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TMI Blog2024 (12) TMI 461X X X X Extracts X X X X X X X X Extracts X X X X ..... and has proceeded to notice that the order of cancellation passed u/s 12AA (3) of the Act has been made with retrospective effect from 2004-2005. Thus, the CIT, who was given the jurisdiction only by an amendment made under the Finance Act 2010, has exercised the power as in the year 2004-2005. Retrospective jurisdiction cannot be given in cases where the right is already vested with any of the person. As in the year 2004-2005, the jurisdiction was not available to cancel the registration granted u/s 12A of the Act. We also find after considering all the aspects, as above, and the record that the assessee which is a Government organization cannot be said to be engaged in other activity. In the present case, the argument advanced by learned counsel for the Revenue that the construction of the building and the process of establishment of the College and Hospital cannot be said to be a charitable activity, is misconceived. If for advancement and furtherance of charitable activity other activities are done, which are incidental and necessary, and funds are invested for the said purpose, it cannot be said that the purpose for granting registration u/s 12A was wrongful or unjustified. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2014 have been filed by the assessee arising out of order dated 31.12.2013 passed by the Income Tax Appellate Tribunal, Amritsar Bench, Amritsar (hereinafter to be referred as the the ITAT) in cross appeals bearing ITA No.504/Asr/2009 and ITA No. 515/Asr/2009 for the assessment year 2006-2007 filed by the Assessee and the Revenue, respectively, vide which the assessee was disallowed to get benefit of Section 11 of the Income Tax Act, 1961 (for short, the Act ). ITA No. 33 of 2022 has been filed by the assessee arising out of order dated 12.11.2021 passed by the ITAT dismissing its ITA No.1426/Chd/2018 for the assessment year 2015-2016, upholding the order of the CIT (A) declaring the assessee not entitled to exemption under Section 11 of the Act. Appeals filed by the Revenue In ITA No. 48 of 2020 the Revenue assails the order dated 21.06.2019 passed by the ITAT dismissing its appeal bearing ITA No. 463/Asr/2014 for the assessment year 2006-2007, for imposition of penalty and partly deletion of the penalty levied by the AO in terms of order dated 21.06.2019 passed in ITA No. 463/Asr/2017. ITA No. 61 of 2020 has been filed by the Revenue against the order dated 21.06.2019 passed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent by transferring 1.65 acres of land from Punjab Agriculture University, Ludhiana to PIMS-Society, Jalandhar. The Governing Council was formed headed by Chief Minister. A Director was appointed by the State Government. The society was registered in 1994. The State Government granted a sum of Rs. 3 crores in the year 1994-95. In 1996, an Architect was appointed to prepare master plan. In 1997, the Hon ble Prime Minister announced additional central assistance of Rs. 25 crores under the 100% centrally sponsored Five Years Plan. The part amount was received on 23.10.1998 of Rs. 7.5 crores. Second installment was received on 05.05.2000 of Rs. 7.5 crores and the balance 10.33 crores was received on 10.03.2006. In 1997, 67.77 acres of land was purchased by the PIMS Society for a sum of Rs. 3 crores to establish Medical College and Hospital. The plan was prepared by entering into an agreement with a contractor. In 1999, a master plan of Rs. 80 crores was approved. A 1000 beds hospital was planned to be constructed in a phased manner. With the said objects, the PIMS Society had been set up and it was granted the aforesaid registration. In October 2011, it decided to have the main sources ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... el for the parties. Submissions of the Revenue 8. Learned counsel appearing for the Revenue submitted that the ITAT has not given any findings contrary to the reasons of cancellation as mentioned by the CIT in its impugned order dated 24.10.2013. The assessee had not challenged the said findings in the appeal before this Court and, therefore, the same had attained finality. The ITAT only examined the cancellation made with effect from 2004-2005 on the issue relating to retrospectively. He submits that the judgment of Delhi High Court relied upon by the ld. ITAT in Director of Income Tax (Exemption) vs Mool Chand Khairati Ram Trust (2011) 339 ITR 622 (Delhi) was erroneous and the facts of the said case were different from the facts of the present case. It is submitted that in that case the power under Section 12AA (3) of the Act was exercised before the amendment was incorporated i.e. on 30.06.2009 while the amendment was incorporated with effect from 01.06.2010. Therefore, he submits that the reliance on the said judgment vitiates the entire case since in the present case the orders were passed on 24.10.2013 after coming into force of the amendment with effect from 01.06.2010. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pose of construction of the building is to carry out charitable activity and provide medical help. He, therefore, submits that the order dated 30.12.2008 passed by the Assessing Officer disallowing exemption under Section 11 of the Act, was wholly unjustified. He submits that the Revenue has failed to take notice and import of the tripartite agreement executed between the State Government, PIMS and PUDA. All funds of the Society are actually Government funds as has been pointed hereinabove and, therefore, it is argued that the concerned officer has failed to take notice for the purpose of granting exemption and wrongly disallowed the said exemption. 13. Learned counsel for the assessee submits that the order of the ITAT dated 31.12.2013 whereby the appeal of the assessee was rejected and appeal of the Revenue was accepted, deserves to be quashed; and the appeal of the Assessee deserves to be allowed and that of the Revenue deserves to be dismissed. 