TaxTMI 
TaxTMI 
2018 (8) TMI 196
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.... Whether on facts and circumstances of the case the Hon'ble ITAT was correct in law in restoring registration u/s 12AA notwithstanding assessee institution are having non-charitable/ commercial objects and activities contrary to the Sec. 2(15) of the Income Tax Act, which defines the charitable purpose in special, restricted and qualified sense? 2. Whether on the facts and the circumstances of the case the Hon'ble ITAT was correct in law in allowing 12AA registration notwithstanding that the fact that, the substantial changes were made in the original object more specifically in clause (s) and (u) which were absent at the time of granting registration u/s 12A and basis on which Registration Authority has approved the registration? 3. Whether on the facts and in the circumstances of the case the Hon'ble ITAT was correct in law in holding that the changes can be made in the objects as per the respective Governing act i.e., Rajasthan Sports (Registration, Recognition and Regulation of Association) Act, 2005 contrary to the provisions of the Income Tax Act 1961, i.r.o. 12AA registration?" Appeal No.252/2017 admitted on 29.8.2017 "i) Whether on the fa....
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....istration was granted on 25.11.1998. However, after the registration, they have changed certain clauses in the bye laws and procedure for the expenses and income which is detrimental to the provisions of the Income Tax Act. 5.1 He further contended that after following procedure on 27.12.2010, registration under Section 12AA was cancelled, however same was set aside by the tribunal on 13.7.2012. However, Tax appeal No.255/2012 came to be disposed of on 23.1.2013 and department was allowed to proceed further afresh. 5.2 He has taken us to the provisions of Section 2 (15) of the Income Tax Act and the proviso which was amended w.e.f. 1.4.2009 which provides as under:- Section 2(15) of the Income Tax Act,1961 "charitable purpose" includes relief of the poor, education, yoga, 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 o....
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....ined 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 Principal Commissioner or 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 subsection shall be passed unless such trust or institution has been given a reasonable opportunity of being heard. (4) Without prejudice to the provisions of sub-section (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 it is noticed that the activities of the trust or the institution are being carried out in a manner that the provisions of sections 11 and 12 do not apply to exclude either whole or any part of the income of such trust or institution due to operatio....
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....deemed to be cancelled. 5.8 He has taken us to the order of the AO where AO observed as under:- "(1) Amendments in objects:- Assessee contended that amendment in 2005 are nothing but a redrafting/modify the main objects keeping in mind the changing scenario, socio techno, economic, advancement so to effectively manifest the main objects. The argument of the assessee is not acceptable as actual picture of the original objects and modified objects are as under:- Objects as per memorandum ad rules of Association-1999 Objects of 2005 Objects of the Association:- Following are the objections of this association:- (A) To create, foster ad maintain friendly and cordial relationship through tournaments and competitions connected therewith and to create a healthy spirit in the country through the medium of Cricket. (a) To promote, organize, manage and control the game of cricket within its jurisdiction. (B) To instill the spirit of sportsmanship deserving students at lending schools and colleges and members of other institutions and to develop a good standard physique of the students and to foster the apirit of sportsmanship and instill the ideal....
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....he Association for the fulfillment of the objects of the Association. (j) To initiate and pursue such actions as may be considered for the fulfillment of the objects of the Association. (K) To invest money and funds of the association in such authorized securities and in such manner as may be decided upon by the Man Committee of the association from time to time. (k) To maintain a panel of approved cricket umpires and coaches and to take all such steps as may be necessary for efficient umpiring and coaching. (L) To hold and maintain the laws of Cricket and the regulations of the Board of Control for Cricket in India. (l.) To take such action as may be necessary t coordinate the activities of affiliated units/association and their members in relation to the Association and amongst themselves. (m) To arrange, stage participate in any match of cricket for the benefit of any cause as the association may deem fit. (n) To stage matches and to subscribe income to funds for philanthropic purposes i.e. for helping a disabled and/or diseased player of any game, athlete or any other deserving individual, for relief of a persons, localities village/vill....
