Gujarat High Court
Commissioner Of Income Tax - ... vs Gujarat Maritime Board on 17 February, 2020
Author: J.B.Pardiwala
Bench: J.B.Pardiwala, Bhargav D. Karia
C/TAXAP/408/2012 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/TAX APPEAL NO. 408 of 2012
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE J.B.PARDIWALA Sd/
and
HONOURABLE MR. JUSTICE BHARGAV D. KARIA Sd/
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1 Whether Reporters of Local Papers may be allowed NO
to see the judgment ?
2 To be referred to the Reporter or not ? NO
3 Whether their Lordships wish to see the fair copy NO
of the judgment ?
4 Whether this case involves a substantial question NO
of law as to the interpretation of the Constitution
of India or any order made thereunder ?
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COMMISSIONER OF INCOME TAX GANDHINAGAR
Versus
GUJARAT MARITIME BOARD
================================================================
Appearance:
MRS MAUNA M BHATT for the Appellant.
MR SN SOPARKAR, SR.ADVOCATE with MR GH VIRK for the Opponent.
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CORAM: HONOURABLE MR.JUSTICE J.B.PARDIWALA
and
HONOURABLE MR. JUSTICE BHARGAV D. KARIA
Date : 17/02/2020
ORAL JUDGMENT
(PER : HONOURABLE MR.JUSTICE J.B.PARDIWALA)
1. This Tax Appeal under Section 260A of the Income Tax Act, 1961 (for short, 'the Act 1961') is at the instance of the Revenue Page 1 of 36 Downloaded on : Sun Jun 14 23:14:52 IST 2020 C/TAXAP/408/2012 JUDGMENT and is directed against the order passed by the Income Tax Appellate Tribunal, 'A' Bench, Ahmedabad, dated 20 th January 2012, in the ITA No.36/Ahd/2011.
2. The facts giving rise to this Tax Appeal may be summarised as under :
3. The respondent-assessee is engaged in the activity of administering, controlling and managing the minor ports in the State of Gujarat. The respondent-assessee is registered under Section 12AA of the Act 1961 w.e.f. 1 st April 2002. The Commissioner of Income Tax, Gandhinagar, vide order dated 7 th December 2010, cancelled the registration of the respondent-assessee as a charitable institution. The order passed by the Commissioner of Income Tax reads thus :
"2. The activity of the assessee is related to levying various fees of charges from the users of the ports under various heads like (1) Port Infrastructure facilities (2) Marine Services (3) Clearing, forwarding and Harboring (4) Storage Area and Land Rental (5) Equipment & Harbor Craft Rental (6) License Fees (7) Income from other Port Services.
Similarly, the assessee used to keep payment to various bodies and Govt. of Gujarat by way of fees, charges etc. The description of receipts and expenditure incurred by the assessee shows that the assessee runs its activities in a professional and business like manner from these activities. It is also clear that the assessee derives profit out of various business activities. Thus, there being no free services or utilities to public, the cost of the entire activities being fully Page 2 of 36 Downloaded on : Sun Jun 14 23:14:52 IST 2020 C/TAXAP/408/2012 JUDGMENT recouped, there was no charity meant for public within the meaning of section 2(15) of the IT Act, 1961. As the activities carried out by the Gujarat Maritime Board were more of commercial nature resulting in commercial income, a show cause notice u/s. 12AA(3) of the IT Act was issued vide letter dated 3.9.2010 and 14.10.2010 of this office, proposing to cancel the registration accorded u/s.12AA of the IT Act on 15.6.2005.
3. By the aforesaid show cause notices, amended provisions of section 2(15) of the IT Act by the Amendment Act, 2010 with retrospective effect from 1.4.2008 are specifically pointed out and it was brought to the notice of the assessee that the assessee cease to be a charitable organization which was earlier covered under the forth limb of the charitable purpose i.e. advancement of any other object of general public utility as the aggregate value of receipts which were in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application or retention of income from such activity, exceeds the prescribed minimum limit of Rs.10 lakhs for enabling status of charitable institution.
4. It has been found that the assessee while furnishing return of income for A.Y. 2009-10 appended the notes as under :
"The GMB has been granted registration u/s.12AA of Page 3 of 36 Downloaded on : Sun Jun 14 23:14:52 IST 2020 C/TAXAP/408/2012 JUDGMENT the IT Act by the Hon'ble CIT Gandhinagar vide order dt. 15.6.2005 and the computation of income has been arrived at by treating its income as exempt u/s.11 of the IT Act. The status of charitable trust/entity has been claimed by GMB as it holds firm and considered view that inspite of insertion of proviso to Section 2(15) of the IT Act, 1961 by Finance Act 2008 it continues to be as such due to the fundamental nature of its activities and subsisting registration certificate which has not been cancelled by the IT Deptt. by having recourse to section 12AA(3) of the IT Act 1961. GMB has been advised in a legal opinion dt. 29.9.2009 given by a Senior Advocate of Supreme Court of India, it continues to be a charitable trust/entity in view of the above subsisting registration certificate."
5. In addition to the above, the following claim has been made while filing return of income.
"Without prejudice to the rights of GMB, Tax Audit Report u/s.44AB were filed under protest with the original Income-tax return, as a matter of abundant precaution upto previous year 2004-05 as GMB's application for u/s.12AA was pending before the Hon'ble ITAT, Ahmedabad Bench after being turned down by CIT, Gandhinagar. In view of the fact that subsequent to verdict by the Hon'ble ITAT, Ahmedabad Bench, the aforesaid registration u/s.12AA has been granted on 15.6.2005 w.e.f. 1.4.2002 ultimately duly upheld by the Hon'ble Page 4 of 36 Downloaded on : Sun Jun 14 23:14:52 IST 2020 C/TAXAP/408/2012 JUDGMENT Supreme Court of India coupled with the ground reality that GMB is only carrying out the objects of advancement of general public utility in terms of mandate given under the provision of Gujarat Maritime Board Act, 1981 and not any business and/or trade, the same are once again filed under protest."
