M/s Bangalore Club, Bangalore V. ITO, Bangalore

ITA 796/BANG/2010

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 1646 (ITAT-BANGALORE)
• Duration Of Justice: 6 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-01-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 06-09-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 14-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SWATHI S PATIL CITIIDR
• Assessee Lawyers: ASHOK KULKARNI
• Keywords: Period of limitation; Block assessment
• Section: 12A; 12AA; 12; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI GEORGE GEORGE K., JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ITA NO. 796/BANG/2001 ASSESSMENT YEAR : N.A. ST. ANNS EDUCATION SOCIETY, C/O. SUNDARESH & CO., CHARTERED ACCOUNTANTS, 21, IST FLOOR, 15 TH CROSS, 9 TH MAN, 3 RD BLOCK JAYANAGAR, BANGALORE 560 011. : APPELLANT VS. THE DIRECTOR OF INCOME-TAX (EXEMPTIONS), BANGALORE. : RESPONDENT APPELLANT BY : SHRI ASHOK KULKARNI, ADVOCATE RESPONDENT BY : SMT. SWATHI S. PATIL, CIT-II(DR) O R D E R PER A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER THE HONBLE HIGH COURT OF KARNATAKA - DIVISION BE NCH - IN ITA NO: 2791/2005 DATED: 21.4.2010 IN THE CASE OF DIT (EXEMPTIONS) V. ST. ANNS EDUCATION SOCIETY, ON A REFERENCE BY THE REVENUE , IN RESPECT OF GRANT OF REGISTRATION UNDER SECTION 12A OF THE A CT OBSERVED THAT SINCE THE TRIBUNAL [IN ITA NO.796(BANG)/2001 DATED: 21.2.2005 ] IN THE INSTANT CASE HAD FOLLOWED THE DECISION IN KARNATAKA GOLF ASSOCIATION CASE, THIS MATTER HAS ALSO TO BE REMANDED BACK TO THE TRIBUNAL TO CON SIDER THE SAME AFRESH ITA NO.796/BANG2001 PAGE 2 OF 7 AFTER RECONSIDERING THE CASE OF KARNATAKA GOLF ASSO CIATION . ACCORDINGLY, THIS APPEAL HAS COME UP BEFORE THIS BE NCH FOR FRESH CONSIDERATION. 2. BRIEFLY STATED, THE ASSESSEE - ST. ANNS EDUCATI ON SOCIETY - IN ITS ORIGINAL APPEAL AGAINST THE ORDER OF DIT (E) HAD, A MONG OTHERS, PRAYED THAT - THE ORDER U/S 12A OF THE ACT PASSED BY THE DIT (E) BE CANCELLED OR IN THE ALTERNATIVE THE DIT (E) BE DIRECTED TO GRANT RE GISTRATION FROM THE DATE OF MAKING THE APPLICATION. 3. AFTER CONSIDERING THE RIVAL SUBMISSIONS, THE EAR LIER BENCH HAD RECORDED ITS FINDINGS, THUS 2. THE ASSESSEE HAD FILED AN APPLICATION FOR GRANT OF REGISTRATION U/S 12 OF THE INCOME-TAX ACT 1961 [THE ACT FOR SHORT] ON 17.9.1999. THIS FACT IS NOT IN DISPUTE. ACCORDING TO THE PROVISION S OF SEC.12AA(2) OF THE ACT, THE ORDER GRANTING OR REFUSING REGISTRATIO N UNDER CLAUSE (B) OF SUB-SECTION (1) OF SECTION 12A HAS TO BE PASSED BEF ORE THE EXPIRY OF 6 MONTHS FROM THE END OF THE MONTH IN WHICH THE APPLI CATION WAS RECEIVED UNDER CLAUSE (C) OF S.12A. THIS MANDATORY PROVISION HAS NOT BEEN COMPLIED WITH IN THE PRESENT CASE. THE APPLIC ATION FOR GRANT OF REGISTRATION WAS FILED ONN17.9.1999 AND THE ORDER W AS PASSED ON 30.10.2001, ALMOST OVER A PERIOD 2 YEARS. THE ISSU E IS ALSO COVERED BY THE DECISION OF THIS TRIBUNAL IN THE CASE OF KARNAT AKA GOLF ASSOCIATION V. DIRECTOR OF INCOME-TAX (EXEMPTION) IN ITA NO.175 /BANG/2003 DATED 