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....; (z) To encourage the sports and sports person of every section of society without any discrimination and generally to do all other acts, deeds, matters and things as are incidental in the object of the Association or as the Association may deem conducive to the attainment of the objects specified above. From the above table it is evident that it can not be said that there is no substantial amendment in the constitution of the assessee. Therefore, there are no merits in the contention of the assessee." 5.9 He also contended that the clauses which are amended are very detrimental and is changing the original purpose of the object of the trust and now jurisdiction under the same cannot be misused in any manner whatsoever. 6. In that view of the matter, he contended that the view taken by the AO is required to be upheld. 6.1 He drew our attention to clause (iii) which reads as under:- "(iii) As regards the plea that there is no mandatory requirement to intimate the change, it is mentioned that it is for the assessee to take a decision to intimate the change and also apply for fresh registration. It is the basic principle of law that registration is grant....
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.... for any number of times, the institution should be given the benefit of section 11 to 13 of the Act, in view of the original registration granted under section 12A. In our opinion, the assessee society should approach the registering authority with the changes and amendments so that the authorities could examine as to whether the amendments in question meet the requirement of law." In view of the above, it is clear that the object, on the basis of which registration was granted, has been amended. As such the very basis of registration has been removed. Further, some objects are not charitable at all as discussed above and therefore, the registration should not survive." 6.2 He contended that the following income which is received by the assessee through Commercial Activity reads as under:- (4) Commercial Activity:- Besides that, it is seen that the activities of the RCA is commercial. It is judicially accepted proposition that where profit making is the predominant object of the activity, the trust would lose exemption as a charitable trust. No doubt, it would be impossible for persons in charge of a trust or institution to so carry out activity that ....
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....nt was mandatory in view of provisions under the Rajasthan Sports (registration, Recognition and Regulation of Association) Act, 2005 and the judgment of Delhi High Court in Mool Chand Khairati Trust reported in 377 ITR 650 which is sought to be relied upon by the tribunal was in relation to medicine, cannot be applied in the present case. 6.5 He also relied upon the decision of the Allahabad High Court in Allahabad Agricultural Institute vs. Union of India reported in (2007) 291 ITR 116 (All.) where Division Bench of Allahabad High Court while considering the matter observed as under:- "10. The argument is misconceived. The registration is granted by the Commissioner. It can be cancelled by the Commissioner under Section 12-AA(3) However, the words of that statutory provision show that it applies where the objects of the trust or institution remain the same on paper, but the actual activities of such trust or institution are contrary to the said objects or are fictitious or fraudulent or not genuine or not within the scope of those objects However, where the objects of the trust or institution, which were the basis of grant of registration, are altered after such grant....
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....order." 6.6 He further contended that taking into consideration the department was right in cancelling the registration. 6.7 Regarding depreciation, he has relied upon the decision of this court in ITA No.262/2017 and other connected appeals (CIT vs. Mahima Shiksha Samiti) decided on 3.10.2017 wherein it has been held as under:- "14. On depreciation he has relied upon the judgment in Commissioner of Income Tax-II, Jodhpur vs. Krishi Upaj Mandi Samiti (2016) 388 ITR 605 wherein it has been held as under:- "4. The assessee is a charitable institution registered under Section 12-A of the Act of 1961 and 100% capital expenditure was availed by it against the asset concerned i.e. a building. Section 32(1) of the Act of 1961 provides for depreciation in respect of building, plant and machinery owned by the assessee and used for business purposes. Income of a charitable trust like the present assessee derived from the depreciable heads is also liable to be computed on commercial basis, however, while doing so it is to be kept in mind that ultimately assessee is a charitable institution and its income for tax purposes is required to be determined by taking into cons....
