Income Tax Appellate Tribunal - Chandigarh
Chandigarh Golf Club, Chandigarh vs Assessee on 2 November, 2015
IN THE INCOME TAX APPELLATE TRIBUNAL
DIVISION BENCH, CHANDIGARH
BEFORE SHRI H.L.KARWA, VICE PRESIDENT
AND MS. RANO JAIN, ACCOUNTANT MEMBER
ITA No.284/Chd/2013
(Under section 12AA of the Act )
Chandigarh Golf Club, Vs. The C.I.T.,
Sector 6, Chandigarh. Chandigarh
PAN: AAAJC0082G
(Appellant) (Respondent)
Appellant by : S/Shri Ashwani Kumar
& Harry Rikhy
Respondent by : Shri Rajinder Singh, DR
Date of hearing : 22.09.2015
Date of Pronouncement : 02.11.2015
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-I, Chandigarh dated 6.3.2013 passed under section 12AA(3) of the Income Tax Act, 1961 (in short 'the Act').
2. The facts of the case are that the assessee is a club registered under section 12A of the Act vide order dated 19.12.2000 by the Commissioner of Income Tax, Chandigarh. The assessee received a notice under section 12AA(3) of the Act dated 30.11.2012 by the Commissioner of Income Tax, Chandigarh proposing to 2 cancel registration under section 12A granted to the assessee. The main reason given by the learned Commissioner of Income Tax for rejecting the registration was that in view of the amended provisions of section 2(15) of the Act, the registration of the club was seriously doubted. Further, it was stated in the notice that the club is being run by an elite and affluent class of people and is for the exclusive benefit of such people. The facilities being provided by the club are beyond the reach of the common man. The detailed analysis was made by the learned Commissioner of Income Tax in show cause notice. It was further observed that the assessee club is indulged in the activities which are commercial in nature i.e. running of a bar and restaurant, advertisement and publicity, interest income, festival income, rental income, etc. Further, citing the judgment of the Hon'ble Supreme Court in the case of MCD Vs. Children Book Trust (1992) 3SSC 390, wherein the Hon'ble Court held that where a society or body is making systematic profit, even though that profit is utilized only for charitable purpose, it cannot be said that it could claim exemption. The learned Commissioner of Income Tax thus show caused the assessee to the effect that why not the registration granted to it under section 12A of the Act be rejected.
3. In reply to the said show cause, the assessee made detailed submissions time to time before the learned Commissioner of Income Tax. However, rejecting all the 3 contentions of the assessee, the learned Commissioner of Income Tax vide his order dated 6.3.2013 held that the activities of the assessee club are not genuine and are not being carried out in accordance with the objects of the trust or institution in terms of section 12AA(3) of the Act. In this way, he cancelled the registration granted to the assessee trust under section 12A of the Act.
4. Aggrieved by the said order, the assessee has come up in appeal before us.
5. During the course of hearing, the learned counsel for the assessee pointed out that on an earlier occasion, similar show cause under section 12AA(3) of the Act proposing to cancel the registration granted to the assessee under section 12A of the Act was issued dated 20.3.2012. Our attention was also invited to an order of the learned CIT (Appeals) dated 29.3.2012, whereby the said show cause notice under section 12AA(3) of the Act was dropped by the learned Commissioner of Income Tax . The contention of the learned counsel for the assessee was that the impugned show cause notice is dated 30.11.2012, which is only eight months after the order dropping the earlier show cause. What prompted the learned Commissioner of Income Tax to change his stance within a period of eight months is really doubtful. Further, it was submitted that the main basis of the learned Commissioner of Income Tax rejecting the registration under section 12A of the Act was the proviso inserted to 4 section 2(15) of the Act. While there are a number of orders of the various Benches of the Tribunal, whereby it has been held that the proviso to section 2(15) of the Act cannot be the basis for cancellation of registration earlier granted to the assessee. Reliance was placed on an order of the Amritsar Bench of I.T.A.T. in the case of Kapurthala Improvement Trust Vs. CIT, 60 Taxmann.com
301. Further, it was argued that registration under section 12A of the Act can be cancelled only on the satisfaction of the Commissioner of Income Tax either on the conditions that the activities of the assessee are being carried on not as per the objects on the basis of which registration under section 12A of the Act was granted to it or the activities carried on by the assessee are not genuine. Neither of these conditions are fulfilled in this case. Therefore, it was prayed that the order under section 12AA(3) of the Act made by the learned Commissioner of Income Tax be quashed.
6. The learned D.R. relied upon the order of the Commissioner of Income Tax and further submitted that the assessee club is indulged in the activities which are in the nature of trade or business and all the activities of the club are tainted with commercial objects. Therefore, since the objects of the club are for the benefit of general public while the club is providing services to affluent class only, therefore, it is not carrying on activities charitable in nature. Therefore, the registration granted 5 to it under section 12A of the Act is rightly cancelled by the learned Commissioner of Income Tax .
