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TMI Blog2020 (2) TMI 1322X X X X Extracts X X X X X X X X Extracts X X X X ..... two conditions by the assessee. The activities carried on by the assessee is genuine one. As could be seen from the profits they have generated, the said profit is earned by carrying on the activities in accordance with the object of the Trust. Therefore, the two conditions stipulated in sub-section (3) of Section 12AA of the Act, which empowers the authority to cancel the registration, do not exist in this case. The registration granted is cancelled in view of the amendment of first proviso to Section 2(15) of the Act. That is not a ground specified in the Statute for cancellation of the registration. If the provisions of the first proviso to clause (15) of Section 2 becomes applicable in the case of such person in the said previous year, the Statute has protected the interest of the Revenue. Notwithstanding the fact that the assessee is conferred registration under Section 12A of the Act, unless the assessee falls within Section 2(15) of the Act, excluding the first proviso, the assessee would not be entitled to the benefit of exemption from tax. If the case of the assessee falls within first proviso to Section 2(15) of the Act, the benefit of registration which flow from Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated 7th December 2010, cancelled the registration of the respondent-assessee as a charitable institution. The order passed by the Commissioner of Income Tax reads thus : 2. The activity of the assessee is related to levying various fees of charges from the users of the ports under various heads like (1) Port Infrastructure facilities (2) Marine Services (3) Clearing, forwarding and Harboring (4) Storage Area and Land Rental (5) Equipment Harbor Craft Rental (6) License Fees (7) Income from other Port Services. Similarly, the assessee used to keep payment to various bodies and Govt. of Gujarat by way of fees, charges etc. The description of receipts and expenditure incurred by the assessee shows that the assessee runs its activities in a professional and business like manner from these activities. It is also clear that the assessee derives profit out of various business activities. Thus, there being no free services or utilities to public, the cost of the entire activities being fully recouped, there was no charity meant for public within the meaning of section 2(15) of the IT Act, 1961. As the activities carried out by the Gujarat Maritime Board were more of commercial natur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng before the Hon'ble ITAT, Ahmedabad Bench after being turned down by CIT, Gandhinagar. In view of the fact that subsequent to verdict by the Hon'ble ITAT, Ahmedabad Bench, the aforesaid registration u/s.12AA has been granted on 15.6.2005 w.e.f. 1.4.2002 ultimately duly upheld by the Hon'ble Supreme Court of India coupled with the ground reality that GMB is only carrying out the objects of advancement of general public utility in terms of mandate given under the provision of Gujarat Maritime Board Act, 1981 and not any business and/or trade, the same are once again filed under protest. 9. The main argument of the assessee is that the activities of the assessee cannot be held as not genuine and that the Gujarat Maritime Board has been carrying out its activities as empowered as per Gujarat Maritime Board Act, 1981 and it is a State Govt. entity local authority constituted under the Gujarat Maritime Board Act, 1981 duly granted to State Government by virtue of constitution of India (item list III, seventh schedule). There was no change in the nature of activities and they cannot carry out any business and hence section u/s.12AA(3) initiated being bad in law may b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne whether, the trust/institution is carrying out activities which are falling in the definition of Charitable Purpose or not and it is not so, the CIT can cancel such registration w.e.f. 1-4-08 even if registration is already granted earlier to such entity/Trust. 13. Accordingly, I am satisfied that the activity of the Gujarat Maritime Board were not carried out in accordance with the object of institution as per definition of charitable purpose for which registration was granted on 15-6-2005 w.e.f. 1-4-2002 in view of the amendment made in the definition of charitable purpose w.e.f 1-4-2008 by the Amendment by the Finance Act 2010 as the said institution is not eligible for registration thereafter as the total receipts for the year under consideration is more than ₹ 10 lakhs as prescribed for eligible charitable purpose under the fourth limb of charitable purpose i.e. Advancement of object of general public utility; is cancelled u/s.12AA(3) of the IT Act w.e.f. 01-04-2008 applicable to A.Y. 2009-10. 4. The respondent-assessee, being dissatisfied with the aforesaid order passed by the Commissioner of Income Tax cancelling the registration under Section 12AA(3) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provides that in the case where the gross receipts from all activities in the nature of trade, commerce or any activity rendering services in relation to any trade, commerce for a cess or any consideration, irrespective of the nature of use of applicability or retention of the income from such activity exceeds an amount of ₹ 10 lakhs, the unit/entity/institution ceases to be of Charitable Institution under the fourth limb, i.e. advancement of any other object of general public utility other than the relief of the poor, education and medical relief which are other 3 limbs under the head Charitable purpose. 