Income Tax Appellate Tribunal - Panji
Mormugao Port Trust vs The C.I.T. on 10 January, 2007
Equivalent citations: [2007]109ITD303(PANJI), [2008]301ITR380(PANJI), (2007)112TTJ(PANJI)681
ORDER
Satish Chandra, Judicial Member
1. This is an appeal filed by the assessee against the order of the CIT dated 26-7-2006 where, she has rejected the assessee's application for registration Under Section 12A of the Income-tax Act, 1961. The appellant is a statutory autonomous body of the Government of India. For this purpose, the COD's permission dated 31-10-2006 is available (page A-3 of the supplementary paper book). Hence the appeal is before us
2. In this appeal, the assessee has raised seven grounds which deal with the single issue of rejection of its request for registration Under Section 12A as a 'Charitable Institution' retrospectively from the assessment year 1966-68. Grounds no. 1 to 6 are concerning the action of the CIT, Panaji in rejecting the assessee's claim to be registered Under Section 12A as a Charitable Institution for the reasons enumerated in her order dated 26-7-2006, while ground no. 7 challenges me action of the CIT m not condoning the delay in making the application Under Section 12A for registration.
3. Briefly stated, the relevant facts of the case are that the assessee, viz. The Mormugaon Port Trust, hereinafter called as MPT is an Institution constituted under the Major Port Trusts Act, 1963 and is an autonomous body administered by a Board of Trustees constituted by the Central Government. The MPT is vested with the Administration, Control, Maintenance, Development and Management of the Major Port of Mormugaon. In India all the Port Trusts are formed primarily with the object of the development of the port infrastructure and are vested with the assets of the Government of India for the discharge of this function. The surplus generated from the rendering of port services to the port users is statutorily required to be fully invested/set aside for Investment in development of port Infrastructure and there is no provision for the distribution of the surplus. The development and maintenance of the Major Ports is claimed by the assessee to be considered to be an object of general public utility and hence the activities of the Major Port Trusts are alleged to be within the purview of the term 'charitable purpose' as defined In Section 2(15) of the Income-tax Act. Hence, the Major Port Trusts have asked their claim to be considered eligible for exemption of their income Under Section 11 and therefore, entitled to registration Under Section 12A of the Act as alleged by the assessee.
4. It may be mentioned that earlier, the assessee being a 'Local Authority', was exempt from tax up to the A.Y 2002-03 Under Section 10(20) of the Act. From the A.Y. 2003-04 onwards, Section 10(20) was amended by the Finance Act, 2002 by insertion of an Explanation. Thereafter, the exemption under the said section was limited to certain specified local authorities listed in the newly inserted Explanation to ihe section. Since Major Port Trusts were not included in the 1st of specified local authorities eligible for the exemption Under Section 10(20), the assessee considered it necessary to make an Application to the Commissioner of Income-tax, Panajl for registration Under Section 12A as a charitable institution, with a view to full Ring the requirement for availing exemption Under Section 11 of the income-tax Act. But the same was rejected. Not being satisfied, the assessee is before us.
5. With this background, the ld. Counsel appearing on behalf of the assessee reiterated the submissions made by the assessee before the Commissioner of income-tax, and while making his submissions before us. Contended that at the stage of examining the application for registration Under Section 12A, the Commissioner is not to examine the application of income as stipulated in section. At the cost of repetition, he mentioned the case laws which were already mentioned before the CIT in support of the claim that the objects of the Port Trust are objects of general public utllty. He has drawn our attention to the letter dated 18-11-2002 of the then Union Finance Minister, to the Chief Minister of Delhi (page 357 of the paper book), wherein the Honble Finance Minister had explained that assessees working for advancement of general public utility, and without profit motive, can claim exemption from income-tax as a charitable institution alter Milling certain prescribed conditions, even though exemption of income Under Section 10(20), which was earlier available to them, now stands withdrawn in view of the explanation inserted by the Finance Act 2002. According to the ld. Counsel, CIT might have examined whether the application was made in accordance with the requirements of Section 12A read with Rule 17A and whether Form No. 10A has been property filled up. The ld. Counsel also submitted that it was incumbent upon the CIT to examine and determine whether the objects of the institution are charitable or not. For this purpose, the ld. Counsel referred to the cases of Fifth Generation Education Society v. CIT and New Life in Christ Evangelistic Association v. CIT where it was discussed that in order to be able to get registration Under Section 12A, there Is no necessity of establishing as to how the concerned institution would be able to claim exemption Under Section 11 or 12. According to him, at the stage of grant of certificate Under Section 12A, the only inquiry which could possibly be made, would be whether the institution has actually made an application and whether the accounts of the institution are maintained in the prescribed manner and finally whether the objects of the Institution are charitable in nature. Drawing our attention to the case of Shantagauri Ramniklal Trust v. CIT the ld. Counsel farther submitted that while considering an application for registration, the Commissioner must also make a clear distinction between the requirement of registration and requirement for claiming tax benefit He further submitted that one only relevant question which required resolution by the CIT was whether MPT is engaged in activities which are covered within the definition of charitable purposes appearing in Section 2(15) of the income-tax Act, 1961 or not.
