Gujarat Industrial Security Force Society, Ahmedabad V. The DIT(Exemp.), Ahmedabad

ITA 902/AHD/2010

• Counselvise Citation: 90220514 RSA 2010
• Duration Of Justice: 1 year(s) 9 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-12-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 29-12-2011
• Assessment Year: misc
• Appeal Filed On: 26-03-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B L YADAV
• Keywords: Business income; Rule of consistency
• Section: 12A; 12AA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, D BENCH, AHMEDABAD BEFORE SHRI G. C. GUPTA, HONBLE VICE PRESIDENT AND SHRI B. P. JAIN, ACCOUNTANT MEMBER I.T.A. NO. 902/ AHD/2010 GUJARAT INDUSTRIAL SECURITY FORCE SOCIETY, O/1, NEW MENTAL HOSPITAL COMPOUND, MEGHANINAGAR, AHMEDABAD VS. DIT(EXEMPTION), AHMEDABAD PAN/GIR NO. : AAAAG0372L (APPELLANT) .. (RESPONDENT) APPELLANT BY: SHRI TUSHAR HEMANI, AR RESPONDENT BY: SHRI B. L. YADAV, SR. DR DATE OF HEARING: 29.12.2011 DATE OF PRONOUNCEMENT: 30.12.2011 O R D E R PER SHRI B.P.JAIN, AM:- THIS APPEAL BY THE ASSESSEE ARISES FROM THE ORDER OF DIT(EXEMPTION) AHMEDABAD DATED 22.01.2010 U/S 12AA( 3) OF THE ACT. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF AP PEAL: 1. LEARNED CIT HAS ERRED IN LAW AND ON FACTS IN CANCELING THE REGISTRATION U/S 12AA OF THE ACT TO THE APPELLANT W ITH EFFECT FROM 01/04/2005. UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE THE D IT HAVE CANCELLED THE REGISTRATION U/S 12AA OF THE ACT TO T HE APPELLANT. 2. LEARNED CIT HAS ERRED IN LAW AND ON FACTS IN NOT APPRECIATING THAT THE APPELLANT IS AN INSTITUTION U TILIZING ITS INCOME FOR THE PURPOSE OF GENERAL PUBLIC WELFARE AND ITS A CTIVITIES ARE CHARITABLE IN NATURE AND THEREFORE REGISTRATION U/S 12A OF THE ACT OUGHT NOT TO HAVE BEEN CANCELLED BY HIM. I.T.A.NO. 902 /AHD/2010 2 2. THE BRIEF FACTS APPEARING IN THE ORDER OF DIT (E XEMPTION), AHMEDABAD DATED 22.01.2010 ARE REPRODUCED BELOW FOR THE SAKE OF CLARITY: THE SOCIETY WAS GRANTED REGISTRAT ION U/S.12AA WITH EFFECT FROM 01-04-2005 ( ASST. YEAR 2006-07) BY THE DIRECTOR OF INCOME TAX(EXEMPTION), AHMEDABAD VIDE O RDER DATED 9-11- 2005. SUBSEQUENTLY, IT CAME TO LIGHT THAT THE AB OVE SOCIETY HAS BEEN EARNING INCOME BY PROVIDING SECURITY FORCES TO DIFF ERENT GOVERNMENT/SEMI GOVERNMENT ORGANIZATION, BOARDS, CO RPORATIONS AND OTHER INSTITUTIONS. FROM THE A.Y. 2006-07 ONWARDS, THE SOCIETY GAINED HUGE PROFITS AS UNDER : - A.Y. INCOME (RS.) EXPENDITURE (RS.) PROFIT(RS.) 2006-07 5.98.25.940 5,18,,08,455 80,17,485 2007-08 6,56,26,324 5,88,19,308 68,07,016 2008-09 9,33,24,990 8,18,70,474 1,14,54,516 THE SOCIETY HAS THUS ACCUMULATED A RESERVE OF RS.49 3.23 LACS AS ON 31-3- 2008 AS THE SECURITY SERVICES WERE IN THE NATURE OF COMMERCIAL ACTIVITY WITH NO ELEMENT OF CHARITY. A SHOW CAUSE NOTICE U/S .12AA(3) OF THE I.T.ACT WAS ISSUED ON 17-11-2009 FOR CANCELLATION O F REGISTRATION, POSTING THE CASE FOR HEARING ON 4-12-2009. 