TaxTMI 
TaxTMI 
2017 (10) TMI 43
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....x (Exemption) cancelled the registration of the assessee as charitable trust/institution keeping in view the proviso to section 2(15) of the 1961 Act which was being added thereto with effect from April 1, 2009 by the Finance Act, 2008 and the Finance Act, 2010, which reads as under : "Section 2(15) (15) 'charitable purpose' includes relief of the poor, education, medical relief, preservation of environment (including watersheds, 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 : Provided further that the first proviso shall not apply if the aggregate value of the receipts from the activ....
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....Air Cargo Complex. (3) Provision of security and to and for transportation of export and import parcels between DPCCC and Sahar International Air Cargo Complex on every working day. (4) Depositing of airways bills with respective airline offices. (5) Collection and distribution of EP copies of shipping bills. (6) Providing export/import statistics on website of the assessee on regular basis. It was stated that the above arrangement was on cost recovery basis. These services were rendered by the assessee to the gem and jewellery traders only. Thus, it was contended that the basic motive of the assessee is to provide services to the members and not to make profits or carry out any commercial activity with profit motive. The assessee also contended that the activities of the assessee are not non-genuine and also there is no allegation that the activities of the assessee are not carried out in accordance with the objects of the assessee and prayed that the registration granted under section 12A of the 1961 Act be not withdrawn or cancelled. The learned Director of Income-tax (Exemption) invoked the amended provisions of section 2(15) of the 196....
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....ch are not repeated for the sake of brevity. The assessee also contended that the activities of the assessee were held to be charitable by the hon'ble apex court in the assessee's own case in DIT v. Bharat Diamond Bourse [2003] 259 ITR 280 (SC) vide orders dated December 16, 2002. wherein their Lordships held as under (page 284) : "Section 2(15) of the Act defines 'charitable purpose' as including relief of the poor, education, medical relief, and the advancement of any other object of general public utility. In order to decide the first question, the circumstances under which the appellant-assessee came into existence are required to be noticed. The diamond exporters in India had formed a Diamond Exporters Association for facilitating export of diamonds. There was need for setting up a diamond bourse in Bombay with customs clearance facilities which would facilitate the export of diamonds and make the trade more competitive in the international market. In 1984 the Central Government accepted the proposal made by the said association to set up a diamond bourse in Bombay. The Minerals and Metals Trading Corporation of India Ltd. (a Central Governmen....
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.... be returned with interest at six per cent. per annum. The MMTC had taken certain premises on lease in the Diamond Plaza which was sub leased to the assessee on the same terms and conditions except for the deposit. The principal object of establishment of the bourse was to facilitate the diamond trade so that maximum revenue could be earned by way of foreign exchange and also to make the diamond trade more competitive at the international level. On December 15, 1986 an agreement was arrived at between MMTC and the assessee under which it was agreed that, from April 1, 1988, service charges would be collected by the assessee and not by the MMTC, and from that date the bourse would meet its own obligations towards its staff, their expenses etc. and so on. Under the said agreement the operations of the bourse were taken over from the MMTC. The setting up of the diamond bourse had a great impact on the diamond export trade. The total value of parcels cleared through the bourse increased from Rs. 2,231 crores in 1985-86 to Rs. 11,261 crores in the year 1991-92. These figures indicate that the export turnover of diamonds gradually increased during the relevant period an....
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....onging to and on behalf of its members. The Constitutional Bench of this court held that, if there are several objects of the institution, some of which are charitable and some non-charitable, and the trustees or the managers in their discretion may apply the income of the institution of those objects, the trust or institution would not be liable to be regarded as charitable and no part of its income would be exempted from tax. Where the main or primary objects are distributive, each and every one of the object must be charitable in order that the trust be held as a valid charity. But, if the primary or dominant purpose of the institution is charitable and another which, by itself, may not be charitable, but is merely ancilliary or incidental to the primary or dominant object, it would not prevent the institution from validly being recognised as a charity. The test to be applied is, whether the object which is said to be non-charitable is the main or primary object of the trust or institution or it is ancilliary or incidental to the dominant object which is charitable. Reiterating its earlier view in CIT v. Andhra Chamber of Commerce [1965] 55 ITR 722 (SC), the Supreme Court said i....