6. In the above regard, ld. Counsel drew our attention to the decision of the Hon'ble High Court of Gujarat in the case of CIT Gandhinagar v. Gujarat Maritime Board (GMB) dated 31-7-2006 wherein the Hon'ble Court has upheld the decision of the ITAT Ahmedabad Bench (copy on record), to the effect that GMB is a charitable institution and is therefore entitled to the benefit of Section 12A. The ld Counsel specifically referred to the following observations of the ITAT, Ahmedabad in the case of Gujarat Maritime Board v. CIT 94 TTJ (And) 1103 (para 10) concerning the eligibility of GMB Under Section 12A.
2(15) "Charitable purpose" includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility.
From the above defination of "charitable purpose, it is evident that advancement of any other object of general public utility is also charitabte purpose. The above definition of 'charitable purpose' is modified by the Finance Act, 1983 with effect from 1-4-1984. Before the above amendment, the purpose i.e. advancement of any other object of general public utilty was qualified by the words not involving the carrying on of any activity for profit. However, the Finance Act, 1983 has omitted the words "not involving the carrying on of any activity for profit. Therefore, after the omission of the above words, if any activity which is for the purpose of advancement of an object of general public utility is carried out with profit motive, it would fall within the definition of 'charitable purposes' Under Section 2(15). Though the Legislature by simultaneous amendment Under Section 11(4A) has provided that the exemption Under Section 11 shall not be available in relation to any income of a trust of an institution being profit and gains of business unless the business is incidental to the attainment of the object of the trust. However, this exercise whether the assessee has income from business or not, and if there is business income whether it is incidental to the attainment of the object of the trust or not, is to be carried hy the A.O while making the assessment of each year But so far as the registration of trust is concerned the CIT has to examine whether the object of the assessee fails within the definition of 'charitable purpose' Under Section 2(15). The object of the assessee institution is to maintain and develop the Ports in the State of Gujarat.
Maintenance and development of Ports is necessary for transport of goods and persons by sea. In the present scenario of globalization of the trade and industry, the transport of goods from one country to other which is mostly through sea has become essential. Therefore, the development and maintenance of Ports is certainly the object of general public utility. While taking this view, we derive support from the decision of the Honble Apex Court in the case of CIT v. AP State Road Transport Corporation 159 ITR 1.It Is a/so not in dispute that the assessee institution is generally engaged in the activities of development and maintenance of Ports in the state of Gujarat. Therefore, in our opinion, the assessee duly fulfils both the conditions of Section 12AA which are necessary for the registration of the institution Under Section 12A. We therefore, direct the CIT to register the trust Under Section 12A with effect from 1-4-2002.
7. At the stage of admission, the Hon'ble Gujarat High Court concurred with the findings of the ITAT and dismissed the appeal filed by the Department
8. The ld. Counsel next referred to the 2nd Supplementary paper Book containing a copy each of (i) the Major Port Trusts Act. 1963 and (ii) the Gujarat Maritime Board Act, 1981. He explained that the GMB Act 1981, under which GMB has been constituted, is virtually a replica of the Major Port Trusts Act 1963 under which Mormugao Port Trust has been constituted and notified as a Major Port w.e.f. 1-7-1964. He referred to the preamble of the GMB Act 1981 which reads as below:
An Act to make provision for the constitution of a Maritime Board tor Minor Ports h the State of Gujarat and to vest the administrative control and management of such Ports In that Board and for matters connected therewith The above preamble is reproduction of the preamble of the Major Port Trusts Act, 1963 which reeds as under.
An Act to make provision for the constitution of Port Authorities for certain Major Ports in India and to vest the administrative control and maintenance of such ports in such authorities and for matters connected therewith.
9. The ld. Counsel thereby submitted that the decision of the Hon'ble High Court of Gujarat in the case of GMB was squarely applicable to the matter of registration of Mormugao Port Trust (MPT). While the GMB is constituted under the GMB Act, 1981, MPT is constituted and notified under the Major Port Trusts Act 1d63. While the GMB, is vested with the obligations and responsibilities of maintaining and developing the Ports of Gujarat feting under its jurisdiction, MPT is responsible for the maintenance and development of Mormugao Harbor which falls under its jurisdiction. The ld. Counsel therefore argued that in accordance with the decision of the Hon'bte Gujarat High Court, MPT is also clearly a charitable institution eligible for registration Under Section 12A. He submitted that the objectives of the MPT are indisputably charitable in nature as defined Under Section 2(15) of the Income-tax Act 1961. He re-emphasized that the Hon'ble High Court of Gujarat has held that maintenance and running of harbors is an activity of "General Public Utility" felling within the meaning of charitable purposes given in Section. 2(15) of the Income-tax Act 1961.
10. The ld. Counsel also contended that there were various other reasons why MPT should be held to be a charitable Institution.
(i) The creation of Mormugao Port Trust as an institution is wholly for a charitable purpose as defined Under Section 2(15) of the I.T. Act 1961.
(ii) The institution of Mormugao Port Trust has not been created for the benefit of any particular religious community or caste. The benefits of running and maintenance of Mormugao Harbour by Mormugao Port Trust, accrue to the public at large.