7. We have heard the learned representatives of both the parties, perused the findings of the authorities below and considered the material available on record. Before adjudicating the issue in question, we would like to summarize the reasons given by the learned Commissioner of Income Tax in his order for cancellation of registration under section 12A of the Act. We have very carefully perused the order of the learned Commissioner of Income Tax running into 23 pages, which starts with stating the fact that the registration to the assessee club was granted under section 12A of the Act by the Commissioner of Income Tax, Chandigarh vide order dated 19.12.2000 subject to fulfillment of certain conditions. The learned Commissioner of Income Tax has mentioned eight conditions thereafter. Next he has mentioned the provisions of section 2(15) of the Act together with the proviso therein and stated that due to the insertion of the said proviso to section 2(15) of the Act, "advancement of any other object of general public utility" would no longer be a charitable purpose if it involved carrying on of any activity in nature of trade, commerce or business. Thereafter the learned Commissioner of Income Tax referred to the fact that on an earlier occasion also, a show cause notice under section 12AA(3) of the Act was issued to the assessee, which was later on dropped by the 6 Commissioner of Income Tax, Chandigarh vide his order dated 29.3.2012. After that the Commissioner of Income Tax analyzed the facts and figures of the assessee club in detail on the following lines :
i) Membership of the club is available to different classes of members at different levels of fee charged by them.
ii) The memberships of different classes were given to the persons at the discretion of the governing body of the club.
iii) Huge amounts of voluntary contributions were received from the nominated members, which appeared to be very unrealistic, unusual considering that any common man would for no reason pay such a huge amount.
iv) Exorbitant fee is to be paid by a person while playing the golf. A charitable institute is usually envisaged as providing services either free of cost or on subsidized or discounted rates and not for gain.
v) The contention of the assessee that the club
being a mutual association, the learned
Commissioner of Income Tax distinguished it
stating that similar treatment is given to the members as well as non members.
vi) The assessee club is earning income from the activities which are commercial in nature i.e. running of bar and restaurant, advertisement and publicity, interest income, festival income, rent income from terrace booking charges, etc. 7
vii) The assessee club receives substantial income from discount on sales.
viii) The assessee club has earned substantial interest income also.
ix) The accounts of assessee club are being maintained in a very casual manner.
8. After discussing all the above issues in detail stating the facts and figures of various years, the Commissioner of Income Tax further compared the data of two years i.e. assessment years 2011-12 and 2012-13 and held that the assessee club is not primarily working for the promotion of game of golf but in the garb, it is rampantly engaged in providing its members a platform for entertainment, enjoyment and providing all facilities that a multi-star resort can have. The learned Commissioner of Income Tax relied upon on the judgment of Hon'ble High Court of Uttarakhand in the case of CIT Vs. Queen's Educational Society, (2009) 319 ITR 160, whereby it has been held that the income accrued on account of activities in the nature of trade and commerce cannot be claimed as exempt, even if it is utilized for charitable purposes. In this view, in the said paragraph of his order, the learned Commissioner of Income Tax held that the activities of the assessee are not genuine and are not being carried out in accordance with the objects of the trust or institution in terms of section 12AA(3) of the Act and so the registration granted under section 12A to the assessee was cancelled.
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9. It is a fact on record that the assessee club was formed for the purpose of providing facilities for development of golf. It was provided registration under section 12A of the Act as on 19.12.2000. A show cause under section 12AA(3) of the Act dated 20.3.2012 proposing to cancel the registration is annexed at page 80 of the Paper Book, whereby we see that the proposal was mainly made on the basis of amendment to section 2(15) of the Act brought out by the Finance Act, 2008. Further, similar analysis of the income received and application of income in various years have been given by the learned Commissioner of Income Tax in this show cause also, which is also there in the impugned order. The said show cause notice was dropped by the learned Commissioner of Income Tax vide order dated 29.3.2012, which was annexed at page 106 of the Paper Book. In this order, it has been stated that the show cause was being dropped after considering the position of laws, facts of the case as applicable to the assessee and reply of various issues given by the assessee. We also observe that in a gap of only eight months another show cause under section 12AA of the Act is issued as on 30.11.2012. We are unable to understand what prompted the Commissioner of Income Tax to again issue the same show cause within such a short time span.