31.7.2003. IN THE AFORESAID DECISION, THIS TRIBUNA L, AFTER HAVING CONSIDERED VARIOUS LEGAL PRONOUNCEMENTS CONCLUDED A S UNDER: THE DEPARTMENT SHOULD HAVE ACTED VIGILANTLY IN REF USING TO REGISTER, IF ITS SO SATISFIED, WITHIN THE PERIOD OF LIMITATION P RESCRIBED BY THE PROVISIONS OF SEC.12AA(2) OF THE ACT. HAVING NOT D ONE, IT LOSES THE BENEFIT OF LEGALLY REFUSING TO GRANT REGISTRATION. THE DEPARTMENT, BUT ITS LATCHES CANNOT BE SAID TO HAVE TAKEN THE SAME P OSITION BY NOT ACTING WITHIN THE TIME LIMIT PRESCRIBED. WE, THEREFORE, G RANT REGISTRATION TO THE ASSESSEE ON THE BASIS OF ITS APPLICATION DATED 23.1.1998 AND TO THAT EXTENT, THE ASSESSEE SHOULD BE TAKEN TO HAVE SATISF IED THE CONDITIONS AS TO REGISTRATION OF THE TRUST/INSTITUTION ETC., REQU IRED U/S 12A OF THE ACT. THE ASSESSING OFFICER IS DIRECTED TO PROCEED AS IF REGISTRATION HAS BEEN GRANTED BY THE DIT (EXE.) UNDER SECTION 12A OF THE ACT. ITA NO.796/BANG2001 PAGE 3 OF 7 THE FACTS OF THE PRESENT CASE ARE SIMILAR. THEREFO RE, THE AFORESAID DECISION IS APPLICABLE TO THE FACTS OF THE CASE. A PPLYING THE SAME, WE DIRECT THE AUTHORITIES TO PROCEED AS IF REGISTRATIO N HAS BEEN GRANTED IN ACCORDANCE WITH THE PROVISIONS OF SEC.12AA. EVEN O N FACTS, WE FIND MERIT IN THE CASE OF THE ASSESSEE 3.1. THIS FINDING OF THE BENCH WAS CHALLENGED BY TH E REVENUE BEFORE THE HONBLE HIGH COURT REFERRED SUPRA. WHILE DISPOSING OF THE REVENUES REFERENCE (BY REMITTING BACK THE MATTER ON THE FILE OF TRIBUNAL), THE HONBLE COURT HAD OBSERVED THUS 3..SINCE THE TRIBUNAL IN THE INSTANT CASE HAD FO LLOWED THE DECISION IN KARNATAKA GOLF ASSOCIATION CASE, THIS MATTER HAS ALSO TO BE REMANDED BACK TO THE TRIBUNAL TO CONSIDER THE SA ME AFRESH AFTER RECONSIDERING THE CASE OF KARNATAKA GOLF ASSOCIATIO N... 3.2. AS PER THE DIRECTIONS OF THE HONBLE COURT IN THE CASE OF KARNATAKA GOLF ASSOCIATION IN ITA NO.51/2004 DATED: 22.7.2008, THE HONBLE TRIBUNAL, IN ITS FINDING IN ITA NO.175/BANG/2003 D ATED: 3.4.2009 HAD OBSERVED THAT - 8..HERE, THE ASSESSEE IS ENGAGED IN THE PROMO TION OF A SPORT. KEEPING IN VIEW THE FINDING RECORDED WHILE DISPOSIN G OF THE APPEAL IN THE CASE OF THE ASSESSEE FOR THE ASSESSMENT YEARS 1996- 97 TO 2002-03, IT IS HELD THAT THE APPELLANT IS ENTITLED TO REGISTRATION U/S 12A AS THE OBJECT OF THE APPELLANT IS AN OBJECT OF GENERAL PUBLIC UTILITY.. 3.3. TURNING BACK TO THE ISSUE, THE LD A R , DURING THE COURSE OF FRESH HEARING, CONTRADICTED THE IRREGULARITIES NOTICED BY THE DI(E) IN HIS IMPUGNED ORDER AND ALSO THE REASONS RECORDED BY HIM IN REJEC TING THE ASSESSEES APPLICATION FOR REGISTRATION U/S 12AA OF THE ACT. T O SUBSTANTIATE HIS CLAIM, HE HAD CITED ELABORATELY THE FINDINGS OF THE HONBL E TRIBUNAL IN IT(SS)A NO.165/B/2002 IN THE CASES OF (I) ST. ANNS EDUCATI ON SOCIETY V. DCIT ITA NO.796/BANG2001 PAGE 4 OF 7 (EXEMP) AND (II) ADIT (EXEMP) V. ST. ANNS EDUCATI ON SOCIETY IN IT(SS)A NO.163/B/2002 FOR THE AYS 90-91 TO 2000-01 DT: 4.5. 