TaxTMI 
TaxTMI 
2016 (4) TMI 1006
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....ch is engaged in production of cloth and manufacturing of yarns, which is attached to the very institution. According to DIT(E), as per the Income & Expenditure Account of textile division/unit for the year ended 31.03.2008, 31.03.2009 and 31.03.2010 it incurred huge losses. According to DIT(E), these losses were set off against the income of educational institute and accounts are maintained as a single unit and not separately for both the units. According to DIT(E), the institution is engaged in the business activity and all the losses of textile unit are adjusted against the receipt of the educational institution. Hence, the institution is doing business as well as engaged in educational activity. Accordingly, according to DIT(E), in view of the proviso to section 2(15) of the Act, which came into effect from 01.04.2009 and in view of nature of activities of assessee society, the registration granted to assessee society u/s. 12AA is withdrawn. The relevant finding of DIT(E) for concluding this reads as under: "Therefore, I conclude that the assessee institution is running on profit motive and it is running the full fledged business units of manufacturing cloths and yarn.....
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....been allowed by different CITs. According to him, the only ground for which registration has been cancelled by DIT(E), Kolkata vide his order u/s. 12AA(3) dated 28.03.2011 is that the society is hit by the amendment brought in section 2(15) of the Act by the Finance Act, 2008 cancelling the registration u/s. 12AA of the Act. Ld. Counsel for the assessee argued that the assessee society/institution is not hit by the amendment as brought in the statute under section 2(15) of the Act because, as already stated above, the only activity of this institution/society has been to run an educational institution and to impart education. Ld. Counsel for the assessee referred to Board Circular No.11/2008 dated 19.12.2008, which reads as under: "Section 2(15) of the Income Tax Act, 1961 ('Act') defines "charitable purpose" to include the following:- (i) Relief of the poor (ii) Education (iii) Medical relief, and (iv) the advancement of any other object of general public utility. An entity with a charitable object of the above nature was eligible for exemption from tax under section 11 or alternatively under section 10(23C) of the Act. However....
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....ed proviso to section 2(15) will apply only to entities whose purpose is 'advancement of any other object of general public utility' i.e. the fourth limb of the definition of 'charitable purpose' contained in section 2(15). Hence, such entities will not be eligible for exemption under section 11 or under section 10(23C) of the Act if they carry on commercial activities. Whether such an entity is carrying on an activity in the nature of trade, commerce or business is a question of fact which will be decided based on the nature, scope, extent and frequency of the activity. 3.1. There are industry and trade associations who claim exemption from tax u/s 11 on the ground that their objects are for charitable purpose as these are covered under 'any other object of general public utility'. Under the principle of mutuality, if trading takes place between persons who are associated together and contribute to a common fund for the financing of some venture or object and in this respect have no dealings or relations with any outside body, then any surplus returned to the persons forming such association is not chargeable to tax. In such cases, there must be complete identity between ....
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....o the students and is a part and parcel of carrying on educational activities. At the time of visit, I found that the boundary wall of the Engineering College and Textile Mills is common and the mill building is situated around 150 to 160 meters only and some laboratories/workshops are located in the mill building where the students of Textile Engineering are taking practical training. When I visited the mill building I have personally seen that the group of textile engineering students was taking practical training regarding textile technology. It is fact that raw material is purchased and TIT'S Mill has running on job work basis for Grasim Industries Ltd., Nagda, and also manufacturing its product i.e. yarn which is negligible in quantity. I met Mr. P.D.Kaushik, Vice President of the TIT'S, he told me that the income earned by TIT'S Mill is being used solely for the advancement of education of the TIT & S Engineering Institute and TIT Senior Secondary School. At present there are 570 students doing Engineering Degree (1st, 2nd, 3rd & 4th year) in textile and 31 students are doing Master degree in textile engineering from the Institution. Fro....
