IN HIGH COURT OF KERALA AT ERNAKULAM PRESENT HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & HONOURABLE MR. JUSTICE ASHOK MENON FRIDAY ,THE 22ND DAY OF FEBRUARY 2019 / 3RD PHALGUNA, 1940 ITA.No. 171 of 2014 AGAINST ORDER/JUDGMENT IN ITA 250/COCH/2011 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 18.07.2013 APPELLANT/APPELLANT/ASSESSEE: MAHATMA GANDHI CHARITABLE SOCIETY, T.C. VIII/52, LAKSHMI VIHAR, THIRUMALA, THIRUVANANTHAPURAM-695006, REPRESENTED BY ITS CHAIRMAN, K.R.PANDALAI. BY ADVS. SRI.O.K.NARAYANAN SRI.P.REJINARK RESPONDENT/RESPONDENT/REVENUE: COMMISSIONER OF INCOME-TAX, AAYKAR BHAVAN, KAWDIAR, THIRUVANANTHAPURAM- 695003. BY ADVS. SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH, SC, FOR INCOME TAX OTHER PRESENT: SRI JOSE JOSEPH, SC FOR INCOME TAX DEPT. THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 22.02.2019, COURT ON SAME DAY DELIVERED FOLLOWING: ITA 171/14 -2- J U D G M E N T [ITA No.171 of 2014] Vinod Chandran, J. appeal is from Annexure-A8 order of Income Tax Appellate Tribunal. questions of law framed are as follows:- (1) Ought not Tribunal have found that Commissioner's order was passed on no materials and that there was absolutely no satisfaction entered into as to objects of assessee being not genuine or assessee having not carried on activities as declared in Memorandum of Association (MoA)? (2) Has not Tribunal committed error amounting to perversity in having confirmed orders of Commissioner? ITA 171/14 -3- 2. assessee is said to have been formed in year 1995 and applied for registration under Section 12A of Income Tax Act, 1961 ( Act for short). application of assessee was also favourably considered and registration granted as per Annexure-A1. Later, law stood amended and Section 12AA came into force which also contained provision under sub- Section (3) for cancellation of registrations. Admittedly, Section 12AA(3) took into its fold even registrations granted earlier to such amendment. Further, by Finance Act, 2008 with effect from 01.04.2009, definition of charitable purpose under Section 2(15) of Act stood amended by introduction of proviso. main definition clause stood as it is. ITA 171/14 -4- 3. definition clause along with proviso as introduced with effect from 01.04.2009 is extracted hereunder:- 2(15) Charitable purpose includes relief of 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 advancement of any other object of general public utility: Provided that advancement of any other object of general public utility shall not be charitable purpose, if it involves carrying on of any activity in nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for cess or fee or any other consideration, irrespective of nature of use or application, or retention, of income from such activity; Provided further that first proviso shall not apply if aggregate value of receipts from activities therein is ten lakh rupees or less in previous year. ITA 171/14 -5- 4. Commissioner invoked sub-Section (3) of Section 12AA by notice dated 31.01.2011. notice specifically called upon assessee to show cause as to why registration granted under Section 12A should not be cancelled for reason of activities of assessee no more being considered as charitable activity. Chairman of assessee appeared before Commissioner and contended that activity of assessee comes within meaning of relief to poor as it gives employment to poor people. When assessee was asked to demonstrate as to activities carried on which comes within nomenclature of relief to poor , it was submitted that nature of job offered would itself indicate that only poor people can apply for it. Commissioner found that assessee was not able to satisfy requirement of term ITA 171/14 -6- relief to poor and held that employment of persons by society in labour contract cannot be categorised as general public utility carried on by assessee. It was also found that gross receipts from contracts for subject years indicated Rs.3 crores for year 2008-09 and Rs.4 crores for year 2009-10. Finding second proviso to Section 2(15) to be clearly attracted, Society was held to be not pursuing charitable activities as defined under Act and registration stood cancelled. 5. appeal was taken to Tribunal which first resulted in Annexure-A5. assessee's contentions as noticed by Tribunal were that it was established for carrying out various activities, including giving employment to at least one member in family which is needy and deserving. Relying on clause 4(17) of MoA, ITA 171/14 -7- learned counsel also contended that giving employment opportunity to poor is one of objects of Trust which would fall in advancement of object of carrying on general public utility. Tribunal found that merely by invoking monetary limit as existing in statute by provisos, there could be no cancellation effected of registration granted under Section 12A. However, Tribunal also looked into question of exemption and found that despite registration being continued, Assessing Officer could look into income and decide on exemption applicable to such income. This was by Annexure-A5 order. 6. assessee then filed Miscellaneous Application before Tribunal and submitted that it was never contention of assessee that provision of employment to ITA 171/14 -8- poor would come under general public utility. It was always stand of assessee that it had been providing employment to poor only and hence same would come within objects as seen from MoA, which is provision of employment to poor, charitable activity. stand hence was that this activity of providing employment to poor would be charitable purpose and hence they are entitled to continue their registration granted under Section 12A. Tribunal based on above contentions, especially looking at affidavit submitted by Counsel who argued matter before Tribunal, that arguments raised were not properly understood by Tribunal; withdrew its earlier order and posted matter for hearing. 7. assessee filed appeal before this Court from above order of Tribunal in ITA 171/14 -9- Miscellaneous Application at Annexure-A7, which was rejected by this Court by judgment in ITA No.170/2014 dated 14.10.2014. learned counsel appearing for assessee also fairly conceded that, as of now, assessee could not raise any contention against Annexure-A5 order. questions of law raised are also those arising from Annexure-A8. Annexure-A8 found that Commissioner had rightly cancelled registration invoking provisions under Section 12AA(3). 