The Institute of Chartered Shipbrokers, Madras Branch, CHENNAI V. DIT, CHENNAI

ITA 348/CHNY/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61405 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-07-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 19-07-2012
• Assessment Year: misc
• Appeal Filed On: 17-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHAJI P JACOB IRS A DDL
• Assessee Lawyers: S SATHIYANAR AYANAN
• Keywords: Charitable institution
• Section: 12AA; 12

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI BEFORE DR. O.K.NARAYANAN, VICE-PRESIDENT AND SHRI V.DURGA RAO, JUDICIAL MEMBER ITA NO.348(MDS)/2012 THE INSTITUTE OF CHARTERED SHIPBROKERS, MADRAS BRANCH NO.6, II FLOOR, INDIAN CHAMBER BLDG., ESPLANADE, CHENNAI-600 018. PAN AAATT5085C. VS. THE DIRECTOR OF INCOME- TAX, (EXEMPTIONS), CHENNAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI S.SATHIYANARAYANAN, ADV OCATE RESPONDENT BY : SHRI SHAJI P JACOB, IRS, ADD L.CIT. DATE OF HEARING : 19 TH JULY, 2012 DATE OF PRONOUNCEMENT : 30 TH JULY, 2012 O R D E R PER DR.O.K.NARAYANAN, VICE-PRESIDENT: THIS APPEAL IS FILED BY THE ASSESSEE. THE APPELL ANT IS REGISTERED AS A PUBLIC CHARITABLE TRUST UNDER SECTI ON 12AA OF THE INCOME-TAX ACT,1961. REGISTRATION UNDER SECTION 12 AA WAS GRANTED TO THE ASSESSEE IN TERMS OF SECTION 2(15) O F THE INCOME- - - ITA 348 OF 2012 2 TAX ACT, 1961, HOLDING THAT THE ASSESSEE IS CARRYIN G ON THE ACTIVITIES OF EDUCATION IN A CHARITABLE MANNER. TH E ASSESSEE, THE INSTITUTE OF CHARTERED SHIPBROKERS (ICS) HAVING ITS HEADQUARTERS AT LONDON, REGULATES AND SUPPORTS THE PROFESSION OF SHIPBROKING THROUGHOUT THE WORLD. THE INSTITUTE IS ESTABLISHED IN LONDON ON THE STRENGTH OF A ROYAL CHARTER ISSUED BY THE QUEEN OF GREAT BRITON. ICS, LONDON HAS PERMITTED ESTABLISHMENT OF INSTITUTES IN VARIOUS PARTS OF THE WORLD TO WORK FOR THE OBJECTS OF THE INSTITUTE. THE ASSESSEE IS SUCH AN INSTITUTE ESTABLISHED IN INDIA BY WAY OF GETTING REGISTERED A S PER THE MUNICIPAL LAWS. ICS IS BY AND LARGE TAKING CARE OF THE PROFESSIONAL EDUCATION OF SHIPBROKING. STUDENTS AS PIRING OF BECOMING THE MEMBERS OF THE INSTITUTE HAVE TO PASS A NUMBER OF EXAMINATIONS. ONCE THEY QUALIFY IN THE EXAMINATION S AND UNDERGO THE NECESSARY TRAINING, THEY WILL BE ENROLL ED AS THE MEMBERS OF THE INSTITUTE, WHICH ENABLES THEM TO APP LY FOR DIFFERENT POSITIONS IN THE SHIPPING INDUSTRY. THE SOCIETY IN MADRAS WAS ESTABLISHED IN 1995. AT THAT TIME THE C HENNAI INSTITUTE HAD 18 MEMBERS. AT PRESENT IT HAS 164 ME MBERS. THE INSTITUTE IN MADRAS IS REGISTERING STUDENTS TO WRIT E THE - - ITA 348 OF 2012 3 EXAMINATIONS CONDUCTED BY THE ICS, LONDON. IT COLL ECTS REGISTRATION FEES FROM