12. Unfortunately, the assessee has chosen not the submit any reply on this core issue of eligibility of Charitable Purpose u/s.2(15) under the fourth limb, i.e. carrying on any activity of advancement of any other object of general public utility having gross receipt of less than ₹ 10 lakhs but on the contrary, they have placed reliance on the provision of Section 12AA(3) of the IT Act which provides methodology to cancel the registration already granted u/s.12AA(3) of the IT Act. In fact what is relevant is that where a trust or an institution has been granted reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... registration u/s 12AA which was granted to it only w.e.f. 01.04.2005 and the registration sought form 1997 was refused by not condoning the delay. As a matter of fact, we find no material on record where the funds have been utilized for profit motive or for non charitable purpose and there is no basis found in this regard in the order of DIT (Exemption). The assessee has also invited our attention to the P L account up to the year ended 31.03.2008 in which the assessee has used 85% of the funds collected. There is nothing on record that the assessee has violated any conditions laid down u/s 12AA(3) of the Act. Reliance was placed on the decision of ITAT Ahmedabad A Bench in I.T.A.No. 754/Ahd/2010 dated 21.05.2010 and the decision of ITAT A Bench Chennai in I.T.A.No. 987/Md/2010 dated 19.09.2011 which are directly on the issue in hand. Thus, following these Tribunal orders of Ahmedabad Bench and Chennai Bench mentioned hereinabove and in the facts and circumstances of the present case and in the absence of any violation of Section 12AA(3) of the Act, the registration granted u/s 12AA cannot be cancelled. Therefore, we cancel the order of DIT(Exemption) dated 22.01.2010 and dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r registration was that the definition of charitable purpose u/s.2(15) has been amended therefore the assessee has not carried out the activity as per the definition of charitable purposes . This very issue has already been dealt with by the Respected Benches, therefore respectfully following these decisions we hereby reverse the view taken by the ld.Commissioner and direct not to cancel the registration u/s.12AA(3) of IT Act. Grounds raised by the assessee are hereby allowed. 5. Being dissatisfied with the aforesaid order passed by the Appellate Tribunal, the Revenue is here before this Court with the present Appeal. 6. This Tax Appeal came to be admitted for the consideration of the following substantial question of law : Whether the Income-Tax Appellate Tribunal was right in law and facts in cancelling the order of the Commissioner (Appeals) passed under Section 12AA(3) of the Income Tax Act, 1961 in view of the amendment made under Section 2(15) of the Act brought into effect from 1st April 2009. 7. Mrs.Mauna Bhatt, the learned senior standing counsel appearing for the Revenue, vehemently submitted that the Tribunal committed a serious error in allowing the app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is not in dispute that the assessee was granted registration under Section 12A of the Act. Now the said registration is cancelled by invoking the power conferred under Section 12AA(3) of the Act. Therefore, it is necessary to find out under what circumstances the registration granted earlier could be cancelled. Section 12AA(3) of the Act reads as under: (3) Where a trust or an institution has been granted registration under clause (b) of sub-section (1) [or has obtained registration at any time under section 12A [as it stood before its amendment by the Finance (No. 2) Act, 1996 (33 of 1996) 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 institution: Provided that no order under this subsection shall be passed unless such trust or institution has been given a reasonable opportunity of being heard. 12. A reading of the aforesaid provision makes it very clear, a registration granted earlier under Section 12A of the Act can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et Association (GCA), Baroda Cricket Association (BCA) and Saurashtra Cricket Association (SCA), pertaining to the Assessment Years ranging from 2004-05 to 2009-10. The questions dealt by the coordinate bench of this Court in its common judgment and order dated 27th September 2009 can be broadly divided into the following : I. Whether the registration of GCA under section 12AA could be cancelled under section 12AA(3) on the ground that it violated proviso to section 2(15) of the Income-tax Act, 1961 (IT Act) ? II. Whether the assessee could be regarded as violating proviso to section 2(15) ? III. Whether the subsidy/donation received from Board for Cricket Control in India (BCCI) could be regarded as corpus donations under section 11(1)(d) ? 15. The facts of the said litigation may be summarised as under : The GCA is a society registered under the Societies Registration Act, 1860. It was granted registration under section 12AA vide DIT s order dated 16.4.2003 with effect from the Assessment Year 2004-05 onwards. It derived its income from sponsorship, ICC matches, sale of tickets, subsidies/grants from the BCCI, etc. Subsequently, vide its order dated 6.12.2010, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s which justify and indicate that the activity undertaken is in fact, in the nature of business; (iv) The five tests propounded in the case of Customs and Excise Commissioner v. Lord Fisher (1981) STC 238 and the propositions in the case of CST v. Sai Publication Fund 258 ITR 70 (SC) apply. (v) Business activity is an important prevailing element of self-interest. (e) From a perusal of the CBDT Circular explaining the amendment, it is clear that the proviso of section 2(15) is applicable to the assessees who are engaged in commercial activities, that is, carrying of trade, commerce or business in the garb of 'public utility' to avoid tax liability, and where the object of the 'general public utility' is only a mask or device to hide the true purpose, which was 'trade, commerce or business'. (f) Charitable activity is the anti-thesis of activity having an element of self-interest. Charity is driven by altruism and desire to serve others, though the element of self-preservation may be present. For charity, benevolence should be omnipresent and demonstrable but it is not equivalent to self-sacrifice and