Priya Soparkar 1 29 itxa 2010-17-o IN HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL (IT) NO.2010 OF 2017 Commissioner of Income Tax (Exemptions), Mumbai. Appellant V/s. Mumbai Metropolitan Region Development Authority Respondent Mr.Ashok Kotangle with Mr.Prabhakar Ranshur, Advocate for Appellant. Mr.S.E.Dastur, Senior Advocate with Mr.Madhur Agarwal and Mr. A.K.Jasani for Respondent. CORAM : UJJAL BHUYAN & MILIND N. JADHAV, JJ. DATE : JANUARY 24, 2020 P.C.:- 1. Heard Mr.Ashok Kotangle, learned standing counsel, Revenue for appellant; and Mr.S.E.Dastur, learned senior counsel alongwith Mr.Madhur Agarwal and Mr.A.K.Jasani, learned counsel for respondent/ assessee. 2. This appeal has been preferred by Revenue under Section 260A of Income Tax Act, 1961 (briefly Act hereinafter) against order dated 5 th April, Uploaded on - 06/02/2020 Downloaded on - 07/02/2020 09:33:46 Priya Soparkar 2 29 itxa 2010-17-o 2017 passed by Income Tax Appellate Tribunal, B Bench, Mumbai (briefly Tribunal hereinafter) in Income Tax Appeal No.625/Mum/2012 for assessment year 2009-10. 3. appeal has been preferred on following two questions stated to be substantial questions of law:- (I) Whether, on facts and in circumstances of case and in law, Tribunal was right in quashing order passed by Director of Income Tax (Exemptions) cancelling registration under Section 12AA(3) of Income Tax Act, 1961 despite fact that activities undertaken by assessee cannot be said to be charitable in nature in view of proviso to section 2(15) of said Act inserted w.e.f. 01.04.2009? (II) Whether on facts and in circumstances of case and in law, Tribunal was right in its findings at para 9 of its order in ITA No.625/Mum/2012 dated 05.04.2017 i.e. Since, registration is already allowed consequently no disallowance can be made in respect to interest income and leasing activity income i.e. rent and other fees, because these falls under objects of assessee s institution and hence on merits also assessee has case which is not in accordance with provisions of section 13(8) of Income Tax Act, 1961? Uploaded on - 06/02/2020 Downloaded on - 07/02/2020 09:33:46 Priya Soparkar 3 29 itxa 2010-17-o 4. From above, what is discernible is that issue involved in this appeal is cancellation of registration of respondent by Director of Income Tax (Exemptions) under Section 12AA(3) of Act, which order has been set aside by Tribunal. 5. Though facts are not in dispute, however, for proper appreciation of controversy in question it would be apposite to briefly narrate facts of case. 6. Respondent is assessee under Act. Respondent was granted registration as Trust under Section 12AA(1) of Act. 7. proposal was received by Director of Income Tax (Exemptions) that registration granted to respondent under Section 12AA(1) of Act should be cancelled. 8. Be it stated that, respondent-assessee is Mumbai Metropolitan Region Development Authority. As per Uploaded on - 06/02/2020 Downloaded on - 07/02/2020 09:33:46 Priya Soparkar 4 29 itxa 2010-17-o proposal for cancellation of registration, it was mentioned that respondent was carrying on activities in nature of trade, commerce or business etc. and gross receipts therefrom were in excess of Rs.10 lakhs. Therefore, proviso to Section 2(15) of Act was attracted from assessment year 2009-10. 9. Show cause notice was issued by office of Director to respondent on 13 th December, 2011 to show cause as to why registration granted to it should not be withdrawn by invoking provisions of Section 12AA(3) of Act. 10. Respondent filed written submission and was also represented by authorized representative. 11. By order dated 27th December,2011 Director of Income Tax (Exemptions) took view that respondent was directly hit by proviso to Section 2(15) of Act and in view of deeming provision that when activities of respondent were not for charitable Uploaded on - 06/02/2020 Downloaded on - 07/02/2020 09:33:46 Priya Soparkar 5 29 itxa 2010-17-o purpose, then Trust (respondent) itself became non- genuine for purpose of Section 11 of Act as it had lost its public charitable status and thus provisions of Section 12AA(3) got attracted. Accordingly, Director held that respondent had become non-genuine for purpose of Section 11 of Act and, therefore, registration allowed to it in earlier years under Section 12AA of Act was cancelled/withdrawn with effect from assessment year 2009-10. Accordingly respondent was held to be non-charitable Trust / Institution. 