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TMI Blog2016 (4) TMI 1006X X X X Extracts X X X X X X X X Extracts X X X X ..... cancel or withdraw the registration granted u/s. 12AA of the Act. Similar is the position in respect to exemption/rejection u/s. 80G(5)(vi) of the Act in the present case in the given facts and circumstances. Accordingly, we quash the orders passed by DIT(E) cancelling the registration u/s. 12AA(3) and rejection/exemption granted u/s. 80G(5)(vi) of the Act dated 08.03.2011. - Decided in favour of assessee. - I.T.A Nos.689&690/Kol/2011 - - - Dated:- 18-3-2016 - Shri Mahavir Singh, JM Shri Waseem Ahmed, AM For The Appellant: Shri R. N. Bajoria, Sr. Advocate For The Respondent: Shri G. Mallikarjuna, CIT ORDER Per Shri Mahavir Singh, JM: Both these appeals filed by assessee are arising out of separate orders of DIT(E), Kolkata vide M. No. DIT(E)/Kol/u/s. 12A/2010-11/2870-72 and DIT(E).Kol/80G(5)(vi)/2010-11/2873- 75 dated 28.03.2011 passed u/s. 12AA(3) and 80G(5)(vi) of the Income-tax Act, 1961 (hereinafter referred to as the Act ). 2. The two interconnected issues in these two appeals of assessee is as regards to cancellation of registration u/s. 12AA(3) of the Act and cancellation of grant of certificate u/s. 80G(5)(vi) of the Act by DIT(E), Kolkata ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ancelled u/s. 12AA(3) of the I. T. Act from AY 2010-11. Similar is the finding in respect to ITA No. 690/Kol/2011 while cancelling the certificate issued u/s. 80G(5)(vi) of the Act . Aggrieved against the orders of DIT(E) on both the issues, assessee came in appeals before Tribunal. 4. The Ld. Counsel for the assessee Shri R. N. Bajoria, Sr. Advocate stated the history of the Society that it came into existence vide certificate dated 06.12.1985 issued by Registrar of Firms/Societies and as non-trading corporation, West Bengal by certificate dated 06.02.1985. According to Ld. Counsel, the one and only object of the Society was to run an educational institution and other incidental or ancillary activities connected to such educational institution and required for carrying on such educational activities was also carried out i.e. textile division. This is apparent from Memorandum of Association of the institution and the relevant clauses were referred to by Ld. Counsel. He further explained that this institution/society enjoys benefit of registration u/s. 12AA of the Act since AY 1986-87. The Society is also enjoying the benefit of deduction u/s. 80G of the Act since AY 1986-8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ., relief of the poor, education or medical relief. Consequently, where the purpose of a trust or institution is relief of the poor, education or medical relief, it will constitute charitable purpose even if it incidentally involves the carrying on of commercial activities. 2.2. Relief of the poor encompasses a wide range of objects for the welfare of the economically and socially disadvantaged or needy. It will, therefore, include within its ambit purposes such as relief to destitute, orphans or the handicapped, disadvantaged women or children, small and marginal farmers, indigent artisans or senior citizens in need of aid. Entities who have these objects will continue to be eligible for exemption even if they incidentally carry on a commercial activity, subject, however, to the conditions stipulated under section 11(4A) or the seventh proviso to section 10(23C) which are that (i) the business should be incidental to the attainment of the objectives of the entity,and (ii) separate books of account should be maintained in respect of such business. Similarly, entities whose object is education or medical relief would also continue to be eligible for exempti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... device to hide the true purpose which is trade, commerce or business or the rendering of any service in relation to trade, commerce or business. Each case would, therefore, be decided on its own facts and no generalization is possible. Assessees, who claim that their object is charitable purpose within the meaning of Section 2(15), would be well advised to eschew any activity which is in the nature of trade, commerce or business or the rendering of any service in relation to any trade, commerce or business. 5. Ld. Counsel for the assessee also referred to the report of JCIT, Bhiwani Range, Bhiwani dated 31.10.2011, which was obtained by CCIT, Kolkat-III, while adjudicating an application for grant of renewal of exemption u/s. 10(23C)(vi) of the Act, in order to ascertain the veracity of the facts and to make field enquiries and to obtain report from the field officers. The relevant report he referred to, which reads as under: As directed by your good' self, I have visited at the premises of the Technological Institute of Textile Sciences situated at Birla Colony, Bhiwani on 14.09.2011 for conducting of spot enquiries regarding activities carried out by the Textil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nufacturing unit i.e. textile division is incurred huge loss regularly and it is in no way helping the educational institution. He also relied on the proviso to section 2(15) of the act as brought out by Finance Act, 2008 w.e.f. 01.11.2009 relevant to AY 2010-11. According to him, the society/institution is squarely covered under the proviso and assessee is not entitled for registration u/s. 12AA(3) of the Act and DIT(E) has rightly cancelled the registration because there is no charity done by assessee. Hence, the same is not qualified for charitable activities rather this will amount to an object of profit making. Accordingly, he opposed the appeal of the assessee. 