10. The learned Commissioner of Income Tax has mentioned as stated hereinabove, eight conditions which 9 as per the learned Commissioner of Income Tax were the conditions provided for registration granted under section 12A of the Act dated 19..12.2000. A copy of the registration certification is placed at page 2 of the Paper Book, which is only one page registration certificate. Since the certificate is dated 19.12.2000, we see that the condition mentioned by the learned Commissioner of Income Tax at point No.(viii) that the assessee shall not indulge in any activity within the meaning of proviso to section 2(15) of the Act, cannot be one of the conditions of granting registration, as the proviso to section 2(15) of the Act has only been inserted by the Finance Act, 2008 only. The registration being granted in the year 2000, it can never be one of the conditions. Therefore, the very first premises on the basis of which the learned Commissioner of Income Tax had cancelled the registration is factually incorrect.
11. At many places of his order, the learned Commissioner of Income Tax has made a mention of the proviso to section 2(15) of the Act and on perusal of the whole order, we see that the amendment brought out by the Finance Act, 2008 in section 2(15) of the Act has actually been one of the major reasons for the learned Commissioner of Income Tax to cancel the registration granted under section 12A of the Act. However, we may point out that the proviso to section 2(15) of the Act cannot be the basis for cancellation of registration under 10 section 12A of the Act. The reliance placed by the learned counsel for the assessee on the order of the Amritsar Bench in the case of Kapurthala Improvement Trust (supra) is not out of place, whereby in very clear terms it has been held that the basis for cancellation of registration under section 12AA(3) of the Act can never be the proviso to section 2(15) of the Act as the applicability of proviso to section 2(15) of the Act can be taken care of only by the Assessing Officer during the assessment proceedings of various assessment years. Therefore, this premises applied by the learned Commissioner of Income Tax for cancellation of registration is also not tenable.
12. Section 12AA(3) of the Act reads as under :
Procedure for registration Section 12AA [(3) Where a trust or an institution has been granted registration under clause (b) of sub-section (1) [or has obtained registration at any time under section 12A [as it stood before its amendment by the Finance (No. 2) Act, 1996 (33 of 1996)]] and subsequently the [Principal Commissioner or] Commissioner is satisfied that the activities of such trust or institution are not genuine or are not being carried out in accordance 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:
Provided that no order under this sub-section shall be passed unless such trust or institution has been given a reasonable opportunity of being heard.] 11
13. From the reading of the provisions of section 12AA(3) of the Act, it is clear that for cancellation of registration under section 12A of the Act, the Commissioner of Income Tax has to be satisfied to the effect as to whether the activities of the trust or institution are genuine or not and whether the activities are being carried on in accordance with the objects of the trust. The cancellation of registration earlier granted under section 12A of the Act, invoking the provision of section 12AA(3) of the Act, can be done only on satisfaction of the Commissioner of Income Tax, on any of the following conditions :
i) The activities of the trust are not being carried out as per the objects for which registration under section 12A of the Act was granted, or
ii) The activities of the trust are not genuine.
14. The satisfaction as regards the condition stated in (i) is a matter of fact, while the satisfaction as regards the condition stated in (ii) is to be inferred in the facts and circumstances of the case. In our view, the activities not being carried out as per the objects is a very straight question and can be answered looking to the activities of the assessee. However, the activities not being genuine is a little complicated question and an overall view of all the facts and circumstances has to be taken. For illustrative purposes, we can perceive a situation where in the garb of charity benefit to specific persons are being provided or 12 no charity at all is being done or charity is being camouflaged for the purposes of some other ulterior motive. Therefore, the Commissioner of Income Tax while canceling the registration has to give a finding, if the activities of the trust are not genuine or these activities are not being carried out in accordance with the objects of the trust. This is a fact on record in the present case that there is no change in the objects of the society and the objects remain the same on the basis of which the registration under section 12A of the Act was granted to it. This is also a fact on record that the regular assessment of various assessment years of the assessee were going on and the order of the Hon'ble I.T.A.T. for assessment year 2008-09 is dated 30.7.2012, which is only four months prior to the issue of show cause under section 12AA(3) of the Act by the Commissioner of Income Tax. The assessment order, Commissioner of Income Tax (Appeals) orders and the orders of the I.T.A.T. for various assessment years are part of the Paper Book filed by the assessee and in all the years the activities of the assessee club are held to be charitable in nature. Therefore, we cannot question the nature of the activities of the club not being charitable.
15. Though in the present case, the learned Commissioner of Income Tax has concluded in the last paragraph of his order that the activities of the assessee are not genuine and are not being carried out in 13 accordance with the objects of the trust. The said conclusion is based on the analysis made by the learned Commissioner of Income Tax, which we had referred to in this order hereinabove. We now proceed to cull out from the reasons given by the learned Commissioner of Income Tax on the merits of the case, whether the conclusion so drawn by him is correct or not.