2. DURING THE COURSE OF HEARING SHRI AMAL DATT, CHA RTERED ACCOUNTANT, SUBMITTED THAT THE GOVERNMENT OF GUJARAT IS HAVING 100% HOLDING/MEMBERSHIP OF THE SOCIETY. THERE IS NO SCOP E OF HAVING OBJECTIVE OF EARNING PROFIT. THE SURPLUS EARNED WERE NOT DIST RIBUTED TO DIFFERENT MEMBER BY WAY OF DIVIDEND OR OTHERWISE AND THE ACTI VITIES OF THE SOCIETY FELL UNDER 'ADVANCEMENT OF GENERAL PUBLIC UTILITY ' . HOWEVER, AS THE ACTIVITIES WERE GENUINE ACCORDING TO HIM, ACTION U/ S.12AA(3) OF THE I.T.ACT COULD NOT BE INITIATED AS IT CANNOT BE SAID THAT THE ACTIVITIES ARE NOT BEING CARRIED IN ACCORDANCE WITH THE TRUST OBJECT. WHEN HE WAS SPECIFICALLY ASKED TO SUBMIT A DETAILED NOTE ON SEC TION 2(15) COMPLIANCE R.W.S. 11 FOR A.Y. 2006-07 ONWARDS, HE SUBMITTED A FURTHER LETTER DATED 7- 12-2009 WHEREIN HE REITERATED HIS EARLIER SUBMISSIO N AND STATED THAT THE EXPENSES AGAINST THE INCOME CONSISTED OF ADMINISTRA TIVE OVERHEADS, SALARY, EMPLOYEE BENEFITS AND OTHER INCIDENTAL, NEC ESSARY FOR PROVIDING SECURITY SERVICES. EXPLANATION TO SECTION 2(15) INS ERTED BY THE FINANCE ACT 2008 APPLIES FROM 2009-10 AND HENCE ACCORDING T O HIM THE SAID I.T.A.NO. 902 /AHD/2010 3 AMENDMENT COULD NOT APPLIED FOR EARLIER ASSESSMENT YEARS. FURTHER, HE ARGUED THAT THERE BEING NO CHANGE OF CIRCUMSTANCES, THE AUTHORITIES CANNOT DEPART FROM PREVIOUS DECISIONS AT WILL IN THE ABSEN CE OF MATERIAL CIRCUMSTANCES OR REASONS FOR SUCH DEPARTURE, HE ALS O QUOTED RULE OF CONSISTENCY (CIT VS. SIVA SPRINGS 304 ITR 24) AND P RINCIPLE OF MUTUALITY VALIDITY APPLIED IN THIS CASE, HE ARGUED. 3. I HAVE CAREFULLY EXAMINED THE VARIOUS SUBMISSION OF THE ASSESSEE. AS EXTRACTED IN THE PRECEDING PARAGRAPHS, THE ASSESSEE OFFERED SECURITY SERVICES ON COMMERCIAL BASIS AND EARNED PROFIT YEAR ON YEAR. THERE IS NO SERVICE RENDERED FOR PUBLIC UTILITY WITHOUT BEING C HARGED OR WITH THE ELEMENT OF CHARITY. UP TO A.YR. 2005-06, THE ASSESS EE WAS FILING RETURN ADMITTING TAXABLE INCOME IN THE BUSINESS WARDS. THE REGISTRATION GRANTED VIDE ORDER DATED 9-11-2005 DID NOT CONFER ANY RIGHT OR ENTITLEMENT REGARDING OPERATIONS OF SECTION 11,12, & 13 OF THE I.T.ACT OR ANY OTHER PROVISIONS OF I.T.ACT WHICH IS TO BE DECIDED BY THE ASSESSING OFFICER ON MERITS. THIS IS CLEARLY STATED IN THE CONCLUDING PA RT OF THE ABOVE ORDER. HOWEVER, THE QUESTION OF RULE OF CONSISTENCY DOES N OT PRECLUDE THE DEPARTMENT FROM INITIATING APPROPRIATE ACTION UNDER THE ACT ON 'JUST CAUSE'- 259 ITR 1 (SUPREME COURT). DESPITE ADEQUATE OPPORTUNITIES, NO MATERIAL WAS BROUGHT ON RECORD TO PROVE THAT THE AS SESSEE SOCIETY PROVIDED SERVICES AS CHARITY. WHATEVER SERVICES PRO VIDED WERE BILLED ON COMMERCIAL RATES WHICH RESULTED IN THE ASSESSEE ACC UMULATING RESERVE OF RS.493 LACS UP TO 31-3-2008 EVEN AS PER THEIR BOOKS . IN FACT, THE REGISTRATION SOUGHT FROM 1997 WAS REFUSED BY NOT CO NDONING THE DELAY AND WAS GRANTED ONLY FROM 01-04-2005. THE ASSESSEE HAD FILED THE RETURN AS AN ORDINARY ASSESSEE AND NOT AS A CHARITABLE ORG ANIZATION UP TO A.Y. 2005-06 OFFERING TAXABLE INCOME. A.Y. GROSS INCOME RETURNED ASSESSED INCOME TAX PAID BY THE ASSESSEE 2001-02 RS. 6,11,420 RS. 6,45,910 -- 2002-03 RS. 