MAHATMA GANDHI CHARITABLE SOCIETY, Trivandrum V. CIT, Trivandrum

ITA 250/COCH/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 64926 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 7 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-11-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 11-06-2013
• Assessment Year: 2011-2012
• Appeal Filed On: 12-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M ANIL KUMAR
• Assessee Lawyers: K M V PANDALAI
• Keywords: Charitable institution; Opportunity of being heard; Cancellation of registration
• Section: 12A; 12AA; 12

Judgement Text

1 ITA NO.250/COCH/2011 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE SHRI N.R.S. GANESAN (JM) AND SHRI B.R. BASKA RAN(AM) I.T.A NO. 250/COCH/2011 (ASSESSMENT YEAR 2011-12) MAHATMA GANDHI CHARITABLE SOCIETY VS C.I.T., THIRU VANANTHAPURAM T.C. VIII/52, LAKSHMI VIHAR THIRUMALA, THIRUVANANTHAPURAM PAN : AAATM4153E (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI K.M.V. PANDALAI RESPONDENT BY : SHRI M. ANIL KUMAR DATE OF HEARING : 11-10-2012 DATE OF PRONOUNCEMENT : 16-11-2012 O R D E R PER N.R.S. GANESAN (JM) THIS APPEAL OF THE TAXPAYER IS DIRECTED AGAINST TH E ORDER OF THE COMMISSIONER OF INCOME-TAX, THIRUVANANTHAPURAM DATE D 24-02-2011 WITHDRAWING THE REGISTRATION GRANTED U/S 12A OF THE ACT. 2. SHRI K.M.V. PANDALAI, THE LD.COUNSEL FOR THE TAX PAYER SUBMITTED THAT THE ADMINISTRATIVE COMMISSIONER HAS NOT RECORDED HI S SATISFACTION AND THE CIRCUMSTANCES WHICH WARRANTED THE EXERCISE OF HIS P OWERS U/S 12AA(3) OF THE ACT. ACCORDING TO THE LD.COUNSEL, THE POWERS C ONFERRED ON THE COMMISSIONER U/S 12AA(3) OF THE ACT COULD BE INVOKE D ON RECORDING HIS SATISFACTION AND THE CIRCUMSTANCES WHICH WARRANTS T HE WITHDRAWAL OF THE REGISTRATION. THE LD.COUNSEL PLACED HIS RELIANCE O N THE JUDGMENT OF THE 2 ITA NO.250/COCH/2011 ORISSA HIGH COURT IN (2011) 336 ITR 389 (ORISSA). THE LD.COUNSEL FOR THE TAXPAYER FURTHER SUBMITTED THAT THE REGISTRATION U/ S 12AA OF THE ACT WAS GRANTED ON 30 TH JANUARY, 1995 AFTER SATISFYING THE OBJECT AND ACTIV ITIES OF THE TAXPAYER. FOR ALL EARLIER ASSESSMENT YEARS EXE MPTION WAS GRANTED BY THE ASSESSING OFFICER. ACCORDING TO THE LD.COUNSEL , THE TAXPAYER WAS CARRYING ON ITS ACTIVITY IN ACCORDANCE WITH THE OBJE CT THAT IS PROVIDED IN THE MEMORANDUM OF ASSOCIATION. WHEN THE TAXPAYER WAS G RANTED APPROVAL U/S 12AA OF THE ACT AND CARRIED ON ITS ACTIVITY IN ACCO RDANCE WITH THE OBJECT FOR WHICH REGISTRATION WAS GRANTED, IT