7. We have heard rival submissions and gone through facts and circumstances of the case. As explained by Ld. Counsel for the assessee, which was not rebutted by revenue, the Technological Institute of Textile Science was established in the year 1943 for giving technical and formal education and since then a Textile Mill was attached with the Institute to give practical training to the students. Uptill 1985, the Institute continued as a part of Birla Education Trust and in the year 1985 it was separated from Birla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ched to the Institute for a long time and, besides, the Institute has been enjoying the benefit of exemption u/s.10(22)/10(23C)(vi) since 1985. There is nothing incriminating on record to suggest that the Textile Mill is being used for any purpose other than imparting practical training to the trainees for their projects and research work for the textile engineering students. Besides, in the last three financial years i.e. assessment year 2008-09, 2009-10 2010-11 the textile unit has been incurring losses. The conclusion drawn by DIT (Exemption), Kolkata, that loss of the textile unit is being adjusted against the income from educational activity is apparently not based on proper appreciation of facts and evidently all the relevant facts having a bearing in this case have not been brought to the notice of the DIT (Exemption), Kolkata. The report on the basis of spot enquiry from the field officers at Bhiwani also clarifies that the students of Textile Engineering take practical training regarding textile technology in the manufacturing unit. 7.2 There is sufficient and acceptable merit in the contentions of the assessee- society. The following significant facts emerge from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re carried out in accordance with all or any of, the conditions subject to which it is approved; (b) the Society applies its income, or accumulates its income for application, wholly and exclusively, for the objects for which it is established and application of its income must be in accordance with the Third Proviso to section 10(23C) of the Income Tax Act; (c) the Society ,will, not invest or deposit its funds (other than voluntary contributions received and. maintained in the form of jewellery, furniture etc) for any period during the previous years relevant to the assessment years mentioned above otherwise than in any one or more of the forms or modes specified in sub section (5) of section 11 of the I. T. Act, 1961; d) This approval will not apply in relation to any income being profits and gains of business, unless the business is incidental to the attainment of the objectives of the Society and separate books of accounts are maintained in respect of such business; (e) the Society will regularly file its return of income before the Income-tax authority in accordance with the provisions of the Income-tax Act, 1961; (f) that in the event of its dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee society is running an educational institute running courses of B. Tech, M. Tech MBA. There is also a textile division engaged in production of cloths and manufacturing of yarn attached to the institute. He has also noted the fact that this organization is wholly and solely engaged in imparting education only and has no other activities. According to him, the textile division attached to the institution is only for imparting practical training to the students, which is part and parcel of carrying on educational activities that for such higher technology, education imparting of such practical training is must for the educational activities. He also noted that the textile division is for giving practical training to the students of this institute has been engaged since long and this division is approved for exemption by CBDT and different CCITs and this fact of textile division being part of educational activity for giving practical training has been recognized by this Department since long. Even now before us it was explained that the amendment to section 2(15) of the Act by inserting proviso was introduced by Finance Act, 2008 w.e.f. 01.04.2009 is only with respect t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he factory are only incidental to the carrying on of/or in fulfillment of the primary object of the society i.e. education imparting, and in no way it can be said to be an activity for profit. 12. In similar circumstances, Hon ble Madras High Court in the case of The Tamil Nadu Cricket Association vs. The Director Of Income Tax (Exemption) Ors. (2014) 360 ITR 633 (Mad) has examined the proviso added to section 2(15) of the Act by the Finance Act, 2008 w.e.f. 01.04.2009 and also proviso to sub-section (3) of section 12AA by the Finance No. 2 Act, 2004 for cancellation of registration and Hon ble High Court decided the issue as under: 22. We had already extracted in the preceding paragraph, the objects of the association. Going by the objects , we find that the trust falls under the head of any other object of general public utility and hence falls within the meaning of charitable purpose under Section 2(15) of the Act.Section 2(15) of the Act defines charitable purpose as it originally stood at the time of grant of registration