M/s Patiala Urban Planning and Development Authority, Patiala V. CIT, Patiala

ITA 775/CHANDI/2014

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 1603 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 3 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-12-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 02-09-2015
• Assessment Year: misc
• Appeal Filed On: 04-09-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K MITTAL
• Keywords: Charitable institution; Cancellation of registration
• Section: 12A; 12AA; 12; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI H.L.KARWA, VICE PRESIDENT AND MS. RANO JAIN, ACCOUNTANT MEMBER ITA NO.775/CHD/2014 (UNDER SECTION 12AA(3) M/S PATIALA URBAN PLANNING VS. THE C.I.T., & DEVELOPMENT AUTHORITY, PATIALA. URBAN ESTATE, PHASE-II, PATIALA. PAN: AAALP0095J (APPELLANT) (RESPONDENT) APPELLANT BY : S/SHRI RAVI SHANKAR & ROHIT KAURA RESPONDENT BY : SHRI S.K. MITTAL, DR DATE OF HEARING : 09.10.2015 DATE OF PRONOUNCEMENT : 04.12.2015 O R D E R PER RANO JAIN, A.M . : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX, PATIALA DATED 4.7.2014 PASSED UNDER SECTION 12AA(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) CANCELLING THE REGISTRATION UNDER SECTION 12A A OF THE ACT. 2. BRIEFLY, THE FACTS OF THE CASE ARE THAT THE REGISTRATION UNDER SECTION 12AA OF THE ACT WAS GRAN TED TO 2 THE ASSESSEE VIDE ORDER DATED 28.9.2005 BY THE COMMISSIONER OF INCOME TAX, PATIALA. 3. A SHOW CAUSE NOTICE DATED 18.3.2014 WAS ISSUED BY THE COMMISSIONER OF INCOME TAX PROPOSING TO CAN CEL THE REGISTRATION UNDER SECTION 12A OF THE ACT. 4. TO BRING HOME THE REASONS FOR WITHDRAWAL OF REGISTRATION UNDER SECTION 12AA OF THE ACT, ELABORA TE DISCUSSION WAS MADE BY THE COMMISSIONER OF INCOME T AX. IN VIEW OF THESE OBSERVATIONS, THE LEARNED COMMISSI ONER OF INCOME TAX HELD THAT THE ACTIVITIES OF THE ASSESSE E ARE CLEARLY COMMERCIAL IN NATURE AND NOT CHARITABLE RIG HT FROM THE VERY BEGINNING. SINCE THE ACTIVITIES OF THE ASS ESSEE FALL IN THE CATEGORY OF ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY AND THIS PHRASE AS PROVIDED IN SECTION 2(15) DOES NOT NOW CONSTITUTE A CHARITABLE PURPOSE, THEREFORE THE SAME IS PURELY COMMERCIAL IN NATURE IN VIEW OF THE PROVISO APPENDED TO THE SECTI ON. IN VIEW OF THESE FINDINGS, THE LEARNED COMMISSIONER OF INCOME TAX CANCELLED THE REGISTRATION GRANTED TO T HE ASSESSEE UNDER SECTION 12A OF THE ACT. 5. AGGRIEVED BY THIS ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX, THE ASSESSEE HAS COME U P IN APPEAL BEFORE US. THE ONLY GRIEVANCE OF THE ASSES SEE IS THAT THE CANCELING OF REGISTRATION UNDER SECTION 12 AA(3) OF THE ACT IS NOT AS PER LAW. 3 6. THE FIRST CONTENTION RAISED BY THE LEARNED COUNSEL FOR THE ASSESSEE WAS THAT THE ONLY REASON G IVEN BY THE