Goa Industrial Developmentcorporation, Through Itsmanaging Director,Shri Faizi O. Hashmi,Major In Age, Having Officeplot v. Commissioner Of Income Tax, Panaji Aaykar Bhavan, Edc Complex, Panaji, Goa 403 001

1 TXA No.2 of 13 dtd. 04.02.2020 Suchitra IN THE HIGH COURT OF BOMBAY AT GOA TAX APPEAL NO. 2 OF 2013 GOA INDUSTRIAL DEVELOPMENTCORPORATION, through itsManaging Director,Shri Faizi O. Hashmi,major in age, having officePlot No.13A-2, EDC Complex,Patto Plaza, Panaji-Goa-403 001.PAN NO. Versus 1. Commissioner of Income Tax, Panaji Aaykar Bhavan, EDC Complex, Panaji, Goa 403 001. .... Appellant 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 the Appellant.Mr. Tulajappa Kalburgi, Junior Standing Counsel for the Respondents. Coram:- M.S. SONAK & SMT. M. S. JAWALKER, JJ.Date:- 4 th February, 2020 ORAL JUDGMENT(Per M. S. Sonak, J.) The learned counsel for the 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 whoappear for the appellant and Mr. Tulajappa Kalburgi, learned JuniorStanding Counsel for the respondents. 3.This Tax Appeal was admitted by order dated 24.09.2013 on thefollowing substantial questions of law:- (a) Whether on the facts and in the circumstances of the caseand in law, the Tribunal was justified in comparing the appellantwith a private builder and developer and in holding that theappellant was carrying on business for profit so as to attractproviso to Section 2(15) ? (b) Whether the Appellate Tribunal was justified on facts and inlaw in sustaining the order under Section 12AA(3) particularlyon grounds alien to Section 12AA(3) ? 4. According to us, if the substantial question of law at (b) above isdecided in favour of the appellant, then, there will arise no necessity ofdeciding the substantial question of law at (a) as above. This is becauseif we are satisfied that the Commissioner of Income Tax (CIT) lackedjurisdiction to exercise powers under Section 12AA(3) on the sole 3 TXA No.2 of 13 dtd. 04.02.2020 ground that the definition of charitable purpose in Section 2(15) of theIncome Tax Act, 1961 (said Act) had been amended, then, on the saidground alone, the impugned order made by the CIT on 27.12.2011and confirmed by the Income Tax Appellate Tribunal (ITAT) on22.06.2012 will have to be set aside. Accordingly, we proceed to dealwith the substantial question of law at (b), in the present appeal. 5. The appellant in the present case is a Statutory Corporationestablished under the Goa, Daman and Diu Industrial DevelopmentCorporation Act, 1965 (GIDC Act) with the object of securing orderlyestablishment in industrial areas and industrial estates and industries sothat it results in the rapid and orderly establishment, growth anddevelopment of industries in Goa. 6. The appellant, was granted registration under Section 12A ofthe said Act, which registration, is necessary where exemptions are tobe claimed on the ground that the income is expended for charitablepurposes. Such registration was in fact granted to the appellant wayback on 16.12.1983 and the same continued until the making of theimpugned orders in these appeals. 7. On 12.12.2011 a show cause notice was issued to the appellantto show cause as to why such registration should not be cancelled by 4 TXA No.2 of 13 dtd. 04.02.2020 invoking the provisions under Section 12AA(3) on the ground that theappellant has not fulfilled the conditions laid down under Section2(15) of the said Act. This show cause notice was obviously, in thecontext of the proviso to Section 2(15) of the said Act which wasintroduced with effect from 01.04.2009. 7. On 12.12.2011 a show cause notice was issued to the appellantto show cause as to why such registration should not be cancelled by 4 TXA No.2 of 13 dtd. 04.02.2020 invoking the provisions under Section 12AA(3) on the ground that theappellant has not fulfilled the conditions laid down under Section2(15) of the said Act. This show cause notice was obviously, in thecontext of the proviso to Section 2(15) of the said Act which wasintroduced with effect from 01.04.2009. 8. The appellant furnished a detailed response to the show causenotice, wherein, the appellant raised several grounds in order to urgethat the show cause notice be discharged. Amongst other grounds, theappellant urged that the two pre-conditions for invoking the provisionsof Section 12AA(3) being absent in the present case, the CIT, lackedjurisdiction to proceed to cancel the registration. 