14. Learned counsel for the Assessee has taken us to the objectives of the PIMS Society, which were further amended in October, 2009. In these circumstances, he submits that there was no occasion to cancel the registration of the Assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e trust or institution) shall for the purposes of section 11 be deemed to be income derived from property held under trust wholly for charitable or religious purposes and the provisions of that section and section 13 shall apply accordingly.] [(2) The value of any services, being medical or educational services, made available by any charitable or religious trust running a hospital or medical institution or an educational institution, to any person referred to in clause (a) or clause (b) or clause (c) or clause (cc) or clause (d) of sub-section (3) of section 13, shall be deemed to be income of such trust or institution derived from property held under trust wholly for charitable or religious purposes during the previous year in which such services are so provided and shall be chargeable to income-tax notwithstanding the provisions of sub-section (1) of section 11. Explanation . For the purposes of this sub-section, the expression value shall be the value of any benefit or facility granted or provided free of cost or at concessional rate to any person referred to in clause (a) or clause (b) or clause (c) or clause (cc) or clause (d) of sub-section (3) of section 13.] [(3) Notwithst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall not apply in relation to any application made on or after the 1st day of June, 2007;] (aa) [the person in receipt of the income has made an application for registration of the trust or institution on or after the 1st day of June, 2007 in the prescribed form and manner to the [Principal Commissioner or] Commissioner and such trust or institution is registered under section 12AA;] (ab) the person in receipt of the income has made an application for registration of the trust or institution, in a case where a trust or an institution has been granted registration under section 12AA 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, it has adopted or undertaken modifications of the objects which do not conform to the conditions of registration, in the prescribed form and manner, within a period of thirty days from the date of said adoption or modification, to the Principal Commissioner or Commissioner and such trust or institution is registered under section 12AA; (ac) notwithstanding anything contained in clauses (a) to (ab), the person in receipt of the income has made an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) the books of account and other documents have been kept and maintained in such form and manner and at such place, as may be prescribed; and (ii) the accounts of the trust or institution for that year have been audited by an accountant defined in the Explanation below sub-section (2) of section 288 before the specified date referred to in section 44AB and the person in receipt of the income furnishes by that date the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars, as may be prescribed; (ba) the person in receipt of the income has furnished the return of income for the previous year in accordance with the provisions of sub-section (4A) of section 139, within the time allowed under that section. (2) Where an application has been made on or after the 1st day of June, 2007, the provisions of sections 11 and 12 shall apply in relation to the income of such trust or institution from the assessment year immediately following the financial year in which such application is made: [ Provided that the provisions of sections 11 and 12 shall apply to a trust or institution, where the application is made under (a) sub-c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... April, 2021. 17. The present institute, as established by the Government of Punjab, admittedly was formed with the purposes as have already noticed hereinabove. The added object, as mentioned in clause (c) of the objects, has to be considered as part of charitable purpose for achieving a general public utility object. Taking into consideration the aforesaid, the assessee society was granted registration in terms of Section 12 of the Act. From perusal of the aforesaid, it is apparent that an institution, which is formed or created wholly for charitable purposes, like the assessee society, would be entitled for registration under the said Act. As per Section 12AA (3) of the Act, which was inserted vide Finance Act 2004 with effect from 01.10.2004, wherein the registration granted under Section 12A of the Act, as it stood before the Finance Act of 1996 and subsequently empowered the Commissioner to cancel such a registration. Thus, the Principal Commissioner, if satisfied, that activities of such an institution are not genuine or/are not being carried out in accordance with the objects of the trust/ institution, he can cancel the registration. The express power has been provided by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the institution. To ascertain the genuineness of the institution and the manner of its functioning, the Commissioner or other authority is free to call for the audited accounts or other such documents for recording satisfaction where the society, trust or institution genuinely seeks to achieve the objects which it professes. The observations made in American Hotel (supra) suggest that the Commissioner could not call for the records and that the examination of such accounts would be at the stage of assessment. Whilst that reasoning undoubtedly applies to newly set up charities, trusts etc. the proviso under Section 10 (23C) is not confined to newly set up trusts it also applies to existing ones. The Commissioner or other authority is not in any manner constrained from examining accounts and other related documents to see the pattern of income and expenditure. g. It is held that wherever registration of trust or charities is obligatory under state or local laws, the concerned trust, society, other institution etc. seeking approval under Section 10 (23C) should also comply with provisions of such state laws. This would enable the Commissioner or concerned authority to ascertain th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business or commerce or service in relation to such