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....ted's case (supra), on which reliance has been placed by the learned Counsel for the Revenue. The Hon'ble Supreme Court in that case was dealing with a case relating to two deductions both under Sections 10(2)(vi) and 10(2)(xiv) of the 1922 Act or both under Sections 32(1)(ii) and 35(1)(iv) of the Act. The assessee therein had incurred expenditure of a capital nature on scientific research relating to the business which resulted into acquisition of an asset. The assessee had sought to claim a specified percentage of the written down value of the asset as depreciation and at the same time claimed deduction, in five consecutive years of the expenditure incurred on the acquisition of the asset. The apex Court observed: Where a capital asset used for scientific research related to the business of the assessee is also ipso facto an asset used for the purpose of the business, it is impossible to conceive of the Legislature having envisaged a double deduction in respect of the same expenditure, one by way of depreciation under Section 32 of the Income Tax Act, 1961 and other by way of allowance under Section 35(1) (iv) of a part of the capital expenditure on scientific re....
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.... head "profits and gains from business". The said decision dated 18th March, 2014 does not refer to the decision in Indian Trade Promotion Organisation (supra) which was decided on 27th November, 2013. The judgment in the case of Indian Trade Promotion Organisation (supra) was not cited and referred to. The judgment in the case of Charanjiv Charitable Trust (supra) is authored by the same Judge, who has also authored the decision in the case of Vishwa Jagriti Mission (supra) . It is obvious that in Charanjiv Charitable Trust (supra) , the Division Bench could not have taken a different view on the legal ratio as interpreted in Vishwa Jagriti Mission (supra) . Further, the decisions in the case of Vishwa Jagriti Mission and Indian Trade Promotion Organisation (supra) being prior in point of time would act as binding precedents and could not have been overruled or dissented from by a coordinate Division Bench. 11. By Finance (No. 2) Act of 2014, subsection (6) to Section 11 stands inserted with effect from 1st April, 2015 to the effect that where any income is required to be applied, accumulated or set apart for application, then for such purposes the income shall be determi....
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.... contended that the jurisdictional high court has considered the Kerala High Court judgment which has been sought to be relied upon and allowed the expenses. 16. However, Mr. Jain has contended that in view of the tax limit, the same has not been challenged. He also contended that in view of the amendment u/s 11 subclause (6) w.e.f. 1.4.2015, they have not claimed any benefit after 1.4.2015 and all appeals are prior to 1.4.2015. In that view of the matter, the law which was prevailing prior to 31.3.2015 will be covered by the jurisdictional high court judgments." 7. Mr. Sanjay Jhanwar appearing for the respondent contended that provisions of Section 11 (5) read with Section 13 of the Income Tax Act are very clear that at the most any income of the expenses which are contrary to object of the legislature itself requires provision but that is not ground for cancelling the registration. After High Court order these are all procedures to be followed prior to the withdrawal i.e. 27.12.2010, therefore, after the withdrawal of the appeal on 23.1.2013, it will be open for them to apply for subsequent year not for previous year. 7.1 He also relied upon the Government Circular....
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.... accordingly." (ii) In Commissioner of Income Tax-I, Jodhpur vs. Jodhpur Development Authority (2016) 287 CTR 473 (Raj.), it has been held as under:- "28. In the backdrop of settled position of law discussed hereinabove, adverting to the facts of the present case, indubitably, JDA is a statutory body constituted and established under the provisions of s. 3 of JDA Act with a main object to secure the integrated development of Jodhpur Region and for that purpose to discharge inter alia the functions of urban planning including preparation of Master Development Plan and Zonal Development Plans; formulation and sanction of the projects and schemes for the development of Jodhpur Region or any part thereof; execution of the project and schemes directly by itself or through a local authority or other agency; coordinating execution of projects or schemes for the development of Jodhpur Region supervision or otherwise ensuring adequate supervision over the planning and execution of any project or scheme the expenses of which in whole or in part are to be met from Jodhpur Region Development Funds; preparing schemes and advising the concerned authorities, department and agencies in....