12. Aggrieved by cancellation of registration, respondent preferred appeal before Tribunal. Tribunal after hearing matter and following decision of Madras High Court in Tamilnadu Cricket Association Vs. Director of Income Tax, 360 ITR 633 set aside order passed by Director of Income Tax (Exemptions) vide order dated 5 th April, 2017. Tribunal held that it did not find anything in order of Director which held that respondent was undertaking Uploaded on - 06/02/2020 Downloaded on - 07/02/2020 09:33:46 Priya Soparkar 6 29 itxa 2010-17-o any activity which was not genuine or that Trust or Institution was not genuine. It was further held that there were no materials on record to show that respondent Trust or its affairs were not being carried out in accordance with objects of respondent Trust. Accordingly, while setting aside order of Director, registration of respondent was restored. 13. Aggrieved, present appeal has been preferred. 14. Learned counsel for appellant has referred to order passed by Director and submits that said order clearly indicated as to why registration of respondent was required to be cancelled. He submits that in so far activity of respondent is concerned, clearly proviso to Section 2(15) of Act was attracted, thereby rendering respondent non- charitable. He submits that on similar issue, Supreme Court has granted leave to file appeal in Principal Commissioner of Income-Tax Vs. JIS Foundation, (2018)96 taxmann.com 257(SC). Tribunal was not Uploaded on - 06/02/2020 Downloaded on - 07/02/2020 09:33:46 Priya Soparkar 7 29 itxa 2010-17-o justified in interfering with reasoned order passed by Director. 15. On other hand, Mr.Dastur, learned senior counsel submits that since impugned order was passed under Section 12AA(3) of Act, Director of Income Tax (Exemptions) was required to record his satisfaction that activities of Trust were not genuine or that activities of Trust are not being carried out in accordance with objects of Trust. These two twin conditions would have to be satisfied before passing order cancelling registration of Trust under Section 12AA(3). He has taken us to cancellation order as well as to order of Tribunal and submits that Director of Income Tax (Exemptions) was not at all justified in invoking section 12AA(3), in cancelling registration of petitioner. Tribunal had rightly interfered with said order and therefore, no interference is called for. Uploaded on - 06/02/2020 Downloaded on - 07/02/2020 09:33:46 Priya Soparkar 8 29 itxa 2010-17-o 16. Referring to order passed by Director of Income Tax (Exemptions), Mr.Dastur submits that identical grounds were given by Director of Income Tax (Exemptions) in Director of Income-Tax (Exemptions) Vs. North Indian Association, 393 ITR 206. However, this court did not accept such reasoning given by Director as not being within ambit of Section 12AA(3). 17. His further submission is that there is difference between cancellation of registration and non-grant of exemptions. Where receipts of Trust are hit by proviso to Section 2(15) of Act, benefit of exemptions may not be available to Trust in assessment proceeding and income may be brought to tax, but that cannot be ground for cancellation of registration. This was also view of this court in North Indian Association (supra). He has also placed reliance on other decisions of this court i.e. Director of Income-Tax (Exemptions) Vs. Khar Gymkhana, 385 ITR 162; CIT Vs. Mumbai Metropolitan Regional Uploaded on - 06/02/2020 Downloaded on - 07/02/2020 09:33:46 Priya Soparkar 9 29 itxa 2010-17-o Iron & Steel Market Committee, ITA No.43 of 2015, decided on 17th July, 2017; Commissioner of Income- Tax Vs. Sadguru Narendra Maharaj Sansthan, 407 ITR 12; and Commissioner of Income-Tax vs. Builders Association of India, ITA No.92 of 2016, decided on 4th May, 2018. 18. Responding to submission of Mr.Kotangale that in respect of identical issue Supreme Court has granted leave to file appeal in Special Leave Petition filed by Department, Mr.Dastur submits that issue in said case is different. Referring to decision of Calcutta High Court from where Department had filed SLP i.e. Principal Commissioner of Income-Tax Vs. JIS Foundation, 2018 (89) taxmann.com 226 (Calcutta), he submits that in said case Commissioner had cancelled registration of assessee-Trust on 31 st December, 2008 when sub-section (3) of Section 12AA was introduced by Finance Act, 2010 with effect from 1st June, 2010. Therefore, question for consideration before Supreme Court is whether Commissioner could Uploaded on - 06/02/2020 Downloaded on - 07/02/2020 09:33:46 Priya Soparkar 10 29 itxa 2010-17-o have cancelled registration on 31 st December, 2008, when power to cancel registration was inserted in statute book from 1st June, 2010. In other words, Commissioner had exercised power which was not available to him on date of exercise of power. That issue is not before court in present proceeding. 