THE COTTON TEXTILES EXPORTS PROMOTION COUNCIL, MUMBAI V. DIT (E), MUMBAI

ITA 325/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75537 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-02-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 04-02-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 12-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A C TEJPAL
• Assessee Lawyers: J D MISTRI SHRI NIRAJ SHETH
• Keywords: Charitable institution; Cancellation of registration
• Section: 12A; 12AA; 12; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES C, MUMBAI BEFORE SHRI N K SAINI, ACCOUNTANT MEMBER & SHRI SANJAY GARG, JUDICIAL MEMBER ITA NO.325/MUM/2012 : ASST.YEAR 2009-2010 THE COTTON TEXTILES EXPORTS PROMOTION COUNCIL, ENGINEERING CENTRE, 5 TH FLOOR, 9 MATHEW ROAD, MUMBAI- 400 004 PAN : AAAAT9241M VS. THE DIRECTOR INCOME TAX (EXEMPTION), MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI J D MISTRI, SHRI NIRAJ SHETH RESPONDENT BY : SHRI A C TEJPAL DATE OF HEARING : 04.02.2014 DATE OF PRONOUNCE MENT : 12.02.2014 O R D E R PER SANJAY GARG, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE A GAINST THE ORDER DATED 08.12.2011 OF THE DIRECTOR OF INCOME TAX (EXEMP.), MUMBAI, PASSED U/S. 12AA(3) OF THE INCOME TAX ACT, CANCELLING THE REGISTRATION GRANTED TO THE ASSESSEE U/S. 12A OF THE ACT. 2. THE ASSESSEE COUNCIL WAS REGISTERED AS A CHARITA BLE TRUST, ITS OBJECTS BEING FALLING IN THE CATEGORY OF 'ADVANCEMENT OF ANY OTHE R OBJECTS OF GENERAL PUBLIC UTILITY' AS PER DEFINITION OF CHARITABLE PURPOSE GI VEN U/S. 2(15) OF THE INCOME TAX ACT. THE DIT(E) NOTICED THAT THE ASSESSEE WAS CARRY ING OUT ACTIVITIES IN THE NATURE OF TRADE, COMMERCE OR BUSINESS ETC., AND GROSS RECE IPTS THERE FROM WERE IN EXCESS ITA NO. 325/M/12 AY 2009-10 2 OF RS.10.00 LACS. SO BY TAKING RESORT TO THE NEWLY ADDED PROVISO W.E.F. 01.04.2009 TO SECTION 2(15) OF THE INCOME TAX ACT, HE CANCELLE D THE REGISTRATION OF ASSESSEE. THE ASSESSEE IS THUS IN APPEAL BEFORE US. 3. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT REGISTRATION ONCE GRANTED TO THE ASSESSEE BEING A C HARITABLE INSTITUTION CANNOT BE CANCELLED OR TAKEN AWAY BECAUSE OF THE NEWLY INSERT ED PROVISO TO SECTION 2(15) OF THE INCOME TAX ACT. HE HAS ALSO RELIED UPON VARIOU S CASE LAWS IN SUPPORT OF HIS CONTENTION. ON THE OTHER HAND, THE LEARNED DR HAS SUBMITTED THAT THE REGISTRATION OF THE ASSESSEE HAS RIGHTLY BEEN CANCELLED BY THE D IT(E). 