(iii) The Institution of Mormugao Port Trust Is not created for carrying on business for profit;
(iv) The properties of Mormugao Port Trust are held in Trust by the Board of Trustees, appointed Under Section 3 of the Major Port Trusts Act 1963. Thus, It is not just the income of MPT which is held in Trust by the Hon Die Board, but also the properties;
(v) The provisions of the Major Port Trusts Act, 1963, which govern the functioning of Mormugao Port Trust, clearly lay down that the Income of the institution would be utilized for charitable purposes;
(vi) The income of Mormugao Port Trust does not enure for the benefit of the Central Government or any other person specified In the Explanation in Sub-section (1) of Section 13 of the Act.
(vii) The prescribed Audit report in form No. 108 has been filed with the ACIT Circle 2 Margao on 31 -1 -2006.
11. Continuing with his submissions, ld. Counsel stated that the Port Trusts are formed with the primary object of development and maintenance of Ports. This can be inferred from Chapter V of the Act concerning "works and services to be provided at Ports. Section 36 of the Major Port Trusts Act, 1963 authorizes the Board of Trustees to execute the following developmental works:
(a) Wharves, quays, docks, stages, Jetties, piers and other works within the Port or Port approaches or on the foreshore of the port or port approaches, with all such convenient arches, drams, landing places, stairs, fences, roads, railways, bridges, tunnels and approaches and buildings required for the residence of the employees of the Board as the Board may consider necessary;
(b) Buses, railways, locomotives, roiling stock, sheds, hotels, warehouses and other accommodation for passengers and goods and other appliances for carrying passengers and for conveying, receiving and soaring goods landed, or to be shaped or otherwise.
(c) Moorings and cranes, scales and all other necessary means and appliances for loading and unloading vessels;
(d) Reclaiming, excavating, enclosing and raising any part of the foreshore of the port or port approaches which may be necessary for the execution of the works authorized by this Act, or otherwise for the purposes of this act;
(e) Such breakwaters and other works as may be expedient for the protection of the port;
(f) Dredgers and other machines for cleaning, deepening and improving any portion of the port or port approaches or of the foreshore of the port or port approaches;
(g) Lighthouses, lightships, beacons, buoys, pilot boats and other appliances necessary for the safe navigation of the port and of the port approaches;
(h) Vessels, tugs or other boats for use within the limits of the port or beyond those limits, whether in territorial waters or otherwise, for the purpose of towing or rendering assistance to any vessel, whether entering or leaving the port or bound elsewhere, and for the purpose of saving or protecting lite or property and for the purpose of landing, shipping or transshipping passengers or goods under Section 42
(i) Sinking of tubewells, and equipment, maintenance and use of boats, barges and other appliances for the purpose of the supply of water at the port;
(j) Engines and other appliances necessary for the extinguishing of fires;
(k) Construction of models and plans for carrying out hydraulic studies;
(l) Dry docks, slipways, boat basins and workshops to carry out repairs or overhauling of vessels, tugs, boats, machinery or other appliances;
12. Section 42 of the MPT Act specifies the services to be rendered by the Port trust it can be inferred from the list that these services are of a public utility. They are as follows:
(a) landing, shipping or transhipping passengers and goods between vessels in the port and the wharves, piers, quays or docks belonging to or in the possession of the Board
(b) Receiving, removing, shitting transporting, storing or delivering goods brought within the Board's premises;
(c) Carrying passengers by rail or by other means within the limits of the port or port approaches, subject to such restrictions and conditions as the central Government may think fit to impose.
(d) Receiving and delivering, transporting and booking and dispatching goods originating in the vessels in the port and intended for carriage by the neighbouring railways, or vice versa, as a railway administration under the Indian Railways Act, 1890 (9 of 1890).
(e) Piloting, hauling, mooring, remooring, hooking or measuring of vessels or any other service in respect of vessels and;
(f) Developing and providing subject to the previous approval of the Central Government, Infrastructure facilities for ports.
13. Referring to the above, the ld. A.R pointed out that all the above activities tantamount to creating and maintaining valuable and much needed infrastructure for the Nation. Ports greatly facilitate trade and commence and contribute significantly to the development of not only the hinterland which they serve directly, but also to the growth and development of the national economy. Advancement of an object of General Public Utility has been held to be a charitable purposes. The provisions in the Major Port Trusts Act as regards the works and services to be provided by the assessee and the manner of utilization of the funds as laid down in Chapter VIII, highlight inherent charitable nature of activities of the Port Trusts. As per the decisions in the case of Ahmedabad Rana Caste Association v. CIT Gujarat and in the case of CIT v. Rana Caste Association it was held that every object of general public utility is a charitable object according to the definition in the Indian statute. The concept of charitable purpose, according to the Indian law, is therefore, definitely very wide. It is well settled by now that an object beneficial to a section of the public is an object of general pubic utility. To serve a charitable purpose, it is not necessary that the object should be to benefit the whole of mankind or all persons in a particular country or State. It is sufficient if the Intention to benefit a section of the public, as distinguished from a specified individual, is present. According to the ld. A.R this view was affirmed by the Supreme Court to the case of CIT Gujarat III v. Anmedabad Rana Caste Association .