CANNOT BE SAID T HAT THE TAXPAYER WAS NOT CARRYING ON ITS ACTIVITY IN ACCORDANCE WITH ITS OBJE CT. ACCORDING TO THE LD.COUNSEL, THE POWERS OF THE COMMISSIONER TO CANCE L THE REGISTRATION IS CONFINED TO THE PROVISIONS OF SECTION 12AA(3) OF TH E ACT. THE COMMISSIONER CANNOT EXCEED THE CONDITIONS PROVIDED IN SECTION 12 AA(3) OF THE ACT. ACCORDING TO THE LD.COUNSEL, THE TAXPAYER HAS NOT C HANGED OR AMENDED ITS OBJECT. THE LD.COUNSEL FURTHER SUBMITTED THAT THE T AXPAYER WAS EXPECTED TO CARRY OUT ITS ACTIVITY CONSISTENT WITH ITS OBJECT OF THE TRUST. THEREFORE, THE ACTIVITY OF THE TAXPAYER TRUST SHOULD BE TESTED U/S 12AA(3) OF THE ACT AND NOT WITH REFERENCE TO PROVISIONS OF SECTION 2(15) O F THE ACT. ACCORDING TO THE LD.COUNSEL, THERE IS NO REFERENCE ABOUT SECTION 2(15) IN SECTION 12AA OF THE ACT. THE LD.COUNSEL FURTHER POINTED OUT THAT T HE COMMISSIONER AT THE BEST MAY EXAMINE WHETHER THE ACTIVITY OF THE TRUST WAS CARRIED ON IN ACCORDANCE WITH THE OBJECT OF THE TRUST OR NOT? THE COMMISSIONER, ACCORDING TO THE LD.COUNSEL, HAS NO POWER, JURISDICT ION OR DISCRETION BEYOND THE CONDITIONS MENTIONED IN SECTION 12AA(3) OF THE ACT. THE LD.COUNSEL HAS ALSO PLACED RELIANCE ON THE JUDGMENT OF THE UTTARAN CHAL HIGH COURT IN 3 ITA NO.250/COCH/2011 WELHAM BOYS SCHOOL SOCIETY V. C.B.D.T. & ANR (2006 ) 285 ITR 74 (UTTARANCHAL). THE LD.COUNSEL SUBMITTED THAT EVEN IN CASE THE TAXPAYER WAS NOT CARRYING ON ITS ACTIVITY IN TERMS OF ITS CHARIT ABLE TRUST, THE COMMISSIONER AT THE BEST MAY DENY EXEMPTION U/SS 11 & 12 OF THE ACT. THE LD.COUNSEL FURTHER SUBMITTED THAT PROVIDING EMPLOYMENT TO NEED Y AND DESERVING CITIZENS IS ONE OF THE OBJECTS MENTIONED IN CLAUSE ( 5) OF THE MEMORANDUM OF ASSOCIATION. THE LD.COUNSEL FURTHER SUBMITTED T HAT PROVIDING EMPLOYMENT OPPORTUNITY TO THE NEEDY AND DESERVING P EOPLE IS A CHARITABLE ACTIVITY. THEREFORE, THE ADMINISTRATIVE COMMISSIO NER IS NOT CORRECT IN WITHDRAWING THE REGISTRATION GRANTED U/S 12AA OF TH E ACT. 3. ON THE CONTRARY, SHRI ANILKUMAR, THE LD.DR SUBMI TTED THAT NO DOUBT REGISTRATION WAS GRANTED U/S 12AA OF THE ACT BY THE COMMISSIONER. HOWEVER, THE PROVISIONS OF SECTION 2(15) OF THE ACT WAS AMENDED BY PARLIAMENT BY FINANCE ACT 2009 WITH RETROSPECTIVE E FFECT FROM 01-04-2009. ACCORDING TO THE LD.DR, IF THE ACTIVITY OF THE TAXP AYER INVOLVES CARRYING ON ANY TRADE, COMMERCE OR BUSINESS OR ACTIVITY OF REND ERING SERVICES IN RELATION TO TRADE, COMMERCE OR BUSINESS CANNOT BE CONSIDERED TO BE A CHARITABLE ACTIVITY. THE