19. Submissions made by learned counsel for parties have been considered. 20. At outset, it would be apposite to advert to relevant provisions of Act dealing with Trust. 21. Section 11 provides that income from property held for charitable or religious purposes shall not be included in total income of previous year of person in receipt of income. 22. Section 12 deals with income of Trust or institutions from contributions. Sub-section (1) says that any voluntary contribution received by Trust created wholly Uploaded on - 06/02/2020 Downloaded on - 07/02/2020 09:33:46 Priya Soparkar 11 29 itxa 2010-17-o for charitable or religious purposes or by institution established wholly for such purposes shall for purposes of Section 11 be deemed to be income derived from property held under Trust wholly for charitable or religious purposes and thereafter, provisions of Sections 11 and 13 shall apply. 23. Section 12A lays down conditions for applicability of Sections 11 and 12. Before adverting to Section 12AA, we may mention that Section 13 provides that Section 11 shall not apply in those cases mentioned in that Section. Sub-section (8) of Section 13 says that nothing contained in Sections 11 or 12 shall operate so as to exclude any income from total income of previous year of person in receipt thereof if provisions of first proviso to clause (15) of Section 2 become applicable in case of such person in said previous year (It may be mentioned that w.e.f. 1st April, 2016, Section 2(15) has only one proviso). Uploaded on - 06/02/2020 Downloaded on - 07/02/2020 09:33:46 Priya Soparkar 12 29 itxa 2010-17-o 24. Section 12AA lays down procedure for registration of Trust. Sub-sections (1), (1A) and (2) deal with order granting or refusing registration and procedure to be followed. Sub-section (3) was inserted by Finance Act, 2004 with effect from 1 st October, 2004. Sub-section (3) is extracted hereunder :- (3) Where trust or 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 Finance (No.2) Act, 1996 (33 of 1996)) and subsequently (Principal Commissioner or) Commissioner is satisfied that activities of such trust or institution are not genuine or are not being carried out in accordance with objects of trust or institution, as case may be, he shall pass order in writing cancelling 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 reasonable opportunity of being heard. 25. Thus where Trust or Institution has been granted registration and subsequently Principal Commissioner or Commissioner is satisfied that activities of such Uploaded on - 06/02/2020 Downloaded on - 07/02/2020 09:33:46 Priya Soparkar 13 29 itxa 2010-17-o Trust or Institution are not genuine or are not being carried out in accordance with objects of Trust or Institution, he shall pass order in writing cancelling registration of such Trust or Institution. As per proviso no order of cancellation of registration shall be passed unless such Trust or Institution has been given reasonable opportunity of being heard. Therefore, two conditions are required to be satisfied before invocation of section 12AA (3) of Act. Firstly, activities of Trust or Institution are not genuine and secondly, activities are not being carried out in accordance with objects of Trust or Institution. use of word or between two conditions is indicative of disjunctive nature of two conditions. In other words, it is enough if one of two conditions are satisfied. requirement therefore is that authority competent under Section 12AA(3) to cancel registration must arrive at satisfaction that one of two conditions mentioned therein is attracted. Uploaded on - 06/02/2020 Downloaded on - 07/02/2020 09:33:46 Priya Soparkar 14 29 itxa 2010-17-o 26. Before referring to judgments cited at Bar it would be apposite to advert to Section 2(15) of Act. As is evident Section 2 is definition section. Sub- section (15) defines Charitable purpose . However, it is proviso thereto which is relevant which existed as on date of passing of order by Director of Income Tax (Exemptions) on 27th December, 2011. At that stage i.e., prior to 1st April, 2016, there were two provisos to Section 2(15) which were as under:- 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 referred to therein is twenty-five lakh rupees or less in previous year. 27. Thus, as per first proviso it was held that advancement of any other object of general public utility would not be charitable purpose if it involved Uploaded on - 06/02/2020 Downloaded on - 07/02/2020 09:33:46 Priya Soparkar 15 29 itxa 2010-17-o 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. As per second proviso, first proviso would not apply if aggregate value of receipts from