14. The ld. A.R continues to argue by stating that in the case of CIT v. Andhra Chamber of Commerce the Supreme Court has held that the expression "general public utility' Is not restricted to objects beneficial to the whole of mankind. An object beneficial to the section of the public, Is an object of general pubic utility. To serve a charitable purpose, It Is not necessary that the object should be to benefit the whole of mankind or even all persons living In a particular country or province. It is sufficient If the intention is to benefit a section of the public as distinguished from specified individuals. The section of the community sought to be benefited must undoubtedly be sufficiently defined and Identifiable by some common utility of a public or impersonal nature.
15. The ld. AR also submitted that merely because the assessee can earn profit cannot lead to the conclusion that its activities are carried out on a commercial basis, particularly when the disposal of the surplus is also regulated by the Major Port Trusts Act, 1963 and is to be ploughed back Into further development of ports. For this purpose, he relied on the ratio laid down in the case of Thiagarajar Charities v. Addl. CIT where it was held:
The test which has therefore, now to be applied is whether the predominant object of general public utility is to sub serve the charitable purpose or to earn prom. Where profit making is the predominant object of the activity, the purpose, though an object of general public utility, would cease to be a charitable purpose. But where the predominant object of the activity is to carry out the charitable purpose and not to earn, profit, it would not lose its character of a charitable purpose merely because some profit arises from the activity. The exclusionary clause does not require that the activity must be carried on in such a manner that it does not result in any profit. It would indeed be difficult for persons in charge of a trust or institution to so carry on the activity that the expenditure balances the income and there is no resulting profit. That would not only be difficult of practical realization but would also reflect unsound principle of management. We therefore, agree with Beg J. when he said in sole Trustee Loka Sikshana Trusts case (1975) 101 ITR 234, 256 (SC) that If the profits must necessarily feed a charitable purpose under the terms of the trust, the mete fact that the activities of the trust yield profit will not after the charitable character of the trust. The test now is, more clearly than in the past, the genuineness of the purpose tested by the obligation created to spend the money exclusively or essentially on charity.
16 The ld. A.R continues to submit that as is apparent torn the provisions of the Major Port Trusts Act, 1963, the Port Trust does not exist as a profit making entity but as a provider of port services to the port users. The profit element is certainly not denied as section 90 dealing with the utilization of surplus funds would show. However, the profit element is only incidental to the main functions of the Port Trust as per the ratio laid down in the case of CIT AP v. Andhra Pradesh State Road Transport Corporation where the Honble Apex Court held as under:
It was not disputed that the object of the activity carried on by the respondent corporation was one of general public utility. What was submitted was that such activity was carried on for profit as shown by Section 22 under which the respondent-corporation was enjoined to act on business principles. It was further submitted that the respondent-corporation could issue shares even to the members of the public and that dividend would be paid to the shareholders and, therefore, profit would be made from the activity of the respondent-corporation by its owners, namely, the shareholders. We are unable to accept these submissions.
The submission founded upon Section 22 is based upon a misunderstanding of what that section provides. A road transport corporation cannot be expected or be required to run at a loss. It is not established for the purpose of subsidizing the public in matters of transportation of passengers and goods. The objects for establishing a road transport corporation are those set out in Section 3 of the RTC Act which we haw already reproduced above. Section 18 shows that it is the duty of a road transport corporation to provide, secure and promote the provision of an efficient, adequate, economical and properly coordinated system of road transport services in the State. No activity can be carried on efficiently, properly, adequately or economically unless it is carried on business principles, if an activity is canted on business principles, it would usually result in profit, but, as pointed out by this court in the case of Addl. C.I.T. v. Surat Art Silk Cloth Manufacturers Association's case it is not possible so as to carry on a charitable activity in such a way that the expenditure balances the Income and there is no resultant profit, for, to achieve this, would not only be difficult of practical realization but would reflect unsound principles of management What Section 22, therefore, does when it states that it shall be the general principle of a road transport corporation that in carrying on its undertakings it shall act on business principles is to emphasize the objects set out in Section 3 for which a road transport corporation is established and to prescribe the manner in which the general duty of the corporation set out in Section 18 is to be performed, ft is now firmly established by the decisions of this court in Surat Art Silk Cloth Manufacturers Association's case (supra) and Bar Council of Maharashtra's case (1981) 130 ITR 28 (SC) that the test is "What is the predominant object of the activity -whether it is to carry out a charitable purpose or to earn profit?" If the predominant object is to carry out a charitable purpose and not to earn profit, the purpose would not lose is charitable character merely because some profit arises from the activity".... "That the activity of the respondent-corporation is not carried on with the object of making profit is made abundantly clear by the provisions of Section 30 under which, prior to the amendment of that section by the Amendment Act of 1959, the balance of income left, after utilization of the net profits for the purpose set out in Section 30, was to be made over to the State Government for the purpose of road development and after the Amendment Act of 1959 is to be utilized for financing the expansion programmes of the respondent-corporation and the remainder, if any, is to be made over to the State Government for the purpose of road development. As pointed out by this Court in Andhra Pradesh Road Transport Corporation v. ITO the amount handed over to the State Government does not become a part of the general revenues of the State but is impressed with an obligation that t should be utilized only for the purposes for which it is entrusted, namely, road development. It is not, and cannot be, disputed that road development is an object of genera (pubic utility.
For the reasons given above, we hold that the respondent-corporation was entiled to the exemption claimed by t both under the 1922 Act and under the 1961 Act.
