Commissioner Of Income Tax - Gandhinagar<Br>----- End Of Picture Text -----<Br> v. Gujarat Maritime Board

C/TAXAP/408/2012 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 408 of 2012 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE J.B.PARDIWALA Sd/- andHONOURABLE MR. JUSTICE BHARGAV D. KARIASd/-================================================================ HONOURABLE MR. JUSTICE BHARGAV D. KARIASd/-================================================================1Whether Reporters of Local Papers may be allowedNOto see the judgment ?2To be referred to the Reporter or not ?NO3Whether their Lordships wish to see the fair copyNOof the judgment ?4Whether this case involves a substantial questionNOof law as to the interpretation of the Constitutionof India or any order made thereunder ? ================================================================COMMISSIONER OF INCOME TAX - GANDHINAGAR VersusGUJARAT MARITIME BOARD ================================================================ Appearance:MRS MAUNA M BHATT for the Appellant.MR SN SOPARKAR, SR.ADVOCATE with MR GH VIRK for the Opponent. ================================================================ CORAM: HONOURABLE MR.JUSTICE J.B.PARDIWALAandHONOURABLE MR. JUSTICE BHARGAV D. KARIA Date : 17/02/2020 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE J.B.PARDIWALA) 1.This Tax Appeal under Section 260A of the Income Tax Act,1961 (for short, 'the Act 1961') is at the instance of the Revenue and is directed against the order passed by the Income TaxAppellate Tribunal, 'A' Bench, Ahmedabad, dated 20[th] January2012, in the ITA No.36/Ahd/2011. 2.The facts giving rise to this Tax Appeal may be summarisedas under : 3.The respondent-assessee is engaged in the activity ofadministering, controlling and managing the minor ports in theState of Gujarat. The respondent-assessee is registered underSection 12AA of the Act 1961 w.e.f. 1[st] April 2002. TheCommissioner of Income Tax, Gandhinagar, vide order dated 7[th]December 2010, cancelled the registration of therespondent-assessee as a charitable institution. The orderpassed by the Commissioner of Income Tax reads thus : “2.The activity of the assessee is related to levyingvarious fees of charges from the users of the ports undervarious heads like (1) Port Infrastructure facilities (2) MarineServices (3) Clearing, forwarding and Harboring (4) StorageArea and Land Rental (5) Equipment & Harbor Craft Rental(6) License Fees (7) Income from other Port Services.Similarly, the assessee used to keep payment to variousbodies and Govt. of Gujarat by way of fees, charges etc. Thedescription of receipts and expenditure incurred by theassessee shows that the assessee runs its activities in aprofessional and business like manner from these activities.It is also clear that the assessee derives profit out of variousbusiness activities. Thus, there being no free services orutilities to public, the cost of the entire activities being fully recouped, there was no charity meant for public within themeaning of section 2(15) of the IT Act, 1961. As the activitiescarried out by the Gujarat Maritime Board were more ofcommercial nature resulting in commercial income, a showcause notice u/s. 12AA(3) of the IT Act was issued videletter dated 3.9.2010 and 14.10.2010 of this office,proposing to cancel the registration accorded u/s.12AA ofthe IT Act on 15.6.2005. recouped, there was no charity meant for public within themeaning of section 2(15) of the IT Act, 1961. As the activitiescarried out by the Gujarat Maritime Board were more ofcommercial nature resulting in commercial income, a showcause notice u/s. 12AA(3) of the IT Act was issued videletter dated 3.9.2010 and 14.10.2010 of this office,proposing to cancel the registration accorded u/s.12AA ofthe IT Act on 15.6.2005. 3.By the aforesaid show cause notices, amendedprovisions of section 2(15) of the IT Act by the AmendmentAct, 2010 with retrospective effect from 1.4.2008 arespecifically pointed out and it was brought to the notice ofthe assessee that the assessee cease to be a charitableorganization which was earlier covered under the forth limbof the charitable purpose i.e. advancement of any otherobject of general public utility as the aggregate value ofreceipts which were in the nature of trade, commerce orbusiness or any activity of rendering any service in relationto any trade, commerce or business, for a cess or fee or anyother consideration, irrespective of the nature of use orapplication or retention of income from such activity, exceedsthe prescribed minimum limit of Rs.10 lakhs for enablingstatus of charitable institution. 4.It has been found that the assessee while furnishingreturn of income for A.Y. 2009-10 appended the notes asunder : “The GMB has been granted registration u/s.12AA of the IT Act by the Hon'ble CIT Gandhinagar vide orderdt. 15.6.2005 and the computation of income has beenarrived at by treating its income as exempt u/s.11 ofthe IT Act. The status of charitable trust/entity hasbeen claimed by GMB as it holds firm and consideredview that inspite of insertion of proviso to Section 2(15)of the IT Act, 1961 by Finance Act 2008 it continues tobe as such due to the fundamental nature of itsactivities and subsisting registration certificate whichhas not been cancelled by the IT Deptt. by havingrecourse to section 12AA(3) of the IT Act 1961. GMBhas been advised in a legal opinion dt. 29.9.2009given by a Senior Advocate of Supreme Court of India,it continues to be a charitable trust/entity in view ofthe above subsisting registration certificate.” 5.In addition to the above, the following claim has beenmade while filing return of income. “Without prejudice to the rights of GMB, Tax AuditReport u/s.44AB were filed under protest with theoriginal Income-tax return, as a matter of abundantprecaution upto previous year 2004-05 as GMB'sapplication for u/s.12AA was pending before theHon'ble ITAT, Ahmedabad Bench after being turneddown by CIT, Gandhinagar. In view of the fact thatsubsequent to verdict by the Hon'ble ITAT,Ahmedabad Bench, the aforesaid registrationu/s.12AA has been granted on 15.6.2005 w.e.f.1.4.2002 ultimately duly upheld by the Hon'ble Supreme Court of India coupled with the groundreality that GMB is only carrying out the objects ofadvancement of general public utility in terms ofmandate given under the provision of Gujarat MaritimeBoard Act, 1981 and not any business and/or trade,the same are once again filed under protest.” 9.The main argument of the assessee is that theactivities of the assessee cannot be held as not genuine andthat the Gujarat Maritime Board has been carrying out itsactivities as empowered as per Gujarat Maritime Board Act,1981 and it is a State Govt. entity – local authority –constituted under the Gujarat Maritime Board Act, 1981duly granted to State Government by virtue of constitution ofIndia (item list III, seventh schedule). There was no changein the nature of activities and they cannot carry out anybusiness and hence section u/s.12AA(3) initiated being badin law may be dropped and the contention of the assesseehas been upheld in various judicial pronouncement in thecase of CIT vs. VAP State Transport Corporation (159 ITR1(ITR 1 (SV) and in case of GMB itself (295 ITR 561 SC). 9.The main argument of the assessee is that theactivities of the assessee cannot be held as not genuine andthat the Gujarat Maritime Board has been carrying out itsactivities as empowered as per Gujarat Maritime Board Act,1981 and it is a State Govt. entity – local authority –constituted under the Gujarat Maritime Board Act, 1981duly granted to State Government by virtue of constitution ofIndia (item list III, seventh schedule). There was no changein the nature of activities and they cannot carry out anybusiness and hence section u/s.12AA(3) initiated being badin law may be dropped and the contention of the assesseehas been upheld in various judicial pronouncement in thecase of CIT vs. VAP State Transport Corporation (159 ITR1(ITR 1 (SV) and in case of GMB itself (295 ITR 561 SC). 11. However, it may be clarified that aforesaid decisionsand decisions cited by the assessee found mentioned earlierin this order are based on the provision of definition of“Charitable Purpose” as per section 2(15) of the IT Act.Whereas the show cause notice presently issued is basedon the definition of “Charitable Purpose” as Amended by theFinance Act 2010 with applicability with retrospective effectfrom 1-4-2008, particularly the insertion of proviso which provides that in the case where the gross receipts from allactivities in the nature of trade, commerce or any activityrendering services in relation to any trade, commerce for acess or any consideration, irrespective of the nature of use ofapplicability or retention of the income from such activityexceeds an amount of Rs.10 lakhs, the unit/entity/institution ceases to be of Charitable Institution under thefourth limb, i.e. advancement of any other object of generalpublic utility other than the relief of the poor, education andmedical relief which are other 3 limbs under the headCharitable purpose. 12. Unfortunately, the assessee has chosen not the submitany reply on this core issue of eligibility of CharitablePurpose u/s.2(15) under the fourth limb, i.e. carrying on anyactivity of advancement of any other object of general publicutility having gross receipt of less than Rs.10 lakhs but onthe contrary, they have placed reliance on the provision ofSection 12AA(3) of the IT Act which provides methodology tocancel the registration already granted u/s.12AA(3) of the ITAct. In fact what is relevant is that where a trust or aninstitution has been granted registration under clause (b) orsub-section (1) and subsequently the Commissioner issatisfied that the activities of such trust or institution are notgenuine or not being carried out in accordance with theobjects of trust with reference to the definition of CharitablePurpose as provided section 2(15) of the IT Act, as the casemay be, he shall pass an order in writing cancel theregistration of such trust or institution. Thus, the provisionfor section 12AA(3) are enabling provision for the CIT to examine whether, the trust/institution is carrying outactivities which are falling in the definition of CharitablePurpose or not and it is not so, the CIT can cancel suchregistration w.e.f. 1-4-08 even if registration is alreadygranted earlier to such entity/Trust. 13. Accordingly, I am satisfied that the activity of theGujarat Maritime Board were not carried out in accordancewith the object of institution as per definition of ‘charitablepurpose’ for which registration was granted on 15-6-2005w.e.f. 1-4-2002 in view of the amendment made in thedefinition of ‘charitable purpose’ w.e.f 1-4-2008 by theAmendment by the Finance Act 2010 as the said institutionis not eligible for registration thereafter as the total receiptsfor the year under consideration is more than Rs.10 lakhsas prescribed for eligible ‘charitable purpose’ under thefourth limb of ‘charitable purpose’ i.e. Advancement of objectof general public utility; is cancelled u/s.12AA(3) of the ITAct w.e.f. 01-04-2008 applicable to A.Y. 2009-10.” 13. Accordingly, I am satisfied that the activity of theGujarat Maritime Board were not carried out in accordancewith the object of institution as per definition of ‘charitablepurpose’ for which registration was granted on 15-6-2005w.e.f. 1-4-2002 in view of the amendment made in thedefinition of ‘charitable purpose’ w.e.f 1-4-2008 by theAmendment by the Finance Act 2010 as the said institutionis not eligible for registration thereafter as the total receiptsfor the year under consideration is more than Rs.10 lakhsas prescribed for eligible ‘charitable purpose’ under thefourth limb of ‘charitable purpose’ i.e. Advancement of objectof general public utility; is cancelled u/s.12AA(3) of the ITAct w.e.f. 01-04-2008 applicable to A.Y. 2009-10.” 4.The respondent-assessee, being dissatisfied with theaforesaid order passed by the Commissioner of Income Taxcancelling the registration under Section 12AA(3) of the Act w.e.f.1[st] April 2008 applicable to the Assessment Year 2009-10,preferred an appeal before the Appellate Tribunal. The appealcame to be allowed by the Tribunal, holding as under : “2. The ld.Commissioner has observed that the activity ofthe appellant relates to charge of fees from the users of thesea-port for the facilities such as port infrastructure facility, marine service, clearing and forwarding, use of storagearea, land rental, harbouring, etc. On one hand, the fees ischarged and on the other hand, payments are to be made toGovernment of Gujarat. From the description of the receiptsand expenditure, it was in the nature of running of aprofessional activity, more like in the manner of a businessactivity, ld.Commissioner has observed. In his opinion,assessee has derived profit out of various businessactivities. The activities of the Board are of commercialnature and there was no charity within the meaning ofsection 2(15) of the IT Act. A show-cause notice was issued.In the show-cause notice it was informed that due to theamended provisions of section 2(15) of the IT Act withretrospective effect from 1.4.2008, the assessee seizes to bea charitable organization. It was informed that theaggregate value of receipts had exceeded the prescribedminimum limit of Rs.10 lacs. Ld.Commisisoner has alsofound that while furnishing the return for A.Y.2009-10 anote was appended that the assessee had been grantedregistration u/s.12AA by CIT Gandhinagar vide an orderdated 15/06/2005. The income was computed by claimingexemption u/s.11 of IT Act. In the said note it was claimedthat in spite of the insertion of a proviso to section 2(15) of ITAct by the Finance Act, 2008, the assessee has continued tobe a charitable institution being a registration was grantedu/s.12AA of IT Act. However, ld.Commissioner was notconvinced and denied the registration as follows:- “11. However, it may be clarified that aforesaiddecisions and decisions cited by the assessee found mentioned earlier in this order are based on theprovision of definition of “Charitable Purpose” as persection 2(15) of the IT Act. Whereas the show causenotice presently issued is based on the definition of“Charitable Purpose” as Amended by the Finance Act2010 with applicability with retrospective effect from1-4-2008, particularly the insertion of proviso whichprovides that in the case where the gross receipts fromall activities in the nature of trade, commerce or anyactivity rendering services in relation to any trade,commerce for a cess or any consideration, irrespectiveof the nature of use of applicability or retention of theincome from such activity exceeds an amount of Rs.10lakhs, the unit/entity/institution ceases to be ofCharitable Institution under the fourth limb, i.e.advancement of any other object of general publicutility other than the relief of the poor, education andmedical relief which are other 3 limbs under the headCharitable purpose. 12. Unfortunately, the assessee has chosen not thesubmit any reply on this core issue of eligibility ofCharitable Purpose u/s.2(15) under the fourth limb,i.e. carrying on any activity of advancement of anyother object of general public utility having grossreceipt of less than Rs.10 lakhs but on the contrary,they have placed reliance on the provision of Section12AA(3) of the IT Act which provides methodology tocancel the registration already granted u/s.12AA(3) ofthe IT Act. In fact what is relevant is that where a trust or an institution has been granted registration underclause (b) or sub-section (1) and subsequently theCommissioner is satisfied that the activities of suchtrust or institution are not genuine or not being carriedout in accordance with the objects of trust withreference to the definition of Charitable Purpose asprovided section 2(15) of the IT Act, as the case maybe, he shall pass an order in writing cancel theregistration of such trust or institution. Thus, theprovision for section 12AA(3) are enabling provision forthe CIT to examine whether, the trust/institution iscarrying out activities which are falling in thedefinition of Charitable Purpose or not and it is not so,the CIT can cancel such registration w.e.f. 1-4-08 evenif registration is already granted earlier to suchentity/Trust. 13. Accordingly, I am satisfied that the activity of theGujarat Maritime Board were not carried out inaccordance with the object of institution as perdefinition of ‘charitable purpose’ for which registrationwas granted on 15-6-2005 w.e.f. 1-4-2002 in view ofthe amendment made in the definition of ‘charitablepurpose’ w.e.f 1-4-2008 by the Amendment by theFinance Act 2010 as the said institution is not eligiblefor registration thereafter as the total receipts for theyear under consideration is more than Rs.10 lakhs asprescribed for eligible ‘charitable purpose’ under thefourth limb of ‘charitable purpose’ i.e. Advancement ofobject of general public utility; is cancelled u/s.12AA(3) of the IT Act w.e.f. 01-04-2008 applicableto A.Y. 2009-10.” 3. Being aggrieved now the assessee is before us. At theoutset, following two decisions have been cited by ld.AR. (i)ITAT “D” Bench Ahmedabad in the case ofGujarat Industrial Security vs. DIT (Exemption) in ITANo.902/Ahd/2010, order dated 30.12.2011. (ii)ITAT “A” Bench Ahmedabad in the case ofAhmedabad Urban Development Authority in ITANo.754/Ahd/2010 for A.Y.2009-10, order dated21/05/2010. 3.1 In the case of Gujarat Industrial Security (supra), therelevant portion is reproduced below:- “3. The Ld. Counsel for the assessee invited ourattention to the rules and regulations of the society.There is no dispute to the fact that the assessee hasbeen declaring its income from the assessment year2001-02 to 2005-06 as business income as is evidentfrom page 3 of DIT(Exemption) order. Thereafter, theassessee applied for the registration u/s 12AA whichwas granted to it only w.e.f. 01.04.2005 and theregistration sought form 1997 was refused by notcondoning the delay. As a matter of fact, we find nomaterial on record where the funds have been utilizedfor profit motive or for non charitable purpose and 3.1 In the case of Gujarat Industrial Security (supra), therelevant portion is reproduced below:- “3. The Ld. Counsel for the assessee invited ourattention to the rules and regulations of the society.There is no dispute to the fact that the assessee hasbeen declaring its income from the assessment year2001-02 to 2005-06 as business income as is evidentfrom page 3 of DIT(Exemption) order. Thereafter, theassessee applied for the registration u/s 12AA whichwas granted to it only w.e.f. 01.04.2005 and theregistration sought form 1997 was refused by notcondoning the delay. As a matter of fact, we find nomaterial on record where the funds have been utilizedfor profit motive or for non charitable purpose and there is no basis found in this regard in the order ofDIT (Exemption). The assessee has also invited ourattention to the P & L account up to the year ended31.03.2008 in which the assessee has used 85% ofthe funds collected. There is nothing on record that theassessee has violated any conditions laid down u/s12AA(3) of the Act. Reliance was placed on thedecision of ITAT Ahmedabad ‘A’ Bench in I.T.A.No.754/Ahd/2010 dated 21.05.2010 and the decision ofITAT ‘A’ Bench Chennai in I.T.A.No. 987/Md/2010dated 19.09.2011 which are directly on the issue inhand. Thus, following these Tribunal orders ofAhmedabad Bench and Chennai Bench mentionedhereinabove and in the facts and circumstances of thepresent case and in the absence of any violation ofSection 12AA(3) of the Act, the registration granted u/s12AA cannot be cancelled. Therefore, we cancel theorder of DIT(Exemption) dated 22.01.2010 and directthe DIT (Exemption) to restore the order of registrationgranted u/s 12AA of the Act.” 3.2. In the case of Ahmedabad Urban DevelopmentAuthority (supra), the relevant portion is reproduced below:- “7. In view of the above, we are satisfied that noneof the conditions as prescribed under Section 12AA(3)is satisfied in the case of the assessee so as to cancelthe registration granted under Section 12AA. Wetherefore quash the order of the DIT(Exemption)passed under Section 12AA(3) and restore the order of the Registration passed by the DIT(Exemption) underSection 12AA(1) dated 23-10-2003. 8. Before we part with the matter, we may point outthat the learned counsel for the assessee had arguedat length that the activities of the assessee arecharitable and therefore the assessee is entitled forregistration under Section 12AA. In support of thiscontention, he has relied upon the decision of Hon'bleApex Court as well as the Hon'ble jurisdictional HighCourt. The learned DR has also argued at length tosupport revenue’s point that the assessee is notentitled to registration under Section 12AA. In supportof his contention, he has also relied upon variousdecisions. However, the issue before us is not whetherthe assessee is entitled to registration or not becausethe assessee- institution is already registered videorder of the DIT (Exemption) under Section 12AA (1)dated 23-10-2003. The limited issue in this appealbefore us whether the DIT (Exemption) was justified incanceling such registration by invoking the powerunder Section 12AA(3).” 4. Having heard the submissions of both the sides, theprovisions of section 12AA(3) prescribes that once a trust oran institution has been granted registration u/s.12AA(3)and subsequently if the Commissioner finds that one of thecondition, viz. the activity of the trust is not genuine or thatthe activity of trust not been carried out, then theCommissioner has power to cancel the registration granted 4. Having heard the submissions of both the sides, theprovisions of section 12AA(3) prescribes that once a trust oran institution has been granted registration u/s.12AA(3)and subsequently if the Commissioner finds that one of thecondition, viz. the activity of the trust is not genuine or thatthe activity of trust not been carried out, then theCommissioner has power to cancel the registration granted u/s.12AA(1) of IT Act. In the above cited decision ofAhmedabad Urban Development (supra), it was held thatwhen under the Act a specific provision for cancellation ofregistration is prescribed and the cancellation is possibleunder specific condition then fulfillment of those conditionsare necessary for invoking the jurisdiction u/s.12AA(3). Inthe present case the reason for cancellation for registrationwas that the definition of charitable purpose u/s.2(15) hasbeen amended therefore the assessee has not carried outthe activity as per the definition of “charitable purposes”.This very issue has already been dealt with by theRespected Benches, therefore respectfully following thesedecisions we hereby reverse the view taken by theld.Commissioner and direct not to cancel the registrationu/s.12AA(3) of IT Act. Grounds raised by the assessee arehereby allowed. ” 5.Being dissatisfied with the aforesaid order passed by theAppellate Tribunal, the Revenue is here before this Court withthe present Appeal. 6.This Tax Appeal came to be admitted for the considerationof the following substantial question of law : “Whether the Income-Tax Appellate Tribunal was right inlaw and facts in cancelling the order of the Commissioner(Appeals) passed under Section 12AA(3) of the Income TaxAct, 1961 in view of the amendment made under Section2(15) of the Act brought into effect from 1[st] April 2009.” 7.Mrs.Mauna Bhatt, the learned senior standing counselappearing for the Revenue, vehemently submitted that theTribunal committed a serious error in allowing the appealpreferred by the respondent-assessee. It is submitted that theCommissioner was justified in cancelling the registration of therespondent-assessee under Section 12AA(3) of the Act as theactivities of the assessee are commercial in nature and suchactivities, by any stretch of imagination, cannot be termed asfalling within the ambit of 'charity' as defined under Section2(15) of the Act. It is submitted that the respondent-assesseederived profits out of its various business activities and there isno charity within the meaning of Section 2(15) of the Act asamended w.e.f. 1[st] April 2009 by the Finance Act. In suchcircumstances referred to above, the learned senior standingcounsel prays that there being merit in this Appeal, the same beallowed and the substantial question of law be answered infavour of the Revenue and against the assessee. 8.On the other hand, this Tax Appeal has been vehementlyopposed by Mr.Soparkar, the learned senior counsel appearingfor the respondent-assessee. Mr.Soparkar would submit that noerror, not to speak of any error of law, could be said to have beencommitted by the Appellate Tribunal in passing the impugnedorder. It is argued that the proceedings for the cancellation ofregistration under Section 12AA(3) of the Act can be initiatedstrictly only upon the satisfaction of the prescribed conditionsand cannot be initiated upon any perceived violation of theproviso to Section 2(15) of the Act. In other words, the argumentof the learned senior counsel is that the violation of Section 2(15)of the Act is an irrelevant factor for the cancellation of theproceedings under Section 12AA(3) of the Act. The proceedings under Section 12AA(3) of the Act could be initiated only upon thefulfillment of the prescribed conditions which are absent in thecase on hand. under Section 12AA(3) of the Act could be initiated only upon thefulfillment of the prescribed conditions which are absent in thecase on hand. 9.In such circumstances referred to above, Mr.Soparkar, thelearned senior counsel, prays that there being no merit in thisAppeal, the same be dismissed and the substantial question oflaw as formulated by this Court may be answered in favour ofthe respondent-assessee and against the Revenue. 10.Having heard the learned counsel appearing for the partiesand having gone through the materials on record, the onlyquestion that falls for our consideration is, whether the AppellateTribunal committed any error in passing the impugned order. 11.It is not in dispute that the assessee was grantedregistration under Section 12A of the Act. Now the saidregistration is cancelled by invoking the power conferred underSection 12AA(3) of the Act. Therefore, it is necessary to find outunder what circumstances the registration granted earlier couldbe cancelled. Section 12AA(3) of the Act reads as under: “(3) Where a trust or an institution has been grantedregistration under clause (b) of sub-section (1) [or has obtainedregistration at any time under section 12A [as it stood beforeits amendment by the Finance (No. 2) Act, 1996 (33 of 1996)and subsequently the Commissioner is satisfied that theactivities of such trust or institution are not genuine or are notbeing carried out in accordance with the objects of the trust orinstitution, 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 passedunless such trust or institution has been given a reasonableopportunity of being heard.” 12.A reading of the aforesaid provision makes it very clear, aregistration granted earlier under Section 12A of the Act can becancelled under two circumstances; (a) If the activities of suchTrust or Institution are not genuine, and (b) The activities of theTrust or Institution not being carried out in accordance with theobject of the Trust or Institution. Only on those two conditionsbeing satisfied, the registration granted under Section 12A of theAct could be cancelled by the authorities. 13.It is not in dispute that there is no violation of the said twoconditions by the assessee. The activities carried on by theassessee is genuine one. As could be seen from the profits theyhave generated, the said profit is earned by carrying on theactivities in accordance with the object of the Trust. Therefore,the two conditions stipulated in sub-section (3) of Section 12AAof the Act, which empowers the authority to cancel theregistration, do not exist in this case. The registration granted iscancelled in view of the amendment of first proviso to Section2(15) of the Act. That is not a ground specified in the Statute forcancellation of the registration. In fact, sub-section (8) to Section13 which is introduced by the Financial Act, 2012, which cameinto effect from 1.4.2009 categorically provides that, nothingcontained in Section 11 or Section 12 shall operate so as to exclude any income from the total income of the previous year orany receipt thereof. If the provisions of the first proviso to clause(15) of Section 2 becomes applicable in the case of such personin the said previous year, the Statute has protected the interestof the Revenue. Notwithstanding the fact that the assessee isconferred registration under Section 12A of the Act, unless theassessee falls within Section 2(15) of the Act, excluding the firstproviso, the assessee would not be entitled to the benefit ofexemption from tax. If the case of the assessee falls within firstproviso to Section 2(15) of the Act, the benefit of registrationwhich flow from Section 12A of the Act is not available. Anyhow,that is a matter to be considered by the Assessing Authority.But, on that ground, the registration cannot be cancelled, whichis precisely the Tribunal has held. 14.We may refer to a recent pronouncement of this High Courtin the case of Gujarat Cricket Association. A coordinate bench ofthis Court, disposed of a batch of twenty-one Tax Appealsrelating to three assessees, namely, the Gujarat CricketAssociation (GCA), Baroda Cricket Association (BCA) andSaurashtra Cricket Association (SCA), pertaining to theAssessment Years ranging from 2004-05 to 2009-10. Thequestions dealt by the coordinate bench of this Court in itscommon judgment and order dated 27[th] September 2009 can bebroadly divided into the following : “I.Whether the registration of GCA under section 12AA could be cancelled under section 12AA(3) on the ground that it violated proviso to section 2(15) of the Income-tax Act, 1961 (IT Act) ?could be cancelled under section 12AA(3) on the ground that it violated proviso to section 2(15) of the Income-tax Act, 1961 (IT Act) ? II.Whether the assessee could be regarded as violating proviso to section 2(15) ?proviso to section 2(15) ? III.Whether the subsidy/donation received from Board forCricket Control in India (BCCI) could be regarded as corpus donations under section 11(1)(d) ?”Cricket Control in India (BCCI) could be regarded as corpus donations under section 11(1)(d) ?” 15.The facts of the said litigation may be summarised asunder : “The GCA is a society registered under the SocietiesRegistration Act, 1860. It was granted registration undersection 12AA vide DIT’s order dated 16.4.2003 with effectfrom the Assessment Year 2004-05 onwards. It derived itsincome from sponsorship, ICC matches, sale of tickets,subsidies/grants from the BCCI, etc. Subsequently, vide itsorder dated 6.12.2010, the DIT cancelled the registrationunder Section 12AA(3) on the ground that the activities ofthe assessee were commercial in nature and the assesseecould not be regarded as for 'charitable purpose' underproviso to Section 2(15) inserted by the Finance Act, 2010,with effect from 1.4.2009. On appeal, the Tribunal decided the issue in favour of theGCA by holding that it is not permissible for the DIT tocancel the registration under Section 12AA(3) on the groundthat the assessee had violated amended proviso to Section2(15). Being dissatisfied with the order of the Tribunal, theRevenue filed an appeal before this High Court.” 16.The principles of law discernible from the decision of thisCourt are as under : “(a) For the purpose of cancellation of the registration undersection 12AA(3), the Commissioner should record asatisfaction that the activities of the charitable institutionare not genuine or that the activities are not being carried onin accordance with the objects of the charitable institution.In the absence of such a finding, the registration grantedunder section 12A/12AA cannot be cancelled. (b) For an assessee to be classified as charitable under thecategory of 'advancement of any other object of generalpublic utility' under section 2(15), the following four factorsneed to be satisfied — (i) Activity should be for the advancement of the‘general public utility’; (ii) Activity should not be in the nature of trade,commerce or business; (iii) Activity should not involve rendering of services inrelation to any trade, commerce or business; (iv) Activities in clauses (ii) and (iii) above, should not befor fees, cess or other consideration, the aggregate value of which should not exceed the amount specifiedin the second proviso to section 2(15). (c) The earlier test that if the income so collected, is appliedtowards the charitable activity, then the trust cannot be heldas non-charitable, is no longer relevant after the statutoryamendment in proviso to section 2(15). (d) The scope of the term 'activity in the nature of trade,commerce or business' would mean that – (i) It is undertaken with a profit motive; (ii) The activity is continued on sound andrecognized business principles and is pursuedwith reasonable continuity; (iv) Activities in clauses (ii) and (iii) above, should not befor fees, cess or other consideration, the aggregate value of which should not exceed the amount specifiedin the second proviso to section 2(15). (c) The earlier test that if the income so collected, is appliedtowards the charitable activity, then the trust cannot be heldas non-charitable, is no longer relevant after the statutoryamendment in proviso to section 2(15). (d) The scope of the term 'activity in the nature of trade,commerce or business' would mean that – (i) It is undertaken with a profit motive; (ii) The activity is continued on sound andrecognized business principles and is pursuedwith reasonable continuity; (iii) There should be facts and other circumstanceswhich justify and indicate that the activityundertaken is in fact, in the nature of business; (iv) The five tests propounded in the case ofCustoms and Excise Commissioner v. Lord Fisher(1981) STC 238 and the propositions in the caseof CST v. Sai Publication Fund 258 ITR 70 (SC)apply. (v) Business activity is an important prevailingelement of self-interest. (e) From a perusal of the CBDT Circular explaining theamendment, it is clear that the proviso of section 2(15) isapplicable to the assessees who are engaged in commercialactivities, that is, carrying of trade, commerce or business inthe garb of 'public utility' to avoid tax liability, and where theobject of the 'general public utility' is only a mask or deviceto hide the true purpose, which was 'trade, commerce orbusiness'. (f) Charitable activity is the anti-thesis of activity having anelement of self-interest. Charity is driven by altruism anddesire to serve others, though the element ofself-preservation may be present. For charity, benevolenceshould be omnipresent and demonstrable but it is notequivalent to self-sacrifice and abnegation. (g) The antiquated definition of the term 'charity', whichentails giving and receiving nothing in return, is outdated. (h) Enrichment of oneself or self-gain should be missing andthe predominant purpose of the activity should be to serveand benefit others, the mandatory features being,selflessness or illiberal spirit. (i) The quantum of fee charged, the economic status of thebeneficiaries who pay, commercial values in comparison tothe fee, purpose and object behind the fee etc. are severalfactors which decide whether an activity is 'business'. (j) The Revenue cannot take a contradictory stand that theassessee carries on charitable activity under the residuaryhead 'general public utility', but, simultaneously record thesaid activity as business. (k) There is no statutory mandate that a charitableinstitution falling under the residuary category should bewholly, substantially or in part be funded by voluntarycontributions. (l) A pragmatic view is required to be taken while examiningthe data and the same should be analysed objectively. Anarrow and coloured view may prove to be counterproductive and contrary to section 2(15). (m) Accumulation of money/funds over a period of two tothree years may not be relevant in determining the natureand character of the activity and whether the same shouldbe treated indicative of profit motive, that is, the desire orintention to carry on business or commerce. (n) The so-called 'business activities', when intrinsicallywoven into and is part of the charitable activity undertaken,the business activity is not feeding charitable activities, asthey are integral to the charity/charitable activity. (o) What has to be seen is, as to what is the core/mainactivity of the assessee. The predominant activity shall bethe basis of the decision making.” 17.While upholding the order passed by the AppellateTribunal, this Court observed as follows : “(a) The object of introduction of proviso to section 2(15) wasto deny benefit of the tax exemption to purely commercialand business entities which wear the mask of a charity. (n) The so-called 'business activities', when intrinsicallywoven into and is part of the charitable activity undertaken,the business activity is not feeding charitable activities, asthey are integral to the charity/charitable activity. (o) What has to be seen is, as to what is the core/mainactivity of the assessee. The predominant activity shall bethe basis of the decision making.” 17.While upholding the order passed by the AppellateTribunal, this Court observed as follows : “(a) The object of introduction of proviso to section 2(15) wasto deny benefit of the tax exemption to purely commercialand business entities which wear the mask of a charity. (b) The registration of an assessee as a charitable institutionunder section 12A/12AA would, prima facie, clothe theassessee with the character of a charitable institution.However, that, by itself, was not conclusive on the questionwhether an assessee is established for a 'charitablepurpose'. (c) While framing the assessment order, it is not open to theAssessing Officer to ignore the certificate of registrationgranted under Section 12AA and to go behind theregistration obtained by the assessee under Section 12AA. (d) The expression ‘charitable purpose’ is an inclusive oneand not an exhaustive one and is sufficiently wide in scopeto include a variety of activities. However, at the same time,the fact that remote and indirect benefits are derived by themembers of the public will not be sufficient to make thepurpose a 'charitable purpose'. (e) The word ‘charity’ connotes altruism in thought andaction. It involves an idea of benefiting others rather than oneself. (f) While construing proviso to section 2(15), the principle ofpurposive interpretation should be adopted as it serves thelegislative intent. (g) If an activity in the nature of trade, commerce or businessis carried on and it generates income, the fact that suchincome is applied for charitable purposes, would not makeany difference and the activity would nonetheless not beregarded as being carried on for a charitable purpose. (h) Merely because the assessee puts up tickets of theinternational cricket matches for sale and earns some profitout of the same, it would not lose its character of havingbeen established for a charitable purpose. The driving forceis not the desire to earn profit but the object is to promotethe game of cricket and nurture the best of the talent. (i) The core of the matter is to see whether the activity whichresulted into income or loss was carried on with the object ofdoing some trade, commerce or business, etc., or it was infurtherance of the objects (non-business) etc., for which theassessee was set up. In other words, the predominantobject of the activities should be seen as to whether it isaimed at carrying on some business, trade or commerce orthe furtherance of the object for which it was set up. (j) In carrying on the charitable activities, certain surplus may ensue. However, earning of surplus, itself, should notbe construed as if the assessee existed for profit. The word'profit' means that the owners of the entity have a right towithdraw the surplus for any purpose including thepersonal purpose. The three Associations had notdistributed any profits outside the organization. The profits,if any, are ploughed back into the very activities ofpromotion and development of the sport of cricket and,therefore, the assessees cannot be termed to be carrying outcommercial activities in the nature of trade, commerce orbusiness. (k) It is not correct to say that since the assessees receivedshare of income from the BCCI, their activities could be saidto be the activities of the BCCI. If the Associations host anyinternational match once in a year or two at the behest ofthe BCCI, then the income of the Associations from the saleof tickets etc., in such circumstances, would not portray thecharacter of commercial nature. (k) It is not correct to say that since the assessees receivedshare of income from the BCCI, their activities could be saidto be the activities of the BCCI. If the Associations host anyinternational match once in a year or two at the behest ofthe BCCI, then the income of the Associations from the saleof tickets etc., in such circumstances, would not portray thecharacter of commercial nature. (l) The State Cricket Associations and the BCCI are distincttaxable units and must be treated as such. It would not becorrect to say that a member body can be held liable fortaxation on account of the activities of the apex body. (m) Irrespective of the nature of the activities of the BCCI(commercial or charitable), what is pertinent for the purposeof determining the nature of the activities of the assessees,is the object and the activities of the assessees and not thatof the BCCI. The nature of the activities of the assessee cannot take its colour from the nature of the activities of thedonor.” 18.This Court reiterated that in order to constitute 'business',it is essential to have a profit motive. This is in line with anumber of judgments including the following– (i) GS1 v. DGIT(E), (2014) 360 ITR 138 (Del) (ii) India Trade Promotion Organization v. DGIT, (2015)371 ITR 333 (Del) (iii) PHD Chamber of Commerce & Industry v. DIT(E),(2013) 357 ITR 296 (Del) (iv) Bureau of Indian Standards v. DIT, (2012) 27taxmann.com 127 (Del) (v) DIT (E) v. Shree Nashik Panchvati Panjrapole, (2017)81 taxmann.com 375 (Bom) (vi) DIT(E) v. Lala Lajpatrai Memorial Trust, (2016) 69taxmann.com 158 (Bom) (vii) CIT v. Gujarat Industrial Development Corporation,(2017) 83 taxmann.com 366 (Guj) 19.We may also refer to and rely upon a decision of this Courtin the case of Director of Income Tax (Exemption) v. N.H.KapadiaEducation Trust (Tax Appeal No.356 of 2012, decided on28[th]/29[th] October 2018. In the said case, the Trust had collected a sum of Rs.1.90 crore from the students at the time of theiradmission. This amount was directly credited to the balance andclaimed as corpus donations instead of showing it in the incomeand expenditure account. The Trust had failed to establish thatsuch amount was by way of corpus donations. In suchcircumstances, the Director of Income Tax came to theconclusion that the Trust had violated the provisions of Section11(1)(d) and Section 13(1)(C)(ii) of the Income Tax Act, 1961, andwas not eligible for registration under Section 12A(i) of theIncome Tax Act, 1961. The Director took the view that the sameattracted the amended definition of 'charitable purpose' inSection 2(15) of the Act, 1961, by insertion of a proviso w.e.f. 1[st]April 2009 as the activities could be said to be commercial innature. The registration granted to the Trust under Section 12Aof the Act came to be cancelled under Section 12AA(3) of the Act.While dismissing the appeal preferred by the Revenuechallenging the order passed by the Appellate Tribunal, theBench observed as under : “9. The