LEARNED COMMISSIONER OF INCOME TAX WHILE WITHDRAWING THE REGISTRATION GRANTED UNDER SECTION 12A OF THE ACT IS THE AMENDMENT BROUGHT ON THE STATUTE BY THE FINANCE ACT, 2008 IN SECTION 2(15) OF THE ACT. IT WAS STATED THAT THE DETAILED ANALYSIS MADE BY THE LEARN ED COMMISSIONER OF INCOME TAX FOR WITHDRAWAL OF THE REGISTRATION WAS INTENDED TO LEAD TO THE ONLY CONCL USION THAT DUE TO AMENDMENT TO SECTION 2(15) OF THE ACT, THE ASSESSEE HAS LOST ITS NATURE OF BEING A CHARITABLE ORGANIZATION. THE ARGUMENT OF THE LEARNED COUNSEL FOR THE ASSESSEE WAS THAT THE PURPOSE OF PROVISO TO SEC TION 2(15) OF THE ACT IS TO HIT ANY ASSESSEE ONLY TO THE EXTENT THAT THE ASSESSEE WILL NOT BE ELIGIBLE FOR EXEMPTIO N UNDER SECTION 11 OF THE ACT, WHICH HAS TO BE VERIFIED BY THE ASSESSING OFFICER ON YEARLY BASIS DURING THE ASSESS MENT PROCEEDINGS. THE MERE FACT THAT THE ASSESSEE HAS BEEN GRANTED REGISTRATION UNDER SECTION 12A OF THE ACT O R 12AA OF THE ACT AS A CHARITABLE INSTITUTION WILL HAVE NO BEARING ON THE DENIAL OF REGISTRATION. THE FACT THAT THE OBJECT OF THE ASSESSEE MAY BE HIT BY THE PROVISIONS OF SECTIO N 2(15) OF THE ACT CANNOT HAVE ANY BEARING ON THE GRANT, DE NIAL OR WITHDRAWAL OF THE REGISTRATION UNDER SECTION 12A OF THE ACT. IN THE BACKGROUND OF THESE SUBMISSIONS, IT WA S PRAYED THAT THE ORDER PASSED BY THE LEARNED COMMISS IONER OF INCOME TAX UNDER SECTION 12AA(3) OF THE ACT FOR 4 CANCELLATION OF REGISTRATION UNDER SECTION 12A OF T HE ACT BE HELD TO BE NOT AS PER LAW. 7. THE LEARNED D.R. RELIED UPON THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX AND STATED THAT IN VIEW OF THE AMENDMENT TO SECTION 2(15) OF THE ACT A ND THE DETAILED DISCUSSION MADE BY THE LEARNED COMMISSIONE R OF INCOME TAX, THE ASSESSEE HAS CERTAINLY LOST ITS CHA RACTER OF BEING A CHARITABLE ORGANIZATION. THEREFORE, TH E ORDER PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX I S VALID AND AS PER LAW. 8. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOTH THE PARTIES, PERUSED THE FINDINGS OF THE AUTHO RITIES BELOW AND CONSIDERED THE MATERIAL AVAILABLE ON RECO RD. THE UNDISPUTED FACTS OF THE CASE ARE THAT THE ASSES SEE IS A SOCIETY REGISTERED UNDER SECTION 12AA OF THE ACT, V IDE ORDER PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX, PATIALA DATED 28.9.2005, THE REGISTRATION SO GRANTE D TO THE ASSESSEE HAS NOW BEEN WITHDRAWN. FROM THE PERUSAL OF THE ORDER OF WITHDRAWAL OF REGISTRATION, WE SEE THA T THE ONLY ISSUE ON THE BASIS OF WHICH THE ORDER IS FRAME D IS PROVISIONS OF SECTION 2(15) OF THE ACT, AS AMENDED BY THE FINANCE ACT, 2009, BY INSERTING A PROVISO TO THE SA ID SECTION. 