17. The ld. Counsel for the assessee clarified that the application for registration by MPT was not as a Trust, but as a Charitable Institution. Referring to the definition of Institution" in the Oxford Dictionary, he submitted that an Institution is understood to be an establishment, organization or association, instituted for the promotion of some object, especially one of public or general utility, religious, charitable, education etc. Similar definitions are contained in Webster's New International Dictionary and other Dictionaries. He pointed out that the Dayalbag Satsang Sabha of Agra has been held to be an Institution in CIT v. Radhaswamy Satsang Sabha Similarly, in the case of CIT v. Bengal Home Industries' Association (1963) 48 ITR 181 (Cal) the Hon'ble High Court has held that so long as there is no element of profit making so far the members of the Institution are concerned, and so long as the Institution pursues an object which is beneficial to the general public as distinguished from class or community, it is entitled to exemption. The ld. A.R therefore, submitted that following the ratio of this decision while examining the assessaes application for registration, CIT should not have gone into the question of whether a valid trust has been constituted or not. This was totaly irrelevant as registration is sought by MPT as an Institution.
18. Regarding belated application for registration, ld. Counsel drew attention to the provisions of Sub-clauses (i) and (ii) of clause (a) of Section 12A which lay down that in the event of the application for registration being made after the expiry of the period stated in Clause (a), registration will have to be granted w.e.f. the 1st day of the financial year in which the application is made. Moreover, if the Commissioner is satisfied, for reasons to be recorded in writing, that the delay was justified, registration is to be granted with retrospective effect.
19. Further, the ld. Counsel drew attention to the decision of the ITAT Delhi Bench in the case of Market Committee, Sullar Gharat and Ors. v. CIT 2005 94 TTJ 692 (Del) wherein Honble President ITAT has taken note of the Legislative intent that although blanket exemption enjoyed by Market Committee, Market Boards, etc. Under Section 10(20) stood withdrawn by the insertion of the Explanation, as made dear by the then Finance Minister in his letter to the Chief Ministers, such bodies can still claim exemption Under Section 11 of the Act after fulfilling certain prescribed conditions. He, therefore, submitted that the CIT's observations that registration is now being sought only to evade taxes are completely irrelevant and misplaced. MPT is not a commercial organization and notwithstanding withdrawal of exemption Under Section 10(20), it was eligible for exemption Under Section 11, as a charitable institution.
20. Finally, the ld. Counsel once again stated that at the stage of examining an application for registration, the CIT was only required to see whether the objectives of the institution were charitable or not. The extent of utilization of income, and the actual exemption Under Section 11, if any, was to be determined by the ld. A.0 during scrutiny assessment for each year separately. Thus, registration Under Section 12A was independent of the actual allowance of the claim for exemption Under Section 11. He strenuously emphasized that MPT was a charitable institution engaged in carrying out activities of general public utility in accordance with the definition contained in Section 2(15) and should, therefore, have been registered Under Section 12A by CIT. Panaji. Lastly, the ld. A.R. made a request that registration Under Section 12A may kindly be granted retrospectively.
21. On the other hand, the ld. D.R (CIT) strongly defended the order Under Section 12AA(1)(b)(ii) of the Income-tax Act 1961 dated 26-7-2006, passed by the CIT Panaji rejecting the assessee's application for registration. She submitted that the assessee was not a trust. The Major Port Trusts Act, 1963 cannot be said to have created valid trusts. The Mormugao Port Trust, which is notified as a Major Port w.e.f. 1-7-1964, cannot be said to be a trust eligible for availing exemption for its income in accordance with the provisions of sec. 11 to 13 of the income-tax Act, 1961. She argued mat under the relevant provisions of the Income-tax Act, only valid trusts can be registered. Even those organizations which claim to be 'Institutions', have to be managed and run by legally constituted trusts to be eligible for exemption Under Section 11, and therefore only such trusts can be registered Under Section 12A. Mormugao Port Trust continued to be a Local Authority even after insertion of the explanation to 10(20), and such local authorities cannot be considered as trusts. She further submitted that by insertion of the explanation in Section 10(20), the legislative intent of depriving the benefits of exemption of income to local authorities, other than those specified in the explanation, was clear it was now not open to the assessee to claim exemption of income as a Charitable Institution' as it continued to be a local authority. According to her, local authorities can be considered for exemption of income only Under Section 10(20) and the purpose of the present alternative claim Under Section 12A being made by Mormugao Port Trust is only with the object of evading taxes. She also pointed out that the Major Port Trusts Act, 1963 has not specifically mentioned that income of the Major Ports would be exempted from the charge of Income-tax.
22 16. D.R contended that the application for registration was inordinately delayed and Mormugao Port Trust has not been able to come up with justifiable reasons for the abnormal delay. Consequently, the only inference possible is that registration is being sought with the intent of depriving the exchequer of its rightful revenues.
23. Referring to the impugned order dated 25-7-2006 passed by the ld. CIT Panaji, rejecting the assessee's application for registration Under Section 12A the ld. Counsel stated that the reasons for rejection are enumerated in para 36 of the CIT's order. These can be briefly summarized as below.