9. The main argument of the assessee is that the activities of the assessee cannot be held as not genuine and that the Gujarat Maritime Board has been carrying out its activities as empowered as per Gujarat Maritime Board Act, 1981 and it is a State Govt. entity - local authority - constituted under the Gujarat Maritime Board Act, 1981 duly granted to State Government by virtue of constitution of India (item list III, seventh schedule). There was no change in the nature of activities and they cannot carry out any business and hence section u/s.12AA(3) initiated being bad in law may be dropped and the contention of the assessee has been upheld in various judicial pronouncement in the case of CIT vs. VAP State Transport Corporation (159 ITR 1(ITR 1 (SV) and in case of GMB itself (295 ITR 561 SC).
11. However, it may be clarified that aforesaid decisions and decisions cited by the assessee found mentioned earlier in this order are based on the provision of definition of "Charitable Purpose" as per section 2(15) of the IT Act. Whereas the show cause notice presently issued is based on the definition of "Charitable Purpose" as Amended by the Finance Act 2010 with applicability with retrospective effect from 1-4-2008, particularly the insertion of proviso which Page 5 of 36 Downloaded on : Sun Jun 14 23:14:52 IST 2020 C/TAXAP/408/2012 JUDGMENT provides that in the case where the gross receipts from all activities in the nature of trade, commerce or any activity rendering services in relation to any trade, commerce for a cess or any consideration, irrespective of the nature of use of applicability or retention of the income from such activity exceeds an amount of Rs.10 lakhs, the unit/entity/ institution ceases to be of Charitable Institution under the fourth limb, i.e. advancement of any other object of general public utility other than the relief of the poor, education and medical relief which are other 3 limbs under the head Charitable purpose.
12. Unfortunately, the assessee has chosen not the submit any reply on this core issue of eligibility of Charitable Purpose u/s.2(15) under the fourth limb, i.e. carrying on any activity of advancement of any other object of general public utility having gross receipt of less than Rs.10 lakhs but on the contrary, they have placed reliance on the provision of Section 12AA(3) of the IT Act which provides methodology to cancel the registration already granted u/s.12AA(3) of the IT Act. In fact what is relevant is that where a trust or an institution has been granted registration under clause (b) or sub-section (1) and subsequently the Commissioner is satisfied that the activities of such trust or institution are not genuine or not being carried out in accordance with the objects of trust with reference to the definition of Charitable Purpose as provided section 2(15) of the IT Act, as the case may be, he shall pass an order in writing cancel the registration of such trust or institution. Thus, the provision for section 12AA(3) are enabling provision for the CIT to Page 6 of 36 Downloaded on : Sun Jun 14 23:14:52 IST 2020 C/TAXAP/408/2012 JUDGMENT examine whether, the trust/institution is carrying out activities which are falling in the definition of Charitable Purpose or not and it is not so, the CIT can cancel such registration w.e.f. 1-4-08 even if registration is already granted earlier to such entity/Trust.
13. Accordingly, I am satisfied that the activity of the Gujarat Maritime Board were not carried out in accordance with the object of institution as per definition of 'charitable purpose' for which registration was granted on 15-6-2005 w.e.f. 1-4-2002 in view of the amendment made in the definition of 'charitable purpose' w.e.f 1-4-2008 by the Amendment by the Finance Act 2010 as the said institution is not eligible for registration thereafter as the total receipts for the year under consideration is more than Rs.10 lakhs as prescribed for eligible 'charitable purpose' under the fourth limb of 'charitable purpose' i.e. Advancement of object of general public utility; is cancelled u/s.12AA(3) of the IT Act w.e.f. 01-04-2008 applicable to A.Y. 2009-10."
4. The respondent-assessee, being dissatisfied with the aforesaid order passed by the Commissioner of Income Tax cancelling the registration under Section 12AA(3) of the Act w.e.f. 1st April 2008 applicable to the Assessment Year 2009-10, preferred an appeal before the Appellate Tribunal. The appeal came to be allowed by the Tribunal, holding as under :
"2. The ld.Commissioner has observed that the activity of the appellant relates to charge of fees from the users of the sea-port for the facilities such as port infrastructure facility, Page 7 of 36 Downloaded on : Sun Jun 14 23:14:52 IST 2020 C/TAXAP/408/2012 JUDGMENT marine service, clearing and forwarding, use of storage area, land rental, harbouring, etc. On one hand, the fees is charged and on the other hand, payments are to be made to Government of Gujarat. From the description of the receipts and expenditure, it was in the nature of running of a professional activity, more like in the manner of a business activity, ld.Commissioner has observed. In his opinion, assessee has derived profit out of various business activities. The activities of the Board are of commercial nature and there was no charity within the meaning of section 2(15) of the IT Act. A show-cause notice was issued. In the show-cause notice it was informed that due to the amended provisions of section 2(15) of the IT Act with retrospective effect from 1.4.2008, the assessee seizes to be a charitable organization. It was informed that the aggregate value of receipts had exceeded the prescribed minimum limit of Rs.10 lacs. Ld.Commisisoner has also found that while furnishing the return for A.Y.2009-10 a note was appended that the assessee had been granted registration u/s.12AA by CIT Gandhinagar vide an order dated 15/06/2005. The income was computed by claiming exemption u/s.11 of IT Act. In the said note it was claimed that in spite of the insertion of a proviso to section 2(15) of IT Act by the Finance Act, 2008, the assessee has continued to be a charitable institution being a registration was granted u/s.12AA of IT Act. However, ld.Commissioner was not convinced and denied the registration as follows:-
"11. However, it may be clarified that aforesaid decisions and decisions cited by the assessee found Page 8 of 36 Downloaded on : Sun Jun 14 23:14:52 IST 2020 C/TAXAP/408/2012 JUDGMENT mentioned earlier in this order are based on the provision of definition of "Charitable Purpose" as per section 2(15) of the IT Act. Whereas the show cause notice presently issued is based on the definition of "Charitable Purpose" as Amended by the Finance Act 2010 with applicability with retrospective effect from 1-4-2008, particularly the insertion of proviso which provides that in the case where the gross receipts from all activities in the nature of trade, commerce or any activity rendering services in relation to any trade, commerce for a cess or any consideration, irrespective of the nature of use of applicability or retention of the income from such activity exceeds an amount of Rs.10 lakhs, the unit/entity/institution ceases to be of Charitable Institution under the fourth limb, i.e. advancement of any other object of general public utility other than the relief of the poor, education and medical relief which are other 3 limbs under the head Charitable purpose.