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....s of the Institute, we find that it maintained a Textile Mill for practical training to the students and conducting the research in textile technology was a part of the main objects itself. Since the institute has been enjoying benefit of exemption u/s. 10(22)/10(23C)(vi) since 1985, independently from the date when it was separated from 'Birla Education Trust' with a textile mill being maintained for practical training to the students. It is not new as far as running and maintenance of textile mill for practical training to the students is concerned. At present there are about 1700 students enjoying technical education and practical training in Textile Mill Division in the Institute as explained. The assessment of this Institute for different assessment years i.e. from A. Y. 1998-99 has been completed with full knowledge of textile mill being run to impart practical training. As regards applicability of amendment to Sec. 2(15) with effect from 1.4.2008, as explained and submitted in detail by the assessee such amendment has been made only with a view to curb the activities of charitable institution carrying on "objects of General Public Utility". This matter has been amply cla....
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....the course of imparting technical education is not a profit making activity and is only incidental to the main & dominant object of the society, i.e., imparting education including technical education. In any case, the textile unit has been incurring huge losses since the last four financial years. But even if there are profits as a result of ancillary activities, the same is also used for educational purposes, the main object, and not for the personal benefit of any person and thus there is no deviation from the main object of the assessee-society. (iii) The textile unit has been in existence for long and was mainly for the purpose of imparting technical /practical training to the students. (iv) The profits, if any, from the textile unit were used for the purpose of education only. The society along with the textile unit has been granted exemption u/s. 10(22) & 10(23C)(vi) of the Act since a number of years by the Department. (v) Practical training for award of a degree in all fields of technical education like medicine & agriculture is a pre-requisite and the concerned institutions may on other own make necessary arrangements for imparting such training....
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....milar purposes and not for the purposes of profit and no part of the same will go directly or indirectly to any of the beneficiaries of the Society or anybody specified in section 13(3) of the Income-tax Act, 1961; (g) the approval shall not apply in relation to anonymous donations in terms of the fifteenth proviso to section 10(23C) of the Income Tax Act read with Section 115BBC of the Act; (h) the approval granted shall be subject to the provisions of the proviso to section 143(3) of the Income Tax Act; (i) the approval shall be void if it is subsequently found that it has been obtained by fraud or misrepresentation of fact; (j) the above approval is given only for the purpose of section 10(23C)(vi) of the Income-tax Act, 1961 and not for any other purpose and the same is liable to be withdrawn if it is subsequently found that the activities of the Society are not genuine or if they are not carried out in accordance with all or any of the condition subject to which it was approved; (k) as and when there, is a move to amend or alter the deed of the Society, prior approval of the CCIT may be sought along with the draft of the proposed am....
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....to assessee, this amendment has three limbs of charitable objects i.e. relief to the poor, education and medical relief, which are left completely out of the purview of such amendment. The primary object of the society is to provide education including technical education and this object is being achieved by the society by running educational institute directly. The Technological Institute of Textile and Science, Bhiwani, TIT Sr. Secondary School, TIT Primary School and TIT Kindergarten School, which are educational institutes and run directly by the society. The practical training for a prescribed duration is a prerequisite for award of degree in almost all the fields of technical education and such institutions by themselves make necessary arrangement for such training like the assessee. 11. In view of these facts, the circular cited by assessee of CBDT Circular No. 11/2008 dated 19.12.2008 clearly discussed the implication arising from the insertion of proviso to section 2(15) of the Act by the Finance Act, 2008 w.e.f. 01.04.2009 vide para 2.1, which is reproduced above in para 4 at page 3 of this order wherein it is clearly said that where the purpose of a trust or instituti....
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....r Finance Act,2008, with effect form 1.4.2009 by substituting the following provision which reads s under: "2. Definitions. .... (15) "charitable purpose" includes relief of the poor, education, medical relief, preservation of environment (including waterheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest, and the advancement of any other object of general public utility. Provided that the advancement of any other object of general public utility shall 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 a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity;) 24. Section 2(15) as it stood prior to 1983 defined 'charitable purpose' to include relief of the poor, education, medical relief, and the advancement of any other object of general public utility not involving the carrying on of any activity for profit. The phrase "not inv....