4. WE HAVE HEARD THE LEARNED COUNSEL FOR THE ASSESS EE AND THE LEARNED DEPARTMENTAL REPRESENTATIVE. IT MAY BE OBSERVED THA T IDENTICAL ISSUE CAME FOR ADJUDICATION BEFORE THE CO-ORDINATE BENCH OF THE TR IBUNAL IN THE CASE OF GHATKOPAR JOLLY GYMKHANA VS. DIT [2013] 40 TAXMAN N.COM 207 ITA NO.882/MUM/2012 DECIDED ON 23.10.2013, (PRESENT JUD ICIAL MEMBER BEING PARTY TO THAT ORDER) AND WHILE DEALING WITH THE ISSUE, TH E BENCH OBSERVED AS UNDER: 5. WE HAVE CONSIDERED THE SUBMISSIONS OF THE LD. R EPRESENTATIVE OF THE PARTIES. IT MAY BE OBSERVED THAT THE FIRST PROVISO TO SECTION 2(15) IS A VERY RIGOROUS PROVISION WHICH EXCLUDES THE INSTITUTION O R TRUST FROM THE DEFINITION OF CHARITABLE TRUST, IF SUCH TRUST CARRI ES ACTIVITIES 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 CONSIDERATION, IRRESPECTIVE OF THE NATURE OF USE OR APPLICATION, OR RETENTION, OF THE INCOME FROM SUCH ACTIVITY. SO BEFORE THE INS ERTION OF THE SECOND PROVISO FROM 01.04.2009, THE DEFINITION OF CHARITAB LE PURPOSE WHEN READ WITH FIRST PROVISO WAS VERY RESTRICTIVE. HOWEVER, B Y THE INSERTION OF THE SECOND PROVISO W.E.F. 01.04.2009 THE RIGOUR OF THE FIRST PROVISO HAS BEEN DILUTED AND THE FIRST PROVISO HAS NOT BEEN MADE APP LICABLE EVEN IF THE TRUST CARRIES ON BUSINESS ACTIVITIES AND THE GROSS RECEIP TS FROM SUCH ACTIVITIES IS RS.10.00 LACS OR LESS THAN RS.10.00 LACS IN THE PRE VIOUS YEAR. HENCE, FROM 01.04.2009 THE CARRYING OUT OF THE ACTIVITIES OF TR ADE, COMMERCE OR BUSINESS EVEN BY CHARITABLE TRUST IS NOT BARRED SO AS TO EXCLUDE ITS ACTIVITIES FROM THE DEFINITION OF CHARITABLE PURPOSES. HOWEVER , A LIMITATION HAS BEEN ITA NO. 325/M/12 AY 2009-10 3 IMPOSED TO THE EFFECT THAT THE GROSS RECEIPTS FROM SUCH ACTIVITIES SHOULD NOT INCREASE RS.10.00 LACS. THE DIT(E) HAS CANCELLED TH E REGISTRATION ON THE GROUND THAT THE TOTAL RECEIPTS OF THE ASSESSEE TRUS T HAS EXCEEDED RS.10.00 LACS DURING THE PREVIOUS YEAR.. 5. THE TRIBUNAL WHILE DEALING WITH THE APPLICABILI TY OF SECTION 12AA(3) OF THE ACT TO THE TRUSTS WHICH WERE ALREADY REGISTERED, I N THE LIGHT OF THE NEWLY ADDED PROVISO W.E.F. 01.04.2009 TO SECTION 2(15) OF THE I NCOME TAX ACT, OBSERVED AS UNDER: 5.2 WE MAY OBSERVE THAT THE TAX EXEMPTION OR BENE FITS ARE GRANTED TO A TRUST OR INSTITUTION BECAUSE ITS ACTIVITIES FALL WI THIN THE DEFINITION OF CHARITABLE PURPOSES AS DEFINED U/S. 2(15) OF THE AC T. UNDER SECTION 12AA(3) THE REGISTRATION OF SUCH TRUST/INSTITUTION CAN BE C ANCELLED IF ITS ACTIVITIES HAVE BECOME NON GENUINE OR IT IS NOT CARRYING OUT A CTIVITIES AS PER OBJECTS OF THE INSTITUTION. ONCE THE ACTIVITIES OF A REGIST ERED CHARITABLE INSTITUTION CEASE TO BE CHARITABLE OR DO NOT FALL WITHIN THE PU RVIEW OF DEFINITION OF 'CHARITABLE PURPOSE' AS PER THE RELEVANT PROVISIONS /DEFINITIONS GIVEN UNDER THE ACT, THEN, SUCH INSTITUTION WOULD NOT BE ENTITL ED TO TAX EXEMPTION OR BENEFITS GRANTED UNDER THE ACT. EVEN DESPITE THE FA CT THAT SUCH AN INSTITUTION, OTHERWISE, IS CARRYING OUT CHARITABLE ACTIVITIES. 