PARLIAMENT, HOWEVER, INTRODUCED ANOT HER PROVISO TO SECTION 2(15) OF THE ACT W.E.F. 01-04-2012 THEREBY BROUGHT DOWN THE REQUIREMENT OF THE AGGREGATE VALUE OF THE RECEIPT FROM THE ACTI VITIES TO RS.10 LAKHS OR MORE IN THE PREVIOUS YEAR. IN THIS CASE, ACCORDING TO THE LD.DR, THE TAXPAYER HAS PARTICIPATED IN AN AUCTION WITH INDIAN RAILWAY AND BECAME A SUCCESSFUL BIDDER. THE TOTAL RECEIPT FROM THE CONTRACT WITH I NDIAN RAILWAY EXCEEDS RS.4 CRORES. THEREFORE, IN VIEW OF THE FIRST PROVI SO TO SECTION 2(15) OF THE ACT, THE TAXPAYER CANNOT BE CONSIDERED TO BE A CHAR ITABLE INSTITUTION ANY 4 ITA NO.250/COCH/2011 LONGER. ACCORDING TO THE LD.REPRESENTATIVE PROVIDI NG EMPLOYMENT TO THE POOR OR CARRYING OUT THE WORKS ON CONTRACT CANNOT B Y ITSELF BE CONSIDERED AS CHARITABLE ACTIVITY. ACCORDING TO THE LD.REPRESENT ATIVE, SINCE THE GROSS RECEIPT FROM THE CONTRACT EXCEEDS RS.4 CRORES FOR T HE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION, THE TAX PAYER CANNOT BE CONSIDERED TO BE A CHARITABLE INSTITUTION WITHIN TH E MEANING OF SECTION 2(15) OF THE ACT. THEREFORE, THE ADMINISTRATIVE CO MMISSIONER HAS RIGHTLY WITHDRAWN THE REGISTRATION. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND ALS O PERUSED THE MATERIAL AVAILABLE ON RECORD. ADMITTEDLY, THE ADMI NISTRATIVE COMMISSIONER GRANTED REGISTRATION U/S 12AA OF THE ACT. SUBSEQUE NTLY BY THE IMPUGNED ORDER, THE ADMINISTRATIVE COMMISSIONER WITHDRAWN TH E REGISTRATION ON THE GROUND THAT THE OBJECT OF THE INSTITUTION WAS NOT CA RRIED ON IN ACCORDANCE WITH PROVISIONS OF SECTION 2(15) OF THE ACT. WE HA VE CAREFULLY GONE THROUGH THE PROVISIONS OF SECTION 12AA(3) OF THE ACT WHICH READS AS UNDER: 12AA(3) WHERE A TRUST OR AN INSTITUTION HAS BEEN G RANTED REGISTRATION UNDER CLAUSE (B) OF SUB-SECTION (1) [O R HAS OBTAINED REGISTRATION AT ANY TIME UNDER SECTION 12A [AS IT S TOOD BEFORE ITS AMENDMENT BY THE FINANCE (NO.2) ACT, 1996 (33 O F 1997)] AND 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 OBJECTS OF THE TRUST OR INSTITUTION, AS THE CASE MAY BE, HE SHALL PASS AN O RDER IN WRITING CANCELLING THE REGISTRATION OF SUCH TRUST OR INSTIT UTION: PROVIDED THAT NO ORDER UNDER THIS SUB-SECTION SHALL BE PASS ED UNLESS SUCH TRUST OR INSTITUTION HAS BEEN GIVEN A R EASONABLE OPPORTUNITY OF BEING HEARD. 