as under:- 'charitable purpose' includes relief of the poor, education, medical relief and the advancement of any other object ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity. Though the section as it stood prior to the substitution in 2008 contained no provision as in the proviso under the 2008 amendment, yet the Supreme Court held that that if the primary or dominant purpose of a trust or institution is charitable, another object which by itself may not be charitable but which is merely ancillary or incidental to the primary or dominant purpose would not prevent the trust or institution from being a valid charity: vide CIT v. Andhra Chamber of Commerce [1965] 55 ITR 722 (SC) (referred to in the decision reported in (1980) 121 ITR 1(Addl. Commissioner of Income-tax v. Surat Art Silk Cloth Manufacturers Association). Thus if the dominant object or the primary object was charitable, the subsidiary object for the purpose of securing the fulfillment of the dominant object would not militate against its charitable character and the purpose would not be any the less charitable. The amendment in the year 2008 made a dras ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on further empowers the Commissioner to make such enquiry as he deems necessary in this regard. Once the Commissioner is satisfied himself about the objects of the trust or institution and the genuineness of the activities of the trust, he has to pass an order in writing registering the trust or institution; if he is not so satisfied, he has to pass an order in writing refusing to register the trust or institution. 30. Section 12AA(3) of the Act inserted with effect from 01.10.2004 under the Finance (No.2) Act, 2004 and the amendment inserted by Finance Act, 2010, with effect from 01.06.2010 therein empowering the Commissioner to cancel the registration granted under the stated circumstances, reads as under:- Provision inserted under Finance Act, 2004: Section 12AA(3):- Where a trust or an institution has been granted registration under clause (b) of sub-section (1) and subsequently the Commissioner is satisfied that the activities of such trust or institution are not genuine 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 ins ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ious year of the person. So too, Section 12of the Act on the income derived from property held for charitable or religious purposes. 34. Thus, when the assessee is in receipt of income from activities, which fits in with Sections 11and 12 of the Act as well as from sources which do not fall strictly with the objects of the trust, would not go for cancellation of registration under Section 12AA of the Act on the sole ground that the assessee is in receipt of income which does not qualify for exemption straight away by itself. All that ultimately would arise in such cases is the question of considering whether Section 11 of the Act would at all apply to exempt these income from liability. These are matters of assessment and has nothing to do with the genuineness of the activity or the activities not in conformity with the objects of the trust. As rightly pointed out by learned Senior counsel appearing for the assessee, as is evident from the reading of Circular No.11 of 2008 dated 19.12.2008, the object of the insertion of first proviso to Section 2(15) of the Act was only to curtail institution, which under the garb of 'general public utility', carry on business or com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me of trust is eligible for exemption under Section 12 of the Act is a matter of assessment and this Court had pointed out in the decision reported in 343 ITR 300 in the case of CIT Vs. Sarvodaya Ilakkiya Pannai, as under:- In order to avail the benefit of exemption under Section 11 of the Income Tax Act, 1961, a Trust can make an application to the Commissioner for registration under Section 12A of the Income Tax Act, 1961. On receipt of the said application for registration of a trust or institution, the Commissioner should satisfy himself about the genuineness of the activities of the trust or institution. In order to satisfy himself, the Commissioner may also make such enquiry as he may deem necessary in that behalf. In the event the Commissioner satisfies himself that the trust is entitled to registration keeping in mind the objects, shall grant registration in writing in terms ofSection 12AA(1)(b)(i) of the Income Tax Act, 1961. In the event the Commissioner is not satisfied, he shall refuse such registration in terms of Section 12AA(1)(b)(ii) of the Income Tax Act, 1961. Once such a satisfaction is arrived at by the Commissioner to grant, such registration cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould be empowered to cancel and that too, only on two conditions laid down under Section 12AA(3) of the Income Tax Act, 1961. Whether the income derived from such transaction would be assessed for tax and also whether the trust would be entitled to exemption under section 11 are entirely the matters left to the assessing officer to decide as to whether it should be assessed or exempted. 