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....JDA being to secure the integrated development of the Jodhpur Region which is undoubtedly falls within the expression 'advancement of any other objects of general public utility' within the definition of s. 2(15) of the Act of 1961 and therefore, on account of profit being earned by it through some of the activities, undertaken by it, which are ancillary or incidental to the main object of general public utility, it does not cease to be charitable in character so as to render it ineligible to claim registration under s. 12A r/w s. 12AA of the Act of 1961. As a matter of fact,' it is not even the case of the Revenue that the object of general public utility sought to be achieved by constitution and establishment of the JDA as such, involve carrying on of any activity for profit and therefore, it is immaterial if some income is earned by ancillary and incidental activities, which as per the mandate of the relevant statute, is used for achieving or implementing such object. The genuineness of the activities of the JDA, which are regulated by the provisions of the JDA Act and the Rules made thereunder, cannot be doubted. Thus, the order passed by the Tribunal holdi....
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....e income from such activity. Considering the said amendment and looking at the activities of the assessee, the Income Tax Appellate Tribunal held that the conduct of the matches by cricket associations could be nothing but in the nature of commercial ventures and the assessee was selling the game for the highest amount of revenue and the effect and the thrust of the assessee was towards maximising the revenue. Citing IPL matches held and the manner of selection of players, the Income Tax Appellate Tribunal held that the matches were big game with big money involved; in the words of the Income Tax Appellate Tribunal, "In fact it is an entertainment industry by itself". It pointed out that 78% of the total receipts came out of advertisement revenue and in the background of the nature of activity undertaken, the entire activity of commercial nature were oriented towards earning hyper profits and these activities contributed 86.5% of the receipts of the assessee in the Financial Year 2008-09. In this background, the Income Tax Appellate Tribunal referred to the decision reported in 77 ITR 435 in the case of Bangalore Race Club Vs. Commissioner of Income Tax, which related to t....
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.... stand on a different line, they being the decisions rendered on the rejection of the application for registration. He also referred to the decision of this Court reported in 343 ITR 300 in the case of CIT Vs. Sarvodaya Ilakkiya Pannai, wherein, under similar circumstances, this Court had held that when a trust is registered with definite objects to carry on its activities and under Section 12AA of the Income Tax Act, 1961, the Commissioner is empowered to cancel registration only on two conditions laid down under Section 12AA(3) of the Income Tax Act, 1961. He further pointed out that whether the income derived from such transaction would be assessed to tax or whether the trust would be entitled to exemption under Section 11 of the Income Tax Act, 1961 are entirely matters to be considered at the time of assessment. Thus, placing reliance on the decision of this Court reported in 343 ITR 300 (CIT Vs. Sarvodaya Ilakkiya Pannai), learned Senior Counsel appearing for the assessee submitted that the Income Tax Appellate Tribunal committed serious error in upholding the rejection order passed by the Director of Income Tax (Exemptions). 46. It may be of relevance to note the la....
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....out this decision and the Apex Court pointed out that the Revenue did not challenge this case and it attained finality. 48. It is no doubt true that the decision reported in (2008) 300 ITR 214(SC) in the case of Assistant Commissioner of Income Tax Vs. Surat City Gymkhana, was in the context of Section 10(23) of the Income Tax Act, 1961, nevertheless, the fact remains that the understanding of the scope of the expression "general public utility" would nevertheless is of relevance herein. Admittedly when the assessee was granted registration, the Revenue recorded its satisfaction that the objects are of charitable purpose. Thus only possible enquiry under Section 12AA of the Act for cancellation is to find out whether the activities of the trust are genuine or in accordance with the objects of the trust. If any of the income arising on the activities are not in accordance with the objects of the trust, the assessees income, at best, may not get the exemption under Section 11 of the Act. But this, 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 th....