12. Unfortunately, the assessee has chosen not the submit any reply on this core issue of eligibility of Charitable Purpose u/s.2(15) under the fourth limb, i.e. carrying on any activity of advancement of any other object of general public utility having gross receipt of less than Rs.10 lakhs but on the contrary, they have placed reliance on the provision of Section 12AA(3) of the IT Act which provides methodology to cancel the registration already granted u/s.12AA(3) of the IT Act. In fact what is relevant is that where a trust Page 9 of 36 Downloaded on : Sun Jun 14 23:14:52 IST 2020 C/TAXAP/408/2012 JUDGMENT or an institution has been granted registration under clause (b) or sub-section (1) and subsequently the Commissioner is satisfied that the activities of such trust or institution are not genuine or not being carried out in accordance with the objects of trust with reference to the definition of Charitable Purpose as provided section 2(15) of the IT Act, as the case may be, he shall pass an order in writing cancel the registration of such trust or institution. Thus, the provision for section 12AA(3) are enabling provision for the CIT to examine whether, the trust/institution is carrying out activities which are falling in the definition of Charitable Purpose or not and it is not so, the CIT can cancel such registration w.e.f. 1-4-08 even if registration is already granted earlier to such entity/Trust.
13. Accordingly, I am satisfied that the activity of the Gujarat Maritime Board were not carried out in accordance with the object of institution as per definition of 'charitable purpose' for which registration was granted on 15-6-2005 w.e.f. 1-4-2002 in view of the amendment made in the definition of 'charitable purpose' w.e.f 1-4-2008 by the Amendment by the Finance Act 2010 as the said institution is not eligible for registration thereafter as the total receipts for the year under consideration is more than Rs.10 lakhs as prescribed for eligible 'charitable purpose' under the fourth limb of 'charitable purpose' i.e. Advancement of object of general public utility; is cancelled Page 10 of 36 Downloaded on : Sun Jun 14 23:14:52 IST 2020 C/TAXAP/408/2012 JUDGMENT u/s.12AA(3) of the IT Act w.e.f. 01-04-2008 applicable to A.Y. 2009-10."
3. Being aggrieved now the assessee is before us. At the outset, following two decisions have been cited by ld.AR.
(i) ITAT "D" Bench Ahmedabad in the case of Gujarat Industrial Security vs. DIT (Exemption) in ITA No.902/Ahd/2010, order dated 30.12.2011.
(ii) ITAT "A" Bench Ahmedabad in the case of Ahmedabad Urban Development Authority in ITA No.754/Ahd/2010 for A.Y.2009-10, order dated 21/05/2010.
3.1 In the case of Gujarat Industrial Security (supra), the relevant portion is reproduced below:-
"3. The Ld. Counsel for the assessee invited our attention to the rules and regulations of the society. There is no dispute to the fact that the assessee has been declaring its income from the assessment year 2001-02 to 2005-06 as business income as is evident from page 3 of DIT(Exemption) order. Thereafter, the assessee applied 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 not 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 charitable purpose and Page 11 of 36 Downloaded on : Sun Jun 14 23:14:52 IST 2020 C/TAXAP/408/2012 JUDGMENT 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 used 85% of the funds collected. There is nothing on record that the assessee has violated any conditions laid down u/s 12AA(3) of the Act. Reliance was placed on the decision of ITAT Ahmedabad 'A' Bench in I.T.A.No. 754/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 directly on the issue in hand. Thus, following these Tribunal orders of Ahmedabad Bench and Chennai Bench mentioned hereinabove and in the facts and circumstances of the present case and in the absence of any violation of Section 12AA(3) of the Act, the registration granted u/s 12AA cannot be cancelled. Therefore, we cancel the order of DIT(Exemption) dated 22.01.2010 and direct the DIT (Exemption) to restore the order of registration granted u/s 12AA of the Act."
3.2. In the case of Ahmedabad Urban Development Authority (supra), the relevant portion is reproduced below:-
"7. In view of the above, we are satisfied that none of the conditions as prescribed under Section 12AA(3) is satisfied in the case of the assessee so as to cancel the registration granted under Section 12AA. We therefore quash the order of the DIT(Exemption) passed under Section 12AA(3) and restore the order of Page 12 of 36 Downloaded on : Sun Jun 14 23:14:52 IST 2020 C/TAXAP/408/2012 JUDGMENT the Registration passed by the DIT(Exemption) under Section 12AA(1) dated 23-10-2003.