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.... traders, exporters and importers, brokers/commission agents of diamonds.' These being the predominant objectives, we agree with the view taken by the Tribunal as well as the High Court that the assessee was rightly registered under section 11 by treating it as an institution established for charitable purpose within the meaning of section 2(15) of the Act." It was argued that amendments have been brought in by the statute to section 2(15) of the 1961 Act wherein provisos 1 and 2 are inserted by the Finance Act, 2008 and the Finance Act, 2010 with effect from April 1, 2009, which was further amended by the Finance Act, 2011 with effect from April 1, 2012 and the Finance Act, 2015 with effect from April 1, 2016. The learned counsel for the assessee submitted that since the last three preceding years prior to the impugned assessment year, the activity of the assessee was not considered to be business by the Revenue in scrutiny assessment framed under section 143(3) of the 1961 Act, for the assessment years 2006-07, 2007-08 and 2008-09. It was contended that exemption under section 11(1)(a) of the 1961 Act was allowed to the assessee by the Assessing Officer. The asses....
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....ment of any other object of general public utility' provided it does not involve carrying on of any activity in the nature of trade, commerce or business etc. for financial consideration. The second proviso to said section, introduced with effect from April 1, 2009 vide the Finance Act 2010, provides that in case where the activities of any trust or institution is of the nature of advancement of any other object of general public utility and it involves carrying on of any activity in the nature of trade, commerce or business ; but the aggregate value of receipts from such commercial activities does not exceed Rs. 25,00,000 in the previous year, the purpose of such trust/institution shall be deemed as 'charitable' despite it deriving consideration from such activities. However, if the aggregate value of these receipts exceeds the specified cut-off, the activity would no longer be considered as charitable and the income of the trust/institution would not be eligible for tax exemption in that year. Thus an entity, pursuing advancement of object of general public utility, could be treated as a charitable institution in one year and not a charitable institution in the other ....
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....orities are, therefore, advised not to cancel the registration of a charitable institution granted under section 12AA just because the proviso to section 2(15) comes into play. The process for cancellation of registration is to be initiated strictly in accordance with section 12AA(3) and 12AA(4) after carefully examining the applicability of these provisions. 6. The above may be brought to the notice of all concerned." Thus, it was submitted that in view of the Central Board of Direct Taxes Circular No. 21 dated May 27, 2016, the registration of the assessee under section 12AA of the 1961 Act need not be cancelled, while if the assessee's activities are hit by the amended provisions of section 2(15) of the 1961 Act, the tax exemption could be denied to the assessee to the extent activities are hit by the amended provisions. The learned counsel for the assessee relied upon the decision of the hon'ble Bombay High Court in the case of DIT(E) v. Khar Gymkhana [2016] 385 ITR 162 (Bom) ; [2016] 137 DTR 249 (Bom). 5. The learned Commissioner of Income-tax-Departmental representative on the other hand relied upon the decision of the Amritsar Tribunal in the case of J....
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....iness carried out by gem, diamond and jewellery traders and is clearly hit by the proviso to section 2(15) of 1961 Act. It is also submitted that it is not a marginal case where the turnover is close to the cut-off turnover specified in section 2(15) of the 1961 Act rather the turnover of the assessee is significantly higher than minimum turnover stipulated by section 2(15) of the 1961 Act and hence no purpose will be served by retaining the registration by the assessee under section 12AA of the 1961 Act. 6. The learned counsel for the assessee in rejoinder submitted that the hon'ble Bombay High Court in the case of DIT (Exemptions) v. Maharashtra Housing and Area Development Authority [2017] 392 ITR 240 (Bom) has duly considered the decision of the Amritsar Tribunal in the case of Jammu Development Authority [2012] 23 taxmann.com 343 (Asr.) and then held that in the absence of any activity demonstrating that the assessee was not a genuine trust and no material indicating that the assessee or its affairs are not carried out in accordance with the objects of the trust, registration cannot be cancelled. It was also pointed out by the learned counsel for the assessee that both ....