42. In the light of the law declared by this Court in the above said decision, we do not find that the scope of Section 12AA(3) of the Act is of any doubt for a fresh look. It is relevant herein to point out that in two other assessee's case, the Income Tax Appellate Tribunal, Ahmedabad Bench-A rendered in the case of Gujarat Cricket Association Vs. DIT (Exemption) in ITA.No.93(Ahd)/2011 dated 31.01.2012 and that of the Nagpur Bench rendered in the case of M/s.Vidarbha Cricket Association Vs. Commissioner of Income-tax-I, Nagpur in ITA.No.3/Nag/10 dated 30.05.2011, considered the said decision reported in 343 ITR 300 in the case of CIT Vs. Sarvodaya Ilakkiya Pannai rendered under Section 12AA(3) of the Act. On appeal before the respective High Courts, the decision of the Income Tax Appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cept the submission of learned Standing counsel appearing for the Revenue. As rightly observed by learned Senior counsel appearing for the assessee, the Revenue granted registration under Section 12AA of the Act satisfying itself as to the objects of the association befitting the status as charitable purpose as defined under Section 2(15), as it stood in 2003 and after granting the registration, if the registration is to be cancelled, it must be only on the grounds stated under Section 12AA(3) of the Act with reference to the objects accepted and registered under Section 12AA, as per the law then stood under the definition of Section 2(15) of the Income Tax Act. Even therein, Courts have defined as to when an institution could be held as one for advancement of any other object of general public utility. Thus, if a particular activity of the institution appeared to be commercial in character, and it is not dominant, then it is for the Assessing Officer to consider the effect of Section 11 of the Act in the matter of granting exemption on particular head of receipt. The mere fact that the said income does not fit in withSection 11 of the Act would not, by itself, herein lead to the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion reported in (2008) 300 ITR 214(SC) in the case of Assistant Commissioner of Income Tax Vs. Surat City Gymkhana, reference was made about this decision and the Apex Court pointed out that the Revenue did not challenge this case and it attained finality. 48. It is no doubt true that the decision reported in (2008) 300 ITR 214(SC) in the case of Assistant Commissioner of Income Tax Vs. Surat City Gymkhana, was in the context of Section 10(23) of the Income Tax Act, 1961, nevertheless, the fact remains that the understanding of the scope of the expression general public utility would nevertheless is of relevance herein. Admittedly when the assessee was granted registration, the Revenue recorded its satisfaction that the objects are of charitable purpose. Thus only possible enquiry under Section 12AA of the Act for cancellation is to find out whether the activities of the trust are genuine or in accordance with the objects of the trust. If any of the income arising on the activities are not in accordance with the objects of the trust, the assessees income, at best, may not get the exemption under Section 11of the Act. But this, by itself, does not result in straight rejectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enuine or not. In the circumstances, we do not agree with the view of the Income Tax Appellate Tribunal that the order passed by the Director of Income Tax (Exemptions) was in accordance with the provisions of the Income Tax Act, 1961. He viewed that the conduct of test matches and ODI are in the nature of commerce or business. Though the assessee claimed their activities for promotion of sports, he held that the dominant feature is evident from the huge profits received and hence the amount received from BCCI as subsidy are commercial. As regards conducting of IPL Matches, he pointed out that though no services are rendered by the assessee for conducting the matches, the ground where the matches are played are given for rent which is a commercial venture. The subsidy received from BCCI included mainly TV Advertisements sold by BCCI for the conduct of IPL and their commercial receipts arising for IPL transactions. Therefore, the nature of receipt was important than the name of account under which it was accounted. Thus he viewed that the objects and activities would no longer come within the definition of Section 2(15)of the Act after the amendment come in effect from 01.04.2009. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... satisfied is concerned, it is not denied by the Revenue that at the time of granting registration, the Commissioner had satisfied himself about the objects of the trust and the genuineness of the activities as falling within the meaning of 'charitable purpose', as it stood in 2003. The Revenue does not deny as a matter of fact that the objects remain as it was in 2003 and there is no change in its content to call the assessee's object as not genuine. There are no materials to indicate that the grant of registration was not based on materials indicating objects of general public utility. 56.The assessee is a member of Board of Control for Cricket in India (BCCI), which in turn is a member of ICC(International Cricket Council). BCCI allots test matches with visiting foreign team and one day international matches to various member cricket association which organise the matches in their stadia. The franchisees conduct matches in the Stadia belonging to the State Cricket Association. The State Association is entitled to all in-stadia sponsorship advertisement and beverage revenue and it incurs expenses for the conduct of the matches. BCCI earns revenue by way of sponso ..... X X X X Extracts X X X X X X X X Extracts X X X X
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