5 ITA NO.250/COCH/2011 SECTION 12AA(3) WAS INTRODUCED BY FINANCE ACT, 2004 WITH EFFECT FROM 01- 10-2004. THIS SECTION EMPOWERS THE COMMISSIONER TO CANCEL THE REGISTRATION GRANTED U/S 12A AND 12AA ON SATISFACTI ON OF TWO CONDITIONS, VIZ. (1) WHEN THE ACTIVITY OF THE TRUST OR INSTITUT ION IS NOT GENUINE; (2) WHEN THE ACTIVITY IS NOT CARRIED OUT IN ACCORDANCE WITH THE OBJECT OF THE TRUST / INSTITUTION? THE CONTENTION OF THE LD.COUNSEL FOR THE TAXPAYER BEFORE THIS TRIBUNAL IS THAT ONCE REGISTRATION WAS GRANTED, IT CANNOT BE CANCELLED UNLESS THE COMMISSIONER RECORDED HIS SATISFACTION ABOUT TH E NON GENUINENESS OF THE INSTITUTION OR THAT THE ACTIVITIES ARE NOT CARR IED OUT IN ACCORDANCE WITH THE OBJECT OF THE TRUST. THE LD.COUNSEL FURTHER CON TENDED THAT ONCE REGISTRATION WAS GRANTED, THERE CANNOT BE ANY FURTH ER REFERENCE TO SECTION 2(15) OF THE ACT SINCE THERE WAS NO REFERENCE IN SE CTION 12AA(3) OF THE ACT. 5. THE QUESTION ARISES FOR CONSIDERATION IS THAT WH EN THE TAXPAYER TRUST WAS REGISTERED U/S 12AA OF THE ACT ON THE BASIS OF THE OBJECT DISCLOSED IN THE MEMORANDUM OF ASSOCIATION AND CONSIDERING THE P ROVISIONS OF SECTION 2(15) OF THE ACT, CAN SUCH REGISTRATION BE CANCELLE D OR WITHDRAWN AFTER INTRODUCTION OF PROVISO TO SECTION 2(15) OF THE ACT ? WE HAVE ALSO CAREFULLY GONE THROUGH THE PROVISIONS OF SECTION 2(15) OF THE ACT. THE PARLIAMENT DEFINED CHARITABLE PURPOSE IN SECTION 2(15) OF THE ACT. THIS IS AN INCLUSIVE DEFINITION. ONE OF THE OBJECTS OF THE TRUST IS PUBL IC UTILITY WHICH WAS CONSIDERED TO BE CHARITABLE IN NATURE. HOWEVER, BY FIRST PROVISO TO SECTION 2(15) OF THE ACT, THE PARLIAMENT INTENDED TO EXCLUD E THE OBJECT OF GENERAL PUBLIC UTILITY FROM THE DEFINITION OF CHARITABLE P URPOSE PROVIDED, IF THE 6 ITA NO.250/COCH/2011 ACTIVITY INVOLVED CARRYING ON OF ANY ACTIVITY IN TH E NATURE OF TRADE, COMMERCE OR BUSINESS OR ANY ACTIVITY OF RENDERING A NY SERVICE IN RELATION TO ANY TRADE, COMMERCE OR BUSINESS FOR A CESS OR FEE O R ANY OTHER CONSIDERATION, IRRESPECTIVE OF THE NATURE OF USE OR APPLICATION, OR RETENTION, OF THE INCOME FROM SUCH ACTIVITY. THE APPLICATION OF FIRST PROVISO WAS ORIGINALLY INTENDED TO APPLY IN RESPECT OF THE INST ITUTION WHOSE AGGREGATE VALUE OF THE RECEIPT FROM THE ACTIVITIES REFERRED T O IN FIRST PROVISO IS RS.25 LAKHS AND ABOVE IN THE PREVIOUS YEAR. SUBSEQUENTLY BY FINANCE ACT, 2011, THE PARLIAMENT INTENDED TO APPLY FIRST PROVISO TO S ECTION 2(15) ONLY IN RESPECT OF THE INSTITUTION WHOSE AGGREGATE VALUE OF THE RECEIPT IS RS.10 LAKHS AND ABOVE. THEREFORE, WHEN THE CHARITABLE IN STITUTION CARRYING ON ACTIVITY OF GENERAL PUBLIC UTILITY WHOSE AGGREGATE VALUE OF THE RECEIPT EXCEEDS RS.10 LAKHS OR ABOVE CANNOT BE CONSIDERED T O BE A CHARITABLE INSTITUTION. 