THE STUDENTS AND PROVIDES NE CESSARY ACADEMIC SUPPORT SO THAT THE STUDENTS CAN QUALIFY I N THE EXAMINATIONS. THE ASSESSEE INSTITUTE IS MAINTAININ G A FACULTY TO PROVIDE EDUCATIONAL SUPPORT AND COUNSELING TO THE R EGISTERED STUDENTS. IT IS MAINTAINING A LIBRARY FOR THE BENE FIT OF THE STUDENTS. IT SUBSCRIBES TO VARIOUS INTERNATIONAL M AGAZINES AND IN A WAY IT IS THE ONLY ACADEMIC CENTRE WHERE REGISTER ED STUDENTS CAN PREPARE FOR THE EXAMINATION CONDUCTED BY ICS, L ONDON. 2. IT IS IN THE ABOVE BACKGROUND THAT THE ASSESSEE WAS GIVEN REGISTRATION UNDER SECTION 12AA OF THE ACT. 3. THE MATTER WAS RESTING SO, THE DIRECTOR OF INCO ME- TAX(EXEMPTIONS) AT CHENNAI PASSED AN ORDER THROUGH HIS PROCEEDINGS DATED 15-12-2011 UNDER SECTION 12AA(3) OF THE INCOME-TAX ACT, 1961, CANCELLING THE REGISTRATION G RANTED TO THE ASSESSEE UNDER SECTION 12AA OF THE ACT. THE REASON FOR CANCELLATION, AS RECORDED BY THE DIRECTOR OF INCOME - TAX(EXEMPTIONS) IN HIS ORDER IS THAT THE ASSESSEES ACTIVITIES, AS PER MEMORANDUM OF ASSOCIATION, HAVE NOT BEEN FOUND TO BE GENUINE. IT IS THE FINDING OF THE DIRECTOR OF INCO ME- - - ITA 348 OF 2012 4 TAX(EXEMPTIONS) THAT THE INSTITUTE IS ONLY AN AGENT OF ICS, LONDON, WORKING ON COMMERCIAL TERMS. ACCORDING TO HIM, THE INDIAN INSTITUTE IS A TUTOR RUNNING A COACHING CENT RE ON COMMERCIAL TERMS. ACCORDINGLY, HE HELD THAT THE AC TIVITIES OF THE INSTITUTE CANNOT BE CALLED AS EDUCATIONAL. ON THE BASIS OF THE ABOVE OBSERVATION, HE CANCELLED THE REGISTRATION WI TH EFFECT FROM 1-4-2009, RELEVANT TO THE ASSESSMENT YEAR 2009-10 O NWARDS. IT IS AGAINST THE ABOVE ORDER THAT THE ASSESSEE HAS CO ME IN APPEAL BEFORE US. 4. WE HEARD BOTH SIDES IN DETAIL. SHRI S.SATHIYANARAYANAN, THE LEARNED COUNSEL APPEARING F OR THE ASSESSEE, EXPLAINED THE LEGAL STATUS AND FUNCTIONS OF THE INSTITUTE IN DETAIL. HE EXPLAINED THAT THE INDIAN INSTITUTE IS AFFILIATED TO THE ICS, LONDON ONLY FOR ACADEMIC PUR POSES AND INTERNATIONAL ACCREDITION AND THERE IS NO COMMERCIA L FUNCTIONS SHARED BETWEEN ICS, LONDON AND THE INDIAN INSTITUTE . HE HAS RELIED ON A NUMBER OF DECISIONS IN SUPPORT OF HIS A RGUMENTS TO HOLD THAT THE ASSESSEE IS A CHARITABLE INSTITUTION ENGAGED IN EDUCATIONAL ACTIVITIES, E.G.: 1. CIT VS. RED ROSE SCHOOL, 212 CTR (ALL) 394. - - ITA 348 OF 2012 5 2. GUJARAT STATE CO-OPERATIVE UNION VS CIT, 195 I TR 279 (GUJ.) THE LEARNED COUNSEL HAS ALSO PLACED HEAVY RELIANCE ON THE JUDGMENT OF THE HONBLE MADRAS HIGH COURT RENDERED IN THE CASE OF THE DIRECTOR OF INCOME-TAX(EXEMPTIONS) VS. THE C HARTERED ACCOUNTANTS STUDY CIRCLE (JUDGMENT DATED 13-2-2012 IN TAX CASE(APPEAL) NO.593 OF 2011). HE EXPLAINED THAT TH E ACTIVITIES OF THE ASSESSEE INSTITUTE ARE EXACTLY THE SAME AS T HE ACTIVITIES OF THE CHARTERED ACCOUNTANTS STUDY CIRCLE AND, THEREFO RE, THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT SQUARELY APPLIES TO THE ASSESSEES CASE. THEREFORE, THE ORDER OF THE DIREC TOR OF INCOME- TAX(EXEMPTIONS) CANCELLING THE REGISTRATION, PASSED UNDER SECTION 12AA(3) NEEDS TO BE QUASHED. 