9911796707
TMI Blog2016 (8) TMI 257X X X X Extracts X X X X X X X X Extracts X X X X ..... been held to be effective from 29/01/2001. Each of the aforesaid actions of the Director have been challenged by the assessee, by raising multiple Grounds of appeal, which are as under:- Grounds of appeal in ITA No.1057/Mum/2014: 1. BREACH OF THE PRINCIPLES OF ATURAL JUSTICE 1.1 The Director of Income - tax (Exemption), Mumbai ["the DIT (E)"] erred in not granting proper, sufficient and adequate opportunity of being heard to the Appellant while passing the order cancelling registration u/s 12AA of the Income tax Act, 1961 ["the Act'] of the Appellant. 1.2 It is submitted that in the facts and the circumstances of the case, and in law, the order so passed be held as bad in law, as the same is framed in gross breach of the principles of natural justice. WITHOUT PREJUDICE TO THE ABOVE: 2.1 The DIT (E) erred in cancelling the registration u/s. 12AA of the Income - tax Act, ["the Act"] of the Appellant. 2.2 It is submitted that in the facts and the circumstances of the case, and in law, the order passed by the DIT (E) is bad, illegal and void, as the same is passed - without jurisdiction / in excess of the jurisdiction conferred upon him u/s. - 12AA (3) of the Act. WIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o below section 2(15) by the Finance Act,2008 w.e.f. 01/04/2009. 4. In this background, the rival parties have made their submissions. The relevant material on record has also been perused in order to dispose of the captioned appeals. The appellant before us is a Government Company incorporated under section 617 of the Companies Act, 1956. It's shareholding is jointly owned by the Ministry of Railways (Government of India) and the Government of Maharashtra in the ratio of 51:49. Broadly speaking, the appellant is a 'Project Implementing Agency' for the Railway component of the Mumbai Urban Transport Project (MUTP). The appellant was granted registration under section 12A of the Act by the Director on 29/10/2001 w.e.f. 12/07/1999. It has been stated before us that thereafter scrutiny assessments under section 143(3) of the Act have been finalized for almost 10 years and the benefit of sections 11/12 of the Act has been granted. Subsequently, the Director issued a show-cause notice dated 3/12/2013, proposing to cancel the registration granted under section 12A of the Act for the reasons mentioned in the said notice, a copy of which has been placed in the Paper Book at pages 516 to 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d down under section 12AA(3) of the Act has been fulfilled; and, hence he cancelled the registration granted under section 12A of the Act. The main points which the Director has noted in order to arrive at aforesaid conclusion can be summarized as follows- that the objects clause contained in the Memorandum and Articles of Association allows the assessee to do business, and that too for profits; that in terms of the amended proviso to section 2(15) of the Act, even if assessee had applied income for 'general public utility' it would be deemed to be non-charitable purpose as it involved carrying on of business; that entire expenses were incurred for establishment and administration/ depreciation and it was leveraging its funds to earn income, which was also not being applied for the object for any 'general public utility'. 4.2 In the above background, the Ld. Representative for the assessee has vehemently pointed out that the Director erred in law as also on facts in invoking the provisions of section 12AA(3) of the Act for cancelling registration originally granted to the assessee under section 12A on 29/10/2001. It is sought to be canvassed that registration was granted after mak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the income being earned was by way of interest on fixed deposits with banks, etc. and, therefore, it could be said that assessee was only leveraging its funds to earn income, and such income was being used to defray establishment and administrative expenses only and not objects of any general public utility. It was, therefore, contended that its activities could not be said to be being carried out for any 'charitable purpose', and the Director was justified in cancelling the registration for the reasons contained in the order. 6. We have carefully considered the rival submissions. The crux of the controversy before us arises from the action of the Director to cancel the registration already granted to the assessee under section 12A of the Act. In doing so, the Director has invoked the powers enshrined on him by section 12AA(3) of the Act. The first and the foremost argument set-up by the assessee is that the power of cancellation enshrined in section 12AA(3)of the Act has not been justifiably exercised by the Director, as the requisite conditions specified therein are not fulfilled. Notably, section 12AA(3) of the Act prescribes that registration once granted under section 12A of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Hon'ble High Courts, there are a plethora of decisions of various Benches of the Tribunal on the said proposition which are not being detailed herein for the sake of brevity. Be that as it may, the phraseology of section 12AA(3) of the Act as well as aforesaid judgments justify an inference that the power of cancellation contained in section 12AA(3) is not unfettered. It is circumscribed by the conditions prescribed in section 12AA(3) of the Act. It is also clear that such power does not permit a wholesale review of the ingredients which have been considered by the Director