDRAWN OR RESCINDED. THIS AMENDMENT WILL TAKE EFFECT RETROSPECTIVELY FR OM 1 ST APRIL, 2009 AND WILL, ACCORDINGLY, APPLY IN RELATIO N TO THE ASSESSMENT YEAR 2009-10 AND SUBSEQUENT ASSESSMENT Y EARS. (EMPHASIS SUPPLIED) THE TRIBUNAL TOOK NOTE OF THE SUBMISSION ON BEHALF OF THE ASSESSEE THAT THE AGGREGATE VALUE OF THE RECEIPTS FROM COMMERCIAL ACTIVITIES IN A PARTICULAR YEAR MIGHT EXCEED A PRESCRIBED LIMIT OF RS.10.00 LAKHS (WHICH WAS THE LIMIT PRIOR TO 01-04-2012) WHICH WAS ENHANC ED TO RS.25.00 LAKHS WITH EFFECT FROM 01-04-2012. THE TRIBUNAL TO OK THE VIEW THAT IF, IN A PARTICULAR YEAR, THE RECEIPTS FROM COMMERCIAL ACTIVITIES, IS LESS THAN THE LIMIT PRESCRIBED ABOVE, THEN NOT WITHSTANDING T HE FACT THAT THE CHARITABLE ORGANIZATION IS CARRYING ON ACTIVITY IN THE NATURE OF TRADE OR COMMERCE OR BUSINESS, IT WOULD STILL BE ENTITLED TO THE BENEFIT U/S.11 & ITA NO.200/BANG/2012 PAGE 15 OF 17 12 OF THE IT ACT, 1961. THE TRIBUNAL ALSO TOOK NO TE OF THE SUBMISSION THAT IF, IN EXERCISE OF POWER U/S12AA(3) OF THE IT ACT, THE DIT(E) CANCELS THE REGISTRATION GRANTED TO AN ASSESSEE, TH EN SUCH ASSESSEE WOULD NOT BE ENTITLED TO BENEFIT OF EXEMPTION IN A YEAR I N WHICH THE AGGREGATE VALUE OF THE RECEIPTS FROM COMMERCIAL ACTIVITY IS L ESS THAN THE LIMIT PRESCRIBED BY THE SECOND PROVISO TO SEC.2(15) OF TH E ACT. THE TRIBUNAL THEREAFTER HELD AS FOLLOWS: 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. IN OUR VIEW, THE CONTENTION PUT FORTH ON BEHALF OF THE ASSESSEE DESE RVES TO BE ACCEPTED. IN THIS REGARD, THE FIRST ASPECT WHICH H AS TO BE TAKEN NOTE OF IS THE PRINCIPLE THAT THE GRANT OF REGISTRA TION U/S12A OF THE ACT, DOES NOT AUTOMATICALLY ENABLE AN ASSESSEE TO C LAIM EXEMPTION U/S 11 & 12 OF THE ACT. THE AO EVEN IN A CASE, WHERE A TRUST OR CHARITABLE ORGANIZATION FOR WHICH REGIST RATION U/S 12A OF THE ACT SUBSISTS HAS TO GO IN TO THE QUESTION, AS T O WHETHER THE INCOME HAS BEEN APPLIED FOR CHARITABLE PURPOSES AND TO THE EXTENT CONTEMPLATED BY SEC.11 & 12 OF THE ACT. EVEN IN A CASE, WHERE THE TRUST OR CHARITABLE ORGANIZATION APPLIES ITS IN COME FOR CHARITABLE PURPOSES, BUT DOES NOT HAVE REGISTRATION U/S 12A OF THE ACT, SUCH TRUST OR CHARITABLE ORGANIZATION CANNOT C LAIM THE BENEFIT OF SEC.11 & 12 OF THE ACT. IT WOULD THEREFORE, NO T BE CORRECT TO ACCEPT THE SUBMISSION OF THE LEARNED DR, THAT WHEN THE MANDATORY LIMITS ARE EXCEEDED BY THE TRUST OR CHARI TABLE ORGANIZATION (AS PRESCRIBED BY SECOND PROVISO TO SE C.2(15) OF THE ACT) THEN THERE WOULD BE NO USE OF GRANT OF REGISTR ATION. EVEN GOING BY THE MEMORANDUM EXPLAINING THE PROVISIONS I N THE FINANCE BILL 2012 AND IN PARTICULAR, THE SECOND PRO VISO TO SEC.2(15) OF THE ACT, IT IS CLEAR THAT AS TO WHETHE R CHARITABLE TRUST OR INSTITUTION WHICH PURSUES THE ADVANCEMENT OF OBJ ECTS OF GENERAL PUBLIC UTILITY, WILL FALL WITHIN THE SECOND PROVISO TO SEC.2(15) OF THE ACT, HAS TO BE EXAMINED EACH YEAR BY THE AO. THE DIT(E) IN EXERCISE OF HIS POWERS U/S 12AA(3) OF THE ACT, CANNOT CURTAIL THE RIGHT OF AN ASSESSEE WHICH IS CH ARITABLE TRUST OR INSTITUTION WHICH PURSUES THE ADVANCEMENT OF OBJECT S OF GENERAL PUBLIC UTILITY FROM CLAIMING THE EXEMPTION U/S 11 & 12 OF THE ACT IN A YEAR IN WHICH THE RECEIPTS OF THE CHARITABLE O RGANIZATION FROM COMMERCIAL ACTIVITIES IS LESS THAN THE LIMITS PRESC RIBED IN THE SECOND PROVISO TO SEC.2(15) OF THE ACT. IT IS, TH US, CLEAR FROM THE ITA NO.200/BANG/2012 PAGE 16 OF 17 READING OF THE PROVISIONS OF SEC.2(15) OF THE IT AC T, 1961 AS WELL AS SEC.12AA(3) OF THE ACT, THAT REGISTRATION ALREAD Y GRANTED U/S 12A CANNOT BE REVOKED FOR THE REASONS THAT THE CHAR ITABLE TRUST OR INSTITUTION PURSUING OF ADVANCEMENT OF OBJECTS OF G ENERAL PUBLIC UTILITY CARRIES ON COMMERCIAL ACTIVITIES. ON THIS SHORT GROUND, THE ORDER U/S12AA(3) IS LIABLE TO BE CANCELLED AND IS H EREBY CANCELLED. 21. WE ARE OF THE VIEW THAT THE AFORESAID DECISION OF THE TRIBUNAL SUPPORTS THE PLEA OF THE ASSESSEE THAT REGISTRATION ALREADY GRANTED TO THE ASSESSEE CANNOT BE CANCELLED ON THE GROUND THAT THE ASSESSEE WHICH PURSUES AS A CHARITABLE PURPOSE, ADVANCEMENT OF OB JECTS OF GENERAL PUBLIC UTILITY CARRIES ON COMMERCIAL ACTIVITIES. FOR THE REASONS GIVEN ABOVE, WE ARE OF THE VIEW THAT THE ORDER PASSED U/S. 12AA(3) OF THE ACT IS LIABLE TO BE QUASHED AND THE SAME IS HEREBY QUASHED. 22. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. PRONOUNCED IN THE OPEN COURT ON THIS 8 TH DAY OF FEBRUARY, 2013. SD/- SD/- ( N. BARATHVAJA SANKAR ) ( N.V. VASU DEVAN ) VICE PRESIDENT JUDIC IAL MEMBER BANGALORE, DATED, THE 8 TH FEBRUARY, 2013. DS/- ITA NO.200/BANG/2012 PAGE 17 OF 17 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY ITAT, BANGALORE.