TaxTMI 
TaxTMI 
2013 (5) TMI 251
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....e u/s 12A of the Income Tax Act by the order dated 13.4.2006. The brief facts of the case are that the CIT noted that the assessee was granted registration u/s 12A by the CIT vide order dated 13.4.2006 on the basis of the definition of charitable purpose as it exists u/s 2(15) at that time. Subsequently, the definition of the charitable purpose was amended by inserting therein proviso. In view of this, the CIT issued notice to the assessee why the registration granted should not be cancelled. The CIT noted that the main objects of the activities of the trust / society is holding International Film Festival of India, advise the Govt. of India on various policies, issues relating to entertainment industry in the state of Goa, to create entertainment hub and to give global visibility, to inspect film education and film centre, to build multiplexes, cinema halls, auditoriums etc from the trust deed. The CIT noticed various aims and objects for which the institution was registered under the Societies Registration Act, 1980 and therefore in view of the amendment to section 2(15), the CIT was of the opinion that the assessee institution no more can be said to have carrying on charitable p....
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....or business, or any activity or rendering any service in relation to any trade, commerce or business for a fee of any other consideration irrespective of the nature of use or application or retention of income from such activities. The society is clearly rendering some of the services in relation to trade, commerce or business for which it is charging fees which have been disclosed in Income and expenditure account as income. Section 2(15) further provides that the first proviso shall not apply if the aggregate value of receipts from the activities is Rs. 10 lakh or less. From the Income and expenditure accounts for A.Ys 2009-10 and 2010-11, it is seen that total receipts are Rs. 8,75,78,174 and Rs, 5,39,18,849 respectively. The society is also undertaking these activities and rendering service by charging income just like a commercial venture. Considering these facts, it is quit clear that the activities of society can not be held for charitable purposes and it's activities are directly hit by the_amendment to section2(15) of the IT Act 1961 w.e.f 01-04-2009. The activities of society are therefore interconnected and interwoven with commerce or business. Therefore even if the main....
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....s 2(15) of the Income Tax Act, 1961. 9. As laid out in the case of Self Employer's Service Society V. CIT (KER) 247 ITR 80 under the provisions of Section 12 AA, the Commissioner shall call for documents and information and hold enquiries regarding the genuineness of the trust or institution. If he is satisfied about the charitable or religious nature of the objects and genuineness of the activities of the trust or institution, he will be pass an order granting registration and if he is not satisfied can refuse registration. Even if several charitable objects/activities were included in the objects of the society, but no charitable work and activities are done, the rejection of the application is justified. 10. Although the objects of the society falls under the limb "any other object of general public utility". The activities are commercial in nature to meet out its purpose of holding International Film Festival and develop film culture and propogation. As mentioned above, the activities are clearly in the field of trade, commerce or business and hence the society is not eligible for exemption u/s 11 of the I.T. Act. Therefore after careful consideration of the submissions a....
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....en the Director of Film Festival, Ministry of Information and Broadcasting, Government of India and the State Government of Goa, the society is bound to create an atmosphere of mutual sharing and co-operation to share the invitation for opening and closing ceremonies between the Directorate of Film Festival and Goa Government including the labels for VIP parking for these events. The society is primarily controlled by the Ministry of Information and Broadcasting, Government of India and the Government of Goa and therefore it cannot be denied that it is not a charitable organization. Both, the Director, DFF and the State Government can invite film producers, directors, actors/actresses, film professionals, journalists both from India and abroad and decide upon the travel and hospitality to be extended to these guests. The society is bound to incur the expenditure on travelling as well as hospitality extended to these invitees. To meet out the costs of holding the International Film Festival as well as travelling and hospitality costs of the delegates, the society has to get the receipt by selling tickets in respect of films and the events being organized in auditoriums and multiplex....
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....ession of some of the property in Maquinez Palace ground to ESG which includes Old GMC Complex, Art Gallery, two auditoriums (232 seater and 81 seater) and office space. Except for the office space, other premises are utilized only during film festival. Since there premises remain idle during the rest of the year, the same are given on hire, mainly to Government Departments in need of office space. The auditoriums are hired out at nominal rent to encourage a film culture. Some of the expenses incurred on the complex are (refer Schedule "L" of accounts) : Rs. a) Security and cleaning 20,07,513 b) Water charges 5,12,522 c) Electricity charges 22,54,970 On an average, revenue is received of Rs. 12-15 lakhs per annum. The average maintenance expenditure of Maquinez Palace, Old GMC building etc. is in the region of Rs. 40-50 lakhs per annum. 4. Web Tender Forms Receipts ESG tenders various works for film festival. The tender forms are available in the office of ESG and on the ESG website. Whenever any bidder downloads the form directly from the website, they have to pay the cost of the tender form with the bid. The amount is towards cost of tender....