5.3 NOW, THE QUESTION BEFORE US IS AS TO WHETHER T HE REGISTRATION OF THE ASSESSEE AS A CHARITABLE INSTITUTION IS LIABLE TO B E CANCELLED BECAUSE OF THE REASON THAT THE TOTAL RECEIPTS EXCEEDED THE LIMIT O F RS.10.00 LACS AS PROVIDED UNDER THE SECOND PROVISO TO SECTION 2(15) OF THE ACT. IN OUR VIEW THE WORD 'PREVIOUS YEAR' MENTIONED IN THE SECOND PR OVISO TO SECTION 2(15) IS MORE RELEVANT. IT HAS NOT BEEN MENTIONED THAT TH E FIRST PROVISO, WHICH AS OBSERVED IS A RIGOROUS PROVISO, WILL NOT APPLY IF T HE TOTAL RECEIPTS FROM THE CHARITABLE ACTIVITIES EXCEEDS THE LIMIT OF RS.10.00 LACS DURING 'ANY YEAR' RATHER, THE WORD IS 'PREVIOUS YEAR' . THAT MEANS TH E BENEFITS WILL NOT BE AVAILABLE TO THE ASSESSEE FOR THE ASSESSMENT YEAR I N WHICH THE GROSS RECEIPTS OF INCOME EXCEEDS THE LIMIT OF RS.10.00 LA CS, HOWEVER, THAT DOES NOT MEAN THAT SUCH BENEFITS WILL NOT BE AVAILABLE T O THE INSTITUTION FOR ALL OTHER ASSESSMENT YEARS DURING WHICH ITS RECEIPTS DO ES NOT CROSS THE LIMIT OF RS.10.00 LACS. THE WORD 'PREVIOUS YEAR' MENTIONED I N THE SECOND PROVISO MAKES IT LIBERAL TO GET AN INTERPRETATION THAT IT I S NOT THE REGISTRATION OF THE INSTITUTION AS CHARITABLE INSTITUTION WHICH IS AFFE CTED, RATHER, IT IS THE ELIGIBILITY OF THE SAID INSTITUTION TO GET TAX EXEM PTION/ BENEFITS WHICH IS AFFECTED THAT TOO FOR THE RELEVANT YEAR DURING WHIC H THE GROSS RECEIPTS OF ITA NO. 325/M/12 AY 2009-10 4 THE INSTITUTIONS CROSS THE LIMIT OF RS.10.00 LACS. THE INSERTION OF SECOND PROVISO HAS NOT MADE THE DEFINITION RESTRICTIVE OR RIGOROUS RATHER WITH THE INSERTION OF SECOND PROVISO TO SECTION 2(15) OF THE ACT, THE RIGOUR OR RESTRICTIVE NATURE OF THE DEFINITION HAS BEEN DILUT ED AND HAS BEEN MADE WIDE ENOUGH TO INCLUDE RELATED BUSINESS ACTIVITIES OF THE TRUST/INSTITUTION, AS DESCRIBED THE FIRST PROVISO TO SECTION 2(15) OF THE ACT, ALSO WITHIN THE SCOPE OF DEFINITION OF CHARITABLE PURPOSES. THE LIMIT OF RECEIPT UPTO RS.10.00 LACS DURING THE 'PREVIOUS YEAR' AS MENTIONED IN THE SECO ND PROVISO, HAS MADE THE SECTION FURTHER LIBERAL MANDATING TO OBSERVE TH E CHARITABLE CHARACTER OF THE CONCERNED TRUST/ INSTITUTION FROM YEAR TO YEAR BASIS. FOR THE PREVIOUS YEAR, DURING WHICH THE GROSS RECEIPT INCOME CROSSES LIMIT OF RS.10.00 LACS, THE TRUST WILL NOT GET EXEMPTION OR BENEFIT OF ITS BEING CHARITABLE IN NATURE DESPITE ITS CARRYING OUT CHARITABLE ACTIVITIES. HOW EVER, IT WILL GET SUCH BENEFIT IF IT IS REGISTERED AS CHARITABLE INSTITUTI ON AND INCOME FROM BUSINESS ACTIVITIES, AS MENTIONED IN FIRST PROVISO TO SECTIO N 2(15), DOES NOT CROSS LIMIT OF RS.10.00 LACS. OUR VIEW IN THIS RESPECT IS FORTIFIED FROM THE JUDGMENT OF THE CO-ORDINATE BENCH DECISION OF THE T RIBUNAL IN THE CASE OF RAJASTHAN HOUSING BOARD VS. CIT (2012)21 TAXMANN.CO M 77(JP). 