16. From the perusal of the said allegations made by the learned Commissioner of Income Tax, we see that the learned Commissioner of Income Tax is heavily weighed down by the fact that the assessee club is earning money by different ways including membership fee, rent, interest, etc. Nowhere in his order the learned Commissioner of Income Tax has been able to bring on record that the activities of the club are not for the furtherance of the development of the game of golf, which is the main object of the assessee, for which it has been granted registration under section 12A of the Act also. The learned Commissioner of Income Tax has also not been able to bring on record the fact that these activities are not being carried out in the same fashion from the very initiation of the club. Nowhere in his order he has commented on the application of the funds or income so received by the assessee. Nowhere he has been able to bring on record any of the findings that the income or receipts accruing to the assessee are being applied for the benefit of some specific person. The learned Commissioner of Income Tax 14 himself has stated at page 17 in para 24 of his order that it is a fact that no activity can be carried on efficiently and properly unless and until it is carried out on business principles. Somewhere else in his order, he himself has stated that there is no discrimination between members and non-members with regard to the admission to the club. Whatever activities he has referred to in his whole order, whereby the assessee is receiving some income are actually the activities incidental to the main object of the club i.e. advancement of the game of golf. The learned Commissioner of Income Tax has not been able to make out a case that the activities of the trust are not genuine.
17. Whatever he has stated in his order may be relevant to the Assessing Officer at the stage of assessment proceedings but are not relevant for cancellation of registration granted under section 12A of the Act. If any of the activities of the club seems to be commercial in nature to the Commissioner of Income Tax, which is not a dominant activity of the assessee, it is for the Assessing Officer to consider while giving exemption under section 11 of the Act and not for the Commissioner of Income Tax for cancellation of registration once granted under section 12A of the Act. At most, this can be considered at the time of granting registration under section 12A of the Act but not for cancellation of the said registration. Further, it is an undisputed fact that the activities are recognized as being charitable consistently 15 in all the years as is evident from various orders filed by the assessee in its Paper Book and the receipts which are the bone of contention for the Commissioner of Income Tax are actually intrinsically related and interconnected with the charitable activities of the club. Managing the bar and restaurant cannot be said to be activities for which the club could not have indulged into. The accounts of the assessee club being maintained in a casual manner, which is one of the observations of the Commissioner of Income Tax cannot be the basis for cancellation. It is not the prerogative of the Commissioner of Income Tax to compare the data of two years as has been done by him as these are the matters which are to be looked in by the Assessing Officer at the assessment stage. In view of these, we do not find that the conclusion drawn by the learned Commissioner of Income Tax on the basis of these observations that the assessee is not carrying on the activities as per the objects or activities of the assessee are not genuine, is correct.
18. Section 12A of the Act pertains to the 'conditions for applicability of section 11 & 12', while section 12AA of the Act provides the 'procedure for registration', which also contain a provision for cancellation of such registration. The registration given to any assessee under section 12A of the Act does not give it a blanket permission to avail exemption under section 16 11 of the Act. Section 11 provides for exemption of 'income from property held for charitable or religious purposes'. This gives the computational provision for availing exemption, which is not free from conditions and provision at every stage of availing it. This exemption under section 11 of the Act together with the frills attached with it are subject matter of assessments on year to year basis. This is not the end, further conditions and checks are provided under section 13 of the Act also, which provides for 'section 11 not to apply in certain cases'. Provisions of this section are also under the jurisdiction of the Assessing Officer to be carried on during the assessment proceedings. In fact, the whole exemption for the year is forfeited in case of violation of any of the conditions provided in section 13. In such a scenario, we do not understand why the Commissioner of Income Tax is bothering himself to carry out such a cumbersome exercise in order to cancel the registration. The assessee being granted exemption under section 11 of the Act throughout and the way the assessee is carrying out the activities for the promotion of golf are the same from the beginning. This brings us to a point, where we can infer that it was the introduction of proviso to section 2(15) of the Act, perhaps, which was at the back of the mind of the learned Commissioner of Income Tax at the point of initiation of these cancellation proceeding. However, that otherwise also, cannot be the basis for cancellation for the reason discussed earlier in this order. 17
19. The learned Commissioner of Income Tax has also relied upon the judgment of Hon'ble Uttarakhand High Court of in the case of CIT Vs. Queen's Educational Society (supra), which is also not applicable to the present case in view of the fact that the said judgment of the Hon'ble Hon'ble Uttarakhand High Court has been reversed by the Hon'ble Supreme Court of India in the case of M/s Queen's Educational Society Vs. CIT (2015) 372 ITR 699 (SC).
20. In view of the above order passed by the Commissioner of Income Tax under section 12AA(3) of the Act cancelling the registration granted under section 12A of the Act is not as per law.
21. In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on this 2nd day of November, 2015.
Sd/- Sd/-
(H.L.KARWA) (RANO JAIN)
VICE PRESIDENT ACOUNTANT MEMBER
Dated : 2 n d November, 2015
*Rati*
Copy to: The Appellant/The Respondent/The CIT(A)/The CIT/The DR.
Assistant Registrar, ITAT, Chandigarh 18