Income Tax Appellate Tribunal - Mumbai
Credit Guarantee Fund Trust For Micro ... vs Assessee on 28 May, 2014
ुं ई यायपीठ "सी" मब
आयकर अपील य अ धकरण, मब ुं ई
IN THE INCOME TAX APPELLATE TRIBUNAL "C" BENCH, MUMBAI
BEFORE S/SHRI I.P. BANSAL, (JM) AND N.K.BILLAIYA (AM)
सव ी आय.पी. बंसल, या यक सद य एवं ी एन. के. बलै या, लेखा सद य के सम
आयकर अपील सं./I.T.A. No.1074/Mum/2012
( नधारण वष / Assessment Year : 2009-10)
Credit Guarantee Fund Trust बनाम/ Director of Income Tax (Exemption),
for Micro and Small Vs. Piramal Chambers,
Enterprises , Parel,
7th Floor, Mumbai-400012
MSME Development Centre,
G-Block,
Bandra Kurala Complex,
Bandra (E),
Mumbai-500051
(अपीलाथ /Appellant) .. ( यथ / Respondent)
थायी ले ख ा सं . /जीआइआर सं . /PAN/GIR No. : AAATC2613D
अपीलाथ ओर से / Appellant by : Shri A V Sonde
यथ क ओर से/Respondent by : Shri A C Tejpal
सन
ु वाई क तार ख / Date of Hearing : 28.5.2014
घोषणा क तार ख /Date of Pronouncement : 28.5.2014
आदे श / O R D E R
Per I.P.BANSAL, JM:
This appeal is filed by the assessee. It is directed against the order dated 7.12.2011 passed by Director of Income Tax (Exemption), Mumbai under the provisions of section 12AA (3) of the Income Tax act, 1961 (the Act) wide which registration granted to the assessee is withdrawn.
2. Grounds of appeal taken by the assessee read as under :
"1. On the facts and in the circumstances of the case and in law, the ld DIT(E), erred in passing the order under section 12AA(3) of the Act withdrawing/cancelling the registration u/s 12A/12AA of the Act with effect from AY 2009-10 which is bad in law, void ab-initio and contrary to the provisions of Income Tax Act, 1961 and rules made thereunder;2 ITA No.1074/Mum/2012
2. On the facts and in the circumstances of the case and in law, the ld DIT(E), erred :
(a) in withdrawing /cancelling the registration u/s 12AA of the Act by treating the appellant trust as being for non-charitable purpose;
(b) In holding that the activities and object of the trust are not for charitable purpose and thereby erred in holding the trust has become non-
genuine;
(c) in holding that the activities of the appellant trust are in the nature of business and there is a contravention of the provisions of section 2(15) read with proviso and the reasons assigned for doing so are wrong and contrary to the facts and circumstances of the case, provisions of the Income Tax Act, 1961, and the Rules made thereunder
3. On the facts and in the circumstances of the case and in law, the ld DIT(E)failed to appreciate:
(a) that the object and activities of the appellant is for the benefit of under privileged class of people and falls with the meaning of "relief of the poor" referred to in section 2(15) of the Act;
(b) that the CBDT has vide circular No.11/2008 dated 19.12.2008 clarified that newly inserted proviso to section 2(15) will not apply in respect of the first three limbs of section 2(15) i.e. relief of the poor, education or medical relief;
(c) that the appellant trust has no profit motive and to fall within the proviso to section 2(15), rendering of service to trade, commerce or business must be such that it has a profit motive;
d) that the services rendered by the appellant trust are purely incidental or subservient to the main object of the Trust which is a "charitable purposes".
4. On the facts and in the circumstances of the case and in law, the ld DIT(E), erred in withdrawing registration u/s 12AA/12A of the Act with retrospective effect from AY 2009-10 which is wrong and bad in law and contrary to the provisions of the Act, and the Rules made thereunder" .
3. The assessee trust is constituted on 27.7.2000 by the President of India acting through the Ministry of SSI and ARI which were referred to as Government of India and Small Industries Development Bank of India, a Corporation established under the Small Industries Development Bank of India (hereinafter referred to as "SIDBI") who are joined as "the Settlors" of the assessee trust. It has been mentioned in the trust deed that Small Scale Industries (SSI) are facing difficulties in getting credit from 3 ITA No.1074/Mum/2012 Primary Lending Institutions without collateral securities and/or third parry guarantees. It is also mentioned that Government of India has decided to introduce a Credit Guarantee Fund(Scheme) for Small Industries to be operational from the year 2000- 2001 to provide effective credit guarantee for SSI loans for guaranteeing the loans and advances extended without collaterals and /or third party guarantees to small industries by Scheduled Commercial Banks and a few selected well performing Regional Rural Banks and to achieve that objective the impugned trust has been created. According to certificate of registration dated 18.10.2001, the assessee trust was granted the registration u/s 12A of the Act in pursuance of its application dated 29.3.2001. A copy of such certificate is placed at page 7 of the paper book. However, vide letter dated 31.10.2011 the assessee was issued a show cause notice by the Director of Income Tax (Exemption) DIT(E) to show cause as to why registration granted to it u/s 12A should not be withdrawn by invoking the provisions of section 12AA(3) of the Act by treating the activities, in which the assessee trust engaged, as non charitable activity. In response to such notice, the assessee has filed detailed reply objecting its cancellation of registration which is dated 24.11.2011 and a copy of which is placed at pages 1 to 6A of the paper book. After considering the submissions made in the aforementioned reply, ld. DIT(E) after referring to the provisions of section 2(15) of the Act, in which proviso were added with effect from 1.4.2009 has come to the conclusion that the activities of the assessee trust were in the nature of trade, commerce or business etc and since its receipts are in excess of monetary limit laid down in the aforementioned proviso there is contravention of provisions of section 2(15) r.w. proviso which has come into effect from 2009-10. He also observed that once a charitable trust/institution is hit by the aforementioned proviso, then there is deeming provision that such entity shall not be for a charitable purpose and then obviously there is change in the status of such person and no longer it can be held to be charitable purpose. The ld. DIT(E) has also observed that once it is held that assessee is not for charitable purpose then 4 ITA No.1074/Mum/2012 trust itself becomes non-genuine as it looses its status of public charitable trust and accordingly the provisions of section 12AA(3) would get attracted. It is in this manner, the DIT(E) has withdrawn a registration granted to the assessee with effect from assessment year 2009-10. The assessee is aggrieved and has filed aforementioned grounds of appeal.
4. After narrating the facts it was submitted by ld. AR that the assessee trust is constituted by the Government of India and its activities did not change at any stage. He submitted that its activities were considered to be a charitable in nature, therefore, the registration u/s 12A was granted to the assessee. It was submitted that only on the basis of insertion of proviso in section 2(15) of the Act, the ld. DIT(E) has come to a conclusion that if the activities of the assessee are in the nature of trade then it looses its character of being charitable in nature and also its receipts have exceeded the prescribed limit as mentioned in the proviso. It was submitted that the withdrawal of registration u/s 12A is contrary to law as the registration once granted u/s 12A cannot be withdrawn simply for the reasons that provisos have been inserted in section 2(15) of the Act with effect from 1.4.2009. He submitted that similar issue is decided by the Mumbai Tribunal in favour of the assessee under the similar facts and circumstances and therefore issue raised in the present appeal is no more res-integra.
5. Reliance was placed on the decision in the case of Maharashtra Housing and Area Development Authority V/s ADIT(E) (2013) 58 SOT 196 (Mum-Trib) copy of which has been furnished before us and also given to ld. DR. In the said decision, the assessee was earning revenue from sale of residential houses, lease rental and tenacity receipts. It was granted registration u/s 12A w.e.f.1.4.2002. Subsequently, on amendment in the Act by way of substitution of section 2(15) by the Finance Act, 2008 w.e.f.1.4.2009, the DIT(E) issued notice to the assessee for withdrawal of registration and the same was withdrawn on the ground that the activity of the assessee is in the 5 ITA No.1074/Mum/2012 nature of trade and commerce and its receipts exceeded the prescribed limit, therefore, the assessee does not remain a charitable trust on the ground that its activities were outside the scope of activities for charitable purposes and hence registration was withdrawn. The withdrawal of registration was challenged before the Mumbai Bench of the Tribunal. After considering the provisions of Act and various submissions of the department and the assessee, the Tribunal has concluded that registration granted u/s 12A could not be reviewed or withdrawn since there is no stipulation in 12AA(3) regarding satisfaction to be reviewed and withdrawn in absence of stipulation in section 12AA(3) regarding continued satisfaction. Where the activities of institution were genuine and were being carried out in accordance with objects of trust, registration granted could not be withdrawn in view of amended provisions of section 2(15).
6. Ld. AR submitted that the similar proposition has been laid down by the decision of Mumbai Bench of the Tribunal in the case of M/s Vanita Samaj V/s DIT(E) in ITA No.1034/Mum/2012, (AY-2009-10) dated 26.2.2014. Copy of the decision was placed before us and also given to ld. DR.
7. In addition to the above decisions the assessee also relied on the following decisions :
a) Shri Nashik Panchvati Panjarpole V/s DIT(E) in ITA No.1198/Mum/2012 (AY-2009-10) dated 26.3.2014;
b) Cotton Textiles Exports Promotion Council V/s DIT(E) (2014) 44 Taxmann.com 168 (Mum-Trib);
c) Prithviraj Kapoor Memorial Trust & Research Foundation (2014) 43 Taxmann.com 20 (Mum-Trib) It was submitted by the ld. AR that registration has wrongly been withdrawn by DIT(E) and his order is required to be set aside and the registration of the assessee should be restored.
6. On the other hand, ld. CIT, DR relied upon the order passed by DIT(E) the contents of which have already been discussed in the above part of this order. 6 ITA No.1074/Mum/2012
7. We have heard both the parties and their contentions have carefully been considered. The assessee trust has been constituted by Government of India for providing effective credit guarantee for SSI loans for guaranteeing the loans and advances extended without collaterals and /or third party guarantees to small industries. Considering the objects stated in the trust deed, the assessee was granted registration by DIT(E) vide letter No.DIT(E)/MC/12A/35698/-2001-02 dated 18.10.2001 and only on the ground that the provisions of section 2(15) have been substituted by the Finance Act, 2008 with effect from 1.4.2009, the DIT(E) has held that the activity of the assessee does not remain charitable in nature and on this ground he has withdrawn the registration certificate granted to the assessee. Similar issue has been considered at length by the Tribunal in the case of Maharashtra Housing and Area Development Authority (supra). In the said decision one of us (JM) is a party. The conclusion of the Tribunal in this regard is as under :
"7.1 We begin by discussing, firstly, the scope and ambit of section 12AA(3), as withdrawal or cancellation of registration could be validly made in law only within its parameters. The withdrawal, thus, could only be where the Commissioner is satisfied that (refer the provision reproduced at para 5.1 above):
(a) the activities of the trust or institution are not genuine; or
(b) the activities are not being carried out in accordance with the objects of the trust or institution.
The two conditions are not cumulative, but disjunctive, so that satisfaction on either of the two conditions would be sufficient to invoke the power of cancellation by the Commissioner. At this stage we may also examine section 12AA(1), i.e., the provision under which the registration is granted. The same is where the Commissioner is satisfied about:
(a) the objects of the trust or institution; and
(b) genuineness of the activities thereof.
Thus, it is only upon being satisfied about the objects of the applicant, as well as about the genuineness of its activities that the Commissioner is obliged to register a trust/institution as charitable, by an order in writing, being also required to do so where not so satisfied. Clearly, the satisfaction qua the 'objects' is only with regard to their being for a charitable (or religious) purpose/s. It cannot but be otherwise; the registration being only toward the applicant being a public charitable trust or institution under the Act. This, in fact, is the edifice or the terra firma on which provision rests. As such, even though the registration certificate or the communication in its respect may not, or is not required to, 7 ITA No.1074/Mum/2012 contain an explicit finding or mention as to the satisfaction with regard to the objects of the trust or institution being for charitable purpose/s, that is the basis upon which, or a condition precedent to the grant of the status of a public charitable entity in-so-far as the Act is concerned, that the registration thereunder confers.
7.2 Coming to the ingredients of section 12AA(3), the Commissioner has again to be satisfied with regard to the activities being not genuine, or that they are not being carried out in accordance with the objects. The requirements are specific. They envisage some change over the period since the grant of registration, or of some information even with regard to an earlier period, that operates to disturb the satisfaction of the Commissioner as arrived at earlier. However, this change or the information, as contemplated, is at the end of the registered entity. This is implicit in the words 'activities of the trust or institution are not genuine or are not being carried out.....', in the provision. A change in law is not contemplated. Further, even though, and understandably, the law cannot contemplate a change therein in time, which even otherwise lies in womb of future, and is thus uncertain, there is, even post amendment to section 2(15), no stipulation with regard to the condition of satisfaction by the Commissioner with the objects of the trust or institution, i.e., as obtaining in section 12AA(1)(b), in section 12AA(3). The prescription of satisfaction of the Commissioner extends only to the carrying out of the objects as listed, and genuinely. The scope of section 12AA(3) is therefore limited in-as-much as it excludes a review of the objects as being charitable (or religious) subsequent to the registration of the trust or institution. As such, even though the objects of the trust may no longer be regarded as toward a charitable purpose, i.e., in view of the law as amended, there being no stipulation (in section 12AA(3)) with regard to a continuing satisfaction, registration u/s. 12A/12AA cannot be reviewed and withdrawn with reference to the absence of such satisfaction, which of course has to be arrived at in terms of the law in force. Clearly, the objects are regarded as fixed/constant, and the scope of inquiry is only with regard to the activities of the trust/institution. This, of course, implies a continuation of the same objects with which, or to achieve which, the trust/institution was formed and registered, and which would, even de hors s. 12AA(3), being violative of an implicit condition of registration, operate to cancel the same (refer: Allahabad Agricultural Institute v. Union of India [2007] 291 ITR 116/163 Taxman 67 (All.)).
Conclusion
8. In view of the foregoing, in our view though the ld. DIT(E) was empowered to exercise his power for cancellation of registration in December, 2011 w.e.f. A.Y. 2009-10, i.e., as sought to be done by him, the same (the cancellation of registration) is not sustainable in the instant case in view of the limited mandate of section 12AA(3), which we have found to exclude a condition of continuing satisfaction by the Commissioner as to the objects being or, rather, continuing to be, for charitable purpose/s. That is, such a satisfaction, though a primary condition for grant of registration, has been found to be outside the scope of the review by him u/s.12AA(3) of the Act, provided of course the objects themselves remain unchanged. The first proviso to the provision (s.2(15)), it would be noted, does not impinge directly on the objects per se, but the manner in which those are to be attained or achieved, and herein lies the controversy or the dichotomy attending the respective view points of the assessee and the Revenue. The review of registration subsequent thereto, as spoken of by the tribunal in Mumbai Cricket Association (supra), is only in terms of and subject to 8 ITA No.1074/Mum/2012 the mandate of section 12AA(3), and which thus would be of no assistance to the Revenue. We may further add, even as clarified by the tribunal in the case of Rajasthan Housing Board v. CIT [2012] 51 SOT 383/21 taxmann.com 77 (Jp.), heavily relied upon before us by the assessee, that the Assessing Officer is, while framing an assessment, empowered to examine the allowability of exemption u/s.11 where the proviso to section 2(15) is attracted. This follows trite law that exemption u/s. 11 r/w s. 12 is to be, notwithstanding grant of registration, only by the Assessing Officer, whose powers in the matter of assessment are plenary, on the satisfaction of the condition/s of those sections. Exemption u/s. 11(1) is only upon the application of income for charitable purpose/s, so that it is only where so applied, reading the term 'charitable purpose' as per the extant law, that it could be allowed. The insertion of section 13(8) by the Finance Act, 2012 (w.e.f. 1.4.2009, i.e., A.Y. 2009-10 onwards), from which period the changed section 2(15) becomes operative, removes the matter beyond the pale of any doubt. The matter/issue of exemption u/s. 11 would thus have to be reviewed by the Assessing Officer in assessment on a year to year basis. The primary onus to return its income each year in accordance with the law, it may be appreciated, is on the assessee. The argument advanced as to the inapplicability of even the substituted s. 2(15) in view of 'low' profitability, even as we find no reference to any criteria qua the same therein, is rendered out of place or superfluous in view of our aforesaid findings, and is accordingly not dealt with. Our decision, in conclusion, as would be apparent, is in agreement with that by the tribunal in the case of, among others, Rajasthan Housing Board (supra). The decision by the tribunal in the case of M.P. Road Development Corporation Ltd. (supra) is distinguishable as the same does not involve invocation of s. 12AA(3) of the Act but of s. 12AA(1). We, therefore, answer the question posed at para 2 above in the negative, i.e., in favour of the assessee and against the Revenue. We decide accordingly."
9. Similar proposition has been laid down in the decision of the Mumbai Bench of the Tribunal in the case of M/s Vanita Samaj(supra) and following observations of the Tribunal will be relevant:
"7. We have carefully considered the rival submissions and perused the record. It is not in dispute that the Trust had come into existence in 1953 and it was granted registration under section 12A of the Act and there is no change in the nature of activities of the Trust since then. It is not the case of the DIT (Exemption) that the activities of the Trust are not genuine; in fact the DIT (Exemption) assumed that by virtue of the first proviso to section 2(15) of the act the activity of the Trust should be treated as not genuine overlooking the fact that there is no change in the activity so as to invoke provisions of sub-section (3) of section 12AA of the Act. In our considered opinion, on a conjoint reading of the first proviso with second proviso to section 2(15) of the Act, a Trust can be denied exemption in the year where the gross receipts exceed the limit prescribed in the second proviso to section 2(15) and in all other years income from such activities should be considered for the benefits under section 2(15) if it is within the limit provided therein. If it was to be interpreted that once the income of the trust in one year crosses the limit provided in the second proviso, the registration originally granted has to be cancelled, it makes the second proviso redundant for the years where the receipts are less than the specified limit; this could not be the intention of the Legislature. In fact, the Act does not provide for claiming of exemption on year to year basis.9 ITA No.1074/Mum/2012
8. On a conspectus of the matter we, therefore, hold that denial/ cancellation of registration in the instant case is not in accordance with law. To clarify further the gross receipts having exceeded the stipulated monitory limit provided in the second proviso to section 2(15) of the Act, the assessee is not entitled to claim exemption in this year but that fact alone cannot make the Trust non-genuine for the purpose of invoking section 12AA(3) of the Act. We, therefore, set aside the order passed by the DIT (Exemption) and allow the appeal filed by the assessee. Needless to observe that the AO is duty bound to independently verify as to whether the assessee fulfilled the other conditions such as application of income, etc. so as to claim exemption under section 12(15).
9. In the result, the appeal filed by the assessee is allowed."
10. In view of above discussion, following the aforementioned decisions of Tribunal, we hold that registration has wrongly been withdrawn and we set aside the order passed by DIT(E) and allow the appeal filed by the assessee.
11. In the result, the appeal of the assessee is allowed.
The above order was pronounced in the open court on 28th May, 2014.
घोषणा खुले यायालय म दनांकः 28th May, 2014 को क गई ।
Sd sd
(एन. के. बलै या / N.K.BILLAIYA) (आय.पी. बंसल/I.P. BANSAL)
लेखा सद य / ACCOUNTANT MEMBER या यक सद य / JUDICIAL MEMBER
मब
ंु ई Mumbai: 28th May, 2014
व. न.स./ SRL , Sr. PS
आदे श क त ल प अ े षत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent.
3. आयकर आयु त(अपील) / The CIT(A)- concerned
4. आयकर आयु त / CIT concerned
5. वभागीय त न ध, आयकर अपील य अ धकरण, मब
ंु ई /
DR, ITAT, Mumbai concerned
6. गाड फाईल / Guard file.
आदे शानस
ु ार/ BY ORDER,
True copy
सहायक पंजीकार (Asstt. Registrar)
आयकर अपील य अ धकरण, मुंबई /ITAT, Mumbai