8. learned Counsel for assessee had placed reliance on judgment of this Court reported in (2016) 382 ITR 399 (Ker) [Sree Anjaneya Medical Trust v. Commissioner of Income Tax]. We are of opinion that said decision has absolutely no application to facts as arising from this case. Division Bench in that case was concerned with registration of Trust under ITA 171/14 -10- Sections 12A and 12AA. registration was declined on ground that inspection conducted showed receipt of amounts from students. appellant therein had taken up specific contention that receipts were of advance fees received from Non Resident Indian students and that it was to be adjusted towards fees of each year of study. Division Bench of this Court found that when considering aspect of registration simplicitor, there is no requirement of examination of modus of fund application or ethical background of its settlers. preliminary requirement is only examination of whether trust is constituted genuinely for carrying on charitable activities and whether it has capacity to so carry out its professed objects. application of its funds and operations as such being in consonance with objects are all ITA 171/14 -11- considerations at time of actual claim of exemption which is made at time of assessment. What distinguishes present case is that question raised is not of registration and is one of cancellation of registration as provided under Section 12AA(3), that too looking at activities of trust. 9. appellant-trust obviously was engaged in executing contracts as awarded by Indian Railways for cleaning train coaches and railway stations. contention of assessee was also that considering work of cleaning, for which contract was awarded, it should be assumed that employment would only be of persons from marginalised sections of society. Tribunal considered question elaborately. specific objects as available in MoA of Trust was extracted by Tribunal. reliance ITA 171/14 -12- placed by assessee was also on sub-clause (17) which reads as giving employment at least for one member in family, which is needy and deserving . Tribunal first considered question as to whether taking contract from Indian Railways and carrying out contract work by employing poor people as claimed by assessee would amount to charitable purpose or not. Tribunal, according to us, correctly found that execution of contract as awarded by Indian Railways for purpose of cleaning train coaches and railway stations is purely commercial and business activity. Tribunal also noticed that when there is employment given in pursuance of contract work, there are many labour friendly legislations which had to be complied with by employer. Mere employment of people from weaker sections of Society would not absolve ITA 171/14 -13- contractor from labour legislations and such work is one carried out with clear intention at making profit. assessee having bid in competitive tender had been awarded work for consideration agreed upon between parties and carrying on of such work cannot be categorised as charitable work merely because poor or persons from marginsalised sections are given employment. execution of work awarded by Railways, is not public utility service carried on by assessee and mere fact that poor are employed in such execution of contract awarded, would not make it charitable purpose. 10. Further though assessee is said to have provided employment to various people who are engaged in actual cleaning work carried out in pursuance of contract, there is absolutely no material placed as to categories from which ITA 171/14 -14- such employees were sourced. But for mere assertion that nature of work would itself indicate that only poor people would come for same, assessee has not indicated anything about source from which assessee had employed such people. 11. Tribunal correctly found that for cancellation of registration, there are two conditions to be satisfied; one that there is registration granted earlier and other satisfaction of Commissioner that trust or institution is not genuine or activity of trust is not being carried on in accordance with objects of trust. activity specifically carried on by assessee is execution of contract awarded by Indian Railways. This does not come within any of objects as professed by assessee in its MoA. ITA 171/14 -15- provision of employment is incidental and necessary corollary to execution of contract awarded by Indian Railways to assessee. Various High Court judgments as proffered before Tribunal were discussed by Tribunal to distinguish them on facts. We would not further labour on same, since only argument was on basis of aforesaid judgment of Division Bench of this Court itself. Commissioner, according to us, has rightly found that activities carried on by assessee being in nature of execution of contract work as obtained from Indian Railways, would not be charitable purpose coming under definition under Act. We, hence, uphold order of Tribunal and dismiss Income Tax Appeal. We do not think that consideration of facts by Tribunal was perverse in any manner. We find no question of law ITA 171/14 -16- arising from order of Tribunal. We reject Income Tax Appeal . No costs. Sd/- K.VINOD CHANDRAN JUDGE Sd/- ASHOK MENON JUDGE jg ITA 171/14 -17- APPENDIX APPELLANT'S EXHIBITS: ANNEXURE-A1 TRUE COPY OF ORDER C.NO.301/TECH/TVM- 6/93-94 DATED 30/1/95 PASSED BY 1ST RESPONDENT U/S 12 A. ANNEXURE-A2 TRUE COPY OF MEMORANDUM OF ASSOCIATION OF APPELLANT SOCIETY. ANNEXURE-A3 TRUE COPY OF ORDER C.NO.AAATM4153E/312/2/2010-11 DATED 24/2/2011 PASSED BY COMMISSIONER OF INCOME TAX,TRIVANDRUM. ANNEXURE-A4 TRUE COPY OF DETAILED ARGUMENT NOTE FILED BY COUNSEL FOR APPELLANT. ANNEXURE-A5 TRUE COPY OF ORDER IN ITA NO. 250/COCH/2011 DATED 16/11/2012 PASSED BY TRIBUNAL ALLOWING APPEAL FILED BY APPELLANT. ANNEXURE-A6 TRUE COPY OF M.A.NO.02/COCH/2013 DATED 12/12/2012 FILED BY APPELLANT. ANNEXURE-A7 COPY OF ORDER PASSED IN M.A.NO.02/COCH/2013 BY TRIBUNAL ON 8/2/2013. ANNEXURE-A8 TRUE COPY OF ORDER DATED 18/7/2013 PASSED BY TRIBUNAL IN ITA NO. 250/COCH/2011. [TRUE COPY] jg Mahatma Gandhi Charitable Society v. Commissioner of Income-tax, Thiruvananthapuram