Income Tax Appellate Tribunal - Chandigarh
Barnala Improvement Trust, Barnala vs Cit, Patiala on 28 February, 2019
आयकर अपील य अ धकरण,च डीगढ़ यायपीठ "ए", च डीगढ़
IN THE INCOME TAX APPELLATE TRIBUNAL,
CHANDIGARH BENCH 'A' , CHANDIGARH
ीमती दवा संह, याय$क सद%य एवं ीमती अ नपूणा( ग*ु ता, लेखा सद%य
BEFORE SMT.DIVA SINGH, JUDICIAL MEMBER
AND SMT.ANNAPURNA GUPTA, ACCOUNTANT MEMBER
आयकर अपील सं./ ITA No.387/Chd/2012
(Under Section 12AA(3) of the Act)
Barnala Improvement Trust, बनाम The C.I.T.,
Barnala. Patiala.
थायी लेखा सं./PAN NO: A A B T B 1 3 4 5 E
नधा रती क ओर से/Assessee by : Written Submissions
राज व क ओर से/ Revenue by : Shri Gulshan Raj, CIT DR
सन
ु वाई क तार ख/Date of Hearing : 06.12.2018
उदघोषणा क तार ख/Date of Pronouncement: 28.02.2019
आदे श/ORDER
Per Anna pur na Gupta, Account ant Member The present ap peal has been fi l ed by the as sessee agai nst the order of the Commi ssioner of I ncome Ta x, Pati al a ( i n short 'CI T') dated 19.1.2012, passed u/s 12AA( 3) of the I ncome Ta x Act , 1961 ( herei na fter referred to as 'Act') , wi thdra wi ng the e xempti on granted u/s 12A of the Act.
2. Earlier the appeal of the assessee was dismissed by the Tribunal vide order dated 1604.2014,against which the assessee filed appeal before the Hon'ble High Court, who in turn remanded the case back to the ITAT ,for adjudication afresh, vide their order dated 16-03-17 in ITA No.47 of 2016.Hence the present appeal was heard afresh.
2 ITA No.387/Chd/2012
U/s 12AA(3)
3. Grounds of appeal raised by the assessee read as under:
"i) The Learned C.I.T, Patiala has erred in cancellation of registration, duly granted to appellant U/s 12AA (1) of Income Tax Act, 1961 vide his office order No. CIT/PTA/TECH/12A/2006-07/406, dated 26/04/2006 & has erred in interpretation of advancement of any other object of general public utility which shall not be a charitable purpose if it involves carrying on of any activity in the nature of trade, commerce or business owing to amendment made in the definition of Charitable Purpose U/s 2(15) of the Income Tax Act, 1961 by Finance Act, 2008
ii) The appellant has made no change in the objects of the trust since registration U/s 12AA which has not been considered by the Learned Commissioner of Income Tax, Patiala
iii) The appellant is a public sector organization performing state function having no profit motive & is providing public utility services to the society at a large.
iv) The learned CIT has erred in interpretation of law by erroneously treating the appellant as a commercial organization carrying on the objects in the nature of trade, commerce or business.
v) That Appellant leaves to add, amend, or withdraw any ground of appeal before appeal is heard & disposed off."