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....r, the order of the Director of Income Tax (Exemptions) casts no doubt on the genuineness of the objects of the trust. Hence, it is for the Assessing Officer to take note of all facts, while considering the same under Section 11 of the Income Tax Act, 1961. We disapprove the approach of the Tribunal in this regard. In the above said circumstances, we set aside the order of the Income Tax Appellate Tribunal." (iv) In Director of Income Tax (Exemption) vs. The Chembur Gymkhana (2012) 345 ITR 86, it has been held as under:- "6. Since the decision of the Supreme Court in Addl. CIT vs. Surat Art Silk Cloth Manufacturers Association MANU/SC/0296/1979 : (1979) 13 CTR (SC) 378 : (1980) 2 SCC 31 it is a settled principle of law that the primary or dominant purpose of the institution must be charitable. The test to be applied is whether the object which is pursued is of the main or primary object or whether it is ancillary to a dominant object. These principles were reiterated by the Supreme Court in Director of IT vs. Bharat Diamond Bourse MANU/SC/1153/2002 : (2003) 179 CTR (SC) 225 : (2003) 1 SCC 741. In CIT vs. Gujarat Maritime Board (2008) 1 DTR (SC) 1 : MANU/SC/8188....
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....ing among others. During the assessment year, the assessee had expended an amount of nearly Rs. 50 lakhs on constructing a swimming pool. The fact that the assessee provides service to its members does not detract from the position that it advances a general public utility. The advancement of any object of benefit to the public or a section of the public as distinguished from a benefit to an individual or a group of individuals would be a charitable purpose [CIT vs. Gujarat Maritime Board (supra)]. As the Tribunal noted, the membership of the society is drawn from a diverse cross section of the society. The assessee does not exist only for an individual or a group of individuals. On these facts, the primary issue which has been decided by the Tribunal must be answered by holding that the assessee for asst. yr. 1996-97 fulfilled the definition of the expression "charitable organization" in s. 2(15). The first question of law would, accordingly, have to be answered in the affirmative. 8. Sec. 11(1)(a) of the Act provides inter alia that income derived from property held under trust wholly for charitable purposes, to the extent to which such income is applie....
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....ission made on behalf of the Revenue that the Circular No. 21 of 2016 : MANU/DTCR/0021/2016 would have only prospective effect in respect of assessment made subsequent to the amendment under section 2(15) of the Act, with effect from April 1, 2016 is also not sustainable. The amendment in section 2(15) of the Act brought about by Finance Act, 2016, with effect from April 1, 2016, is essentially that where earlier the receipts in excess of Rs. 25 lakhs on commercial activities would exclude it from the definition of 'charitable purpose' is now substituted by receipts from commercial activities in excess of 20 per cent, of the total receipts of the institution. In the above view, Circular No. 21 of 2016 : MANU/DTCR/0021/2016 directs the Officer of the Revenue not to cancel Registration only because the receipts on account of business are in excess of the limits in the proviso to section 2(15) of the Act would also apply in the present case. The impugned order has held that cancellation of a registration under section 12AA(3) of the Act, can only take place in case where the activities of the trust or institution are not genuine and/or not carried on in accordance with its obj....
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...., if reported timely to the Revenue, would have resulted in the extension or continuation of its registration, there is no question of it being denied to the assessee solely for the reason of delayed communication. Of course, the onus, prima facie, would be on the assessee to show that its objects and rules, despite revision, are still charitable, so that it remains entitled for a continuation of its registration; the same being essentially an exemption provision, so that it is for the assessee to exhibit its entitlement thereto. Per contra, the onus to show otherwise would be on the Revenue; the assessee claiming no substantial change, which though raises the question - as indeed stands raised by the Revenue, as to its purpose. This is as no presumption, either way, could hold. Further, the law having been amended prospectively, i.e., w.e.f. 01-04-2009, restricting the scope of charitable purpose, where the same is in relation to the advancement of an object of general public utility, as in the instant case, the Revenue would be well within its powers to examine the issue of continuation of the assessee's registration u/s. 12A for the assessment year commencing on or ....