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....ose to an institution with the object of general public utility, having 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 a cess or fee or any other consideration. 25. Proviso to Section 2(15) of the Income Tax Act states that if the objects involve the carrying on any activity in the nature of 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, the status of the institution will not be one for 'charitable purpose'. 26. The Central Board of Direct Taxes, in paragraph 3.2 pointed out to the scope of the circular as under:- " In such a case, the object of 'general public utility' will be only a mask or a 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 meani....
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....d that no order under this sub-section shall be passed unless such trust or institution has been given a reasonable opportunity of being heard. 31. After amendment in the year 2010, Section 12AA(3) of the Income Tax Act reads as follows: "Section 12AA(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 sub-section shall be passed unless such trust or institution has been given a reasonable opportunity of being heard." 32. Thus in contrast to Section 12AA(1)(b) of the Income Tax Act, 1961, where the grant of registration requires satisfaction about the objects of the trust as well as genuineness of the activities, for the ....
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....al activity only to escape the liability under the Act thereby gain unmerited exemption under Section 11 of the Act. 36. In the decision reported in (2012) 343 ITR 23 (Bom) (Sinhagad Technical Education Society V. Commissioner of Income Tax (Central), Pune & Anr), the Bombay High Court held as follows: "As a result of the amendment, which has been brought about by the Finance Act of 2010, Subsection (3) of Section 12AA has been amended specifically to empower the Commissioner to cancel a registration obtained under Section 12A as it stood prior to its amendment by theFinance (No.2) Act, 1996. SubSection (3) was inserted into the provisions of Section 12AA by theFinance (No.2) Act, 2004 with effect from 1 October 2004. As it originally stood, under subsection (3), a power to cancel registration was conferred upon the Commissioner where a trust or an institution had been granted registration under clause (b) of subsection (1) of Section 12AA. The Commissioner, after satisfying himself that the objects of the trust or an 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, was vested ....
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....on cannot be cancelled by following the very same provision of section 12AA(b)(i) of the Income Tax Act, 1961 to go into the genuineness of the activities of the trust. However, the Commissioner is empowered to revoke the certificate in terms of Section 12AA(3) of the Income Tax Act, 1961. As Commissioner is empowered to revoke the certificate in terms of section 12AA(3) of the Income Tax Act, 1961. As per the said provision, in the event the Commissioner is satisfied subsequently i.e., after registration that the activities of such trust or institution are not genuine or not being carried out in accordance with the objects of the trust or the institution as the case may be, he shall pass an order in writing cancelling the registration of such trust or institution." 38. After the grant of registration, if the Commissioner is satisfied subsequently that the activities of the institution are not genuine or they are not carried on in accordance with the trust/ institution, he could pass an order in writing cancelling the registration of such trust or institution. 39. Referring to Section 11 and 12A of the Act, this Court pointed out that the act of granting registrat....
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....cision of the Income Tax Appellate Tribunal was confirmed. 43. Leaving that aside, there being no dispute raised by the Revenue as to the genuineness of the trust, or as to the activities of the trust not being in accordance with the objects of the trust, the question of cancellation under Section 12AA of the Act does not arise. We further hold that at the time of grant of registration on 28.3.2003, the same was made taking into consideration the objects of the institution fitting in with the definition of 'charitable purpose' defined underSection 2(150 of the Act and the substitution of the Section itself came only 2008, with effect from 01.04.2009. As rightly pointed out by the learned senior counsel appearing for the assessee, the circular clearly brings out the object of the amendment and the amended provision has no relevance to the case . The power regarding cancellation, hence has to be seen with reference to the registration and the object satisfying the definition on 'charitable purpose', as it stood at the time of registration and not by the subsequent amendment to Section 2(15) of the Income Tax Act. 44. Learned Standing counsel appearin....