(i) The Major Port Trusts Act cannot be said to have created a lawful Trust for the purposes of Section 11 to 13. Mormugao Port Trust was created as a "local Authority within the meaning of term "person" of the I.T. Act 1961 and continues to be one till date
(ii) Application for registration Under Section 12A is inordinately delayed and the reasons given cannot be valid ones except to evade the charge of income-tax.
(iii) MPT is not engaged in activates falling within the meaning of 'charitable purpose' or 'general public utility' and has to be treated as a purely commercial organization;
(iv) The extent of utilization or the income of the Port for any genuine charitable activity can only be assessed during the regular scrutiny assessment for each year separately.
24. CIT (DR) farther strongly argued that MPT was a commercial organization with the primary objective of earning profits. The activities of the Port can in no way be said to be charitable in nature. The Port Trust was catering only to the requirements of limited number of importers and exporters, as well as shippers of coastal cargoes, and the activities cannot be said to be of 'general public utility. She submitted that if such organizations were to be considered to be charitable in nature, then every commercial organization engaged in Port and shipping activities will start claiming exemption of its income. The feet that Statutory Boards/Public Sector Undertakings/Entitles created by Acts of the Parliament rendering certain specific services of Infrastructure! and development nature, social welfare promotion of sports, etc. should be considered as carrying on commercial business activities, and their Income should be classified as profits and gains of business, has been made clear by the recent amendments by which the new Section 36(1)9(ii) has been introduced. According to this Section, expenditure incurred by the Statutory Bodies shall be admissible as deduction for computation of income. The purpose is that after withdrawal of tax exemption, activities having no profit motive may be termed to be non-business in nature, and hence expenditure related thereto may not be allowed as deduction. She contended that this itself proves that even in the case of a larger purpose being satisfied, such institutions are to be considered as carrying on business activity, for which taxable income is to be computed. She stated that the primary or dominant purpose of MPT is not charitable. At best the benefit, if any, accruing to the public, is ancillary or incidental to the primary or dominant object of earning profits. She therefore argued that the income of Mormugao Port Trust cannot be said to be exempted Under Section 11 and Registration Under Section 12A should not be granted. She reiterated that the purpose of maintenance and development of Major Ports or of shipping and navigation of the country, do not by themselves make the port authorities a Trust, neither does the objectives of MPT suggest that day to day utilization of the various funds are for charitable purposes', in any case, she submitted that whether MPT was engaged in charitable activity or not can be determined only after a detailed scrutiny during the assessment proceedings.
25. About the word 'institution the ld D.R quoted the definition from the Law Lexicon as under:
INSTITUTE, INSTITUTION. That which is publicly established with authority is an institution. But the word 'Institution' has the particular meaning of an established organized society. Institute is similarly employed The difference seems to be that Institution being an old word in English and Institute in this sense being an adoption of the French Institute, which is a literary and philosophical society. So among other institutions in large towns, literary, charitable, or commercial, we observe generally in these days a mechanics' instlute (Smith Syn Dis).
26. Accordingly, she submitted that MPT is not a charitable institution. She also repeated the ratio laid down by the Delhi High Court in the case of Agricultural Produce Market Committee, Azadpur v. CIT (2006) (I.T.A No. 749/Del/2006 dated 2-6-2006) (copy on record), where the Honble High Court observed In paragraph 6 as under:
We have given our anxious consideration to the submissions made by Mrs. Ahlawat. The question that fell for consideration before the Court in the previous round of litigation between the parties was whether the appellant Committee was a local authority within the meaning of Section 10(20} of the Income-tax Act, 1661 as it existed before Hs amendment Since the Act did not provide any definition for the expression "Local Authority", this Court had interpreted the same by reference to Section 3(31) of the General Clauses Act, 1897 and answered the question in favour of the Committee. The legal position has since the said pronouncement undergone a change in as much as the expression "Local Authority has been given a restricted meaning in an exhaustive definition for purposes of Section 10(20) of the Income-tax Act, 1961. Any determination of the question by reference to Section 3(31) of the General Clauses Act, 1897 could therefore, no longer hold the key to the correct understanding or interpretation of the expression as it now has to be understood or interpreted in the light of the amended provision. Reliance upon the provisions of the General Clauses Act, 1897 would, in fact, be permissible only in cases where the enactment in which the expression occurs does not itself provide for a definition or meaning to be given to the same. It is possible that an expression which is defined under the General Clauses Act, 1897 is, at the same time, also given a meaning or definition under a special enactment which meaning may be different from the one given in the former Act. The decision of this Court in the previous round of legation does not, therefore, provide a complete answer to the question that arises for the year under consideration for the present appeal.
26A. She again repeated that the assessee is continuing as a local authority and subjected to the clutches of the income-tax Act. Lastly, the ld. CIT (DR) strongly supported the order of the CIT Panaji, in rejecting registration
27. We have heard both the parties at length and gone through the material available on record from which it appears that the assessee is a statutory autonomous body created under the Major Port Trusts Act, 1963. The assessee was enjoying the immunity from the Income-tax being a local authority" upto the A.Y. 2002-03 Under Section 10(20) of the Act. From the assessment year 2003-04 Section 10(20) was amended by the Finance Act 2002 by insertion of an Explanation where the local authorities were defined. Hence, the immunity from the Income tax Under Section 10(20) was ceased. Thus, the assessee brought to the dutches of the Income-tax Act.