trade, etc.; (c) Rendition of service or providing any article or goods, by such boards, authority, corporation, etc., on cost or nominal mark-up basis would ipso facto not be activities in the nature of business, trade or commerce or service in relation to such business, trade or commerce; (d) where the controlling instrument, particularly a statute imposes certain responsibilities or duties upon the concerned body, such as fixation of rates on pre-determined statutory basis, or based on formulae regulated by law, or rules having the force of law, setting apart amenities for the purposes of development, charging fixed rates towards supply of water, providing sewage services, providing food-grains, medicines, and/or retaining monies in deposits or government securities and drawing interest therefrom or charging lease rent, ground rent, etc., per se, recovery of such charges, fee, interest, etc. cannot be characterized as fee, cess or other consideration for engaging in activities in the nature of trade, commerce, or business, or for providing service in relation in relation thereto; (e) Does the statute or controlling instrument ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich separate books of account will have to be maintained under other provisions of the IT Act. It further considered the said aspect with reference to the Institute of Chartered Accountants of India and thereafter lays down the conclusion, for the present, we notice the general test under para A and para D which are extracted as under:- IV. Summation of conclusions 253. In view of the foregoing discussion and analysis, the following conclusions are recorded regarding the interpretation of the changed definition of charitable purpose (w.e.f. 01.04.2009), as well as the later amendments, and other related provisions of the IT Act. A. General test under Section 2(15) A.1. It is clarified that an assessee advancing general public utility cannot engage itself in any trade, commerce or business, or provide service in relation thereto for any consideration ( cess, or fee, or any other consideration ); A.2. However, in the course of achieving the object of general public utility, the concerned trust, society, or other such organization, can carry on trade, commerce or business or provide services in relation thereto for consideration, provided that (i) the activities of trade, commerce or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es, etc. then income or receipts from such activities, would be business or commercial in nature. In that event, the claim for tax exemption would have to be again subjected to the rigors of the proviso to Section 2(15) of the IT Act. 20. This Court in ITA No. 21 of 2011 The Commissioner of Income-Tax, Patiala vs Young Scholar s Educational Society, Barnala, decided on 08.05.2024 (authored by one of us), held the Institutions entitled for being considered to be performing charitable purpose and dismissed the appeals filed by the Revenue. 21. In ITA No. 54 of 2020 Commissioner of Income Tax (Exemptions), Chandigarh vs M/s Unique Educational Society, decided on 17.09.2024 , we considered the judgment passed in M/s New Noble Educational Society s case (supra) and differ from the judgment passed by the Kerala High Court in Commissioner of Income Tax, Kottayam vs M/s Annadan Trust (2018) 258 Taxman 54 (Kerala) and held as under:- 14. In view of above, the law as laid down by the Supreme Court requires to be applied and the view expressed by the Kerala High Court cannot be accepted to be the correct interpretation. We are also of firm view that vocational education is a form of education ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment whereby Section 12AA (3) of the Act was added. Since we are not examining the validity of Section 12AA (3) of the Act, the judgment would have relevance to the present case. 26. In the present case, as per the object, the order passed by the ITAT in ITA No. 52/2017 takes into consideration the new clause of objects of the PIMS Society and also takes into consideration that the assessee had complied with the provisions of Section 11 (2) of the Act and had set apart funds in furtherance of its objects within the stipulated time and has proceeded to notice that the order of cancellation passed under Section 12AA (3) of the Act has been made with retrospective effect from 2004-2005. Thus, the CIT, who was given the jurisdiction only by an amendment made under the Finance Act 2010, has exercised the power as in the year 2004-2005. Retrospective jurisdiction cannot be given in cases where the right is already vested with any of the person. As in the year 2004-2005, the jurisdiction was not available to cancel the registration granted under Section 12A of the Act. We also find after considering all the aspects, as above, and the record that the assessee which is a Government organiza ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore, does not warrant any interference. ITA No. 52 of 2017 filed by the Revenue is dismissed. ITA Nos. 48 and 61 of 2020 32. Since we have reached to the conclusion as above, the provisions of Section 271 (C) of the Act relating to imposition of penalty would have no application. ITA Nos. 48 and 61 of 2020 filed by the revenue are dismissed accordingly. ITA Nos. 271 and 274 of 2014 33. The Revenue has submitted that the assessee had not given explanation why it had not taken any step for eight years from 10.10.1994 to 2002 to achieve the objects of the assessee Society and had not given any explanation regarding any charitable activity done by the assessee during this period, except spending time in construction of building and medical institutes. He, therefore, submits that the exemption under Section 11 of the Act was rightly disallowed. 34. We find that in terms of Section 11 of the Act, the assessee society had set a part of funds solely with the purpose of construction, development and establishment of the Punjab Institute of Medical Sciences. If the time has been taken to establish the Institute, on the basis of the funds as received from time to time, as noted above, t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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