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....uld not, by itself, herein lead to the conclusion that the registration granted under Section 12AA is bad and hence, to be cancelled. 46. It may be of relevance to note the language used in the definition "charitable purpose" inSection 2(15) of the Act, which states that charitable purpose includes relief of the poor, education, medical relief and advancement of any other object of general public utility. The assessee's case falls within the phrase of the definition general public utility. In the decision reported in (2000) 246 ITR 188 in the case of Hiralal Bhagwati Vs. Commissioner of Income Tax, the Gujarat High court considered the said phrase in the context of Section 12AA registration and held that registration of the charitable trust under Section 12AA of the Act is not an idle or empty formality; the Commissioner of Income-tax has to examine the objects of the trust as well as an empirical study of the past activities of the applicant; the Commissioner of Income-tax has to examine that it is really a charitable trust or institution eligible for registration; the object beneficial to a section of the public is an object of "general public utility". The Gujarat H....
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...., by itself, does not result in straight rejection of the registration as 'trust' under Section 12AA of the Act. Consequently, we reject the prayer of the Revenue that Section 12AA(1) of the Income Tax Act, 1961 must be read along with Section 12AA(3) of the Income Tax Act, 1961 before considering the cancellation. 49. As far as the unreported decision of this Court in T.C(A).No.91 of 2013 dated 29.04.2013 (Gowri Ashram Vs. Director of Income Tax (Exemptions) is concerned, on which heavy reliance was placed by the Revenue, the said decision relates to the rejection of the registration at the threshold of the application filed for registration. So too the decision of the Apex court reported in 315 ITR 428 in the case of Commissioner of Income Tax Vs. National Institute of Aeronautical Engineering Educational Society, wherein, rejection was made on the threshold of application for registration made by the assessee. The decisions relied on is thus distinguishable and has no relevance to the facts of the present case. 50. As far as unreported decision of this Court in T.C(A).No.91 of 2013 dated 29.04.2013 (Gowri Ashram Vs. Director of Income Tax (Exemptions) i....
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.... Act after the amendment come in effect from 01.04.2009. 52. As rightly pointed out by the assessee, the Revenue does not question the objects of the Association as not genuine or are in accordance with the objects. All that the Revenue stated was that the nature of receipt could not be called a subsidy. Thus Revenue came to the conclusion that the objects and activities could not come within the meaning of 'charitable purpose' under Section 2(15) of the Act. 53. On going through the materials, the Income Tax Appellate Tribunal pointed out that instead of promoting and developing the game of cricket, the assessee was promoting and developing cricket as an entertainment and the tickets are highly priced; here, the assessee has shifted the activities of general public utility to commercial activity for generating revenue; the public merely participate to view costly matches; hence the conditions of Section 12AA(3) were satisfied. The Income Tax Appellate Tribunal agreed with the Director of Income Tax (Exemptions) that the expression 'subsidy from BCCI' was a misleading nomenclature and it was a share from the revenue collected by BCCI from the sale ....
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....enses for the conduct of the matches. BCCI earns revenue by way of sponsorship and media rights as well as franchisee revenue for IPL and it distributes 70% of the revenue to the member cricket association. Thus the assessee is also the recipient of the revenue. Thus, for invoking Section 12AA read with Section 2(15) of the Act, Revenue has to show that the activities are not fitting with the objects of the Association and that the dominant activities are in the nature of trade, commerce and business. We do not think that by the volume of receipt one can draw the inference that the activity is commercial. The Income Tax Appellate Tribunal's view that it is an entertainment and hence offended Section 2(15) of the Act does not appear to be correct and the same is based on its own impression on free ticket, payment of entertainment tax and presence of cheer group and given the irrelevant consideration. These considerations are not germane in considering the question as to whether the activities are genuine or carried on in accordance with the objects of the Association. We can only say that the Income Tax Appellate Tribunal rested its decision on consideration which are not releva....