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....verifying the same. Administrative charges were received towards the same purely as a reimbursement cost. These are occasional receipts. No receipts of such nature have occurred in future years. The above are one-off reimbursements. 11. Receipt towards listing of hotels on ESG website In order to give ready reference of accommodation available to the delegates participating in film festival, ESG upload list of hotels along with their rates on the ESG website. The amount was received from different hotels as charges for listing their name on ESG website. However, the amount was collected for only one year. After that, the listing has been done free of cost till date. In any event, the receipt was directly connected with the film festival. 12. Receipts from stalls ESG erects stalls during film festival. The same are given on hire. The receipts are towards the same. It is directly connected with film festival. The object is to enable guests/delegates to be catered easily at the venues at reasonable prices. The expenditure to install the stall is borne by the ESG - many times this expenditure is not fully recovered. Further an amount of approximately Rs. 10.00 lakhs h....
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....onditions is fulfilled, therefore, the registration cannot be cancelled. Reliance was also placed in this regard towards the decision of Ahmedabad Bench as well as Mumbai Bench of the Tribunal also which has been discussed by us subsequently. Reliance was also placed on the decision of Hon'ble Madras High Court in the case of CIT V/s Sarvodaya Ilakkiya Pannai, 343 ITR 300 (Mad) in which it was held that in the absence of any activity carried out by the assessee contrary to the objects, the registration could not be revoked. This bench's attention was drawn to the decision of this bench in the case of Goa Industrial Development Corporation in which the registration granted under Section 12A was cancelled by the CIT was upheld by this tribunal. The Learned AR pointed out that the case of the assessee is distinguishable from the case of Goa Industrial Development Corporation as the dominant object in the case of the assessee is to conduct international film festival and there is no direct receipt for organizing the said festival, the assessee is permitted by the Government of Goa to defray its expenses by earning some receipts from temporary hire, sponsorship, incidental receipts of t....
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....as rectified his order passed for registration under Section 12A as Section 2(15) has been amended by insertion of proviso to Section 2(15) by the Finance Act, 2008. In view of the amendment in law, the assessee no more continues to be one created for charitable purpose. Referring to Section 2(15) of the Income Tax Act, it was stated that the proviso nowhere talks of whether the assessee is engaged for earning profit from the activities or not. The assessee is not denying that it was engaged in advancement of any other objects of general public utility which was a charitable purpose when the registration was granted. But since now the assessee is getting income/receipt by carrying out activity in the nature of trade/commerce or business, the assessee is getting fees for exhibiting films, the assessee is getting charges towards sponsorships, letting out of multiplexes, auditoriums, entertainment hubs, even getting charges for letting out stalls, may be temporary during the holding of international film festival, all these activities prove that the assessee is engaged in carrying on activities in the nature of commercial activity/business activity. All these activities are carried ou....
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....cture facilities, maintain them and provide services for telecommunications, transportation, parking, banking, internet connectivity, power supply, water, sewerage, sanitation, etc. for holding other International Event/Festival and other similar type of events. ix) To set up international film city, studios, auditoriums with suitable capacities and training centers or a film institute to provide training to the prospective film makers, artists, directors, technicians and other related trades and set up film market or bazaar. x) To renovate the existing buildings, houses and residential accommodation to meet the requirements of the film festival and to conceptualize and develop properties for the Government of Goa for the purpose of entertainment industry by bringing in best companies for facilitation of investment and land development programmes and leisure development projects. xi) To conserve the improve the heritage buildings, to develop the water front, pedestrians plaza. xii) To conduct publicity campaigns through print media, internet, videos and films and other new medium of communication that integrates information and marketing on a global level. xiii) To i....
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....ll not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for cess or fee or any other consideration, irrespective of nature of use or application, or retention, of the income from such activity. Provided further that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is 10 Lakh rupees or less in the previous year." After insertion of the proviso to Section 2(15), the CIT issued a notice to the assessee dtd. 12.12.2011 stating therein the subject for review of the registration granted under Section 12A of the Income Tax Act. This letter reads as under:- "In view of the amendment to Section 2(15) of the I.T Act 1961 of definition of "Charitable Purpose", it has been brought to my notice that your institution has not fulfilled the conditions laid down u/s 2(15) of IT Act 1961. Therefore, please explain why the registration granted to the institution u/s 12A(a) of the IT Act, 1961 should not be withdrawn." 9. Subsequently, after receiving reply of the assesse....