8. Before we part with the matter, we may point out that the learned counsel for the assessee had argued at length that the activities of the assessee are charitable and therefore the assessee is entitled for registration under Section 12AA. In support of this contention, he has relied upon the decision of Hon'ble Apex Court as well as the Hon'ble jurisdictional High Court. The learned DR has also argued at length to support revenue's point that the assessee is not entitled to registration under Section 12AA. In support of his contention, he has also relied upon various decisions. However, the issue before us is not whether the assessee is entitled to registration or not because the assessee- institution is already registered vide order of the DIT (Exemption) under Section 12AA (1) dated 23-10-2003. The limited issue in this appeal before us whether the DIT (Exemption) was justified in canceling such registration by invoking the power under Section 12AA(3)."
4. Having heard the submissions of both the sides, the provisions of section 12AA(3) prescribes that once a trust or an institution has been granted registration u/s.12AA(3) and subsequently if the Commissioner finds that one of the condition, viz. the activity of the trust is not genuine or that the activity of trust not been carried out, then the Commissioner has power to cancel the registration granted Page 13 of 36 Downloaded on : Sun Jun 14 23:14:52 IST 2020 C/TAXAP/408/2012 JUDGMENT u/s.12AA(1) of IT Act. In the above cited decision of Ahmedabad Urban Development (supra), it was held that when under the Act a specific provision for cancellation of registration is prescribed and the cancellation is possible under specific condition then fulfillment of those conditions are necessary for invoking the jurisdiction u/s.12AA(3). In the present case the reason for cancellation for registration was that the definition of charitable purpose u/s.2(15) has been amended therefore the assessee has not carried out the activity as per the definition of "charitable purposes". This very issue has already been dealt with by the Respected Benches, therefore respectfully following these decisions we hereby reverse the view taken by the ld.Commissioner and direct not to cancel the registration u/s.12AA(3) of IT Act. Grounds raised by the assessee are hereby allowed. "
5. Being dissatisfied with the aforesaid order passed by the Appellate Tribunal, the Revenue is here before this Court with the present Appeal.
6. This Tax Appeal came to be admitted for the consideration of the following substantial question of law :
"Whether the Income-Tax Appellate Tribunal was right in law and facts in cancelling the order of the Commissioner (Appeals) passed under Section 12AA(3) of the Income Tax Act, 1961 in view of the amendment made under Section 2(15) of the Act brought into effect from 1 st April 2009."Page 14 of 36 Downloaded on : Sun Jun 14 23:14:52 IST 2020
C/TAXAP/408/2012 JUDGMENT
7. Mrs.Mauna Bhatt, the learned senior standing counsel appearing for the Revenue, vehemently submitted that the Tribunal committed a serious error in allowing the appeal preferred by the respondent-assessee. It is submitted that the Commissioner was justified in cancelling the registration of the respondent-assessee under Section 12AA(3) of the Act as the activities of the assessee are commercial in nature and such activities, by any stretch of imagination, cannot be termed as falling within the ambit of 'charity' as defined under Section 2(15) of the Act. It is submitted that the respondent-assessee derived profits out of its various business activities and there is no charity within the meaning of Section 2(15) of the Act as amended w.e.f. 1st April 2009 by the Finance Act. In such circumstances referred to above, the learned senior standing counsel prays that there being merit in this Appeal, the same be allowed and the substantial question of law be answered in favour of the Revenue and against the assessee.
8. On the other hand, this Tax Appeal has been vehemently opposed by Mr.Soparkar, the learned senior counsel appearing for the respondent-assessee. Mr.Soparkar would submit that no error, not to speak of any error of law, could be said to have been committed by the Appellate Tribunal in passing the impugned order. It is argued that the proceedings for the cancellation of registration under Section 12AA(3) of the Act can be initiated strictly only upon the satisfaction of the prescribed conditions and cannot be initiated upon any perceived violation of the proviso to Section 2(15) of the Act. In other words, the argument of the learned senior counsel is that the violation of Section 2(15) of the Act is an irrelevant factor for the cancellation of the proceedings under Section 12AA(3) of the Act. The proceedings Page 15 of 36 Downloaded on : Sun Jun 14 23:14:52 IST 2020 C/TAXAP/408/2012 JUDGMENT under Section 12AA(3) of the Act could be initiated only upon the fulfillment of the prescribed conditions which are absent in the case on hand.
9. In such circumstances referred to above, Mr.Soparkar, the learned senior counsel, prays that there being no merit in this Appeal, the same be dismissed and the substantial question of law as formulated by this Court may be answered in favour of the respondent-assessee and against the Revenue.
10. Having heard the learned counsel appearing for the parties and having gone through the materials on record, the only question that falls for our consideration is, whether the Appellate Tribunal committed any error in passing the impugned order.
11. It is not in dispute that the assessee was granted registration under Section 12A of the Act. Now the said registration is cancelled by invoking the power conferred under Section 12AA(3) of the Act. Therefore, it is necessary to find out under what circumstances the registration granted earlier could be cancelled. Section 12AA(3) of the Act reads as under:
"(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 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 Page 16 of 36 Downloaded on : Sun Jun 14 23:14:52 IST 2020 C/TAXAP/408/2012 JUDGMENT writing cancelling the registration of such trust or institution:
Provided that no order under this subsection shall be passed unless such trust or institution has been given a reasonable opportunity of being heard."
12. A reading of the aforesaid provision makes it very clear, a registration granted earlier under Section 12A of the Act can be cancelled under two circumstances; (a) If the activities of such Trust or Institution are not genuine, and (b) The activities of the Trust or Institution not being carried out in accordance with the object of the Trust or Institution. Only on those two conditions being satisfied, the registration granted under Section 12A of the Act could be cancelled by the authorities.