5.4 THUS, THE ACTION OF THE CIT(A) RELYING UPON TH E NEWLY INSERTED PROVISO FROM 01.04.2009 IN CANCELLING THE REGISTRAT ION OF THE TRUST, IN OUR VIEW, IS NOT CORRECT OR JUSTIFIED. THE ONLY EFFECT WILL BE THAT THE ASSESSEE WILL NOT BE ENTITLED FOR EXEMPTION OR TAX BENEFITS WHICH OTHERWISE WOULD HAVE BEEN AVAILABLE TO IT BEING REGISTERED AS CHARI TABLE INSTITUTION, FOR THE RELEVANT YEAR DURING WHICH ITS INCOME HAS CROSSED T HE LIMIT OF RS.10.00 LACS. SUBJECT TO OUR ABOVE OBSERVATIONS CANCELLATIO N OF REGISTRATION GRANTED TO ASSESSEE U/S. 12A IS HEREBY SET ASIDE AND SAME I S HEREBY ORDERED TO BE RESTORED. 6. SIMILAR ISSUE CAME INTO CONSIDERATION BEFORE TH E HONBLE MADRAS HIGH COURT IN THE CASE OF TAMIL NADU CRICKET ASSOCIATIO N VS. DIT[2013]40 TAXMANN.COM 250(MADRAS). THE HONBLE MADRAS HIGH CO URT IN PARA 34 OF THE ABOVE SAID JUDGMENT, OBSERVED AS UNDER: 34. THUS, WHEN THE ASSESSEE IS IN RECEIPT OF INCOM E FROM ACTIVITIES, WHICH FITS IN WITH SECTIONS 11 AND 12 OF THE ACT AS WELL AS FROM SOURCES WHICH DO NOT FALL STRICTLY WITH THE OBJECTS OF THE TRUST, WOULD NOT GO FOR CANCELLATION OF REGISTRATION UNDER SECTION 12AA OF THE ACT ON THE SOLE GROUND THAT THE ASSESSEE IS IN RECEIPT OF INCOME WH ICH DOES NOT QUALIFY FOR EXEMPTION STRAIGHT AWAY BY ITSELF. ALL THAT ULTIMAT ELY WOULD ARISE IN SUCH ITA NO. 325/M/12 AY 2009-10 5 CASES IS THE QUESTION OF CONSIDERING WHETHER SECTIO N 11 OF THE ACT WOULD AT ALL APPLY TO EXEMPT THESE INCOME FROM LIABILITY. TH ESE ARE MATTERS OF ASSESSMENT AND HAS NOTHING TO DO WITH THE GENUINENE SS OF THE ACTIVITY OR THE ACTIVITIES NOT IN CONFORMITY WITH THE OBJECTS O F THE TRUST. AS RIGHTLY POINTED OUT BY LEARNED SENIOR COUNSEL APPEARING FOR THE ASSESSEE, AS IS EVIDENT FROM THE READING OF CIRCULAR NO.11 OF 2008 DATED 19.12.2008, THE OBJECT OF THE INSERTION OF FIRST PROVISO TO SECTION 2(15) OF THE ACT WAS ONLY TO CURTAIL INSTITUTION, WHICH UNDER THE GARB OF 'GE NERAL PUBLIC UTILITY', CARRY ON BUSINESS OR COMMERCIAL ACTIVITY ONLY TO ESCAPE T HE LIABILITY UNDER THE ACT THEREBY GAIN UNMERITED EXEMPTION UNDER SECTION 11 OF THE ACT. 7. THE HONBLE MADRAS HIGH COURT FURTHER IN PARA 45 OF THE ABOVE JUDGMENT OBSERVED THAT IF A PARTICULAR ACTIVITY OF THE INSTI TUTION APPEARED TO BE COMMERCIAL IN CHARACTER, AND IT IS NOT DOMINANT, THEN IT IS FOR T HE ASSESSING OFFICER TO CONSIDER THE EFFECT OF SECTION 11 OF THE ACT IN THE MATTER OF GR ANTING EXEMPTION ON PARTICULAR HEAD OF RECEIPT. THE MERE FACT THAT THE SAID INCOME DOES NOT FIT IN WITH SECTION 11 OF THE ACT WOULD NOT, BY ITSELF, HEREIN LEAD TO THE CONCLUSION THAT THE REGISTRATION GRANTED UNDER SECTION 12AA IS BAD AND HENCE, TO BE CANCELLED. HONBLE MADRAS HIGH COURT FURTHER IN PARA 48 OF THE JUDGMENT OBS ERVED THAT THE ONLY POSSIBLE ENQUIRY UNDER SECTION 