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....n of export and import parcels between DPCCC and Sahar International Air Cargo Complex on every working day. (4) Depositing of airways bills with respective airline offices. (5) Collection and distribution of EP copies of shipping bills. (6) Providing export/import statistics on website of the assessee on regular basis. It was stated that the above arrangement was on cost recovery basis. These services were rendered by the assessee to gem and jewellery traders only. The services rendered by the assessee were held to be charitable activities by the hon'ble apex court in the assessee's own case in DIT v. Bharat Diamond Bourse [2003] 259 ITR 280 (SC) vide orders dated December 16, 2002, wherein the hon'ble apex court considered the pre-amended provisions of section 2(15) of the 1961 Act. Section 2(15) of the 1961 Act was amended by the Finance Act, 2008 and the Finance Act, 2010 with effect from April 1, 2009. The relevant extracts of the provisions of section 2(15) of the 1961 Act are reproduced hereunder : "Section 2(15) (15) 'charitable purpose' includes relief of the poor, education, medical relief, preservation o....
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....h 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." The courts have taken a consistent view that the learned Principal Commissioner or Commissioner shall have power to cancel the registration only on fulfilment of either of the conditions as stipulated by the provisions of section 12AA(3) of the 1961 Act 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. Thus, the learned Principal Commissioner or the Commissioner can cancel the registration on fulfilment of the either of the above two conditions while in the instant case the such conditions are not being shown to have been fulfilled. There is also no change in the nature of activities of the assessee as compared to the immediately pre ceding year as the Revenue could not brought on r....
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....ation 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 as mandated under section 2(15) of the Act or not, uninfluenced by our prima facie finding as recorded earlier in this order. There is a specific provision inserted by the Finance Act, 2012 with effect from April 1, 2009 vide sub-section (8) of section 13 of the 1961 Act to that effect which is reproduced hereunder : "Section 11 not to apply in certain cases.-(1) to (7) . . . (8) Nothing contained in section 11 or section 12 shall operate so as to exclude any income from the total income of the previous year of the person in receipt thereof if the provisions of the first proviso to clause (15) of section 2 become applicable in the case of such person in the said previous year." The Assessing Officer shall during the course of assessment verify and determine the activities of the assessee that are hit by the amended definition of section 2(15) of the 1961 Act and accordingly tax exemptions shall be denied on such activities. With the above stated conditions, the registration of th....
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....tax (Appeals) to the tune of Rs. 4,38,34,270 which was outstanding in the books of the assessee towards IAAI handling charges. Second the grievance of the assessee is with respect to the addition sustained by the learned Commissioner of Income-tax (Appeals) towards the disallowance of provision for outstanding liability of cost recovery customs to the tune of Rs. 24,58,567. While the Revenue's grievance is with respect to the relief given by the learned Commissioner of Income-tax (Appeals) of Rs. 3,79,78,729 towards the deletion of the addition made towards the opening balance of outstanding liability of cost recovery customs. 13. First we shall deal with the issue of disallowance of outstanding liability of IAAI handling charges to the tune of Rs. 4,38,34,270. 14. The brief facts of the case are that it was observed by the Assessing Officer that the assessee has made a provision of Rs. 4,38,34,270 under the head "outstanding liability of IAAI handling charges" which is payable to the International Airport Authority of India (IAAI), while the assessee has not made any payment out of the same till March 31, 2005. The provision for the same was created since 1985-86 which w....