9. The CIT, by order dated 27.12.2011 however rejected theappellant's contentions and withdrew the registration granted to theappellant by observing that it is crystal clear that the activities of theappellant are interconnected and interwoven with commerce orbusiness. On the perusal of the CIT's order dated 27.12.2011 it isvery clear that the CIT has based its decision almost entirely on theproviso to Section 2(15) of the Income Tax Act which defines“charitable purpose”. As noted earlier, this proviso was introducedwith effect from 01.04.2009. 5 TXA No.2 of 13 dtd. 04.02.2020 10. The appellant appealed against the order dated 27.12.2011 ofthe ITAT and ITR, vide impugned order dated 26.12.2012 dismissedappellant's appeal. Hence the present appeal on the aforesaidsubstantial questions of law. 11.Section 12AA(3) of the said Act reads as follows: “12AA(3) - Where a trust or an institution has been grantedregistration under clause (b) of sub-section (1) [or hasobtained registration at any time under section 12A [as itstood before its amendment by the Finance (No.2) Act,1996 (33 of 1996)]] and subsequently the [PrincipalCommissioner or] Commissioner is satisfied that theactivities of such trust or institution are not genuine or arenot being carried out in accordance with the objects of thetrust or institution, as the case may be, he shall pass anorder in writing cancelling the registration of such trust orinstitution.registration under clause (b) of sub-section (1) [or hasobtained registration at any time under section 12A [as itstood before its amendment by the Finance (No.2) Act,1996 (33 of 1996)]] and subsequently the [PrincipalCommissioner or] Commissioner is satisfied that theactivities of such trust or institution are not genuine or arenot being carried out in accordance with the objects of thetrust or institution, as the case may be, he shall pass anorder in writing cancelling the registration of such trust orinstitution. 12. From the plain reading of the aforesaid provision, it is clear thatthe power of cancellation of registration can be exercised by the CITwhere the CIT is satisfied that the activities of such trust or institutionare not genuine or are not being carried out in accordance with theobjects of the trust or institution, as the case may be. 13. In the present case there are really no categorical findings to theeffect that the activities of the appellant are not genuine or are not being carried out in accordance with the objects, which objects, havebeen set out in the GIDC Act, 1965. 12. From the plain reading of the aforesaid provision, it is clear thatthe power of cancellation of registration can be exercised by the CITwhere the CIT is satisfied that the activities of such trust or institutionare not genuine or are not being carried out in accordance with theobjects of the trust or institution, as the case may be. 13. In the present case there are really no categorical findings to theeffect that the activities of the appellant are not genuine or are not being carried out in accordance with the objects, which objects, havebeen set out in the GIDC Act, 1965. 14.In fact, Mr. Kalburgi, learned Junior Standing Counsel did noteven urge that the activities of the appellant are not being carried outin accordance with the objectives spelt out under the GIDC Act. Hehowever urged that the activities of the appellant are not genuinebecause such activities do not partake any charitable purpose as definedin Section 2(15) of the said Act, particularly, if the provisions in theproviso are to be taken into account. Mr. Kalburgi submitted thatthere are findings of fact recorded by both the CIT as well as the ITATthat the activities undertaken by GIDC are in the nature of trade,commerce or business or in any case, the activities for renderingservices in terms of trade, commerce or business and that too for a feeand other consideration. Mr. Kalburgi therefore submits that theactivities undertaken by GIDC can hardly be styled as genuineactivities. He submits that since this is one of the grounds to invokethe provisions of Section 12AA(3), there is absolutely no error in theview taken by the CIT and ITAT. 15.Mr. Vaidhya contests the aforesaid submissions made by Mr.Kalburgi. He points out that the GIDC is a statutory corporation andthere is absolutely nothing non-genuine about the activities undertaken 7 TXA No.2 of 13 dtd. 04.02.2020 by it. He points out that the impugned orders almost entirely proceedon the basis of the amendment to Section 2(15) by which the provisocame to be introduced. He submits that on the basis of suchamendment, there is no question of styling the activities of theappellant as non-genuine and on such ground invoking the provisionsof Section 12AA(3), which, are required to be strictly construed. 