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TMI Blog2015 (7) TMI 77X X X X Extracts X X X X X X X X Extracts X X X X ..... der section 11 in respect of such income. It is only elementary that a statutory provision is to be interpreted ut res magis valeat quam pereat, i.e., to make it workable rather than redundant. The considerations about the possibilities of the first proviso to Section 2(15) coming into play affecting the grant, decline or withdrawal of registration under section 12AA will thus lead to wholly avoidable undue hardships to the assessee, will be unworkable in practice and be contrary to the scheme of the Act. Thus as the considerations about the possibilities of first proviso to Section 2(15) into play are wholly extraneous in the present context. As the withdrawal of registration is solely based on these considerations, the very foundation of the learned Commissioner's action is unsustainable in law and consists of reasons which are not at all relevant in the context of registration status under section 12A or 12AA of the Act. For this reason also, the action of the learned Commissioner is wholly devoid of any legally sustainable merits. - Decided in favour of assessee. - ITA No. 732 (Asr) of 2013 - - - Dated:- 11-6-2015 - Pramod Kumar, AM And A. D. Jain, JM,JJ. For the App ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned Commissioner required the assessee to show cause as to why the registration so granted to the assessee not be withdrawn. In this show cause notice, the Commissioner, inter alia, stated as follows: Sub:- Review of registration granted u/s 12(AA)- Regarding. ***** Please refer to the subject cited above. 2. In this connection, it is reported by the A.O. that as per records, the assessee trust applied for grant of registration under section 12AA of Income Tax Act, 1961 which was rejected by my predecessor on the ground that the activities of the trust as spelt out in Punjab Town Improvement Act 1922 are clearly in the nature of commercial activities, intended to earn profit and not of charitable nature. In appeal, the ITAT, Amritsar, decided in the favour of the trust and allowed the registration to the trust. Against the order of Ld. ITAT, the Hon'ble Punjab Haryana High Court dismissed the appeal of the revenue. So the trust is enjoying registration u/s 12A of the Act. 3. The case was decided in your favour much before the insertion of first proviso to section 2(15) by the Finance Act, 2008 w.e.f. 01.04.2009 according to which the advancement of any ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so, learned Commissioner observed as follows: 9. As per amended definition of charitable purpose u/s. 2(15) of the Act with effect from 01.04.2009, the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on any activity in the nature of trade, commerce or business or rendering any service in relation to any trade, commerce or business for a cess of fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity. As discussed above since the applicant is engaged in the activity in the nature of trade, commerce and business and is engaged in the trade of real estate business with a profit motive, its engagement in any of the activities as stated above will not affect its character as such since the proviso provides that the advancement of any other object of general public utility shall not be regarded as charitable purpose if it involves the carrying on any activity in the nature of trade, commerce or business or rendering any service in relation to any trade, commerce or business for a cress or fee or any other consideration irrespective of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applicability of section 2(15) is certainly established and benefits of exemption u/s 12AA are not allowable to such an assessee. 11. The reliance was also placed on the decision of Hon'ble ITAT, Amritsar Bench, Amritsar contained in their order dated 18.12.2012 passed in ITA No. 366(ASR)/2012 in the case of the Improvement Trust, Bathinda vs. CIT, Bathinda, wherein the order passed by the CIT, Bathinda u/s. 12AA(3) of the Act on 20.7.2012 has been upheld. In the order dated 20.7.2012 the CIT, Bathinda had withdrawn the exemption allowed to the Improvement Trust, Bathinda u/s 12AA of the Act on the exactly similar set of facts and circumstances of the case as brought out in the present case before me. The Hon'ble ITAT while upholding the order of the CIT, Bathinda has observed as under : 7.2. After perusing the aforesaid activities, we are of the view that the ld. First appellate authority has rightly held that the land of the assessee trust is in the same category of other real estate products available in the market offered by the private colonizers and real estate agents. Because the assessee advertised this value added product widely in print as well a electroni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tration u/s 12AA has been withdrawn. It is held by the Hon'ble ITAT in the above referred order that the Commissioner of Income Tax, JalandharII, Jalandhar has passed a well reasoned order by respectfully following the order of various Courts. The ITAT relied upon the decision of Improvement Trust, Bathinda (supra). 