9. ON THE ISSUE THAT ON THE BASIS OF AMENDMENT TO SECTION 2(15) OF THE ACT, THE LEARNED COMMISSIONER OF INCOME TAX DOES NOT GET THE POWER TO WITHDRAW OR C ANCEL 5 THE REGISTRATION, WE ARE GUIDED BY A LATEST ORDER O F THE AMRITSAR BENCH OF THE I.T.A.T. IN THE CASE OF KAPUR THALA IMPROVEMENT TRUST VS. CIT, 60 TAXMANN.COM 301 (AMRITSAR-TRIB.), WHEREBY IT HAS BEEN HELD THAT THE CONSIDERATION OF FIRST PROVISO TO SECTION 2(15) OF THE ACT HAS NO ROLE TO PLAY IN MATTERS RELATING TO REGISTRA TION OF A TRUST OR INSTITUTION UNDER SECTION 12A OF THE ACT I N RESPECT OF GRANTING OR DECLINING OF REGISTRATION OR IN RESPECT OF CANCELLATION. ON PERUSAL OF THE SAID O RDER, WE SEE THAT AFTER A DETAILED DISCUSSION ON VARIOUS PR OVISIONS OF THE INCOME TAX ACT RELATING TO THE CHARITABLE AC TIVITIES TOGETHER WITH LEGISLATIVE HISTORY OF THE SAID PROVI SIONS, THE I.T.A.T., AMRITSAR BENCH HAS HELD SO. THE RELEVANT FINDINGS OF I.T.A.T., AMRITSAR BENCH ARE AT PARAS 9 AND 10 OF THE ORDER, WHICH READ AS UNDER : 9. WE FIND THAT, AS LEARNED COUNSEL RIGHTLY POINTS OUT . THE SCOPE OF POWERS OF THE COMMISSIONER UNDER SECTION 12 AA(3) FOR CANCELLATION OF REGISTRATION ALREADY GRANTED IS VERY LIMITED IN SCOPE IN AS MUCH AS IT CAN ONLY BE INVOKED ONLY WHEN (I) THAT THE ACTIVITIES OF THE TRUST ARE NOT GENUINE, AND(II) THAT THE ACTIVITIES OF THE TRUST OR THE INSTITUTION ARE NOT BE ING CARRIED OUT IN ACCORDANCE WITH THE OBJECTS OF THE TRUST OR THE INSTITUTION. SECTION 12AA(3) SPECIFICALLY PROVIDES T HAT WHEN THE CIT 'IS SATISFIED THAT THE ACTIVITIES OF SUCH TRUST O R INSTITUTION ARE NOT GENUINE OR ARE NOT BEING CARRIED OUT IN ACCORDA NCE WITH THE OBJECTS OF THE TRUST OR INSTITUTION, AS THE CASE MAY BE, HE SHALL PASS AN ORDER IN WRITING CANCELLING THE REGISTRATION OF SUCH TRUST OR INSTITUTION'. IT IS NOT EVEN THE CASE OF THE CIT THAT THE ACTIVITIE S OF THE ASSESSEE TRUST ARC 'NOT GENUINE' OR THAT THE 'ACTIV ITIES OF THE ASSESSEE ARE NOT BEING CARRIED OUT IN ACCORDANCE WIT H THE OBJECTS' OF THE ASSESSEE TRUST. THE CASE OF THE CIT RESTS ON THE 6 FIRST PROVISO TO SECTION 2(15) COMING INTO PLAY ON TH E FACTS OF THIS CASE BUT THEN SUCH A FACTOR CANNOT WARRANT OR JUSTIFY THE POWERS UNDER SECTION12AA(3)BEING INVOKED. WE, THERE FORE, UPHOLD THE GRIEVANCE OF THE ASSESSEE THAT THE ACTIO N OF THE LEARNED COMMISSIONER, IN WITHDRAWING THE REGISTRATION UNDER SECTION 12AA(3), WAS WELL BEYOND THE LIMITED S COPE OF THE POWERS CONFERRED ON HIM BY THE STATUTE. THE ASSES SEE, THEREFORE, MUST SUCCEED IN THE APPEAL FOR THIS SHORT REASON ALONE. 10. THERE IS, HOWEVER, A MUCH MORE FUNDAMENTAL A RE ASON FOR THE ASSESSEE SUCCEEDING IN THIS APPEAL. IN OUR CONSIDERED VIEW, THE CONSIDERATIONS WITH RESPECT TO T HE-FIRST PROVISO TO SECTION 2(15) COMING INTO THE PLAY AND, FO R THAT REASON, THE OBJECTS OF AN ASSESSEE TRUST OR INSTITUTI ON BEING HELD TO BE NOT COVERED BY THE DEFINITION OF CHARITAB LE PURPOSES', HAVE NO ROLE TO PLAY IN THE MATTERS RELATING TO REGIS TRATION OF A TRUST OR INSTITUTION UNDER SECTION 12A OR 12AA - WHE THER IN RESPECT OF GRANTING OR DECLINING OF A REGISTRATION O R IN RESPECT OF CANCELLATION, EVEN IF OTHERWISE PERMISSIBLE, OF A RE GISTRATION. A CLOSE LOOK AT THE SCHEME OF THE ACT WOULD UNAMBIGUO USLY SHOW THIS ASPECT OF THE MATTER. 