AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2016 (4) TMI 1006
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....facturing 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and in view of nature of activities of assessee society, the registration granted to assessee society u/s. 12AA is withdrawn.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. The ground is very clear that every year it is incu....
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....nly 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, it was seen that a number of entities who were engaged in commercial activities were also ....
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....th 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 the contributors and the participants. Therefore, where industry or trade associations claim both to be charitable institutions as well as mutual organi....
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....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. From the spot enquiries and visit, it is revealed that the mill is useful for Practical Training and also for their projects and research work for the textile engg. students. It is evi....
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....ce 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 clarified by the Central Board of Direct Taxes by different circulars which have been already reproduced above. Even the Objects and Memorandum explaining the finance bill has amply clarified that....
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.... 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. The Textile Division attached to the institute is an integral part of the technological institute and is like a hospital to a medical college or an agricultural farm attached to an agricultural college. 8. In view of the abo....
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....tions 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 amended deed and no such amendment may be effected until and unless the approval is accorded." 9. We find from the above facts of the case that the DIT(E), Kolkata while cancelling registration vide order u/s. 12AA(3) of the Act and also withdrawal/rejection of certificate of exemption u/s. 80G(5)(vi) of the ....
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.... 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 institution is relief for the poor, education or medical relief, it will constitute charitable purpose even if it incidentally involves the carrying on of commercial activities. We find that the working of the mill for practical training always result in the production/manufacture of goods. The assessee explained that in t....
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....bjects 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 involving the carrying on of any activity for profit" was omitted from the Section by the Finance Act 1983, with effect from 01.04.1984, consequent on the amendment to Section 11, where under profits and gains of business in the case of charitable or religious trust and institutions would not be entitled to exemption under that Section, except in cases where the busi....
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....g 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 meaning of Section 2(15), would be well advised to eschew any activity which is in the nature of trade, commerce or business or the rendering of any service in relation to any trade, commerce or business." 27. Thus, the anxiety of the Parliament in introducing the proviso to Section 2(15) of the Act is only to check those institution, which attempt to gain exemption under the cloak o....
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....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 cancellation of the registration under Section 12AA(3), all that it is insisted upon is the satisfaction as to whether the activities of the trust or institution are genuine or not and whether the activities are being carried on in accordance with the objects of the trust. Thus, even if the trust is a genuine one i.e., the objects are genuine, if the activities are not genuine and the same not being carried on in accordance with the objects of th....
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....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 with the power to pass an order in writing cancelling the registration of such trust or institution. By the Finance Act of 2010, subsection (3) was amended so as to empower the Commissioner to cancel the registration of a trust or an institution which has obtained registration at any time under Section 12A (as it stood before its amendment by theFinance (No.2) Act, 1996). As a result of the amendment, a regulatory framework is now sought to be put in place so as to cove....
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....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 registration under Section 12AA(1) itself is a result of a satisfaction recorded by the Commissioner as regards the genuineness of the objects of the trust as well as the activities of the trust and once a satisfaction is arrived at by the Commissioner, the cancellation could only be in terms of Section 12AA(3) of the Income Tax Act, 1961. 40. This Court pointed out that the cancellation made in the case of assessee therein was not on the ground that the activities were not genuine, but the activities of the tr....
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....pose' 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 appearing for the Revenue placed heavy reliance on the proviso toSection 12AA(3) of the Act and submitted that when the assessee has income received from conduct of the matches, which are commercial in nature, as had been found by the Income Tax Appellate Tribunal, the objects of the trust ceased to be charitable. He submitted that going by the definition of Section 2(15) of the Act, rightly, the Commissioner assumed jurisdiction underSection 12AA(3) of the Act to cancel the registration. He further pointed out that for the finding to be recorded t....
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....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 High Court held that to serve as a charitable purpose, it is not necessary that the object must be to serve the whole of mankind or all persons living in a country or province; it is required to be noted that if a section of the public alone are given the benefit, it cannot be said that it is not a trust for charitable purpose in the interest of the public; it is not necessary that the public at large must get the benefit; the criteria here is the objects of general public utility. Thus, the Gujarat High Court held that in order to be charitable, the pu....
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....he 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) is concerned, while rejecting the appeal filed by the assessee on the rejection of the application for registration, this Court observed that it was open for the assessee Society to renew its application as and when it expanded the objects of the Society and were approved by the competent Court. The rejection order passed by the Revenue was on the ground that the objects of the trust were not charitable in character. This decision also has no relevance to the case on hand. 51. As already noted in the preceding paragraphs, considering the provision under Section 12AA(3) of t....
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....d 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 of telecast rights. The surplus from IPL Season-I worked out to 8.5% of the total receipts. It further held that 78% of the total receipt came out of advertisement revenue. 54. The Income Tax Appellate Tribunal pointed out that the physical aspect of the game was one in accordance with the objects of the assessee and the activities are genuine. However, the matches held were not in advancement of any specific object of general public utility. The pattern of receipt is commercial in character and the matches conducted are not in accordance with the objects of the Association. Thus, it reject....
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....ncome 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 relevant for considering the test specified under Section 12AA(3) to impose commercial character to the activity of the Association. In the circumstances, we agree with the assessee that the Revenue has not made out any ground to cancel the registration under Section 12AA(3) of the Act." 13. In view of the above decision of Hon'ble Madras High Court, wherein the amendment brought in section 12AA(3) by adding a proviso by Finance No. 2 Act, 2004 and by Finance Act, 2008 adding proviso to section 2(15) of the Act have been discussed in great detail and laid down the principles that registration granted u/s. 12A of th....