abnegation. (g) The antiquated definition o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hed for a 'charitable purpose'. (c) While framing the assessment order, it is not open to the Assessing Officer to ignore the certificate of registration granted under Section 12AA and to go behind the registration obtained by the assessee under Section 12AA. (d) The expression charitable purpose is an inclusive one and not an exhaustive one and is sufficiently wide in scope to include a variety of activities. However, at the same time, the fact that remote and indirect benefits are derived by the members of the public will not be sufficient to make the purpose a 'charitable purpose'. (e) The word charity connotes altruism in thought and action. It involves an idea of benefiting others rather than oneself. (f) While construing proviso to section 2(15), the principle of purposive interpretation should be adopted as it serves the legislative intent. (g) If an activity in the nature of trade, commerce or business is carried on and it generates income, the fact that such income is applied for charitable purposes, would not make any difference and the activity would nonetheless not be regarded as being carried on for a charitable purpose. (h) Merely ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivities of the assessee cannot take its colour from the nature of the activities of the donor. 18. This Court reiterated that in order to constitute 'business', it is essential to have a profit motive. This is in line with a number of judgments including the following (i) GS1 v. DGIT(E), (2014) 360 ITR 138 (Del) (ii) India Trade Promotion Organization v. DGIT, (2015) 371 ITR 333 (Del) (iii) PHD Chamber of Commerce Industry v. DIT(E), (2013) 357 ITR 296 (Del) (iv) Bureau of Indian Standards v. DIT, (2012) 27 taxmann.com 127 (Del) (v) DIT (E) v. Shree Nashik Panchvati Panjrapole, (2017) 81 taxmann.com 375 (Bom) (vi) DIT(E) v. Lala Lajpatrai Memorial Trust, (2016) 69 taxmann.com 158 (Bom) (vii) CIT v. Gujarat Industrial Development Corporation, (2017) 83 taxmann.com 366 (Guj) 19. We may also refer to and rely upon a decision of this Court in the case of Director of Income Tax (Exemption) v. N.H.Kapadia Education Trust (Tax Appeal No.356 of 2012, decided on 28th/29th October 2018. In the said case, the Trust had collected a sum of ₹ 1.90 crore from the students at the time of their admission. This amount was directly credited to the balance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... towards the educational activities. (iv) Commenting on section 12AA inserted in the Act w.e.f. 01.04.1997, the Tribunal was of the opinion that for the alleged violations of section 11(1)(d) or section 13(1)(c) of the Act, registration of the Trust cannot be cancelled in exercise of powers under section 12AA(3) of the Act. 10. Appearing for the Revenue, learned counsel Mrs. Bhatt vehemently contended that the Tribunal has committed an error in disturbing order of the Commissioner. Sizeable funds from the corpus of the Trust were transferred to the Managing trustee and his sons ostensibly to purchase agriculture land. Sale was not completed for years later on. The objects of the Trust did not permit the Trust to engage in agriculture activities. Donations were received from students in the nature of capitation fees. It was thus clear that the Trust was engaged in profiteering. The Commissioner was therefore perfectly justified in cancelling the registration. 11. On the other hand, learned counsel Mr Soparkar opposed the appeal contending that the Tribunal has correctly examined the relevant aspects emerging from the record. The Trust desired to purchase land in newly develo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able or religious purpose and the provisions of that section and section 13 shall apply accordingly. Section 12A prescribes the conditions for applicability of section 11 and 12. Under sub-section (1) of section 12A, one of the conditions is requirement of such trust or the educational institution being registered under section 12AA of the Act. Section 12AA of the Act in turn, prescribes the procedure for registration. Sub-section (3) which was added to section 12AA w.e.f. 01.10.2004 reads as under: (3) Where a trust or an institution has been granted registration under clause (b) of sub-section (1) [or has obtained registration at any time under section 12A [as it stood before its amendment by the Finance (No.2) Act, 1996 (33 of 1996)] and subsequently the [Principal Commissioner or] 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 institution: Provided that no order under this sub-section shall be passed unless such trust or institution has been g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns, in our opinion, are completely incorrect. The Tribunal had examined the materials on record, agreed with the Trust's contentions that desire on part of the Trust was to acquire land which could be used for setting up educational institution. Agreement to purchase agriculture land was executed in name of the Managing trustee since obviously the Trust should not have even entered into an agreement to purchase agriculture land. Equally, merely because donations are received would not per say imply that the Trust was operating along commercial lines. The Tribunal noted that the Trust was running several self finance educational institutions. Collecting fees for such purpose would be part of the normal activities. Even for an educational institution, to retain a reasonable surplus out of its activities has never been frowned upon by judicial decisions. If at all this is getting more liberal. Prime requirement is that such surplus should not be diverted for any other purpose. It must be utilized for the objects of the Trust. Reference in this respect can be made to decision of Supreme Court in case of Queen's Educational Society vs. Commissioner of Income Tax reported in 372 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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