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TMI Blog2007 (1) TMI 238X X X X Extracts X X X X X X X X Extracts X X X X ..... dless to mention that Andhra Pradesh State Road Corporation, established under the Road Corporation Act, 1950, has already been treated as a charitable institution u/s 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 with effect from 1-4-2003. There is nothing in the amendment to show that the assessees are precluded due to any reason from making an alternative claim under section 11 of the Act. The legislative intention appears to be to put restrictions on these bodies as are contained in sections 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 assessee has only to establish that it is a local authority. No other conditions have to be followed after claiming exemp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowed as stated above and announced in the open court. - Dr. Satish Chandra Judicial Member And B. R. Kaushik Accountant Member For the Appellant : Rajan R. Vora For the Respondent : Smt. Swati Patil ORDER Per Dr. Satish Chandra, Judicial Member.- This is an appeal filed by the assessee against the order of the CIT dated 25-7-2006 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. 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 1965-66. Ground Nos. 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 25-7-2006, while ground No. 7 challenges the action of the CIT in not condoning the delay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee 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 12A. 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 utility. He has drawn our attention to the letter dated 18-11-2002 of the then Union Finance Minister, to the Chief Minister of Delhi, wherein the Hon'ble Finance Minister had explained that assessee's working for advancement of general public utility, and without profit motive, can claim exemption from income-tax as a charitable institution after fulfilling 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. Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ef, and the advancement of any other object of general public utility. From the above definition of charitable purpose , it is evident that advancement of any other object of general public utility is also charitable 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 utility 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 atta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in that Board and for matters connected therewith. The above preamble is reproduction of the preamble of the Major Port Trusts Act, 1963 which reads 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, 1963. While the GMB, is vested with the obligations and responsibilities of maintaining and developing the Ports of Gujarat falling under its jurisdiction, MPT is responsible for the maintenance and development of Mormugao Harbour which falls under its jurisdiction. The ld. Counsel therefore argued that in accordance with the decision of the Hon'ble Gujarat High Court, MPT is also clearly a charitable institution eligible for registration under section 12A. He submitted that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ences, 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, rolling 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 shipped 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, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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 [1971] 82 ITR 704 (SC) and in the case of CIT v. Ahmedabad Rana Caste Association [1973] 88 ITR 354 (Guj.) 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 public 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 indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect unsound principle of management. We therefore, agree with Beg, J. when he said in Sale 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 mere fact that the activities of the trust yield profit will not alter 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 from 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 v. Andhra Pradesh State Road Transport Corpn. [1986] 159 ITR 1 (SC), where the Hon'ble Apex Court held as under: It was not disputed that the object of the activity carried on b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l of Maharashtra [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 [1964] 52 ITR 524 (SC), the amount handed over to the State Government does not become a part o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ified, 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 v. CIT [2005] 3 SOT 98, wherein Hon'ble 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 clear 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 uti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vading 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. Ld 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 sections 11 to 13. Mormugao Port Trust was created as a local Authority within the meaning of term person of the Income-tax Act, 1961 and continues to be one till date; (ii) Application for registration under section 12A is inordinately delayed and the reasons gi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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. DR 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& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne 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 up to the assessment year 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 clutches 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 assessee 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act with effect from 1-4-2003. There is nothing in the amendment to show that the assessees are precluded due to any reason from making an alternative claim under section 11 of the Act. The legislative intention appears to be to put restrictions on these bodies as are contained in sections 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 assessee 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 of 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 requi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A with effect from 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 an 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 duly fulfils both the conditions under section 12AA which are necessary for the registration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. The form further requires a certified copy of the instrument of its creation as well 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 from the date of creation of the trust. The provision inserted below section 12A(a) impliedly requires that the condonation of delay will 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 Fin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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