10. ON A CLOSER LOOK AT THE SAID ORDER OF THE I.T. A.T., AMRITSAR BENCH, WE FIND THAT THE PROPOSITION SO LAI D DOWN BY THE I.T.A.T., AMRITSAR BENCH IS BASED ON THE FOL LOWING REASONS : I) THE SCOPE OF POWERS OF THE COMMISSIONER UNDER S ECTION 12AA(3) FOR CANCELLATION OF REGISTRATION ALREADY GRANTED IS VER Y LIMITED IN SCOPE IN AS MUCH AS IT CAN ONLY BE INVOKED ONL Y WHEN (I) THAT THE ACTIVITIES OF THE TRUST ARE NOT GENUINE, A ND (IT) THAT THE ACTIVITIES OF THE TRUST OR THE INSTITUTION ARE NOT BEING CARRIED OUT IN ACCORDANCE WITH THE OBJECTS OF THE T RUST OR THE INSTITUTION. 7 II) THE CONSIDERATIONS OF FIRST PROVISO TO SECTION 2(15) HAVE NO ROLE TO PLAY IN THE MATTERS RELATING TO REGISTRATION OF A T RUST OR INSTITUTION UNDER SECTION 12A OR 12AA -WHETHER IN R ESPECT OF GRANTING OR DECLINING OF A REGISTRATION OR IN RESPE CT OF CANCELLATION. III) WHAT IS CLEAR FROM THE RIDERS IN THE DEFINITION OF CHARITABLE PURPOSES' IS THAT RIDER SET OUT THEREIN, UNDER FIRS T PROVISO TO SECTION 2(15), CAN ONLY COME INTO PLAY ON YEAR TO Y EAR BASIS AND NOT IN ABSOLUTE TERMS. THE SAFEGUARD AGAINST THE OBJECTS OF THE TRUST BEING VITIATED INSOFAR AS THEIR CHARACT ER OF 'CHARITABLE ACTIVITIES' IS CONCERNED, IS INBUILT IN THE PROVISIONS OF SECTION 13(8) WHICH WAS BROUGHT INTO EFFECT WITH EFFECT FROM THE SAME POINT OF TIME WHEN PROVISO, TO SECTION 2(1 5)WAS INTRODUCED - I.E. WITH EFFECT FROM 1-4-2009, SECTION 13(8). IV) THE FACT THAT THE OBJECTS OF THE ASSESSEE MAY BE HIT BY THE PROVISO TO SECTION 2(15) CANNOT HAVE ANY BEARING ON THE GRANT, DENIAL OR WITHDRAWAL OF THE REGISTRATION UNDER SECT ION 12AA. V) IN ORDER THAT THE BENEFITS UNDER SECTION 11 ARE DECLINED TO THE ASSESSEE ON THE GROUND THAT IT IS ENGAGED IN SUCH A CTIVITIES AS MAY BE HIT BY THE FIRST PROVISO TO SECTION 2(15) NO T ONLY THE ASSESSEE MUST BE ENGAGED IN CARRYING OUT SUCH ACTIVI TIES AS MAY HIT THE FIRST PROVISO TO SECTION 2(15) BUT ALSO THE RECEIPTS OF THE ASSESSEE FROM SUCH ACTIVITIES MUST EXCEED A SPEC IFIED LIMIT. THE SECOND LIMB OF THIS DISABILITY CLAUSE NE EDS TO BE SATISFIED WITH RESPECT TO EACH ASSESSMENT YEAR. OBVIOU SLY, THEREFORE, THIS ASPECT OF THE MATTER CANNOT BE EXAMINED AT THE STAGE OF THE GRANT OR WITHDRAWAL OF REGISTRATION SI NCE THE REGISTRATION EXERCISE IS A ONE TIME EXERCISE AND NO T SOMETHING WHICH MUST BE DONE FOR EACH ASSESSMENT YEAR SEPARAT ELY. THAT IS PRECISELY THE REASON, AS NOTED IN THE EXPLA NATORY MEMORANDUM, AS TO WHY THE REMEDY FOR THE ACTIVITIES BEING HIT BY THE FIRST PROVISO TO SECTION 2(15) LIES NOT IN G RANT, DECLINE OR WITHDRAWAL OF REGISTRATION BUT IN DECLINING THE BENEFI TS OF EXEMPTION UNDER SECTION 11 ON THAT COUNT, ON YEAR TO YEAR BASIS, NOTWITHSTANDING THE STATUS OF REGISTRATION. 