while granting registration under section 12A of the Act. To illustrate, we may point out that at the time of evaluating the application of registration under section 12AA (1) of the Act, the Director is mandated to satisfy himself on two conditions i.e. that the activities are genuine and that the objects of the applicant fall within the meaning of 'charitable purpose' as per section 2(15) of the Act. In contrast, at the time of cancelling of registration under section 12AA (3) of the Act, the Director has to be satisfied about either or both of the conditions prescribed therein, namely, that the acti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ailway component of MUTP. Accordingly, assessee company was set-up as a SPV for taking up projects concerning Mumbai Sub-urban Rail Network. In fact, a perusal of the Main Objects clause in the Memorandum and Articles of Association of the assessee- company bears testimony to the above, and it reads as under:- "A. MAIN OBJECTS OF THE COMPANY TO BE PURSUED ON ITS INCORPORATION: (i) To develop coordinated plans and implement the rail infrastructure projects, integrate urban development plan for Mumbai with rail capacity and purpose investments, undertake commercial development Railway land and air space, coordinate and facilitate improvements of track, drainage and removal of encroachments and trespassers and coordinate with organizations operating the train services and responsible for protection of Railway's right of way and urban development for purposeful resolution of allied issues and problems, and discharge its liabilities arising due to such projects and action." Before us, it has been elaborately brought out that under the first phase of MUTP (at a cost of Rs. 4501 crores) 101 EMU rakes have been procured, which have made 418 additional train services possible and gener ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tivity for any party other than the Government of India, and that the projects being undertaken by the assessee company are funded by the World Bank and/or by the budgetary support provided by the State Exchequer, and no funds are received from any outside party. All the aforesaid features do show that the task of the assessee is to act as an overall co-ordination and implementing agency for the railway component of MUTP works. 6.3 Be that as it may, in the background of the aforesaid features of assessee company, we now refer to the specific points raised by the Director to say that the activities of the assessee are not being carried out in accordance with its objects in order to justify his invoking of section 12AA(3) of the Act. As per the Director, the activities carried on by the assessee are not in accordance with the objects because - (i)assessee is only leveraging its funds to earn interest income and the same is not applied for its objects; and (ii) the expenses are incurred for establishment, administrative functions and not for any charitable or general public utility purpose. On both the aspects, Ld. Representative for the assessee pointed out that the activities of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arges, interest incomes and expenses on administrative and establishment overheads. Quite clearly, any organization would require to spend on administrative overheads in order to carry out its objectives. So however, the function of maintaining an administrative set-up cannot be confused with the objects for which the assessee company has been set-up, and which it has been undertaking ever since namely, the execution of the railway component of the MUTP. In fact, at no stage has Revenue disputed the fact that the assessee company is executing rail projects identified under the MUTP. In our considered opinion, the Director erred in not appreciating the difference between the functioning of administrative set-up, which is essential to execute the objects entrusted to the assessee and, the activity of executing the railway component of the MUTP. The administrative set-up and its functions cannot be viewed in isolation to say that assessee company is not carrying out activities in accordance with its objectives, which in the present case is quite clearly being undertaken by the assessee by executing the railway component of the projects under MUTP. Therefore, in our considered opinion, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut certainly the same are outside the purview of the pre-requisites contained in section 12AA(3) of the Act. Another aspect raised by the Director was that some of the clauses in the Memorandum and Articles of Association allowed assessee to do business and, therefore, it is hit by the amended proviso to section 2(15) of the Act. On this point also, it is sufficient to notice that the same is not a relevant criteria for cancellation of registration envisaged in section 12AA(3) of the Act. Of course, as noted earlier, such issues are open for examination by the assessing authority in the quantum assessment proceedings, if so advised in law. Certainly, the same cannot be considered for the purposes of justifying invoking of section 12AA(3) of the Act. Thus, on these aspects also, we find no reason to uphold the finding of the Director. Therefore, we set-aside the order of the Director dated 10/01/2014 and restore the certificate of registration dated 29/10/2001 granted under section 12A of the Act. 6.6 As a consequence, the order of the Director dated 24/03/2014, which is the subject matter of appeal in ITA No.2626/Mum/2014 is also liable to be quashed. We hold so. 7. Resultantly, ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