6. THE TAXPAYER IN THE PRESENT CASE WAS ESTABLISHED FOR CARRYING OUT VARIOUS ACTIVITIES INCLUDING GIVING EMPLOYMENT TO A TLEAST ONE MEMBER IN A FAMILY WHICH IS NEEDY AND DESERVING. BY PLACING RE LIANCE ON THIS CLAUSE WHICH CONTAINED IN THE MEMORANDUM OF ASSOCIATION AT CLAUSE 4(17) OF THE MEMORANDUM, THE LD.COUNSEL FOR THE TAXPAYER CONTEND ED THAT GIVING EMPLOYMENT OPPORTUNITY TO THE POOR IS ONE OF THE OB JECTS OF THE TAXPAYER TRUST WHICH WOULD FALL IN THE ADVANCEMENT OF ANY OT HER OBJECT OF THE GENERAL PUBLIC UTILITY. THEREFORE, THE ADMINISTR ATIVE COMMISSIONER, AFTER CONSIDERING THIS OBJECT FOUND THAT THE TAXPAYER IS C ARRYING ON AN ACTIVITY IN ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UT ILITY. ONCE IT IS 7 ITA NO.250/COCH/2011 CONSIDERED AND GRANTED, SUBSEQUENT AMENDMENT FIXING THE MONETARY LIMIT CANNOT BE A REASON FOR WITHDRAWING THE REGISTRATION U/S 12AA(3) OF THE ACT. NO DOUBT, SECTION 12AA(3) PROVIDES FOR CANCELLATION OF REGISTRATION UNDER TWO CONDITIONS, VIZ. (1) WHEN THE ACTIVITY OF THE T RUST OR INSTITUTION IS NOT GENUINE; (2) WHEN THE ACTIVITY IS NOT BEING CARRIED OUT IN ACCORDANCE WITH THE OBJECT OF THE TRUST / INSTITUTION. THE AGGREGATE VALUE OF RECEIPT COULD BE EXAMINED BY THE ASSESSING OFFICER AT THE TIME OF AS SESSMENT PROCEEDINGS. THE COMMISSIONER CANNOT GO BEYOND THE TWO CONDITION S PROVIDED IN SECTION 12AA(3) FOR CANCELLING THE REGISTRATION. I N OTHER WORDS, THE REGISTRATION CAN BE CANCELLED ONLY IF THE COMMISSIO NER IS SATISFIED THAT THE OBJECT OF THE TRUST IS NOT GENUINE OR THE ACTIVITY O F THE TAXPAYER SOCIETY WAS NOT CARRIED OUT IN ACCORDANCE WITH THE OBJECT. IT I S NOT THE CASE OF THE REVENUE THAT THE OBJECT OF THE TRUST IS NOT GENUINE . IT IS ALSO NOT THE CASE OF THE REVENUE THAT THE TAXPAYER HAS NOT CARRIED OUT I TS ACTIVITY IN ACCORDANCE WITH THE OBJECT OF THE TRUST. THE ONLY OBJECTION OF THE REVENUE IS THAT THE AGGREGATE CONTRACT RECEIPT FROM RAILWAY RS.4 CRORES IS EXCEEDING RS.10 LAKHS; THEREFORE, THE TAXPAYER IS NOT CHARITABLE IN STITUTION. IF THE AGGREGATE CONTRACT RECEIPTS EXCEED RS.10 LAKHS IN ANY OF THE YEARS, AT THE BEST, THE ASSESSING OFFICER MAY DENY EXEMPTION AT THE TIME OF ASSESSMENT PROCEEDINGS. IN VIEW OF THE ABOVE, THIS TRIBUNAL I S OF THE CONSIDERED OPINION THAT THE SUBSEQUENT AMENDMENT TO SECTION 2( 15) OF THE ACT BY INTRODUCING PROVISO FIXING THE MONETARY LIMIT IN RE SPECT OF PUBLIC UTILITY SERVICES CANNOT BE A REASON TO CANCEL THE REGISTRAT