2006 [BLOCK ASSESSMENT] TO DRIVE HOME HIS POINT THAT THE ASSESS EES STAND HAS BEEN VINDICATED. FOR PROPER APPRECIATION OF FACTS, TH E GIST OF THE FINDINGS OF HONBLE TRIBUNAL HAVE BEEN EXTRACTED, BRIEFLY, UND ER VARIOUS CAPTIONS, AS UNDER: ACCOUNTS : NO BOOKS HAVE BEEN PRESCRIBED U/S 10(22) AND THE MINOR ERRORS CANNOT BE THE BASIS FOR DENIAL OF THE EXEMPTION U/S 10(22; THAT THERE ARE MORE THAN 5000 STUDENTS AND HAVE FILED RETURNS WITH REGISTRAR OF SOCIETIES AND THERE IS NO ADVERSE REPORT FROM SUCH AUTHORITIE S. SEARCH : IT IS MADE CLEAR THAT ASSESSMENT IS MADE UNDE R CH. XIV B OF THE ACT. AS PERS.158BB, UNDISCLOSED INCOME IS TO BE CO MPUTED ONLY ON THE BASIS OF MATERIAL FOUND ON THE BASIS OF SEARCH. SIMILARL Y, IF THE TRUSTEES HAVE CERTAIN INCOME IN THEIR PERSONAL CAPACITY AND DISCL OSES SUCH INCOME, IT CANNOT BE A GROUND TO DENY EXEMPTION U/S 10(22)/ 10 (23C). DONATION : IN SO FAR AS THE AUDITORS CONFIRMATION IN RESPEC T OF BANK LOANS, WE FOUND THAT THE SAID LETTER DOES NOT RELATE TO TH IS APPLICANT. DEFICIT CASH BALANCES : THE DEFICIT BALANCE INDICATED, MONIES HAVE COME I NTO BOOKS AND THEY HAVE APPLIED THE QUESTION OF DENYING 10(22) ON ACCOUNT OF DEFICIT BALANCE DOES NOT ARISE. IN RESPECT OF VOLU NTARY CONTRIBUTION, THE SAME ARE ALL ACCOUNTED. SHARE APPLICATION AMOUNT : THESE ARE IN RESPECT OF YEAR ENDING 31.3.1999 AND AFTER CIT(A) HAS DELETED ADDITION FOR 1999-2000 AND THE DEPARTMENT IS NOT IN APPEAL. THESE AMOUNTS DO N OT BELONG TO THE TRUST AND IF CERTAIN SHARE APPLICATION AMOUNTS HAVE BEEN COLLECTED BY CERTAIN COMPANIES EVEN IF THEY ARE FROM T HE PARENTS OF THE CHILDREN, NO ERROR CAN BE FOUND IN RESPECT OF FUNDS THAT BELONG TO THE SOCIETY. COMMERCIAL ORGANIZATION : EVEN IF SUCH PERSONS ARE INDULGING IN THEIR PRIVATE LIFE IN CERTAIN UNDESIRABLE ACTIVITIES, SO LONG AS THE INSTITUTE IS SOLELY FOR THE PURPOSE OF EDUCATION AND NOT FOR THE PURPOS E OF PROFIT, EXEMPTION U/S 10(22)/10(23) OF THE ACT CANNOT BE DENIED. IN ESSENCE : (I) THE ASSESSMENT MADE U/S 158BC R.W.S. 158BD OF THE A CT WAS SET-ASIDE AS IT WAS BARRED BY LIMITATION; ITA NO.796/BANG2001 PAGE 5 OF 7 (II) ON MERITS : (A) EXEMPTION U/S 10(22)/10(23C) OF THE ACT CANNOT BE D ENIED; (B) EXEMPTION U/S 10(22)/10(23C) OF THE ACT SHOULD BE GRANTED WHILE COMPUTING THE INCOME FOR THE BLOCK PERIOD; (C) VOLUNTARY CONTRIBUTION RECEIVED WAS OUTSIDE THE PUR VIEW OF DEFINITION OF UNDISCLOSED INCOME AND, HENCE, DELETE D; (D) NO DEFICIT CASH BALANCE OF RS.8.86 LAKHS WAS TO BE ADDED; (E) ADDITION OF RS.7.66 LAKHS BEING UNACCOUNTED EXPENDI TURE WAS REMITTED BACK ON THE FILE OF AO TO VERIFY THE CLAIM . 3.4. ON A METICULOUS PERUSAL OF THE SAID FINDING, IT WAS NOTICED THAT THE ALLEGED IRREGULARITIES NOTICED BY THE LD. DIT (E) I N DENYING REGISTRATION U/S 12A OF THE ACT HAVE BEEN NEGATED BY THE HONBLE TRI BUNAL WHILE DISPOSING OF THE ASSESSEES AS WELL AS REVENUES APPEALS IN R ESPECT OF BLOCK ASSESSMENT CITED SUPRA. 