5. SHRI SHJI P JACOB, THE LEARNED COMMISSIONER OF INCOME-TAX APPEARING FOR THE REVENUE, ON THE OTHER HAND, CONTENDED THAT THE ASSESSEE IS RENDERING PROFESSION AL AND OTHER COMMERCIAL SERVICES AND IS ENGAGED ONLY IN COACHING THE STUDENTS PREPARING FOR ICS EXAMINATION AND IT IS NO T CARRYING ON ANY CHARITABLE ACTIVITIES IN THE NATURE OF EDUCATIO NAL ACTIVITIES. THE LEARNED COMMISSIONER OF INCOME-TAX ARGUED THAT THE - - ITA 348 OF 2012 6 ASSESSEE INSTITUTE IS SHARING THE FEES COLLECTED FR OM THE STUDENTS WITH ITS MOTHER INSTITUTE IN LONDON AND AT EVERY ST AGE THE INCOME RECEIVED BY THE ASSESSEE INSTITUTE NEEDS TO BE SHAR ED WITH ITS COUNTERPART IN LONDON. REFERRING TO THE MEMORANDUM OF ASSOCIATION OF THE ASSESSEE TRUST, THE LEARNED COMM ISSIONER OF INCOME-TAX CONTENDED THAT IN THE EVENT OF DISSOLUTI ON OF THE ASSESSEE INSTITUTION, ALL THE ASSETS WILL BESTOW UP ON THE LONDON INSTITUTE AND THEREFORE IT IS NECESSARY TO SEE THAT THE ASSESSEE IS BASICALLY AN AGENT OF A FOREIGN INSTITUTE AND THERE FORE CANNOT BE CONSTRUED AS CARRYING ON CHARITABLE ACTIVITIES IN I NDIA. THE LEARNED COMMISSIONER OF INCOME-TAX CONTENDED THAT T HE REGISTRATION UNDER SECTION 12AA IS GRANTED ONLY FOR INSTITUTIONS CARRYING ON CHARITABLE ACTIVITIES WITHIN THE TERRIT ORIES OF INDIA. 6. IN SUPPORT OF HIS ARGUMENTS THE LEARNED COMMISSIONER OF INCOME-TAX HAS RELIED ON THE FOLLOW ING DECISIONS:- 1. SOLE TRUSTEE, LOKA SHIKSHANA TRUST VS CIT, 101 ITR 234(S.C) 2. INDIAN CHAMBER OF COMMERCE VS. CIT, 101 ITR 796 (S.C.) - - ITA 348 OF 2012 7 3. RAJAH SIR ANNAMALAI CHETTIAR FOUNDATION VS. DIRECTOR OF IT(EXEMPTIONS), 10 ITR ( TRIB) 424(CHENNAI). 4. BIHAR INSTITUTE OF MINING AND MINE SURVEYING V S. CIT, 208 ITR 608 (PATNA). 5. CIT VS. NATIONAL INSTITUTE OF AERONAUTICAL ENG INEERING EDUCATIONAL SOCIETY, 315 ITR 428 (UT TARAKHAND). 6. DIRECTOR OF INCOME-TAX VS. MARUTI CENTER FOR EXCELLENCE, 2012-TIOL-411-HC-DEL-IT. 7. GURSHIP EDUCATION TRUST VS. DIRECTOR OF IT(EXE MPTION), 2011-TIOL-635-ITAT-MUM. 7. WE HEARD BOTH SIDES IN DETAIL AND CONSIDERED TH E ARGUMENTS CAREFULLY. ON GOING THROUGH THE MEMORAND UM OF ASSOCIATION AND OTHER BYE-LAWS AND PARTICULARS OF T HE ASSESSEE INSTITUTE, WE FIND THAT IT IS AN INSTITUTION REGIST ERED IN INDIA FOR ALL PURPOSES OF LAW. IT CANNOT BE CONSTRUED AS AN AGEN T OF A FOREIGN INSTITUTION. THE FOREIGN INSTITUTION, ICS OF LONDO