such activities is Rs.25 lakhs or less in previous year. 28. In North Indian Association (supra) this court in similar circumstances observed that there is difference between registration and exemption. Referring to Section 13(8) of Act which was introduced by Finance Act, 2012 with retrospective effect from 1st April, 2009 this court held that where receipts are hit by proviso to Section 2(15) of Act, benefit of exemption to its income for relevant previous year would not be available. Thus income would be brought to tax to secure interest of revenue but it does not necessarily result in automatic cancellation of registration. Uploaded on - 06/02/2020 Downloaded on - 07/02/2020 09:33:46 Priya Soparkar 16 29 itxa 2010-17-o 29. In Khar Gymkhana (supra) this court held that jurisdiction to cancel registration would only arise if there is any change in nature of activities of institution. 30. Having noticed above, objects of respondent Trust may be adverted to. Objects of Trust appear in clause 3 of trust deed dated 5th July, 1978, which read as under:- (i) Affording medical relief and spread of medical science in such manner as Trustees may think fit including:- (a) Establishment and maintenance and support of Hospitals Health Centres and Dispensaries with or without Medical Schools and Nursing Institutions or any of them for treatment of patients suffering from diseases or accidents. (b) Establishment acquisition and maintenance and support to Hospitals, Dispensaries, Maternity Homes, Homes Sanatoria, Research Centres, Laboratories. Preventive Health Centres, Hospice s, Diagnostic Centres, Medical Colleges and Medical Schools. (c) Grant of subscription and donation to Hospitals, Dispensaries, Convalescent Homes, Uploaded on - 06/02/2020 Downloaded on - 07/02/2020 09:33:46 Priya Soparkar 17 29 itxa 2010-17-o Asylums, Hospices, Health Centres, Baby Clinics, Nursing Homes and other Public Institutions for administering medical relief upon such terms and conditions and for such period as Trustees may think fit. (d) Grant of medical help during epidemic, famine, flood or any unforeseen calamity or war or war-like operations or civil commotion or riots e) Establishment and/or acquisition and maintenance of and support of medical schools, medical colleges and other institutions carrying research in medicine and awarding scholarships and scholarship prizes or awards at any such schools, colleges and institutions. (f) To undertake prosecute develop help or carry on all or any kind o f basic or fundamental and/ or applied research and scientific work in connection with or relating to medical surgical and sociomedical research problems and to do all things necessary or incidental or conducive to attainment of same and to provide funds for research and for scholarships, stipends and/or other payment or aid to any person or persons engaged in research work. (g) establish and maintain and to assist and encourage or promote as and when deemed proper and expedient for purpose of medical relief in form of Hospitals or in connection there with or attached thereto all or any of following Institutions namely: (1) Institutions for promoting medical research work; Uploaded on - 06/02/2020 Downloaded on - 07/02/2020 09:33:46 Priya Soparkar 18 29 itxa 2010-17-o (2) Medical College, Nursery and Midwifery Institutions for imparting medical education and training ; (3) Convalescent Home; (4) Creche and Children s Hospital. (2) To incur any expenditure on any programme of rural development as provided for under Section 35-CC of Income Tax Act or any other law relating to rural development for time being in force and to undertake to carry out, promote and sponsor such programme as Trustees may deem fit. 31. We may also refer to clause 4 of trust deed which outlines powers vested with trustees in order to attain objectives of Trust. Clause 4 is as under:- 4. trustees shall have power to restrict or regulate from time to time objects of this Trust so as to comply with any conditions or requirements of taxation laws of India relating to taxation of income or capital as they may think fit so as to obtain for this Trust or Donors to this Trust any relief or concession in respect of taxation subject however to over-riding consideration that object or objects of this Trust shall always be public charitable object excluding (i.e. other than object of religious nature and shall be such as may be recognised as public charitable object as Uploaded on - 06/02/2020 Downloaded on - 07/02/2020 09:33:46 Priya Soparkar 19 29 itxa 2010-17-o defined in Section 2(15) of Income Tax Act, 1961 or any statutory modification or re- enactment or any other Act governing taxation of