4. Brief facts relating to the case are that originally the assessee had been granted registration u/s 12A of the Act vide order of the CIT dated 26.4.2006. Subsequently, the Ld. CIT, noting that the same having been granted subject to the provisions of the Income Tax Act and in particular the provisions in the light of which the income qualified to be considered as "exempt" under the Act, and further taking note that the definition of the charitable purpose had been 3 ITA No.387/Chd/2012 U/s 12AA(3) amended by the Finance Act, 2008 w.e.f. 1.4.2009 inserting a proviso thereto stating that the activities of general public utility shall not be considered charitable in nature if they involve carrying out any activity in the nature of trade, commerce or business and noting that the Balance Sheet of the assessee as on 31.3.2008 and 31.3.2009 revealed that it was engaged in the activities in the nature of trade, commerce and business, since it contained details of properties auctioned to fetch the highest competitive selling price which showed the profit making nature and motive of the trust, he issued a show cause notice asking the assessee as to why the registration granted u/s 12A of the Act be not withdrawn. Due reply was filed by the assessee contending that the assessee Improvement Trust was constituted under the Punjab Town Improvement Trust Act, 1922 with the principal object of improvement of towns and its income was exempt up to assessment year 2002-03 u/s 10(20A) of the Act and thereafter had qualified for relief u/s 11 of the Act as its object was of general public utility and the same was registered as charitable trust u/s 12AA of the Act. As far as the contention of the Ld.CIT that the assessee was engaged in business activities, the assessee pointed out that it was engaged in a number of activities and all amounts charged by it from the public was only for meeting its cost and for further improvement of towns by making new schemes. 4 ITA No.387/Chd/2012
U/s 12AA(3) It was also pointed out that these activities were being carried out by it since its inception, adhering to all rules and regulations made under the Punjab Town Improvement Trust Act, 1922. It was thus contended that it was not carrying out any activity in the nature of trade, commerce or business and, therefore, there was no reason to withdraw the registration granted to it u/s 12AA of the Act. The Ld.CIT dismissed the contention of the assessee stating that no evidence had been filed that all activities of the assessee trust was were aimed only for benefitting the public at large without any commercial angle. It was stated that a major share of the income of the assessee trust was on account of acquisition of land, its development and sale through auction or by draw of lots fetching astronomical prices for the assessee trust in the process, thus clearly indicating commercial motive of the assessee trust. It was also stated by the Ld.CIT that the net profits earned by the assessee trust in assessment year 2009-10 were far better than that shown by the builders and developers and thus the commercial motive of the trust could not be denied, considering the activities of the trust. Accordingly, the Ld.CIT withdrew the registration granted to the assessee trust u/s 12A of the Act, for the reason that the activities undertaken by it were in the nature of trade, commerce or business and thus not in 5 ITA No.387/Chd/2012 U/s 12AA(3) accordance with the provisions of section 12AA of the Act.
5. Before us, the Ld. counsel for assessee contended that the acti vi ti es carri ed out by the I mprovement trust consti tuted unde r the Punjab To w n I mprovement Trust, 1922 had been consi dered i n detai l for the purposes of grant of e xempti on as carr yi ng out chari tabl e acti vi ti es as per secti on 11/12 of the Act, by the Hon'bl e Juri sdi cti onal Hi gh Court in the case of I mprovement Trust Moga Vs. CI T ( Exemptions) , Chandi garh, i ncl udi ng the acti vi ti es of sel l i ng pl ots through aucti on and it was hel d by the Hon'bl e Court that consi deri ng the purpose for whi ch the trust was establ i shed and the nature o f acti vi ti es carri ed out by i t, they qual i fi ed as chari tabl e acti vi ti es. Copy of the order was pl aced before us.
6. The Ld. DR, on the other hand,, rel i ed upon the order of the Ld.CI T.
7. After concl usi on of the heari ng on 10.5.2018, i t came to the noti ce of the Bench that the I TA T Chandi garh Bench had deal t wi th i nterpretati on of the defi ni ti on of chari tabl e purpose provi ded i n secti on 2( 15) of the Act i ncl udi ng the provi so referred to by the L d.CI T whi l e wi thdra wi ng regi strati on granted to the assessee, in the case of Chandi garh La wn Tenni s Associ ati on in I TA No.1382/Chd/2016 dated 26.7.2018, and the case, therefore, was f i xed for 6.8.201 8 for seeki ng cl arifi cati on from both the parti es i n the l i ght of the sai d decisi on of the 6 ITA No.387/Chd/2012 U/s 12AA(3) I . T.A. T. Thereaft er the assessee f i l ed submi ssi ons i n wri ti ng dated 6.12.2018 stati ng that i ts case was squarel y covered by the deci si on of the Hon'bl e J uri sdi cti onal Hi gh Court i n the case of I mprovement Trust M oga ( supra) and consi deri ng the rul e of judi ci al precedence the sai d deci si on woul d prevai l bei ng bi ndi ng i n nature. Our attenti on was al so dra wn to para 7 7 of the order w herei n i t was sta ted by the Hon'bl e Hi gh Court that predomi nant purpose of the trust was the advancement of the object of the general publ i c uti l i t y. The ass essee al so contended that the i ssue be deci ded on the basi s of the wri tten submi ssi ons fi led by i t.
8. We have heard t he ri val contenti ons careful l y, perused the order of th e Ld.CI T and h ave al so gone t hrough the deci si ons of the Hon'bl e Juri sdi cti onal Hi gh Court i n the case of I mprovement Trust, Mo ga ( supra) and al so the deci si on of the I TAT Chandi ga rh Bench in th e case of Chandi garh La wn Tenni s Associ ati on ( supra) .