13. As regards the reliance of the assessee on CBDT circular No. 11/2008 dated 19.12.2008 mentioned by the assessee's counsel in his arguments, it is significant to mention here that in this circular it is mentioned that what is the advancement of any other object of general public utility is a question of fact and whether an entity is carrying on an activity in the nature of trade, commerce or business is a question of fact which will be decided on the nature, scope, extent and frequency of the activity. In para 3.2 of this circular it is further mentioned that each case would, therefore, be decided on is own facts and no generalization is possible. Thus this circular's context is not applicable in this case, since it is clearly mentioned that no generalization about the fact that whether an entity is involved in the trade, commerce or business. Moreo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e or are not being carried out in accordance with the objects of the trust or institution, as the case may be, he shall pass an order in writing cancelling the registration of such trust or institution . It is not even the case of the CIT that the activities of the assessee trust are not genuine or that the activities of the assessee are not being carried out in accordance with the objects of the assessee trust. The case of the CIT rests on the first proviso to Section 2(15) coming into play on the facts of this case but then such a factor cannot warrant or justify the powers under section 12AA(3) being invoked. We, therefore, uphold the grievance of the assessee that the action of the learned Commissioner, in withdrawing the registration under section 12AA(3), was well beyond the limited scope of the powers conferred on him by the statute. The assessee, therefore, must succeed in the appeal for this short reason alone. 10. There is, however, a much more fundamental a reason for the assessee succeeding in this appeal. In our considered view, the considerations with respect to the first proviso to Section 2(15) coming into the play and, for that reason, the objects of an asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r character of 'charitable activities' is concerned, is inbuilt in the provisions of Section 13(8) which was brought into effect with effect from the same point of time when proviso to Section 2(15) was introduced - i.e. with effect from 1st April 2009. Section 13(8) provides as follows: Section 13- Section 11 not to apply in certain cases. . (8) Nothing contained in section 11 or section 12 shall operate so as to exclude any income from the total income of the previous year of the person in receipt thereof if the provisions of the first proviso to clause (15) of section 2 become applicable in the case of such person in the said previous year . 13. While introducing this amendment, Explanatory Memorandum to the Finance Bill 2012 (http://indiabudget.nic.in/budget2012-2013/ub2012-13/mem/mem1.pdf) explained the reasons and backdrop of this legislative amendment as follows: Assessment of charitable organization in case commercial receipts exceed the specified threshold Sections 11 and 12 of the Act exempt income of any charitable trust or institution, if such income is applied for charitable purposes in India and such institution is registered under sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld whether or not the registration or approval granted or notification issued is cancelled, withdrawn or rescinded. This amendment will take effect retrospectively from 1st April, 2009 and will, accordingly, apply in relation to the assessment year 2009-10 and subsequent assessment years. (Emphasis by underling supplied by us) 14. It is thus clear that the impact of the proviso to Section 2(15) being hit by the assessee will be that, to that extent, the assessee will not be eligible for exemption under section 11 of the Act. The mere fact that the assessee is granted registration under section 12 A or 12AA as a charitable institution will have no bearing on this denial of registration. As a corollary to this legal position, the fact that the objects of the assessee may be hit by the proviso to section 2(15) cannot have any bearing on the grant, denial or withdrawal of the registration under section 12AA. 15. It is also important to bear in mind the fact that in terms of the second proviso to Section 2(15), which was introduced by the Finance Act 2010 with retrospective effect from 1st April 2009, the legal prescription set out in first proviso to section 2(15) cannot co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be subjected to undue hardship in the sense that while the assessee will be disentitled to exemption under section 11 due to denial of registration under section 12 A or 12AA which is sine qua non for admissibility of exemption under section 11. On the other hand, if the status of registration is granted to the assessee even when some of the objects may be hit by the first proviso to Section 2(15) and the assessee's receipts from such activities do exceed specified threshold, no prejudice will be caused to the legitimate interests of the revenue because, notwithstanding the status of registration and by the virtue of section 13(8), the assessee will not be eligible for exemption under section 11 in respect of such income. It is only elementary that a statutory provision is to be interpreted ut res magis valeat quam pereat, i.e., to make it workable rather than redundant. 18. The considerations about the possibilities of the first proviso to Section 2(15) coming into play affecting the grant, decline or withdrawal of registration under section 12AA will thus lead to wholly avoidable undue hardships to the assessee, will be unworkable in practice and be contrary to the scheme ..... X X X X Extracts X X X X X X X X Extracts X X X X
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