ION. 8 ITA NO.250/COCH/2011 6. ANOTHER QUESTION WHICH MAY INCIDENTALLY ARISE FO R CONSIDERATION IS THAT ONCE THE TAXPAYER IS NOT A CHARITABLE INSTITUT ION IN TERMS OF SECTION 2(15) OF THE ACT, SINCE CONTRACT RECEIPTS ADMITTEDL Y EXCEED THE LIMIT PRESCRIBED BY THE PARLIAMENT, WHETHER THE TAXPAYER IS ENTITLED FOR EXEMPTION U/SS 11 & 12 OF THE ACT? IT IS WELL SETT LED PROPOSITION OF LAW THAT REGISTRATION U/S 12AA OF THE ACT IS ONLY TO IDENTIF Y A CHARITABLE INSTITUTION. MERE REGISTRATION PER SE WILL NOT CONFER ANY RIGHT ON THE TAXPAYER TO CLAIM EXEMPTION U/SS 11, 12 & 13 OF THE ACT. IN OTHER WO RDS, THOUGH THE REGISTRATION U/S 12AA IS A PRE-REQUISITE FOR CLAIMI NG EXEMPTION THE EXEMPTION U/S 11, 12 & 13 ARE NOT AUTOMATIC. THE T AXPAYER HAS TO SATISFY THE CONDITIONS PRESCRIBED IN SECTIONS 11, 12 & 13 O F THE ACT FOR THE PURPOSE OF CLAIMING EXEMPTION UNDER THOSE PROVISIONS OF THE ACT. THE TAXPAYER HAS TO RECOGNIZE / ESTABLISH THAT THE AGGREGATE CONTRAC T RECEIPTS DO NOT EXCEED RS.10 LAKHS. THEREFORE, WHEN THE CONTRACT RECEIPTS FROM RAILWAY EXCEEDED THE MONETARY LIMIT FIXED BY THE PARLIAMENT, THIS TR IBUNAL IS OF THE CONSIDERED OPINION THAT THE TAXPAYER TRUST MAY NOT ENTITLE FOR EXEMPTION U/SS 11, 12 & 13 OF THE ACT. HOWEVER, THIS ISSUE C AN BE EXAMINED BY THE ASSESSING OFFICER AT THE TIME OF ASSESSMENT. WHEN THE OBJECT OF THE PUBLIC UTILITY SERVICES IS ONE OF THE CHARITABLE PURPOSE A S MENTIONED IN SECTION 2(15) OF THE ACT, THIS TRIBUNAL IS OF THE CONSIDERE D OPINION THAT THE MONETARY LIMIT PROVIDED IN PROVISO TO SECTION 2(15) COULD BE EXAMINED BY THE ASSESSING OFFICER AT THE TIME OF ASSESSMENT. I F THE MONETARY LIMIT EXCEEDED THE LIMIT PROVIDED BY THE PARLIAMENT, THE ASSESSING OFFICER CAN VERY WELL REJECT THE CLAIM OF EXEMPTIONS U/S 11, 12 & 13 OF THE ACT EVEN 9 ITA NO.250/COCH/2011 THOUGH, REGISTRATION U/S 12AA OF I.T. ACT WAS GRANT ED. THEREFORE, CANCELLATION OF THE REGISTRATION U/S 12AA(3) OF THE ACT MAY NOT BE PROPER. 7. IN VIEW OF THE ABOVE DISCUSSION, THE ORDER OF TH E LOWER AUTHORITY IS SET ASIDE AND THE APPEAL OF THE TAXPAYER STANDS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 16 TH NOVEMBER, 2012. SD/- SD/- (B.R. BASKARAN) (N.R.S. GANESAN) ACCOUNTANT MEMBER JUDICIAL MEMBER COCHIN, DT : 16 TH NOVEMBER, 2012 PK/- COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE COMMISSIONER OF INCOME-TAX 4. THE COMMISSIONER OF INCOME-TAX(A) 5. THE DR (TRUE COPY) BY ORDER ASSTT. REGISTRAR, INCOME-TAX APPELLATE TRIBUNAL, COCHIN BENCH