12AA OF THE ACT FOR CANCELLAT ION IS TO FIND OUT WHETHER THE ACTIVITIES OF THE TRUST ARE GENUINE OR IN ACCORDANC E WITH THE OBJECTS OF THE TRUST. IF ANY OF THE INCOME ARISING FROM THE ACTIVITIES ARE N OT IN ACCORDANCE WITH THE OBJECTS OF THE TRUST, THE ASSESSEES INCOME, AT BEST, MAY N OT GET THE EXEMPTION UNDER SECTION 11 OF THE ACT. BUT THIS, BY ITSELF, DOES NO T RESULT IN STRAIGHT REJECTION OF THE REGISTRATION AS 'TRUST' UNDER SECTION 12AA OF THE A CT. THE HONBLE MADRAS HIGH COURT FURTHER IN PARA 56 OF THE JUDGMENT OBSERVED THAT FOR INVOKING SECTION 12AA READ WITH SECTION 2(15) OF THE ACT, REVENUE HA S TO SHOW THAT THE ACTIVITIES ARE NOT FITTING WITH THE OBJECTS OF THE ASSOCIATION AND THAT THE DOMINANT ACTIVITIES ARE IN THE NATURE OF TRADE, COMMERCE AND BUSINESS. MERELY BY THE VOLUME OF RECEIPT ONE CANNOT DRAW THE INFERENCE THAT THE ACTIVITY IS COMMERCIAL. 8. IT IS NOT THE CASE OF THE REVENUE BEFORE US THA T THE DOMINANT ACTIVITIES OF THE ASSESSEE ARE NOT FITTING WITH THE OBJECTS OF THE CO UNCIL AND THAT THE DOMINANT ITA NO. 325/M/12 AY 2009-10 6 ACTIVITIES IN THE NATURE OF TRADE, COMMERCE AND BUS INESS OR THAT THE COUNCILS DOMINANT ACTIVITIES HAVE CEASED TO BE FOR THE PURPO SE OF ADVANCEMENT OF ANY OTHER OBJECTS OF GENERAL PUBLIC UTILITY. MERELY BECAUSE T HE INCOME OF THE ASSESSEE HAS CROSSED PRESCRIBED LIMIT OF RS. 10 LAKHS, THAT ITSE LF CANNOT BE GROUND FOR CANCELLATION OF ITS REGISTRATION INVOKING SECTION 1 2AA(3) OF THE ACT. IF ANY OF THE INCOME ARISING ON THE ACTIVITIES IS NOT IN ACCORDAN CE WITH THE OBJECTS OF THE TRUST, THE ASSESSEES INCOME, AT BEST, MAY NOT GET THE EXEM PTION UNDER SECTION 11 OF THE ACT. FURTHER FOR THE PREVIOUS YEAR, DURING WHICH TH E GROSS RECEIPT INCOME CROSSES LIMIT OF RS.10.00 LACS, THE TRUST WILL NOT GET EXEM PTION OR BENEFIT OF ITS BEING CHARITABLE IN NATURE DESPITE ITS CARRYING OUT CHARI TABLE ACTIVITIES. HOWEVER, IT WILL GET SUCH BENEFIT IF IT IS REGISTERED AS CHARITABLE INSTITUTION AND INCOME FROM BUSINESS ACTIVITIES, AS MENTIONED IN FIRST PROVISO TO SECTION 2(15), DOES NOT CROSS LIMIT OF RS.10.00 LACS. 9. SUBJECT TO OUR ABOVE OBSERVATIONS, THE IMPUGNED ORDER OF THE DI.T(EXEMPTIONS) IS HEREBY SET ASIDE AND THE REGIST RATION TO THE ASSESSEE COUNCIL GRANTED UNDER SECTION 12A OF THE ACT IS HEREBY ORDE RED TO BE RESTORED. 10. IN THE RESULT, THE APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 12.02.2014 SD/- SD/- (N K SAINI) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DT : 12 TH FEBRUARY, 2014 SA ITA NO. 325/M/12 AY 2009-10 7 COPY FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE C.I.T. CONCERNED MUMBAI 4. THE CIT (A) CONCERNED MUMBAI 5. THE DR, C - BENCH, ITAT, MUMBAI //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI