1 TXA No.2 of 13 dtd. 04.02.2020 Suchitra IN HIGH COURT OF BOMBAY AT GOA TAX APPEAL NO. 2 OF 2013 GOA INDUSTRIAL DEVELOPMENT CORPORATION, through its Managing Director, Shri Faizi O. Hashmi, major in age, having office Plot No.13A-2, EDC Complex, Patto Plaza, Panaji-Goa-403 001. PAN NO. AAATG7792F Appellant Versus 1. Commissioner of Income Tax, Panaji Aaykar Bhavan, EDC Complex, Panaji, Goa 403 001. 2. Assistant Commissioner of Income Tax /Assessing Officer, Aaykar Bhavan, EDC Complex, Panaji, Goa 403 001. Respondents Mr. Pramod Vaidya and Mr. H.D. Naik, Advocates for Appellant. Mr. Tulajappa Kalburgi, Junior Standing Counsel for Respondents. Coram:- M.S. SONAK & SMT. M. S. JAWALKER, JJ. Date:- 4th February, 2020 2 TXA No.2 of 13 dtd. 04.02.2020 ORAL JUDGMENT (Per M. S. Sonak, J.) learned counsel for parties state that there is no objection for this Bench to take up this appeal. 2. Heard Mr. Pramod Vaidhya along with Mr. H. D. Naik who appear for appellant and Mr. Tulajappa Kalburgi, learned Junior Standing Counsel for respondents. 3. This Tax Appeal was admitted by order dated 24.09.2013 on following substantial questions of law:- (a) Whether on facts and in circumstances of case and in law, Tribunal was justified in comparing appellant with private builder and developer and in holding that appellant was carrying on business for profit so as to attract proviso to Section 2(15) ? (b) Whether Appellate Tribunal was justified on facts and in law in sustaining order under Section 12AA(3) particularly on grounds alien to Section 12AA(3) ? 4. According to us, if substantial question of law at (b) above is decided in favour of appellant, then, there will arise no necessity of deciding substantial question of law at (a) as above. This is because if we are satisfied that Commissioner of Income Tax (CIT) lacked jurisdiction to exercise powers under Section 12AA(3) on sole 3 TXA No.2 of 13 dtd. 04.02.2020 ground that definition of charitable purpose in Section 2(15) of Income Tax Act, 1961 (said Act) had been amended, then, on said ground alone, impugned order made by CIT on 27.12.2011 and confirmed by Income Tax Appellate Tribunal (ITAT) on 22.06.2012 will have to be set aside. Accordingly, we proceed to deal with substantial question of law at (b), in present appeal. 5. appellant in present case is Statutory Corporation established under Goa, Daman and Diu Industrial Development Corporation Act, 1965 (GIDC Act) with object of securing orderly establishment in industrial areas and industrial estates and industries so that it results in rapid and orderly establishment, growth and development of industries in Goa. 6. appellant, was granted registration under Section 12A of said Act, which registration, is necessary where exemptions are to be claimed on ground that income is expended for charitable purposes. Such registration was in fact granted to appellant way back on 16.12.1983 and same continued until making of impugned orders in these appeals. 7. On 12.12.2011 show cause notice was issued to appellant to show cause as to why such registration should not be cancelled by 4 TXA No.2 of 13 dtd. 04.02.2020 invoking provisions under Section 12AA(3) on ground that appellant has not fulfilled conditions laid down under Section 2(15) of said Act. This show cause notice was obviously, in context of proviso to Section 2(15) of said Act which was introduced with effect from 01.04.2009. 8. appellant furnished detailed response to show cause notice, wherein, appellant raised several grounds in order to urge that show cause notice be discharged. Amongst other grounds, appellant urged that two pre-conditions for invoking provisions of Section 12AA(3) being absent in present case, CIT, lacked jurisdiction to proceed to cancel registration. 9. CIT, by order dated 27.12.2011 however rejected appellant's contentions and withdrew registration granted to appellant by observing that it is crystal clear that activities of appellant are interconnected and interwoven with commerce or business. On perusal of CIT's order dated 27.12.2011 it is very clear that CIT has based its decision almost entirely on proviso to Section 2(15) of Income Tax Act which defines charitable purpose . As noted earlier, this proviso was introduced with effect from 01.04.2009. 5 TXA No.2 of 13 dtd. 04.02.2020 10. appellant appealed against order dated 27.12.2011 of ITAT and ITR, vide impugned order dated 26.12.2012 dismissed appellant's appeal. Hence present appeal on aforesaid substantial questions of law. 11. Section 12AA(3) of said Act reads as follows: 12AA(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. 12. From plain reading of aforesaid provision, it is clear that power of cancellation of registration can be exercised by CIT where CIT 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. 13. In present case there are really no categorical findings to effect that activities of appellant are not genuine or are not 6 TXA No.2 of 13 dtd. 04.02.2020 being carried out in accordance with objects, which objects, have been set out in GIDC Act, 1965. 14. In fact, Mr. Kalburgi, learned Junior Standing Counsel did not even urge that activities of appellant are not being carried out in accordance with objectives spelt out under GIDC Act. He however urged that activities of appellant are not genuine because such activities do not partake any charitable purpose as defined in Section 2(15) of said Act, particularly, if provisions in proviso are to be taken into account. Mr. Kalburgi submitted that there are findings of fact recorded by both CIT as well as ITAT that activities undertaken by GIDC are in nature of trade, commerce or business or in any case, activities for rendering services in terms of trade, commerce or business and that too for fee and other consideration. Mr. Kalburgi therefore submits that activities undertaken by GIDC can hardly be styled as genuine activities. He submits that since this is one of grounds to invoke provisions of Section 12AA(3), there is absolutely no error in view taken by CIT and ITAT. 15. Mr. Vaidhya contests aforesaid submissions made by Mr. Kalburgi. He points out that GIDC is statutory corporation and there is absolutely nothing non-genuine about activities undertaken 7 TXA No.2 of 13 dtd. 04.02.2020 by it. He points out that impugned orders almost entirely proceed on basis of amendment to Section 2(15) by which proviso came to be introduced. He submits that on basis of such amendment, there is no question of styling activities of appellant as non-genuine and on such ground invoking provisions of Section 12AA(3), which, are required to be strictly construed. 16. Mr. Vaidhya relies upon several decisions to submit that powers under Section 12AA(3) can be exercised only when Commissioner is satisfied that activities of institution are non- genuine or are not being carried out according to objects of institution. He points out that these decisions specifically lay down that powers under Section 12AA(3) cannot be exercised merely because institution in question may be covered under proviso to Section 2(15) after amendment or that income limit specified in proviso is exceeded. He points out that CBDT, has in fact issued Circular No.21/2016 dated 27.05.2016 making explicit this position, which was even otherwise quite implicit. decisions are as follows:- (i) Director of Income-tax (Exemptions) v. Khar Gymkhana [2016] 70 taxmann.com 181 (Bombay). (ii) Director of Income-tax (Exemptions) v. Maharashtra Housing & Area Development Authority 392 ITR 240 (Bombay). 8 TXA No.2 of 13 dtd. 04.02.2020 (iii) Director of Income-tax (Exemption), Bangalore v. Karnataka Industrial Area Development Board [2015] 55 taxmann.com 34 (Karnataka). (iv) Tamil Nadu Cricket Association v. Director of Income-tax (Exemptions) [2013] 40 taxmann.com 250 (Madras). 17. According to us, all aforesaid judgments support contentions now raised by Mr. Vaidhya in this appeal on substantial question of law at (b) above. 18. In Khar Gymkhana (supra), Division Bench of this Court, has in fact taken cognizance of Circular No.21/2016 and held that merely because, in given year, institution, by carrying on any trade, commerce and business is in receipt of amount in excess of `25 lakhs, would not entitle Director of Income Tax to cancel registration under Section 12AA(3). It is further held that jurisdiction to cancel registration would only arise if there is any change in nature of activities of institution or activities of institution are not genuine. In absence of fulfillment of either of these pre-conditions, CIT or Director, as case may be, will not have any jurisdiction to invoke provisions of Section 12AA(3) of said Act. 19. relevant discussion on aforesaid aspects is to be found in paragraphs 8 and 11 which read as follows:- 9 TXA No.2 of 13 dtd. 04.02.2020 8. jurisdiction to cancel Registration would only arise if there is any change in nature of activities of institution. above Circular clearly directs authorities not to cancel Registration of charitable institution just because proviso to section 2(15) of Act comes into play as receipts are in excess of Rs.25 lakhs in year. It also refers to Section 13(8) of Act which provides that where receipts on account of commercial activities is in excess of limit of R.25 lacs provided in second proviso to section 2(15) of Act, then Assessing Officer would deny benefit of registration as Trust for subject Assessment Year while framing Assessment. 11. submission made on behalf of Revenue that Circular No.21 of 2016 would have only prospective effect in respect of Assessment made subsequent to amendment under Section 2(15) of Act w.e.f. 1st April, 2016 is also not sustainable. amendment in Section 2(15) of Act brought about by Finance Act, 2016 w.e.f. 1st April, 2016, is essentially that where earlier receipts in excess of Rs.25 lakhs on commercial activities would exclude it from definition of 'charitable purpose' is now substituted by receipts from commercial activities in excess 20% of total receipts of institution. In above view, Circular No.21 of 2016 directs Officer of Revenue not to cancel Registration only because receipts on account of business are in excess of limits in proviso to Section 2(15) of Act would also apply in present case. impugned order has held that cancellation of Registration under Section 12AA(3) of Act, can only take place in case where activities of trust or institution are not genuine and/or not carried on in accordance with its objects. aforesaid Circular No.21 of 2016 is in line of finding of Tribunal in impugned order. submission on behalf of Revenue 10 TXA No.2 of 13 dtd. 04.02.2020 that Trust is not genuine because it is hit by proviso to Section 2(15) of Act, is in fact, negatived by Circular No.21 of 2016. In fact, above Circular No.21 of 2016 clearly provides that mere receipts on account of business being in excess of limits in proviso would not result in cancellation of Registration granted under Section 12AA of Act unless there is change in nature of activities of institution. Admittedly, there is no change in nature of activities of institution during subject Assessment Year. further submission on behalf of Revenue that looking at quantum of receipts on account of commercial activities, it is un-likely/improbable that in subsequent Assessment Years, receipts would fall below Rs.25 lakhs and therefore, Commissioner is entitled to cancel Registration. aforesaid submission made on behalf of Revenue is based not on facts as existing but on probability of future events. We are unable to accept submission based on clairvoyance. Further, we are unable to understand what prejudice is caused to Revenue since whenever receipts on account of commercial activities is in excess of limits provided in proviso to Section 2(15) of Act, Assessing Officer is mandated/required to deny exemption under Section 11 of Act as provided in Circular No.21 of 2016 dated 27th May, 2016. Accordingly, issue stands covered in favour of Revenue by virtue of Circular No.21 of 2016. (Emphasis supplied) 20. In case of Maharashtra Housing & Area Development Authority (MHADA) (supra), yet another Division Bench of this Court upset view taken by Director in cancelling 11 TXA No.2 of 13 dtd. 04.02.2020 registration by reference to amended provisions under Section 2(15) of said Act. Division Bench observed that since nothing was found to indicate that assessee was undertaking any activities to demonstrate that it was not genuine institution and further, there was nothing to indicate that assessee or its affairs are not being carried out in accordance with object of institution, there was no reason for Director to exercise power to withdraw registration granted to assessee. 21. relevant discussion is to be found in paragraph 7 which reads as follows:- 7. We have referred to order passed by Director and impugned before Tribunal in great detail with assistance of Mr. Malhotra. We do not find anything in matter referred by Director which could be termed that assessee was undertaking any activities which would demonstrate that it is not genuine Trust or institution. We have also not found any material which would which would indicate that assessee or its affairs are not being carried out in accordance with object of Trust or institution. If these are two aspects referred to in sub-section (3) of Section 12AA and materials in that behalf were completely lacking, then, we do not find any reason for Director to exercise power which he purported to exercise in present case. On this short ground alone assessee's appeal should have been allowed by Tribunal. Though Tribunal has discussed ambit and scope of proviso to Clause 15 of Section 2 and sub-section (3) of 12 TXA No.2 of 13 dtd. 04.02.2020 Section 12AA, we do not find that in facts and circumstances of present case, any such discussion was necessary and warranted, once appeal could have been allowed on above short ground. With this conclusion, we uphold order of Tribunal. We need not assign any other reason nor examine contentions raised before us in further details. questions, as are posed by Mr. Malhotra and in backdrop of these proceedings can be decided in proper case. With these observations, appeal fails and it is dismissed. (Emphasis supplied) 22. In Karnataka Industrial Area Development Board (supra), Division Bench of Karnataka High Court, in terms has held that registration granted cannot be cancelled in view of amendment of Section 2(15) as this is not ground specified in statute for cancellation of registration. In this case, Division Bench rejected contention that on account of amendment to Section 2(15) of said Act, activities undertaken by Karnataka Industrial Area Development Board could be styled as non-genuine activities. 23. relevant discussion is to be found in paragraph 9 which reads as follows:- 9. It is not in dispute that there is no violation of said two conditions by assessee. activities carried on by assessee is genuine one. As could be seen from profits they have generated, said profit is earned by carrying on activities in accordance with object of trust. 13 TXA No.2 of 13 dtd. 04.02.2020 Therefore, two conditions stipulated in subsection (3) of Section 12AA of Act, which empowers authority to cancel registration, do not exists in this case. registration granted is cancelled in view of amendment of first proviso to Section 2(15) of Act. That is not ground specified in Statute for cancellation of registration. In fact, sub-section (8) to Section 13 which is introduced by Financial Act, 2012 which came into effect from 1.4.2009 categorically provides that, nothing contained in Section 11 or Section 12 shall operate so as to exclude any income from total income of previous year or any receipt there of. If provisions of first proviso to Clause (15) of Section 2 becomes applicable in case of such person in said previous year, Statute has protected interest of revenue. Not-withstanding fact that assessee is conferred registration under Section 12A of Act, unless assessee falls within Section 2(15) of Act, excluding first proviso, assessee would not be entitled to benefit of exemption from tax. If case of assessee fals with first proviso to Section 2(15) of Act, benefit of registration which flow from Section 12A of Act is not available. Anyhow, that is matter to be considered by Assessing Authority. But on that ground, registration cannot be cancelled, which is precisely Tribunal has held. In that view of matter, we do not see any merit. substantial questions of law are answered in favour of assessee and against revenue. Hence, appeal is dismissed. (Emphasis supplied) 24. Finally, in Tamil Nadu Cricket Association (supra) , Division Bench of Madras High Court rejected contention similar to that 14 TXA No.2 of 13 dtd. 04.02.2020 raised by Mr. Kalburgi in present case that post amendment to Section 2(15), activities undertaken by Tamil Nadu Cricket Association could not be styled as genuine activities and therefore, there was jurisdiction to exercise powers under Section 12AA(3) of said Act. 25. relevant discussion is to be found in paragraph 56 which reads as follows:- 56. assessee is member of Board of Control for Cricket in India (BCCI), which in turn is member of ICC (International Cricket Council). BCCI allots test matches with visiting foreign team and one day international matches to various member cricket association which organise matches in their stadia. franchises conduct matches in Stadia belonging to State Cricket Association. State Association is entitled to all in-stadia sponsorship advertisement and beverage revenue and it incurs expenses for conduct of matches. BCCI earns revenue by way of sponsorship and media rights as well as franchisee revenue for IPL and it distributes 70% of revenue to member cricket association. Thus assessee is also recipient of revenue. Thus, for invoking Section 12AA read with Section 2(15) of Act, Revenue has to show that activities are not fitting with objects of Association and that dominant activities are in nature of trade, commerce and business. We do not think that by volume of receipt one can draw inference that activity is commercial. Income Tax Appellate Tribunal's view that it is entertainment and hence offended Section 2(15) of Act does not appear to be correct and same is based on its own impression on free 15 TXA No.2 of 13 dtd. 04.02.2020 ticket, payment of entertainment tax and presence of cheer group and given irrelevant consideration. These considerations are not germane in considering question as to whether activities are genuine or carried on in accordance with objects of Association. We can only say that Income Tax Appellate Tribunal rested its decision on consideration which are not relevant for considering test specified under Section 12AA(3) to impose commercial character to activity of Association. In circumstances, we agree with assessee that Revenue has not made out any ground to cancel registration under Section 12AA(3) of Act. (Emphasis supplied) 26. Upon perusal of impugned orders we find that there are no categorical findings that activities of GIDC are not genuine or are not in accordance with objects of trust or institution. Merely because, by reference to amended provisions in Section 2(15), it may be possible to contend that activities of GIDC are covered under proviso, that, by itself, does not render activities of GIDC as non-genuine activities so as to entitle CIT to exercise powers under Section 12AA(3) of said Act. We however clarify that we have really not gone into question as to whether activities of GIDC are indeed covered under proviso to Section 2(15) of said Act as amended. This is because we are satisfied that substantial question of law at (b) is required to be answered in 16 TXA No.2 of 13 dtd. 04.02.2020 favour of appellant and against Respondent Revenue. Once this is done, there is really no necessity to go into other issue as is reflected in substantial question of law at (a). 27. We also add that Circular No.21/2016 also, supports contentions of Mr. Vaidya, inasmuch as it reiterates that process of cancellation of registration has to be initiated strictly in accordance with provisions under Section 12AA(3) and after carefully examining application of said provisions. Circular, in context of income limits under proviso also explains that merely because in particular year limits may be exceeded is not good ground to cancel registration itself, though, all these aspects, can be taken into consideration at stage of assessment. In fact in case of Khar Gymkhana (supra), as also in Karnataka Industrial Area Development Board (supra), Division Benches of our Court have taken view that such matters can be evaluated in course of assessment but this shall not be ground for cancellation of registration itself. 28. For all aforesaid reasons, we allow this appeal by answering substantial question of law at (b) above in favour of appellant and against respondent Revenue. 29. As result, impugned orders made by CIT and ITAT are 17 TXA No.2 of 13 dtd. 04.02.2020 hereby quashed and registration held by GIDC is ordered to be revived. 30. In facts and circumstances of present case, there shall be no order as to costs. SMT. M. S. JAWALKAR, J. M. S. SONAK, J. ss Goa Industrial Development Corporation v. Commissioner of Income-tax, Panaji / Assistant Commissioner of Income-tax / Assessing Officer, Panaji