9. I t i s an admi tted fact that the assessee trust was formed under the Punjab To wn I mprovement Trust Act, 1922 and wi th the stated object of i mprovement of to wns. Further i t i s an admi tted fact that consi d eri ng the stated objects and acti vi ti es carri ed out by the assessee i mprovement trust i t was granted regi strati on u/s 12A A of the Act on 2 6.4.2006 I t i s not the case of the Revenue t hat there i s any change i n the stated objects or acti vi ti es of the assessee i mprovement trust. The sol e r eason for wi thdra wi ng the e xempti on i s the amendment made to secti on 2( 15) of the Act provi di ng that 7 ITA No.387/Chd/2012 U/s 12AA(3) the advancement of any other obj ect of general pu bli c uti l i t y shal l not be a c hari tabl e purpose i f i t i nvol ves c arr yi ng on and acti vi ti es i n the nature of trade, commerce or busi ness.
10. We fi nd that the i ssue of cancel l ati on of regi strati on on account of the inserti on of the fi rst & second provi so to secti on 2( 15) of the Act has been deal t wi th by the Hon'bl e Bomba y Hi gh Co urt i n the case of Di rector of I ncome Ta x ( Exempti on) vs North I ndi an Associ ati on reported in 79 ta xmann.com 410( Bomba y) & i n the case of Di rector of I ncome Ta x ( Exempti on) vs Khar G ymkhana ( 2016) 385 I TR 162 ( Bom) .I t ma y be rel evant to p oi nt out that whi le the fi rst provi so states t hat advancement of any other acti vit y of general publ i c uti l i t y shal l not be a chari tabl e purpose i f i t i nvol ves carr yi ng out of comme rci al acti vi ti es, the second provi so restri cts the appl i cabi l i t y of the fi rst proviso stati ng that it woul d appl y onl y i f quantum of the commercial acti vi t y e xceeds the l i mi t prescri bed. Therefore t he second provi so i s to be read al ong wi th the fi rst provi so .I n the sai d deci si on i t was categori cal l y hel d that juri sdi ction to cancel regi strati on arose onl y i f there w as change i n the nature of acti vi ti es of the trust/i nsti tuti on, whi ch were not genui ne. The Hon' bl e Hi gh Court had taken note of the CBD T Ci rcul ar No.21 of 2016 di recti ng Offi cers o f the Revenue no t to cancel regi strati on i f the recei pts on account of busi ness e xceeded the l i mi t as prescri bed i n the second provi so to secti on 2( 15) of the Act whi ch was appl i cabl e wi th retrospecti ve effect from 1.4.2009, when the fi rst p rovi so was brou ght on the 8 ITA No.387/Chd/2012 U/s 12AA(3) statute. The rel e vant fi ndi ngs of the Hon'bl e Hi gh Court at para 10 of i ts order i s as under:
"10. We find that the Circular No.21 of 2016 when read as a whole, specifically lists out in paragraphs 4 and 5 reproduced herein above that the Registration granted under Section 12AA could not be cancelled, only when the receipts on account of business exceeded the cut-off, specified in the proviso to section 2(15) of the Act. The jurisdiction to cancel the Registration only arises if there is change in the nature of activities of the institution or the activities of the institution, are not genuine. The aforesaid Circular by placing reliance upon 13(8) of the Act inter alia provides that the Registration granted to the Trust would continue even when the receipts on account of business is in excess of Rs.25 lakhs. In such case, the Assessing Officer while framing the Assessment for the subject Assessment Year would be entitled to deny the benefit of exemption to such a Trust for that year.