13. It is not in dispute that there is no violation of the said two conditions by the assessee. The activities carried on by the assessee is genuine one. As could be seen from the profits they have generated, the said profit is earned by carrying on the activities in accordance with the object of the Trust. Therefore, the two conditions stipulated in sub-section (3) of Section 12AA of the Act, which empowers the authority to cancel the registration, do not exist in this case. The registration granted is cancelled in view of the amendment of first proviso to Section 2(15) of the Act. That is not a ground specified in the Statute for cancellation of the registration. In fact, sub-section (8) to Section 13 which is introduced by the Financial Act, 2012, which came into effect from 1.4.2009 categorically provides that, nothing contained in Section 11 or Section 12 shall operate so as to Page 17 of 36 Downloaded on : Sun Jun 14 23:14:52 IST 2020 C/TAXAP/408/2012 JUDGMENT exclude any income from the total income of the previous year or any receipt thereof. If the provisions of the first proviso to clause (15) of Section 2 becomes applicable in the case of such person in the said previous year, the Statute has protected the interest of the Revenue. Notwithstanding the fact that the assessee is conferred registration under Section 12A of the Act, unless the assessee falls within Section 2(15) of the Act, excluding the first proviso, the assessee would not be entitled to the benefit of exemption from tax. If the case of the assessee falls within first proviso to Section 2(15) of the Act, the benefit of registration which flow from Section 12A of the Act is not available. Anyhow, that is a matter to be considered by the Assessing Authority.
But, on that ground, the registration cannot be cancelled, which is precisely the Tribunal has held.
14. We may refer to a recent pronouncement of this High Court in the case of Gujarat Cricket Association. A coordinate bench of this Court, disposed of a batch of twenty-one Tax Appeals relating to three assessees, namely, the Gujarat Cricket Association (GCA), Baroda Cricket Association (BCA) and Saurashtra Cricket Association (SCA), pertaining to the Assessment Years ranging from 2004-05 to 2009-10. The questions dealt by the coordinate bench of this Court in its common judgment and order dated 27 th September 2009 can be broadly divided into the following :
"I. Whether the registration of GCA under section 12AA could be cancelled under section 12AA(3) on the ground that it violated proviso to section 2(15) of the Income-tax Act, 1961 (IT Act) ?Page 18 of 36 Downloaded on : Sun Jun 14 23:14:52 IST 2020
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II. Whether the assessee could be regarded as violating
proviso to section 2(15) ?
III. Whether the subsidy/donation received from Board for
Cricket Control in India (BCCI) could be regarded as corpus donations under section 11(1)(d) ?"
15. The facts of the said litigation may be summarised as under :
"The GCA is a society registered under the Societies Registration Act, 1860. It was granted registration under section 12AA vide DIT's order dated 16.4.2003 with effect from the Assessment Year 2004-05 onwards. It derived its income from sponsorship, ICC matches, sale of tickets, subsidies/grants from the BCCI, etc. Subsequently, vide its order dated 6.12.2010, the DIT cancelled the registration under Section 12AA(3) on the ground that the activities of the assessee were commercial in nature and the assessee could not be regarded as for 'charitable purpose' under proviso to Section 2(15) inserted by the Finance Act, 2010, with effect from 1.4.2009.
On appeal, the Tribunal decided the issue in favour of the GCA by holding that it is not permissible for the DIT to cancel the registration under Section 12AA(3) on the ground that the assessee had violated amended proviso to Section 2(15).Page 19 of 36 Downloaded on : Sun Jun 14 23:14:52 IST 2020
C/TAXAP/408/2012 JUDGMENT Being dissatisfied with the order of the Tribunal, the Revenue filed an appeal before this High Court."
16. The principles of law discernible from the decision of this Court are as under :
"(a) For the purpose of cancellation of the registration under section 12AA(3), the Commissioner should record a satisfaction that the activities of the charitable institution are not genuine or that the activities are not being carried on in accordance with the objects of the charitable institution.
In the absence of such a finding, the registration granted under section 12A/12AA cannot be cancelled.
(b) For an assessee to be classified as charitable under the category of 'advancement of any other object of general public utility' under section 2(15), the following four factors need to be satisfied --
(i) Activity should be for the advancement of the 'general public utility';
(ii) Activity should not be in the nature of trade, commerce or business;
(iii) Activity should not involve rendering of services in relation to any trade, commerce or business;
(iv) Activities in clauses (ii) and (iii) above, should not be for fees, cess or other consideration, the aggregate Page 20 of 36 Downloaded on : Sun Jun 14 23:14:52 IST 2020 C/TAXAP/408/2012 JUDGMENT value of which should not exceed the amount specified in the second proviso to section 2(15).
(c) The earlier test that if the income so collected, is applied towards the charitable activity, then the trust cannot be held as non-charitable, is no longer relevant after the statutory amendment in proviso to section 2(15).
(d) The scope of the term 'activity in the nature of trade, commerce or business' would mean that -
(i) It is undertaken with a profit motive;
(ii) The activity is continued on sound and recognized business principles and is pursued with reasonable continuity;
(iii) There should be facts and other circumstances which justify and indicate that the activity undertaken is in fact, in the nature of business;
(iv) The five tests propounded in the case of Customs and Excise Commissioner v. Lord Fisher (1981) STC 238 and the propositions in the case of CST v. Sai Publication Fund 258 ITR 70 (SC) apply.
(v) Business activity is an important prevailing element of self-interest.
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(e) From a perusal of the CBDT Circular explaining the amendment, it is clear that the proviso of section 2(15) is applicable to the assessees who are engaged in commercial activities, that is, carrying of trade, commerce or business in the garb of 'public utility' to avoid tax liability, and where the object of the 'general public utility' is only a mask or device to hide the true purpose, which was 'trade, commerce or business'.