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.... Thus, in order to invoke second limb of proviso to sec. 2(15), rendering of service to trade, commerce or business must be such that it has a profit motive - Activities performed by the assessee are regulatory function for the public good, and any collection of fees or charges in the course of discharging these regulatory functions cannot be viewed as a consideration for rendering these services - There is no substance in the CIT's stand that the income earned by the assessee as licence fees, consent fees and testing charges are receipts in consideration of rendering the services to trade, commerce or business - These are not the services with the profit motive - Assessee is admittedly pursuing the objects for which it was established and it cannot be said that its activities are not genuine." Copy of said decision is enclosed hereto as 'ANNEXURE - I' In view of the above, we submit that ESG is not carrying on any activity in the nature of trade, commerce or business as envisaged under amended proviso to Sec. 2(15) of the Income Tax Act, 1961. ii. Without prejudice to the above, assuming but without admitting that ESG is carrying on business, still the same are protected und....
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....tution. There cannot be any other legally sustainable reasons for canceling or withdrawing the registration granted u/s. 12AA. In the light of the above, if activities carried on by ESG are verified and reviewed since its inception till this date then one cannot say by any stretch of logic to be not genuine and ESG is admittedly pursuing the objects for which it is established. When ESG is engaged in bona fide activities, within the frame work of law, to pursue its objective, it cannot be said that the activities of ESG are not genuine. In connection with the above, recently in the case of H.P. Govt. Energy Development Agency V/s Commissioner of Income-Tax, ITAT, Chandigarh 'A' Bench, (2010) 134 TTJ (Chd) (UO) 33, it has been held at para 8 of page 39 as under - "It is evident that Power of the CIT to cancel the Registration 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 wholesale review of the ingredients which have been considered by the CIT while granting Registration u/s. 12AA of the Act. To illustrate, we may point out that at the time of evaluating the application ....
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....ncome Tax Act, 1961. Now, the question before us is whether the assessee is regarded to have been established for charitable purpose even after insertion of proviso to Section 2(15) of the Income Tax Act, 1961. The proviso regarding the registration and procedure for registration are given under the Income Tax Act, 1961 under Section 12A, 12AA and Rule 17 which are re- produced as under : "Section 12 A The provisions of section 11 and section 12 shall not apply in relation to the income of any trust or institution unless the following conditions are fulfilled, namely:- (a) the person in receipt of the income has made an application for registration of the trust or institution in the prescribed form and in the prescribed manner to the Commissioner before the 1st day of July, 1973, or before the expiry of a period of one year from the date of the creation of the trust or the establishment of the institution is registered under section 12AA] : Provided that where an application for registration of the trust or institution is made after the expiry of the period aforesaid, the provisions of sections 11 and 12 shall apply in relation to the income of such trust or institution....
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....writing registering the trust or institution; (ii) shall, if he is not so satisfied, pass an order in writing refusing to register the trust or institution, and a copy of such order shall be sent to the applicant : Provided that no order under sub-clause (ii) shall be passed unless the applicant has been given a reasonable opportunity of being heard. [(1A) All applications, pending before the Chief Commissioner on which no order has been passed under clause (b) of sub-section (1) before the 1st day of June, 1999, shall stand transferred on that day to the Commissioner and the Commissioner may proceed with such applications under that sub- section from the stage at which they were on that day.] (2) Every order granting or refusing registration under clause (b) of sub- section (1) shall be passed before the expiry of six months from the end of the month in which the application was received under clause (a) [or clause (aa) of sub-section (1)] of section 12A.] [(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 (....
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....to 1st day of June 2007, the commissioner has the power to condone the delay, if he satisfied that the person was prevented from making the application before the expiry of aforesaid period for sufficient reason. Such Trust or institution has also to get its account audited by an accountant as defined in the explanation below Section 288 (2) in the case the total income of the Trust or institution without considering the provision Section 11 & 12 exceeds the maximum amount not chargeable to tax in any previous year. Such Trust or institution was bound to furnish such audit report in the prescribed form duly signed and verified by such accountant. Explanation to section 288 (2) defines accountant to mean a Chartered Accountant and who is competent to act as an auditor u/s 226 (2) of the Company's Act. 12. The provisions of section 11 are applicable only to the persons deriving income from property held under Trust for charitable or religious purposes. They are not applicable if the person is not in receipt of the income derived from property held for charitable or religious purposes. Section 12 AA lays down the procedure for the registration of such Trust or institution. Rule 17A....