6,11,420 RS. 6,45,910 RS.1,60,575 (TDS) 2003-04 RS. 20, 75, 850 RS. 1,21, 33, 893 RS. 6,26,908 (TDS) 1 2004-05 RS. 32, 38, 797 RS. 77,68,627 MIS.10,43,504(TDS) 2005-06 (-)RS. 1,46, 814 (-) RS. 1,46, 814 I.T.A.NO. 902 /AHD/2010 4 THE OBJECTS OF PROVIDING EMPLOYMENT TO YOUTHS OF RU RAL AND URBAN AREAS AND SECURITY SERVICES THERE FROM IS ONLY THROUGH EM PLOYER- EMPLOYEE RELATIONSHIP AND THERE IS NO BENEFICIARY OUT OF CHA RITIES CARRIED OUT BY THE SOCIETY. THERE IS NO LARGER PUBLIC UTILITY EXCEPT T HE SOCIETY OPERATING ON SIMILAR TERMS AS ANY OTHER SECURITY ORGANIZATIONS O R CORPORATIONS. CLAIM OF NO PROFIT MOTIVE IS DISPROVED FROM THE OPERATION AL RESULTS AND THE RESERVES ACCUMULATED AS DISCUSSED ABOVE. IT HAS ONL Y FUNCTIONED AS A COMMERCIAL ENTITY WHEREIN EVERY SERVICE WAS COMMERC IALLY CHARGED AND NO ELEMENT OF CHARITY HAS BEEN BROUGHT ON RECORD. T HUS, UP TO A.Y. 2008- 09 EVEN WITHOUT THE EXISTENCE OF EXPLANATION TO SEC TION 2(15) OF THE I.T. ACT, THE ACTIVITIES BEING PURELY COMMERCIAL IN NAT URE CANNOT TAKE COLOUR OF ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLI C UTILITY. THE EARNINGS OUT OF THIS BUSINESS ACTIVITY HAVE NOT BEEN SPENT P URELY ON CHARITY BUT ARE ONLY ACCUMULATED. IN VIEW OF THE INSERTION OF EXPLA NATION TO SECTION 2(15) WITH EFFECT FROM 1-4-2009 I.E. A.Y. 2009-10, THE AC TIVITIES OF THE ASSESSEE BY LAW IS SHUT OUT OF THE ADVANCEMENT OF GENERAL PU BLIC UTILITY AS THE SERVICES OF THE SOCIETY ARE CHARGED. IN THE STATEME NT OF COMPUTATION FOR A.Y. 2009-10, THE ASSESSEE DID NOT TAKE INTO EFFECT , THE AMENDMENT TO SECTION 2(15) BY WAY OF EXPLANATION AND CLAIMED DED UCTION U/S.11 AS IN EARLIER YEARS, THOUGH THEY CLAIMED IN THEIR LETTER DATED 7-12-2009 THAT THE AMENDMENT APPLIES TO A.Y. 2009-10. THIS ADEQUATELY REFLECTS THEIR CONTRADICTORY STAND WITH NO REGARD TO THE FACTUAL P OSITION. THE PRINCIPLE OF MUTUALITY MENTIONED IN THEIR REPLY DOES NOT SERVE T HEIR ARGUMENT IN AS MUCH AS THE SOCIETY DOES NOT OPERATE FOR THE BENEFI T OF REGISTERED MEMBERS BUT WITH PUBLIC AT LARGE ON COMMERCIAL TERM S AND SERVICES. THE OBJECT OF GENERAL PUBLIC UTILITY SHALL BE THE DIREC T FOCUS AND CANNOT BE PRESUMED, AS SUCH A PERIPHERAL EFFECT CAN HAPPEN EV EN IN THE CASE OF PUBLIC SECTOR UNDERTAKINGS WHICH ARE SERVING THE PU BLIC CAUSE AT LARGE BUT ARE TAXABLE ENTITIES. AS FAR AS THE ASSESSEE IS CON CERNED, THERE IS NO IOTA OF CHARITY IN ANY OF THE YEARS AND THE DECISION OF THE HON'BLE ITAT CHANDIGARH BENCH 'B' IN ITA NO. 764/CHD/2003 IN THE CASE OF PUNJAB URBAN DEVELOPMENT AUTHORITY IS QUITE RELEVANT WHERE IN IT IS HELD AS UNDER : - ' IT WAS CLEAR THAT THE ASSESSEE DID NOT ENGAGE ITS ELF IN ANY CHARITY AND IF THE ASSESSEE DEVELOPED ANY INSTITUTIONS OF PUBLIC I MPORTANCE SUCH AS SCHOOLS, COMMUNITY CENTRES, THE ASSESSEE RECOUPED T HEIR COST FROM THE PUBLIC AT LARGE. THE OBJECTS/ACTIVITIES OF THE ASSE SSEE WERE COMMERCIAL IN NATURE AND THEY DID NOT INVOLVE ANY CHARITY'. HOLDI NG THUS, THE HON'BLE ITAT UPHELD THE ORDER OF THE CIT REFUSING REGISTRAT ION U/S.L2AA OF THE I.T.A.NO. 