N, IS A WORLD PROFESSIONAL BODY CONTROLLING THE PROFESSION OF SHI PBROKERS AROUND THE WORLD AND GRANTING PROFESSIONAL AFFILIAT IONS. THE CO- OPERATION BETWEEN ICS, LONDON AND THE ASSESSEE INST ITUTE IN INDIA IS THAT OF EDUCATIONAL AFFILIATION. THE RELA TIONSHIP IS NOT THAT OF COMMERCIAL OR BUSINESS OR TRADE RELATED. IT IS SOMETHING LIKE A COLLABORATION OF OXFORD UNIVERSITY WITH ONE OF THE INDIAN - - ITA 348 OF 2012 8 UNIVERSITIES. IN THE MODERN WORLD, EDUCATIONAL AND PROFESSIONAL FIELD CANNOT REMAIN ISOLATED GEOGRAPHICALLY. INTER NATIONAL AFFILIATION AND INTERNATIONAL RECOGNITION ARE NECES SARY. THEREFORE, ALMOST ALL THE MODERN PROFESSIONS IN THE WORLD ARE HAVING SIMILAR ARRANGEMENTS OF AFFILIATION AND RECOGNITION. ON TH E GROUND OF AFFILIATION THERE IS NO REASON TO HOLD THAT THE ASS ESSEE IS AN AGENT OR BRANCH OF A FOREIGN INSTITUTE. 8. THE PROGRAMME OF PROFESSIONAL EDUCATION IMPARTE D BY THE ASSESSEE INSTITUTE IN INDIA IS NOT IN THE NA TURE OF COACHING OR TUITION. THE INSTITUTE AT LONDON IS AN INSTITUT E ESTABLISHED BY A ROYAL CHARTER AND RECOGNIZED WORLD-WIDE AS THE NODA L AGENCY OF DESIGN, IMPROVING AND CONTROLLING THE PROFESSION OF SHIP-BROKING. SHIP-BROKING IS RECOGNISED WORLD OVER AS THE ONLY P ROFESSION ENGAGED IN DEALING WITH ALL ASPECTS OF SHIPPING IND USTRY. THE EXAMINATIONS CONDUCTED BY THE INSTITUTE TO ENABLE T HE REGISTERED STUDENTS TO ENROLL AS MEMBERS OF THE INSTITUTE REQU IRE CONTINUOUS STUDY FOR A PERIOD OF THREE TO FOUR YEARS. WHAT IS IMPARTED BY THE ASSESSEE INSTITUTE IN INDIA IS PROFESSIONAL EDUCATI ON LIKE CHARTERED ACCOUNTANCY, LAW, ARCHITECTURE, ETC. THE SYLLABUS PRESCRIBED FOR THE EXAMINATION COVERS ALMOST ALL AR EAS OF - - ITA 348 OF 2012 9 SHIPPING INDUSTRY INCLUDING MARITIME LAWS. IT INCL UDES MANAGEMENT OF LOGISTICS OF SHIPPING INDUSTRY. IT I S NOT THAT THE MEMBERS WHO QUALIFY THE EXAMINATION ARE JUST ACTING AS BROKERS FOR GOOD/SHIPS. THE MEMBERS WHO QUALIFY THE EXAMIN ATIONS ARE WORKING IN DIFFERENT FIELDS OF SHIPPING INDUSTRY IN CLUDING PORT-TRUST. THEREFORE, IT IS NOT POSSIBLE TO HOLD A VIEW THAT T HE ASSESSEE IS RUNNING A COACHING CENTRE FOR A PARTICULAR EXAMINAT ION. ON THE OTHER HAND, THE ASSESSEE IS AN INSTITUTE IMPARTING PROFESSIONAL EDUCATION IN THE FIELD OF SHIPPING INDUSTRY. 9. THERE IS NOTHING ON RECORD TO SHOW THAT THE ASSESSEE IS ENGAGED IN ANY COMMERCIAL OR PROFESSION AL ACTIVITIES IN INDIA BY WAY OF CONSULTANCY OR PROFESSIONAL ADVI CES AND THEY ARE NOT EARNING ANY INCOME BY WAY OF CARRYING ON AN Y TRADE OR COMMERCE. THE INCOME OF THE ASSESSEE IS THE FEES C OLLECTED FROM THE STUDENTS AND THE EXPENSES ARE INCURRED FOR RUNNING THE INSTITUTE FOR IMPARTING PROFESSIONAL EDUCATION TO I TS