(f) Charitable activity is the anti-thesis of activity having an element of self-interest. Charity is driven by altruism and desire to serve others, though the element of self-preservation may be present. For charity, benevolence should be omnipresent and demonstrable but it is not equivalent to self-sacrifice and abnegation.
(g) The antiquated definition of the term 'charity', which entails giving and receiving nothing in return, is outdated.
(h) Enrichment of oneself or self-gain should be missing and the predominant purpose of the activity should be to serve and benefit others, the mandatory features being, selflessness or illiberal spirit.
(i) The quantum of fee charged, the economic status of the beneficiaries who pay, commercial values in comparison to the fee, purpose and object behind the fee etc. are several factors which decide whether an activity is 'business'.
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(j) The Revenue cannot take a contradictory stand that the assessee carries on charitable activity under the residuary head 'general public utility', but, simultaneously record the said activity as business.
(k) There is no statutory mandate that a charitable institution falling under the residuary category should be wholly, substantially or in part be funded by voluntary contributions.
(l) A pragmatic view is required to be taken while examining the data and the same should be analysed objectively. A narrow and coloured view may prove to be counter productive and contrary to section 2(15).
(m) Accumulation of money/funds over a period of two to three years may not be relevant in determining the nature and character of the activity and whether the same should be treated indicative of profit motive, that is, the desire or intention to carry on business or commerce.
(n) The so-called 'business activities', when intrinsically woven into and is part of the charitable activity undertaken, the business activity is not feeding charitable activities, as they are integral to the charity/charitable activity.
(o) What has to be seen is, as to what is the core/main activity of the assessee. The predominant activity shall be the basis of the decision making."
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17. While upholding the order passed by the Appellate Tribunal, this Court observed as follows :
"(a) The object of introduction of proviso to section 2(15) was to deny benefit of the tax exemption to purely commercial and business entities which wear the mask of a charity.
(b) The registration of an assessee as a charitable institution under section 12A/12AA would, prima facie, clothe the assessee with the character of a charitable institution.
However, that, by itself, was not conclusive on the question whether an assessee is established for a 'charitable purpose'.
(c) While framing the assessment order, it is not open to the Assessing Officer to ignore the certificate of registration granted under Section 12AA and to go behind the registration obtained by the assessee under Section 12AA.
(d) The expression 'charitable purpose' is an inclusive one and not an exhaustive one and is sufficiently wide in scope to include a variety of activities. However, at the same time, the fact that remote and indirect benefits are derived by the members of the public will not be sufficient to make the purpose a 'charitable purpose'.
(e) The word 'charity' connotes altruism in thought and action. It involves an idea of benefiting others rather than Page 24 of 36 Downloaded on : Sun Jun 14 23:14:52 IST 2020 C/TAXAP/408/2012 JUDGMENT oneself.
(f) While construing proviso to section 2(15), the principle of purposive interpretation should be adopted as it serves the legislative intent.
(g) If an activity in the nature of trade, commerce or business is carried on and it generates income, the fact that such income is applied for charitable purposes, would not make any difference and the activity would nonetheless not be regarded as being carried on for a charitable purpose.
(h) Merely because the assessee puts up tickets of the international cricket matches for sale and earns some profit out of the same, it would not lose its character of having been established for a charitable purpose. The driving force is not the desire to earn profit but the object is to promote the game of cricket and nurture the best of the talent.
(i) The core of the matter is to see whether the activity which resulted into income or loss was carried on with the object of doing some trade, commerce or business, etc., or it was in furtherance of the objects (non-business) etc., for which the assessee was set up. In other words, the predominant object of the activities should be seen as to whether it is aimed at carrying on some business, trade or commerce or the furtherance of the object for which it was set up.
(j) In carrying on the charitable activities, certain surplus Page 25 of 36 Downloaded on : Sun Jun 14 23:14:52 IST 2020 C/TAXAP/408/2012 JUDGMENT may ensue. However, earning of surplus, itself, should not be construed as if the assessee existed for profit. The word 'profit' means that the owners of the entity have a right to withdraw the surplus for any purpose including the personal purpose. The three Associations had not distributed any profits outside the organization. The profits, if any, are ploughed back into the very activities of promotion and development of the sport of cricket and, therefore, the assessees cannot be termed to be carrying out commercial activities in the nature of trade, commerce or business.
(k) It is not correct to say that since the assessees received share of income from the BCCI, their activities could be said to be the activities of the BCCI. If the Associations host any international match once in a year or two at the behest of the BCCI, then the income of the Associations from the sale of tickets etc., in such circumstances, would not portray the character of commercial nature.
(l) The State Cricket Associations and the BCCI are distinct taxable units and must be treated as such. It would not be correct to say that a member body can be held liable for taxation on account of the activities of the apex body.
(m) Irrespective of the nature of the activities of the BCCI (commercial or charitable), what is pertinent for the purpose of determining the nature of the activities of the assessees, is the object and the activities of the assessees and not that of the BCCI. The nature of the activities of the assessee Page 26 of 36 Downloaded on : Sun Jun 14 23:14:52 IST 2020 C/TAXAP/408/2012 JUDGMENT cannot take its colour from the nature of the activities of the donor."