28. It may be mentioned that in the definition of the term "person" in Section 2(31), there is no mention about either trust or institution. Therefore, even though the status of the assessee is a local authority' it is still to be considered as an institution which cannot be debarred from applying for registration Under Section 12A. Since the assesses came into existence by an Act of the legislature, there is no person who can be named as founder, author or settler. Section 12A does not make any distinction between a trust or an institution created by private individual or by the government. If an assessee is an institution, whose object is charitable as defined Under Section 2(15), the institution would be entitled for registration Under Section 12A.
29. There is no doubt that the assessee, prior to insertion of explanation in Section 10(20) w.e.f. 1-4-2003, was treated as a local body and accordingly its income was exempt. In view of the statutory charge, the legislature withdrew blanket exemption enjoyed by the local authorities like the assessee.
30. It may be mentioned that under Article 12 of the Constitution of India the doctrine of instrumentality is not applicable on the assessee (MPT). After the said amendment with effect from 1-4-2003, the word local authorities have been defined Under Section 10(20) of the Act. Moreover, in the following cases, it was held that when the statutory organization is not engaged in the sovereign activities the same cannot be enjoyed the status of the local authority under Article 12 of the Constitution.
(1) Oraga Tools Corporation v. K.A Imanuel (2) S.L. Aggarwal v. G.M. Hindustan Steel Ltd.
(3) Sabhajit Tewary v. Union of India (4) TekraJ Vasandi v. Union of India and Ors. (1930) 1 SCJ 178 (5) Chander Mohan v. NCERT and Ors. (1991) 3 SCJ 631.
31. Thus, we are of the opinion that the assessee cannot enjoy the status of the local authority. However, as per the advice by the Finance Ministry (page 367 of the Paper Book) the assessee is entitled to apply for the registration Under Section 12A of the Act to claim the charitable institution but strictly on merits. However, as made dear by the then Finance Minister in his letters to the Chief Minister, such bodies can claim exemption Under Section 11 of the Act after fulfilling certain prescribed conditions. Needless to mention that Andhra Pradesh State Road Corporation, established under the Road Corporation Act, 1950, has already been treated as a charitable institution Under Section 2(15). There are several other statutory organizations established by law which enjoy the status of charitable institution, we therefore, do not find any force in the objection that Major Ports cannot be treated as charitable Institutions, because these are created under a statute. Likewise, registration cannot be denied to the assessee on account of amendment Under Section 10(20) of the Act w.e.f. 1 -4-2003. There is nothing in the amendment to show that the assessees are precluded due to any reason from making an alternative daim Under Section 11 of the Act The legislative intention appears to be to put restrictions on these bodies as are contained in Section 11 to 13 of the Act, relating to utilization of income of these bodies by way of investments, for public good. Sections 11 to 13 impose several restrictions and do not allow blanket exemption like Section 10(20), where the assesses has only to establish that it is a local authority. No other conditions have to be followed after claiming exemption under the above Sub-section.
32. An argument has been raised that the Major Port trusts Act, 1963 has not specifically mentioned that income or the Port Authority would be exempt from the charge of income-tax. This, in our view, is an irrelevant condition for the registration of the institution Under Section 12A. in fact, had MPT Act 1963 provided that income of the Port authority would be exempt from the charge of income-tax, there would have been no necessity for the assessee to apply Under Section 12A for registration because then it was not required to claim exemption Under Section 11. It is only since the MPT Act has not provided exemption of Income of the institution that the assessee is required to claim exemption under the provision of the I.T. Act
33. The enactment of Section 12AA has brought about important changes in law w.e.f. A.Y. 1997-98. The law now requires satisfaction of the CIT as regards the object of the trust or institution, and the genuineness of its activities. The CBDT's circular no. 762 dated 18-2-1998 requires that CIT should be satisfied about the charitable or religious nature of the objects and the genuineness of the activities of the institution- At the stage of examination of the application for registration Under Section 12A, the CIT is not required to look either into the nature of the income of the assessed nor Its application. If the object of the institution fells within the definition of 'charitable purposes' Under Section 2(15), and the Institution is genuinely carrying on such objects, the CIT must register the institution, in the Instant matter, there is no dispute about the fact that the object of MPT is to maintain and develop the Port of Murmugao. As observed by the Hon'ble High Court of Gujarat in the case of GMB (supra), maintenance and development of Ports is necessary for transport of goods and person by sea.
34. The Hon;ble Gujarat High Court in the case of Gujarat Maritime Board in Tax Appeal No. 1433 of 2005 dated 31-7-2006 observed as under:
Maintenance and Development of Ports is necessary for transport of goods and persons by sea. In the present scenario of globalization of the trade and industry, the transport of goods from one country to other which is mostly through sea has become essential Theretore, the development and maintenance of Ports is certainly the object of general pubic utility, While taking this view, we derive support from the decision of the Honble Apex Court to the case of CIT v. AP State Road Transport Corporation 159 ITR 1. It is also not in dispute that the assessee Institution is genuinely engaged in the activities of development and maintenance of Ports in the State of Gujarat Therefore, in our opinion, the assessee duly fulfills both the conditions of Section 12AA which are necessary for the registration of the Instiution Under Section 12A. We therefore, direct the CIT to register the trust Under Section 12A w.e.f. 1-4-2002.