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....arisen in terms of the arrangement agreed upon in April, 1989. It was submitted that there is no material on record based on which it can be contended that the said liability provided for in the books of account has ceased or is no longer payable. The assessee relied upon a large number of cases which are listed in page 6 of the appellate order of the learned Commissioner of Income-tax (Appeals) dated January 9, 2011. The assessee also filed the following documents in support of its contentions that licence fee is payable to MMTC, as detailed hereunder : (i) Copy of the agreement dated December 15, 1988 between the assessee and MMTC. (ii) Details of licence fee paid to the Airport Authority of India during the financial years 2004-05 and 2005-06. (iii) Copies of two invoices for licence fees. The learned Commissioner of Income-tax (Appeals) observed that the Assessing Officer has observed that the assessee has not paid the outstanding liability since 1985-86. The contention of the assessee is that it is liable to pay the licence fee for allotment of strong room to the assessee to MMTC in the cargo complex of the IAAI at Sahar International Airport in M....
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.... turnover emanating out of these transactions ; hence the question of payment 10 per cent. of the turnover to you does not arise at all." From the above facts on record, the learned Commissioner of Income-tax (Appeals) observed that IAAI allotted strong room to MMTC and the said MMTC is paying the licence fee regularly to IAAI but the additional licence fee calculated at 10 per cent. of the gross turnover was not paid by MMTC to IAAI. The learned Commissioner of Income-tax (Appeals) observed that the turnover did not belong to MMTC and hence MMTC is therefore not liable to make the payment. It was observed by the learned Commissioner of Income-tax (Appeals) that there is no liability of the assessee to IAAI as the strong room was not allotted to the assessee but to MMTC. It was observed by the learned Commissioner of Income-tax (Appeals) that the IAAI has not raised any claim on the assessee with reference to such outstanding liability. It was observed by the learned Commissioner of Income-tax (Appeals) that except the letter dated April 20, 1989 of IAAI, there is no other evidence of claim of such demand per records and this letter was also replied by MMTC denying their liabili....
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....y the assessee while making the provision in its books of account of such liability towards licence fee based on 10 per cent. of the turnover. It was also submitted that the said outstanding liability as was appearing in its books of account was written back in the assessment year 2011-12 as income as the said liability ceased to exist because of new entity namely Mumbai International Airport Limited being created by the Government of India to manage and operate the Mumbai Airport, wherein IAAI had divested and transferred all its operations to this new entity. It was also submitted that neither IAAI demanded the said amount from the assessee nor MMTC demanded this amount from the assessee. 19. The learned Departmental representative relied on the orders of the authorities below and submitted that the assessee did not raise this issue of dispute existing as to the payment of licence fee of strong room additionally payable computed at 10 per cent. of the turnover before the Assessing Officer, as was raised before the learned Commissioner of Income-tax (Appeals). 20. We have considered the rival contentions and perused the material on record before us. The main objects of the a....
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....and jewellery traders only. We have observed that the Collector of Customs, Mumbai vide notification dated November 22, 1984 appointed MMTC, under section 45 of the Customs Act, 1962, as a custodian of imported and export cargo of diamonds, precious and semi-precious stones, pearls etc. We have observed that strong room was allotted to MMTC by IAAI in cargo complex of the Sahar International Airport, Mumbai which was in occupation of MMTC from February 26, 1985 (paper book pages 64-65). The terms of allotment of the said strong room provided fixed payments calculated based upon the area of strong room and additionally licence fee is payable to be computed at 10 per cent. based on the turnover. The asses see has placed communication dated April 20/21, 1989 by IAAI to MMTC which is placed on record (paper book pages 64-65) which reflect the said terms of allotment of strong room. Thus, IAAI is licensor while MMTC is the licensee of strong room at cargo complex at Sahar International Airport, Mumbai. The allotment letter issued by IAAI in favour of MMTC or their inter se licence agreement are not placed on record by the assessee. There was back to back arrangement of MMTC with the ....