11. The submission made on behalf of the Revenue that the Circular No.21 of 2016 would have only prospective effect in respect of Assessment made subsequent to the amendment under Section 2(15) of the Act w.e.f. 1st April, 2016 is also not sustainable. The amendment in Section 2(15) of the Act brought about by Finance Act, 2016 w.e.f. 1st April, 2016, is essentially that where earlier the receipts in excess of Rs.25 lakhs on commercial activities would exclude it from the definition of 'charitable purpose' is now substituted by receipts from commercial activities in excess 20% of the total receipts of the institution. In the above view, Circular No.21 of 2016 directs the Officer of the Revenue not to cancel Registration only because the receipts on account of business are in excess of the limits in the proviso to Section 2(15) of the Act would also apply in the present case. The impugned order has held that cancellation of a Registration under Section 12AA(3) of the Act, can only take place in case where the activities of trust or institution are not genuine and/or not carried on in accordance with its objects. The aforesaid Circular No.21 of 2016 is in line of the finding of the Tribunal in the impugned order. The submission on behalf of the Revenue that the Trust is not genuine because it is hit by proviso to Section 2(15) of the Act, is in fact, negatived by Circular No.21 of 2016. In fact, the above Circular No.21 of 2016 clearly provides that mere receipts on account of business being in excess of the limits in the proviso would not result in cancellation of Registration granted under Section 12AA of the Act unless there is a change in nature of activities of the institution. Admittedly, there is no change in nature of activities of the institution during the subject Assessment Year. The further submission on behalf of the Revenue that looking at the quantum of receipts on account of commercial activities, it is un-likely/ improbable that in the subsequent Assessment Years, the receipts would fall below Rs.25 lakhs and therefore, the Commissioner is entitled to cancel the Registration. The 9 ITA No.387/Chd/2012 U/s 12AA(3) aforesaid submission made on behalf of the Revenue is based not on facts as existing but on probability of future events. We are unable to accept the submission based on clairvoyance. Further, we are unable to understand what prejudice is caused to the Revenue since whenever the receipts on account of commercial activities is in excess of the limits provided in proviso to Section 2(15) of the Act, the Assessing Officer is mandated/ required to deny exemption under Section 11 of the Act as provided in Circular No.21 of 2016 dated 27th May, 2016. Accordingly, the issue stands covered in favour of the Revenue by virtue of Circular No.21 of 2016. 12 In view of the issue being covered by the CBDT Circular No.21 of 2016, no grievance against the impugned order can be made by the Revenue. Therefore, the question as framed becomes academic and does not give rise to any substantial question of law."
11. The i ssue before us bei ng i denti cal to that i n the case of Khar G ymkhana( supra) ,i t i s squarel y covered by the order of the Hon'bl e Bomba y Hi gh Court and the CI T i n the present case therefore, we hol d, had no juri sdi cti on to cancel regi strati on granted u/s 12A of the Act, wi th no change i n the object or acti vi ti es carri ed out by the assessee trust so as to hol d i t i ngenui ne and consi deri ng the Ci rcular No.20 of 2016 i ssued by the CBD T stati ng so i n ver y cl ear terms.
12. We have al so go ne through the o rder of the I TA T i n the case of Chandi garh La wn Tenni s Associ ati on ( supra) and fi nd that the same i s di sti ngui shabl e, si nce i t i nterprets the fi rst and the second provi so to secti on 2( 15) of the Act, i n the conte xt of grant of e xempti on u/s 11/12 of the Act. The I TAT, we fi nd, h as hel d that w hi l e the mai n de fi ni ti on of chari tabl e purpo se i ncl udes acti vi ti es for the adva ncement of general publ i c u ti l i t y, the fi rst a nd second provi sos to the secti on, l i mi t th e carr yi ng on of i nci dental acti vi ti es i n the course of carr yi n g out general pu bl i c uti l i t y acti vi ti es to the l i mi t speci fi ed i n the second proviso. I t has further hel d that 10 ITA No.387/Chd/2012 U/s 12AA(3) these provi sos prescri bi ng a l i mi t to the commerci al acti vi ti es carri ed out as i nci dental to the mai n acti vi t y woul d not i mpact i ts c hari tabl e charact er for the purpo se of grant of regi strati on u/s 12A of the Act. Therefore the sai d deci si on, we hol d woul d not have any i mpact on the i ssue before us.
13. I n vi e w of the above we hol d that consi deri ng the enti re facts and ci rcumstances of the case, the Ld.CI T had no juri sdi cti on to cancel the regi strati on granted to the assessee trust u/s 12A of the Act . The order of th e Ld.CI T i s therefore set asi de.
14. I n the resul t, the appeal of the assessee i s all o wed.
O r d e r p r on o u n c ed i n t h e O p e n Cou r t .
Sd/- Sd/-
दवा संह अ नपण
ू ा( ग*ु ता
(DIVA SINGH) ANNAPURNA GUPTA)
याय$क सद%य/Judicial Member लेखा सद%य/Accountant Member
दनांक /Dated: 28th February, 2019
*रती*
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/ CIT
4. आयकर आयु.त (अपील)/ The CIT(A)
5. *वभागीय ( त न1ध, आयकर अपील य आ1धकरण, च3डीगढ़/ DR, ITAT, CHANDIGARH
6. गाड फाईल/ Guard File आदे शानस ु ार/ By order, सहायक पंजीकार/ Assistant Registrar