8 VI) THE DISENTITLEMENT FOR EXEMPTION UNDER SECTION 1 1, AS A RESULT OF THE ACTIVITIES OF AN ASSESSEE BEING HELD TO BE N OT FOR CHARITABLE PURPOSES UNDER SECTION 2(15) READ WITH P ROVISOS THERETO, IS IN RESPECT OF ENTIRE INCOME OF THE ASSE SSEE TRUST OR INSTITUTION BUT ONLY FOR THE ASSESSMENT YEAR IN RES PECT OF WHICH THE FIRST PROVISO TO SECTION 2(15) IS TRIGGERED. VII) IF THE STATUS OF REGISTRATION IS TO BE DECLINED TO AN ASSESSEE ONLY ON THE GROUND THAT SOME OF THE OBJECTS MAY BE HIT BY THE FIRST PROVISO TO SECTION 2(15) BUT THE ASSESSEE'S R ECEIPTS FROM SUCH ACTIVITIES DO NOT EXCEED SPECIFIED THRESHOLD IN A PARTICULAR ASSESSMENT YEAR, THE ASSESSEE WILL BE SUBJEC TED TO UNDUE HARDSHIP IN THE SENSE THAT WHILE THE ASSESSEE WILL BE DISENTITLED TO EXEMPTION UNDER SECTION 11 D UE TO DENIAL OF REGISTRATION UNDER SECTION 12A OR 12AA WHI CH IS SINE QUA NON FOR ADMISSIBILITY OF EXEMPTION UNDER S ECTION 11. VIII) THE CONSIDERATIONS ABOUT THE POSSIBILITIES OF FIRST PROVISO TO SECTION 2(15) INTO PLAY ARE WHOLLY EXTRA NEOUS. 11. IN VIEW OF THE ABOVE, RESPECTFULLY FOLLOWING T HE ORDER OF THE COORDINATE BENCH OF THE I.T.A.T., AMRI TSAR, WE HOLD THAT THE AMENDMENT TO SECTION 2(15) OF THE ACT CANNOT BE THE BASIS FOR CANCELLATION OF REGISTRATIO N GRANTED EARLIER UNDER SECTION 12A OF THE ACT. 12. ON THE SECOND CONTENTION OF THE LEARNED COUNSE L FOR THE ASSESSEE, WE WOULD ALSO LIKE TO HOLD THAT T HE TWO BASIC REQUIREMENTS FOR CANCELLATION OF REGISTRATION AS PROVIDED UNDER SECTION 12AA(3) OF THE ACT, VIZ, THE FINDINGS OF THE LEARNED COMMISSIONER OF INCOME TAX TO THE EFFECT THAT THE ACTIVITIES OF THE ASSESSEE ARE NOT GENUINE OR THE ACTIVITIES ARE NOT BEING CARRIED OUT IN 9 ACCORDANCE WITH THE OBJECTS ON THE BASIS OF WHICH REGISTRATION UNDER SECTION 12A OF THE ACT WAS GRANT ED TO IT, HAVE ALSO NOT BEEN FULFILLED IN THIS CASE. TH E LEARNED COMMISSIONER OF INCOME TAX HAS NOWHERE GIVEN A FIND ING IN THIS REGARD. IT IS NOT THE CASE OF THE COMMISSI ONER OF INCOME TAX THAT THE ACTIVITIES OF THE ASSESSEE ARE NOT GENUINE OR NOT BEING CARRIED OUT IN CONSONANCE WITH THE OBJECTS OF THE ASSESSEE. IN THIS VIEW ALSO, THE A CTION OF THE LEARNED COMMISSIONER OF INCOME TAX IN CANCELI NG THE REGISTRATION IS NOT AS PER LAW. 13. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 4 TH DAY OF DECEMBER, 2015. SD/- SD/- (H.L.KARWA) (RANO JAIN) VICE PRESIDENT ACCOUNTANT MEMBER DATED : 4 TH DECEMBER, 2015 *RATI* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/THE CIT/THE DR. ASSISTANT REGISTRAR, ITAT, CHANDIGARH 10