income for time being in force in India. Without prejudice to generality of foregoing object or purposes but subject to limitation and conditions as laid down in this Deed Trustees may each year spend or apply residue of income of Trust Fund and may at their discretion at any time and from time to time spend or apply also corpus of Trust Fund or any part of parts of trust Fund in or towards any one or more of objects or purposes (which according to law be public charitable objects or purposes) to exclusion of others or other of them and in such proportion and manner in all respects as Trustees may think fit. 32. In instant case Tribunal discussed objects of assessee i.e., respondent and returned finding of fact that entire objects are charitable in nature having regard to meaning of expression Charitable purpose as defined in Act. Tribunal referred to decision of Madras High Court in Tamilnadu Cricket Association Vs. Director of Income Tax, 260 ITR 633 wherein Madras High Court held that act of granting registration under Section Uploaded on - 06/02/2020 Downloaded on - 07/02/2020 09:33:46 Priya Soparkar 20 29 itxa 2010-17-o 12AA(1) is result of satisfaction recorded by Commissioner as regards genuineness of objects as well as activities of Trust and once such satisfaction is arrived at by Commissioner, cancellation could only be in terms of Section 12AA(3) of Act. Thereafter, Tribunal recorded finding that order of Director of Income Tax (Exemptions) did not disclose which activity of respondent was not genuine or that respondent was not genuine. Tribunal also recorded that there was no material in said order explaining that activities of respondent are not being carried out in accordance with its objects. 33. On careful reading of order passed by Director of Income Tax (Exemptions) as well as order passed by Tribunal, we do not find any error or infirmity in view taken by Tribunal. In so far view taken by Director is concerned that respondent is directly hit by proviso to Section 2(15) of Act, we are of view that such satisfaction may lead to denial of exemption to respondent in assessment Uploaded on - 06/02/2020 Downloaded on - 07/02/2020 09:33:46 Priya Soparkar 21 29 itxa 2010-17-o proceeding for relevant assessment year but certainly cannot be ground for cancellation of registration under Section 12AA(3). competent authority under Section 12AA(3) must be satisfied that activities of Trust are not genuine or that activities are not being carried out in accordance with objects of Trust or Institution. Such satisfaction must be recorded as matter of fact on basis of specific materials on record. Merely saying that activities of respondent is hit by proviso to Section 2(15) of Act, would not lead to automatic cancellation of registration as that is not ground provided under Section 12AA(3) of Act for cancellation of registration. 34. perusal of order passed by Director would go to show that no such finding was recorded by Director that activities of respondent Trust are not genuine or that activities are not being carried out in accordance with objects of respondent Trust. What Director had done was that he took Uploaded on - 06/02/2020 Downloaded on - 07/02/2020 09:33:46 Priya Soparkar 22 29 itxa 2010-17-o view that respondent was hit by proviso to Section 2(15) of Act and therefore, it was deemed that respondent Trust had become non-genuine. Such view is wholly untenable being contrary to mandate of Section 12AA(3) of Act and was rightly interfered with by Tribunal. 35. In so far contention of learned standing counsel for revenue that this issue is being considered by Supreme Court, we are in agreement with submission made by learned senior counsel for respondent/ assessee that question before Supreme Court is whether at time of cancellation of registration on 31st December, 2008 Commissioner had power to cancel registration since sub-section (3) of Section 12AA was inserted by Finance Act, 2010 with effect from 1 st June, 2010. Therefore, issue in JIS Foundation (supra) is materially different from issue arising in present appeal. Uploaded on - 06/02/2020 Downloaded on - 07/02/2020 09:33:46 Priya Soparkar 23 29 itxa 2010-17-o 36. Therefore, on thorough consideration we are of view that there is no error or infirmity in order passed by Tribunal. Consequently no question of law, much less any substantial question of law, arises therefrom. 37. In that view of matter, appeal is dismissed. However, there shall be no order as to cost. (MILIND N. JADHAV, J.) (UJJAL BHUYAN, J.) Uploaded on - 06/02/2020 Downloaded on - 07/02/2020 09:33:46 Commissioner of Income-tax (Exemptions), Mumbai v. Mumbai Metropolitan Region Development Authority