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....ee contents that it is not hit by the proviso. The assessee is not carrying on any trade, commerce or business. 15. From the perusal of Section 2(15) after the insertion of the proviso which is applicable only in case where the assessee is engaged in the advancement of any other object of general public utility, the definition of charitable purpose got amended. The proviso as is apparent clearly states that the advancement of any other object of general public utility shall not be charitable purpose and subsequent to that it gives certain conditions if the institution fulfils those conditions as are stipulated in the proviso, the institution will not be regarded to have been engaged for the advancement of any other object of general public utility for the purpose of Section 2(15) of the Income Tax Act and will no longer remain to have been engaged in charitable purposes. In fact, this proviso puts an embargo on the institution that in case the institution falls within the proviso, it will no longer be regarded to have been engaged for charitable purpose even if it is engaged in the advancement of any other object of general public utility. The embargo states that if the institut....
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....nvolving the carrying on of any activity for profit" after "advancement of any other object of general public utility". Profit motive in respect of an institution cannot be main object but it may be ancillary and incidental to the main objects due to which Sec. 11(4A) was also incorporated under the Income Tax Act initially by Finance Act, 1983 w.e.f. 1.4.1984. The Learned AR even though relied before us on the decision of Hon'ble Supreme Court in case of ACIT Vs. Surat Art Silk Manufacturers Association 121 ITR 1 (supra), but this decision is not applicable in the case of the assessee at all as it relates to the interpretation of Sec. 2(15) prior to its amendment by the Finance Act, 1983 when the words 'not involving any activity for profit' were there under Section 2(15) after the words 'advancement of any other objects of general public utility'. This decision does not define the words 'carrying on of any activity in the nature of trade, commerce or business or any activity or rendering any services in relation to any trade, commerce or business'. The Learned AR vehemently argued before us that whatever receipts or income the institution has received, that is for the purpose of ....
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.... Total 5,35,74,835 4,67,85,849 The nature of each receipt was duly explained by the Learned AR as has been reproduced hereinabove in the submissions of the AR. The institution itself accepts that so far as sponsorship and contributions are concerned, that it is directly connected with the film festival. It has received authorization charges for conducting the shooting, it has received hiring charges for hiring out the auditorium, it has received the licence fees for issuing licence to the multiplexes, even the premises usage charges has also been received and it has received charges for listing hotels in their website. This in our opinion represents activity of rendering the service in relation to film industry. It is not denied that all the services were rendered for a consideration. It has also received the film exhibit fees from the viewers for screening the film, it has received even short film receipts by way of entrance fees, Even the institution has given various stalls on hire and got receipt from that. This in our opinion involves the carrying on activities in the nature of commerce or business. The nature of the receipts, even though might have been ....
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....ccepted, in that case, all the public sector undertakings shall be regarded to have been created for charitable purpose i.e. advancement of objects of general public utility. The public sector undertakings have more strong case as they are enacted under the statute of Government. They are also financed and controlled by the Government. In this regard, the learned AR vehemently relied on the decision of H.P. Environment Protection and Pollution Control Board Vs. CIT 125 TTJ(98). This decision is also not applicable in the present case as in the case before us the institution is engaged in an activity in the nature of trade, commerce or business and also the activity of rendering service in relation to trade, commerce or business for a consideration while in that case, the assessee was not rendering any service in relation to any trade, commerce or business, rather it was discharging regulatory function for controlling pollution and collecting the fees or charges for that. The decision of the Gujarat Industrial Development Corporation Vs. ACIT, 138 TTJ(Ahd) 714 relates to A.Y. 2006-07 and is not concerned with the proviso to Sec. 2(15) of the Income Tax Act and the question involved ....
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....assessee as the definition of "charitable purpose" undergoes a change by the Finance Act, 2008. We have already held that it is a case where the eligibility of the assessee to get the registration undergoes a change due to the fact that the assessee no more remains being established for charitable purpose after the amendment being made in the definition of charitable purpose given u/s 2(15) of the Income Tax Act. The assessee when applied for registration was very much a charitable institution as per the definition of the charitable purpose given u/s 2(15) at that time, therefore entitled for the registration u/s 12A. Once, in our opinion, the assessee no more remains being established for charitable purpose after the insertion of proviso in section 2(15), the eligibility of the assessee for registration stands cancelled. The CIT is the law implementing authority u/s 12A and therefore, it has power to rectify its order by cancelling / withdrawing the registration by rectifying the Order passed u/s 12A from the date when the assessee no more remains to be charitable institution as is held by us in the preceding para. In our opinion, a legal mistake has occurred in the order of the C....