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....m of IAAI/MMTC with reference to licence fee payable based on 10 per cent. of the turnover. We have observed that the Revenue has also not made any enquiry to find out the bona fide and the genuineness of the claim of the assessee nor the said amount has been paid by the assessee. The assessee albeit made provisions in its books of account but did not pay the said amount of handling charges (licence fee) computed at 10 per cent. of its turnover to either MMTC or IAAI since 1985-86 i.e., for more than last twenty years which is being accumulated in its books of account and have now grown to a figure of Rs. 4,38,34,270 being an outstanding liability till March 31, 2005. The Revenue is now bringing the entire outstanding liability payable by the assessee as appearing in its books of account to tax on the grounds that the liability can no longer exists beyond a reasonable time as held by the Assessing Officer and ought to have been written back, while the learned Commissioner of Income-tax (Appeals) has held that strong room was allotted to MMTC and hence no liability gets fastened on the assessee because MMTC itself is contending before IAAI that it had no turnover arising from strong....
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....word "turnover" while entering into licence agreement for strong room vide their original licence agreement/allotment letter between IAAI and MMTC, as the liability will devolve on the assessee based on the meaning and interpretation of the word "turn over" as understood ad idem by both the contracting parties to the agreement/allotment letter i.e. MMTC and IAAI. The said documents being licence agreement/allotment letter are not placed on record by the assessee before the authorities below as well before the Tribunal and are again withheld by the assessee which is again in breach of section 106 of the 1872 Act as the facts are especially in the knowledge of the assessee. The word "turnover" can have a different shades and meaning when used in different context. In the present context, it could mean either turnover of strong room service charges recovered or it could also mean gross turnover of export/import handled through strong room by MMTC or its assignees either directly or for the members of the assessee's institution, which can only be assessed after verifying the terms and conditions as contained in the licence agreements/allotment letter, etc., which incidentally is no....
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.... to the said licence fee payable to IAAI/MMTC which is computed at 10 per cent. of the turnover. Needless to say that the Assessing Officer shall grant proper and adequate opportunity of being heard to the assessee in accordance with the principles of natural justice in accordance with law. We order accordingly. 21. The next issue in these cross-appeals are with respect to the cost recovery customs. The Assessing Officer observed that the assessee has made a provision of Rs. 85,09,032 under the head "outstanding liability of cost recovery customs". The Assessing Officer observed that this liability is to be paid to the Customs Authority. The Assessing Officer observed that the assessee has paid a sum of Rs. 60,50,465 to the Customs Authority up till the year end. Thus, it was observed that a liability of Rs. 24,58,567 remains outstanding as on March 31, 2005. It was observed by the Assessing Officer that the assessee is claiming every year excess amount vide provisions vis-a-vis amount actually paid to the Customs since the financial year 1988-89. Thus, the Assessing Officer concluded that the assessee has inflated expenses and the entire accumulated amount of liability payable ....
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....stones etc. We have observed that the Collector of Customs, Mumbai vide notification dated November 22, 1984 appointed MMTC, under section 45 of the Customs Act, 1962, as a custodian of imported and export cargo of diamonds, precious and semi-precious stones, pearls etc. The assessee entered into an agreement with MMTC by which it was agreed by MMTC to function as custodian at the office of the assessee where infrastructure facilities including handling, storage and transportation of import and export cargo of diamonds, precious and semi-precious stones are provided to gem and jewellery traders and members of the assessee. The Customs authorities deputed Customs officials and staff for doing functions under the Customs Act, 1962 for which pay and allowance of the Customs Plaza Customs Clearance Centre (DPCCC) and Sahar were recovered from the assessee through MMTC. The assessee in turn recovered these costs from its members. There were certain additional cost for the additional staff deputed by the Customs authorities for the above services and the claim for the said additional cost was provided in the books of account by the asses see but the same was not paid by the assessee as t....