3.5. LET US NOW HAVE A GLIMPSE OF THE CASE LAWS ON WHICH THE REVENUE HAD PLACED ITS STRONG RELIANCE: (I) IN THE CASE OF SWATANTRATA SENAN I R.D. SOMANI SHIKSHA SANSTHAN V. CIT REPORTED IN (2006) 99 TTJ (DEL) 110 2; (2005) 95 ITD 305 (DEL), THE HONBLE DELHI F BENCH HAD OBSERVED THA T APPLICATION FOR REGISTRATION FILED BY THE ASSESSEE SOCIETY WAS NOT IN PRESCRIBED MANNER INASMUCH AS REQUIREMENTS OF R.17A WERE NOT DULY AND FULLY COMPLIED WITH; THAT THE CIT WAS ALSO NOT SATISFIED ABOUT THE OBJEC TS OF THE ASSESSEE AS WELL AS GENUINENESS OF ITS ACTIVITIES FOR SPECIFIC REASONS GIVEN IN HIS ORDER AND, THUS, REFUSAL TO REGISTRATION WAS JUSTIFIED. WITH DUE REGARDS, WE WOULD LIKE TO POINT OUT THAT THE FINDINGS OF THE HONBLE TRIBUNAL CITED SUPRA CANNOT BE EQUATED WITH THE CASE ON HAND ITA NO.796/BANG2001 PAGE 6 OF 7 SINCE (I) THE REVENUE HAD NOT POINTED OUT ANY BLEMI SH WITH REGARD TO THE APPLICATION FOR REGISTRATION FURNISHED BY THE ASSES SEE; (II) THE OBJECTS AS WELL AS THE GENUINENESS OF THE ACTIVITIES OF THE AS SESSEE WERE NOT BROUGHT UNDER THE SCANNER. WE, ARE, THEREFORE OF THE VIEW THAT THE ABOVE CASE LAW IS DISTINGUISHABLE. (II) IN THE CASE OF JANALAKSHMI SOCIA L SERVICES V. DIT (E) IN ITA NO:491/BANG/2007 DATED: 22.8.2008, THE ASSESSEE WAS ENGAGED IN PROVIDING MICRO FINANCE TO TRADERS DEALING IN VEGET ABLES AND FRUITS AND MAKING PURCHASES FROM SAFAL. AFTER CONSIDERING THE ISSUE IN DETAIL, THE HONBLE TRIBUNAL OBSERVED THAT MICRO FINANCE CAN BE A BUSINESS AS WELL AS A CHARITABLE ACTIVITY. IN ORDER TO BECOME A CHARIT ABLE ACTIVITY, THE INSTITUTION MUST HAVE SUBSIDIZED FUNDS. THE PROMOTERS IF THEY ARE READY TO TAKE THE ESTABLISHMENT COST THEN MICRO FINANCE CAN BECOME A CHARITABLE ACTIVITY. BUT, IF IT IS DONE ON COMMERCIAL LINES, THEN IT IS NOT A CHARITABLE ACTIVITY, BUT, AN ACTIVITY TO EXPAND THE FINANCE BUSINESS BY CONTRACTING A NEW SECTION OF THE SOCIETY AND SINCE THE ASSESSEE CHARGED 24% I NTEREST THE FINANCING ACTIVITY WAS ON COMMERCIAL LINE AND HAD NOT DONE AN Y ACTIVITY TO PROVE THAT IT HAD DONE AS A CHARITABLE ACT. THE DIT(E) WAS, T HEREFORE, JUSTIFIED IN REJECTING THE ASSESSEES CLAIM FOR REGISTRATION. WITH RESPECTS, WE WOULD LIKE TO REC ORD OUR REASONING THAT THE ISSUE BEFORE THE HONBLE TRIBUNAL ON A DIFFERENT FO OTING WHICH HAD NO RELEVANCE TO THE ISSUE ON HAND. WE ARE, THEREFORE, OF THE FIRM VIEW THAT THE CASE LAW ON WHICH THE REVENUE PLACED ITS RELIANCE D OESNT FIT IN TO THE BILL (TO THE ISSUE UNDER CONSIDERATION). ITA NO.796/BANG2001 PAGE 7 OF 7 3.6. KEEPING IN VIEW THE SPECIFIC DIRECTIO NS OF THE HONBLE HIGH COURT IN ITS PRONOUNCEMENT ON 21.4.2010 CITED SUPRA AND A LSO THE FINDINGS OF THE HONBLE TRIBUNAL IN THE CASE OF KARNATAKA GOLF ASSO CIATION REFERRED ABOVE, WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSEE IS ENTITLED TO REGISTRATION U/S 12A AS THE OBJECT OF THE ASSESSEE IS AN OBJECT OF GENERAL PUBLIC UTILITY. IT IS ORDERED ACCORDINGLY. 4. IN THE RESULT , THE ASSESSEES APPEAL IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 7 TH DAY OF JANUARY, 2011. SD/- SD/- ( GEORGE GEORGE K. ) (A. MOHAN ALANKAMONY ) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 7 TH JANUARY, 2011. DS/- COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. C IT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.