18. This Court reiterated that in order to constitute 'business', it is essential to have a profit motive. This is in line with a number of judgments including the following-
(i) GS1 v. DGIT(E), (2014) 360 ITR 138 (Del)
(ii) India Trade Promotion Organization v. DGIT, (2015) 371 ITR 333 (Del)
(iii) PHD Chamber of Commerce & Industry v. DIT(E), (2013) 357 ITR 296 (Del)
(iv) Bureau of Indian Standards v. DIT, (2012) 27 taxmann.com 127 (Del)
(v) DIT (E) v. Shree Nashik Panchvati Panjrapole, (2017) 81 taxmann.com 375 (Bom)
(vi) DIT(E) v. Lala Lajpatrai Memorial Trust, (2016) 69 taxmann.com 158 (Bom)
(vii) CIT v. Gujarat Industrial Development Corporation, (2017) 83 taxmann.com 366 (Guj)
19. We may also refer to and rely upon a decision of this Court in the case of Director of Income Tax (Exemption) v. N.H.Kapadia Education Trust (Tax Appeal No.356 of 2012, decided on 28th/29th October 2018. In the said case, the Trust had collected Page 27 of 36 Downloaded on : Sun Jun 14 23:14:52 IST 2020 C/TAXAP/408/2012 JUDGMENT a sum of Rs.1.90 crore from the students at the time of their admission. This amount was directly credited to the balance and claimed as corpus donations instead of showing it in the income and expenditure account. The Trust had failed to establish that such amount was by way of corpus donations. In such circumstances, the Director of Income Tax came to the conclusion that the Trust had violated the provisions of Section 11(1)(d) and Section 13(1)(C)(ii) of the Income Tax Act, 1961, and was not eligible for registration under Section 12A(i) of the Income Tax Act, 1961. The Director took the view that the same attracted the amended definition of 'charitable purpose' in Section 2(15) of the Act, 1961, by insertion of a proviso w.e.f. 1 st April 2009 as the activities could be said to be commercial in nature. The registration granted to the Trust under Section 12A of the Act came to be cancelled under Section 12AA(3) of the Act. While dismissing the appeal preferred by the Revenue challenging the order passed by the Appellate Tribunal, the Bench observed as under :
"9. The assessee challenged this decision of the Commissioner before the Tribunal. The Tribunal took note of the documents on record and the rival contentions. Tribunal allowed the assessee's appeal by the impugned judgement. The summary of the Tribunal's consideration and conclusions is as under:
(i) The Tribunal recorded that the assessee-Trust is running educational institution since decades. The activities of the Trust cannot be stated to be non-genuine.Page 28 of 36 Downloaded on : Sun Jun 14 23:14:52 IST 2020
C/TAXAP/408/2012 JUDGMENT
(ii) It was noted that purpose of acquiring land was for expanding educational activities of the Trust. The payment was made to the land holder. It was accounted in the Trust account under the head "advance towards land". Such payment was not reflected in the accounts of the Managing trustee or his family members. The land was purchased not for investment but to set-up educational institution. There was thus no case of altering the objects of the Trust.
(iii) In relation to the amended section 2(15) of the Act, the Tribunal was of the opinion that the amended proviso would apply only in case of advancement of any other object of general public utility and in such a case it shall not be a charitable purpose. Case of the assessee therefore would not fall within the amended section 2(15) of the Act. It was also noticed that the accounts of the assessee-Trust reveal deficit of Rs.
75.18 lacs and expenditure of Rs. 5.80 crores was made towards the educational activities.
(iv) Commenting on section 12AA inserted in the Act w.e.f. 01.04.1997, the Tribunal was of the opinion that for the alleged violations of section 11(1)(d) or section 13(1)(c) of the Act, registration of the Trust cannot be cancelled in exercise of powers under section 12AA(3) of the Act.
10. Appearing for the Revenue, learned counsel Mrs. Bhatt vehemently contended that the Tribunal has committed an Page 29 of 36 Downloaded on : Sun Jun 14 23:14:52 IST 2020 C/TAXAP/408/2012 JUDGMENT error in disturbing order of the Commissioner. Sizeable funds from the corpus of the Trust were transferred to the Managing trustee and his sons ostensibly to purchase agriculture land. Sale was not completed for years later on. The objects of the Trust did not permit the Trust to engage in agriculture activities. Donations were received from students in the nature of capitation fees. It was thus clear that the Trust was engaged in profiteering. The Commissioner was therefore perfectly justified in cancelling the registration.
11. On the other hand, learned counsel Mr Soparkar opposed the appeal contending that the Tribunal has correctly examined the relevant aspects emerging from the record. The Trust desired to purchase land in newly developing area in the outskirts of the city of Ahmedabad where educational institution could be set up. The decision to purchase agriculture land and then to apply for conversion arose out of commercial expediency. The Trust probably hoped to acquire agriculture land in the name of the trustee who enjoyed agriculture status at a cost lesser than the non-agriculture land would be available. The expenditure was debited in the accounts of the Trust. The trustee has never claimed any title or interest in the land. Merely because of some legal complications, the sale deed could not be completed would not imply that the funds of the Trust were diverted for unauthorized use.
12. Counsel further submitted that there is no prohibition against collecting funds from the students particularly, in self-finance institutions. Even educational institutions Page 30 of 36 Downloaded on : Sun Jun 14 23:14:52 IST 2020 C/TAXAP/408/2012 JUDGMENT enjoying registration under the Act are allowed to retain a portion of the profit out of such activity as long as the same is utilized for the purpose of its educational activities.
13. Counsel lastly contended that, in any case, section 12AA(3) of the Act did not permit cancellation of registration on the ground of violation of section 11(1)(d) or 13(1)(c) of the Act.