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....7 towards additional charge towards additional staff deployed by the Customs Department for the current year on the grounds that the assessee itself is denying the liability of the said additional charge to the Customs authority, vide appellate order dated January 9, 2011. 23. Aggrieved by the appellate order dated January 9, 2011 passed by the learned Commissioner of Income-tax (Appeals), both the assessee and the Revenue are in appeal before the Tribunal. 24. The learned counsel for the assessee reiterated its submissions as were made before the authorities below which are not repeated for the sake of brevity. It was submitted that the Government of India has not waived this liability and in fact the same stood recovered by the Government of India, wherein bank guarantee was issued on behalf of the assessee by Canara Bank in favour of the Government of India vide bank guarantee No. 018-11 dated January 14, 2011 for Rs. 5,11,50,000 which stood encashed on May 16, 2011. Thus, it was submitted that the said entire outstanding liability payable for the cost recovery customs stood paid and discharged. 25. The learned Departmental representative submitted that the assessee was....
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....essee but the same was not paid by the assessee as the assessee was contesting that the Government of India deputed extra customs officials and staff over and above agreed strength. It is undisputed that the assessee requested the Government of India to continue with custom clearance facilities at heart of city and agreed to pay for pay and allowance of custom staff and officers deputed to handle sovereign function of customs clearances, appraisal and collection of custom duties etc. The Government of India was regularly monitoring the staff and officer strength required to carry out these sovereign functions for the assessee and its members of diamond and jewellery trade. Based on the increased volume of trade handled through these premises at the Customs Plaza Customs Clearance Centre (DPCCC) and Sahar, the Government of India was deputing additional staff commensurate with work load which increased with increase in volume of trade. This fact of deployment of additional strength of custom officials and staff from time to time at these premises due to increase in workload is clearly emanating from the letter dated September 4, 2008 issued by the Chief Accounts Officer, New Customs....
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....of State and it is the responsibility of the Government of India to properly discharge its duties, obligations and responsibilities as mandated under the Customs Act, 1962. Further, it has now come on record that the outstanding amount payable by the assessee to the Government of India is now recovered by the Government of India through encashment of bank guarantee, the disallowance made by the Assessing Officer, thus, cannot be sustained. For limited verification of the claim of the assessee that the entire liability towards customs stood discharged, we are remitting the matter back to the file of the Assessing Officer for limited verification. Thus, the additions sustained by the learned Commissioner of Income-tax (Appeals) is ordered to be deleted, while relief granted by the learned Commissioner of Income-tax (Appeals) is hereby confirmed, subject to the limited verification by the Assessing Officer as indicated above. We order accordingly. 27. In the result the appeal of the assessee in I. T. A. No. 2789/Mum/2011 for the assessment year 2005-06 is allowed as indicated above and the Revenue's appeal in I. T. A. No. 4437/Mum/2011 for the assessment year 2005-06 is dismiss....
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....that the learned Commissioner of Income-tax (Appeals) has accepted the said additional claim of the assessee of the principles of mutuality applicable to the assessee which was raised by the assessee for the first time before the learned Commissioner of Income-tax (Appeals) as also wherein additional evidences were submitted by the assessee before the learned Commissioner of Income-tax (Appeals) for the first time, without complying with the requirements of rule 46A(3) of the Income-tax Rules, 1962. It was submitted by the learned Departmental representative that the learned Commissioner of Income-tax (Appeals) did not call for remand report from the Assessing Officer as to his examination and comments on the claim of mutuality raised by the assessee for the first time before the learned Commissioner of Income-tax (Appeals) and fulfilment of the requirements of rule 46A(3) of the 1962 Rules was not complied with. It was submitted by the learned Departmental representative that rule 46A(3) of the 1962 Rules is not a mere formality and in the absence of fulfilment of the same, the appellate order of the learned Commissioner of Income-tax (Appeals) is vitiated and is required to be se....