35. The status of the assessee is parallel to the Gujarat Maritime Board. So similar treatment will have to be given to the assessee.
36. Moreover, there is hardly any country today in which the Government is not engaged actively and directly in the setting up and management of economic and industrial enterprises. State participation In Industry Is m established feature of the State economy in many countries of the World. In India, prior to Independence, the administration of two of the biggest commercial undertakings, namely the Railways and the Post and Telegraphs, have been under exclusive State control as key sectors of the Industry.
37. In the present scenario of globalization of trade and industry, the transport of goods from one country to another, which is mostly by sea, has become essential. Therefore, development and maintenance of Ports are of 'general public utility' it is also not in dispute that the assessee Institution is genuinely engaged In the activities of development and maintenance of Mormugao Port. Therefore, the assessee duty fulfills both the conditions Under Section 12AA which are necessary for the registration of the institution Under Section 12A. The predominant objectives of MPT being charitable in nature, we are unable to agree with the view taken by the CIT, Panaji that the assessee is not eligible to be registered as an Institution within the meaning of Section 12A of the Act. Since ail the requisite conditions are satisfied, we direct the CIT to register the Mormugao Port Trust as an institution Under Section 12A from the first day of Financial year in which the application was made i.e. from 1st April 2005.
38. Another grievance of the appellant is mentioned in ground no. 7 of the appeal which relates to the question of condoning the delay in filing the application for registration. It is an undisputed fact that for and up to A.Y. 2002-03, the assessee's Income was exempt Under Section 10(20) being a local authority. Therefore, there was no need for it to apply for registration as a charitable institution Under Section 12A before 1-4-2002. The change in the statutory provisions compelled the assessee to re-examine its position as regards exemption of income under various provisions of the I.T. Act, 1961. It is only after the pleas of the Major Ports to the Finance Ministry to restore Section 10(20), were repeatedly turned down, that the assessee was advised to claim exemption of its Income Under Section 11. This necessitated registration Under Section 12A. Undoubtedly, the assessee is controlled by the Government of India and being the Government department the things are bound to move in a slow manner. The assessee will have to seek permission from various departments. During the course of arguments, we were told that the assessee was trying to get exemption through the Ministry of Shipping but could not get the same. These are the sufficient reasons for ruing belated application for registration, in this context, we would like to mention the ratio laid down by the Calcutta High Court in the case of Ananda Marga Pracharaka Sangha v. CIT (1996) 218 ITR 264 as under:
The registration of a charitable society under Section 12A is not an kite or empty for malty. This is apparent from the tenor of the provisions of Section 12A. it requires that not only an application should be filed In the prescribed form setting out the details of the origin of the trust but also the names and addresses of the trustees and/or managers should be furnished. The form further requires a certified copy of the Instrument of its creation as welt as two copies of the latest accounts of the applicant-trust or Institution for as far back as three years to accompany each application. The requirement of obtaining the details as also the copies of the past accounts cannot be said to be a ceremonial one. The purpose is to examine the objects of creation as well as an empirical study of the past activities of the applicant for three years where the application is made belatedly so that the Commissioner could come to a conclusion on examination of all the factors that the applicant is readily a charitable trust or institution eligible for registration. Where the application for registration is admitted belatedly and the registration has been granted by condoning the delay, the registration shall have retrospective effect torn the date of creation of the trust. The provision inserted below Section 12A(a) impliedly requires that the condemnation of delay win relate back the effect of registration to the very date of creation of the trust or Institution. As a matter of fact by the amendment of the proviso below Clause (a) of Section 12A by the Finance (No. 2) Act, 1991, with effect from October 1, 1991, it is now rmde clear by the Legislature itself that where condo nation & granted and the trust is registered upon condo nation, the registration shall have effect from the date of creation of the trust. The subsequent amendment only made patent what was latent in the earlier proviso. That apart, it is a principle of interpretation that on any aspect as regards which the law is vague or silent the subsequent legislation removing such vagueness or silence can be taken as guidance for construction of the unamended provisions.
39. In the light of our above discussion and by considering the totality of the facts and circumstances of the case and from the above ratio laid down by the Honble Calcutta High Court it appears that the assessee is entitled for registration from the date of its creation but in the instant case, the assessee is not required to get registration since 1-4-1964 to 31-3-2002 as it was already enjoying the status of local authority and was exempted from the clutches of the Income-tax Act and it is not in dispute before us. In para 37 of this order, we have already observed that the assessee is entitled for registration w.e.f. 1-4-2005 i.e. from first day of the financial year when the application was made for registration without any delay. For the intermediatory period of three years (1-4-2002 to 31-3-2005) the application was filed belated and the same was rejected by the CIT, as we were told.
40. By considering the totality of the facts and circumstances, we are of the view that the issue pertaining to the registration for the three years needs fresh adjudication. Therefore, In the interest of justice, we set aside the order of the CIT and restore the Issue to his file for considering the belated registration application and registration for the intermediately period of three years strictly on merits do novo but by providing reasonable opportunity to the assessee.
41. In the result, the appeal tiled by the assessee is partly allowed as stated above and announced in the open court.