902 /AHD/2010 5 ACT. IN THE LIGHT OF ABOVE DISCUSSION, THE SOCIETY THOUGH WAS GRANTED REGISTRATION IN PRINCIPLE DID NOT CARRY OUT ANY ACT IVITY JUSTIFYING CHARITABLE OBJECT AND INVOKING THE PRINCIPLE OF 'JUST CAUSE' C ITED ABOVE [ 259 ITR 1 (SC) ], I AM PERSUADED TO HOLD THAT THE ACTIVITY OF THE ABOVE SOCIETY ARE NOT GENUINE CHARITIES AND ARE BEING CARRIED OUT WIT H PURE COMMERCIALITY WITH NO ELEMENT OF CHARITY. THE REGISTRATION GRANTE D EARLIER VIDE ORDER DATED 9-11-2005 IS ACCORDINGLY CANCELLED WITH EFFEC T FROM 01-04-2005. 3. THE LD. COUNSEL FOR THE ASSESSEE INVITED OUR ATT ENTION TO THE RULES AND REGULATIONS OF THE SOCIETY. THERE IS NO DISPUT E TO THE FACT THAT THE ASSESSEE HAS BEEN DECLARING ITS INCOME FROM THE ASS ESSMENT YEAR 2001-02 TO 2005-06 AS BUSINESS INCOME AS IS EVIDENT FROM PA GE 3 OF DIT(EXEMPTION) ORDER. THEREAFTER, THE ASSESSEE APP LIED FOR THE REGISTRATION U/S 12AA WHICH WAS GRANTED TO IT ONLY W.E.F. 01.04.2005 AND THE REGISTRATION SOUGHT FORM 1997 WAS REFUSED BY NO T CONDONING THE DELAY. AS A MATTER OF FACT, WE FIND NO MATERIAL ON RECORD WHERE THE FUNDS HAVE BEEN UTILIZED FOR PROFIT MOTIVE OR FOR NON CHA RITABLE PURPOSE AND THERE IS NO BASIS FOUND IN THIS REGARD IN THE ORDER OF DIT (EXEMPTION). THE ASSESSEE HAS ALSO INVITED OUR ATTENTION TO THE P & L ACCOUNT UP TO THE YEAR ENDED 31.03.2008 IN WHICH THE ASSESSEE HAS USE D 85% OF THE FUNDS COLLECTED. THERE IS NOTHING ON RECORD THAT THE AS SESSEE HAS VIOLATED ANY CONDITIONS LAID DOWN U/S 12AA(3) OF THE ACT. RELIA NCE WAS PLACED ON THE DECISION OF ITAT AHMEDABAD A BENCH IN I.T.A.NO. 7 54/AHD/2010 DATED 21.05.2010 AND THE DECISION OF ITAT A BENCH CHENNAI IN I.T.A.NO. 987/MD/2010 DATED 19.09.2011 WHICH ARE DI RECTLY ON THE ISSUE IN HAND. THUS, FOLLOWING THESE TRIBUNAL ORDERS OF AHMEDABAD BENCH AND CHENNAI BENCH MENTIONED HEREINABOVE AND IN THE FACT S AND CIRCUMSTANCES OF THE PRESENT CASE AND IN THE ABSENC E OF ANY VIOLATION OF SECTION 12AA(3) OF THE ACT, THE REGISTRATION GRANTE D U/S 12AA CANNOT BE CANCELLED. THEREFORE, WE CANCEL THE ORDER OF DIT(E XEMPTION) DATED I.T.A.NO. 902 /AHD/2010 6 22.01.2010 AND DIRECT THE DIT (EXEMPTION) TO RESTOR E THE ORDER OF REGISTRATION GRANTED U/S 12AA OF THE ACT. 4. IN THE RESULT, APPEAL OF THE ASSESSEE STANDS ALL OWED. 5. ORDER PRONOUNCED IN THE OPEN COURT ON 30.12.2011 . SD./- SD./- (G. C. GUPTA) (B.P.JAIN) VICE PRESIDENT ACCOUNTANT MEMBER SP COPY OF THE ORDER FORWARDED TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT (APPEALS) 5. THE DR, AHMEDABAD 6. THE GUARD FILE 1. DATE OF DICTATION 29/12 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 30/12 OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P .S./P.S.30/12 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 30/12 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S./P.S.30/12 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 30/12/2011 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK .. 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER . 9. DATE OF DESPATCH OF THE ORDER. ..