14. Before adverting to the rival contentions, we may take brief note of this statutory provisions. Section 11 of the Act pertains to income from property held for charitable or religious purposes. Sub-section (1) of section 11 provides that subject to the provisions of sections 60 to 63, the income referred to in clauses (a) to (d) shall not be included in the total income of the previous year of the person in receipt of the income. Clause-(d) of sub-section (1) of section 11 pertains to income in the form of voluntary contributions made with a specific direction that they shall form part of the corpus of the trust or institution. Section 12 of the Act pertains to income of trusts or institutions from contributions. Sub-section (1) of section 12 provides that any voluntary contributions received by a trust created wholly for charitable or religious purposes or by an institution established wholly for such purposes (not being contributions made with a specific direction that it shall form part of the corpus of the trust or institution) shall for the purposes of section 11 be deemed to be income derived from property holding under Trust wholly for charitable or religious purpose and the provisions of that section and Page 31 of 36 Downloaded on : Sun Jun 14 23:14:52 IST 2020 C/TAXAP/408/2012 JUDGMENT section 13 shall apply accordingly. Section 12A prescribes the conditions for applicability of section 11 and 12. Under sub-section (1) of section 12A, one of the conditions is requirement of such trust or the educational institution being registered under section 12AA of the Act. Section 12AA of the Act in turn, prescribes the procedure for registration. Sub-section (3) which was added to section 12AA w.e.f. 01.10.2004 reads as under:
"(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.]"
15. In terms of sub-section (3) of section 12AA thus, the registration can be cancelled in case of a trust or institution if the Commissioner is satisfied that the activities of such trust or institution are not genuine or are not being carried out in accordance with the object of the Trust or institution, Page 32 of 36 Downloaded on : Sun Jun 14 23:14:52 IST 2020 C/TAXAP/408/2012 JUDGMENT thereupon, he would pass an order in writing canceling the registration of trust or new.
16. Section 13 carries a title "Section 11 not to apply in certain cases". Sub-section (1) of section 13 inter alia provides that nothing contained in section 11 or 12 shall operate so as to to exclude from the total income of the previous year of the person in receipt thereof in case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof if any part of such income or property of the trust or institution is during the previous year unused or applied directly or indirectly for the benefit of any person referred to in sub-section (3).
17. From the above provisions, it can be immediately seen that the event of cancellation of registration of a Trust in exercise of powers under sub-section (3) of section 12AA of the Act would arise when the 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. Mere breach of the provisions contained in section 11(1)(d) or 13(1)(c) per se would not fall within the either of the two grounds available to the Commissioner to cancel the registration viz. the activity of the Trust not being genuine or not being carried out in accordance with the objects of the Trust. The Tribunal was thus perfectly justified in coming to such a conclusion. Our view that we expressed gets force from the decision of Uttranchal High Court in case of Welham Boy's School. Society vs. Central Board of Direct Taxes and Anr. reported Page 33 of 36 Downloaded on : Sun Jun 14 23:14:52 IST 2020 C/TAXAP/408/2012 JUDGMENT in 285 ITR 74.
19. The Commissioner in order to bring his conclusions within the the fold of sub-section (3) of section 12AA of the Act extrapolated his findings that the Trust had diverted its funds for the objects other than for which the Trust was created and the Trust had received donations from the students and the activities of the Trust thus carried on along commercial lines. Both the conclusions, in our opinion, are completely incorrect. The Tribunal had examined the materials on record, agreed with the Trust's contentions that desire on part of the Trust was to acquire land which could be used for setting up educational institution. Agreement to purchase agriculture land was executed in name of the Managing trustee since obviously the Trust should not have even entered into an agreement to purchase agriculture land. Equally, merely because donations are received would not per say imply that the Trust was operating along commercial lines. The Tribunal noted that the Trust was running several self finance educational institutions. Collecting fees for such purpose would be part of the normal activities. Even for an educational institution, to retain a reasonable surplus out of its activities has never been frowned upon by judicial decisions. If at all this is getting more liberal. Prime requirement is that such surplus should not be diverted for any other purpose. It must be utilized for the objects of the Trust. Reference in this respect can be made to decision of Supreme Court in case of Queen's Educational Society vs. Commissioner of Income Tax reported in 372 ITR 699. In the said decision, the Supreme Page 34 of 36 Downloaded on : Sun Jun 14 23:14:52 IST 2020 C/TAXAP/408/2012 JUDGMENT Court considered the parameters for judging whether an institution exist solely for educational purpose and not for profit. It was observed that the fact, that the institution makes profit, does not necessarily mean it exists for profit. Similar view was expressed by the Supreme Court in case of Visvesvaraya Technological University vs. Assistant Commissioner of Income Tax reported in 384 ITR 37.
20. The Revenue's reliance on the amended section 2(15) is also of no avail. Section 2(15) of the Act defines charitable purpose as to include any relief for the poor, education, yoga, medical relief, preservation of environment including water sheds, forests and wildlife and preservation of monuments or places or objects of artistic or historic interest and the advancement of any other object of general public utility. Proviso to sub-section (15) to section 2 of the Act was added by the Finance Act, 2010 providing that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business for cess or fee or any other consideration irrespective of the nature of use or application, or retention of the income from such activity. This proviso therefore applies to activity for the advancement of any other object of general public utility. Such activity would be excluded from the definition of charitable purpose if it involves carrying on any activity in the nature of trade, commerce or business or for cess or fee or any other consideration. Clearly, the legislature did not Page 35 of 36 Downloaded on : Sun Jun 14 23:14:52 IST 2020 C/TAXAP/408/2012 JUDGMENT desire this condition or restriction to be attached to the remaining activities which were defined or categorized as charitable purpose under sub-section (15) which includes the education."
20. In the aforesaid view of the matter, we hold that no case is made out by the Revenue to disturb the order passed by the Appellate Tribunal.
21. In the result, this Appeal fails and is hereby dismissed. The substantial question of law is answered in favour of the respondent-assessee and against the Revenue.
(J. B. PARDIWALA, J.) (BHARGAV D. KARIA, J.) /MOINUDDIN Page 36 of 36 Downloaded on : Sun Jun 14 23:14:52 IST 2020