REGISTERED STUDENTS. THE INCOME OF THE ASSESSEE INSTITUTE IS NOT UTILIZED FOR ANY PRIVATE INITIATION OR FOR THE BENEFIT OF ANY IN TERESTED PERSON. THE EXPENDITURE IS INCURRED ONLY FOR THE PURPOSE FO R WHICH THE INSTITUTE IS ESTABLISHED. - - ITA 348 OF 2012 10 9. IN THE FACTS AND CIRCUMSTANCES OF THE CASE WE F IND THAT THE DECISION OF THE HONBLE MADRAS HIGH COURT RENDERED IN THE CASE OF DIRECTOR OF INCOME-TAX(EXEMPTIONS) VS. THE CHARTERED ACCOUNTANTS STUDY CIRCLE, TAX CASE(APPEAL ) NO.593 OF 2011, IS APPLICABLE TO THE PRESENT CASE. IN THE ABOVE JUDGMENT, THEIR LORDSHIPS HAVE HELD IN PARAGRAPHS 8 AND 9 AS FOLLOWS:- 8. THE OBJECTS OF THE ASSESSEE-TRUST, AS REFERRED TO ABOVE, ARE AMONG OTHER THINGS TO CONDUCT PERIODICAL MEETINGS ON PROFESSIONAL SUBJECTS AND TO ACHIEVE TH E SAID OBJECTS, THE ASSESSEE IS PUBLISHING BOOKS, BOO KLETS, ETC. ON PROFESSIONAL SUBJECTS, AND SELLING THE SAME ONLY ON THE SUBJECTS RELATED TO AUDIT AND NOT ON ANY OTH ER SUBJECT. CONSEQUENTLY, THOSE BOOKS ARE PRIMARILY S OLD ONLY TO THE MEMBERS OF THE SOCIETY. OFCOURSE, THE BOOKS ARE ALSO MADE AVAILABLE FOR SALE TO THE GENERAL PUB LIC AIMING TO HELP THE SOCIETY TO GET BETTER, WELL-EQUI PPED AND SKILLED SET OF CHARTERED ACCOUNTANTS FOR MAINTA INING AUDIT QUALITY. - - ITA 348 OF 2012 11 9. IN OUR OPINION, SUCH ACTIVITIES OF THE ASSESSEE- TRUST CANNOT BE CONSTRUED TO BE ONE OF TRADE OR COMMERCE OR BUSINESS AND IT WOULD ONLY BE A CHARITABLE IN NATUR E. THEREFORE, IT CANNOT BE HELD THAT THE ACTIVITIES OF THE ASSESSEE-TRUST IN PUBLISHING AND SELLING BOOKS OF PROFESSIONAL INTEREST, WHICH ARE MEANT TO BE USED A S A REFERENCE MATERIAL EVEN BY THE GENERAL PUBLIC AS WE LL AS THE PROFESSIONALS IN RESPECT OF BANK AUDIT, TAX AUD IT, ETC., CANNOT BE CONSTRUED TO BE ONE OF COMMERCE IN NATURE. THE FINDING OF THE TRIBUNAL IN THIS REGARD REQUIRES NO INTERFERENCE. 10. WE HOLD THAT THE ABOVE OBSERVATIONS OF THE HON BLE JURISDICTIONAL HIGH COURT EQUALLY APPLY TO THE PRES ENT CASE AS WELL. 11. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND THAT THE ORDER PASSED BY THE DIRECTOR OF INCOME-TAX (EXEMPTIONS) AT CHENNAI UNDER SECTION 12AA(3) OF THE INCOME-TAX ACT, 1961 IS NOT SUSTAINABLE IN LAW. ACCORDINGLY, THE SAID ORDE R IS SET ASIDE. - - ITA 348 OF 2012 12 THE ASSESSEE CONTINUES TO ENJOY THE REGISTRATION UN DER SECTION 12AA, AS IF THERE WAS NO INTERRUPTION. 12. IN RESULT, THIS APPEAL FILED BY THE ASSESSEE I S ALLOWED. ORDER PRONOUNCED ON MONDAY, THE 30 TH OF JULY, 2012 AT CHENNAI. SD/- SD/- (V.DURGA RAO) (DR. O.K.NARAYANAN) JUDICIAL MEMBER VICE-PRESIDENT CHENNAI, DATED THE 30 TH JULY, 2012. V.A.P. COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT (4) CIT(A) (5) D.R. (6) G.F.