16.Mr. Vaidhya relies upon several decisions to submit that thepowers under Section 12AA(3) can be exercised only when theCommissioner is satisfied that the activities of the institution are non-genuine or are not being carried out according to the objects of theinstitution. He points out that these decisions specifically lay downthat the powers under Section 12AA(3) cannot be exercised merelybecause the institution in question may be covered under the provisoto Section 2(15) after the amendment or that income limit specified inthe proviso is exceeded. He points out that the CBDT, has in factissued a Circular No.21/2016 dated 27.05.2016 making explicit thisposition, which was even otherwise quite implicit. The decisions are asfollows:- (i)Director of Income-tax (Exemptions) v. Khar Gymkhana –[2016] 70 taxmann.com 181 (Bombay).(ii)Director of Income-tax (Exemptions) v. MaharashtraHousing & 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. KarnatakaIndustrial 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 the aforesaid judgments support thecontentions now raised by Mr. Vaidhya in this appeal on thesubstantial question of law at (b) above. (i)Director of Income-tax (Exemptions) v. Khar Gymkhana –[2016] 70 taxmann.com 181 (Bombay).(ii)Director of Income-tax (Exemptions) v. MaharashtraHousing & 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. KarnatakaIndustrial 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 the aforesaid judgments support thecontentions now raised by Mr. Vaidhya in this appeal on thesubstantial question of law at (b) above. 18.In Khar Gymkhana (supra), the Division Bench of this Court,has in fact taken cognizance of the Circular No.21/2016 and held thatmerely because, in a given year, an institution, by carrying on anytrade, commerce and business is in receipt of an amount in excess of`25 lakhs, would not entitle the Director of Income Tax to cancel theregistration under Section 12AA(3). It is further held that thejurisdiction to cancel registration would only arise if there is anychange in the nature of the activities of the institution or the activitiesof the institution are not genuine. In the absence of fulfillment ofeither of these pre-conditions, the CIT or the Director, as the case maybe, will not have any jurisdiction to invoke the provisions ofSection 12AA(3) of the said Act. 19.The relevant discussion on the aforesaid aspects is to be found inparagraphs 8 and 11 which read as follows:- 9 TXA No.2 of 13 dtd. 04.02.2020 “8.The jurisdiction to cancel the Registration would onlyarise if there is any change in the nature of activities of theinstitution. The above Circular clearly directs the authoritiesnot to cancel the Registration of the charitable institutionjust because the proviso to section 2(15) of the Act comesinto play as receipts are in excess of Rs.25 lakhs in a year. Italso refers to Section 13(8) of the Act which provides that wherethe receipts on account of commercial activities is in excess ofthe limit of R.25 lacs provided in second proviso to section2(15) of the Act, then the Assessing Officer would deny thebenefit of registration as a Trust for the subject Assessment Yearwhile framing the Assessment. 11. The submission made on behalf of the Revenue that theCircular No.21 of 2016 would have only prospective effect inrespect of Assessment made subsequent to the amendmentunder Section 2(15) of the Act w.e.f. 1st April, 2016 is also notsustainable. The amendment in Section 2(15) of the Act broughtabout by Finance Act, 2016 w.e.f. 1st April, 2016, is essentiallythat where earlier the receipts in excess of Rs.25 lakhs oncommercial activities would exclude it from the definition of'charitable purpose' is now substituted by receipts fromcommercial activities in excess 20% of the total receipts of theinstitution. In the above view, Circular No.21 of 2016 directsthe Officer of the Revenue not to cancel Registration onlybecause the receipts on account of business are in excess ofthe limits in the proviso to Section 2(15) of the Act wouldalso apply in the present case. The impugned order has heldthat cancellation of a Registration under Section 12AA(3) ofthe Act, can only take place in case where the activities oftrust or institution are not genuine and/or not carried on inaccordance with its objects. The aforesaid Circular No.21 of2016 is in line of the finding of the Tribunal in theimpugned order. The submission on behalf of the Revenue 10 TXA No.2 of 13 dtd. 04.02.2020 10 TXA No.2 of 13 dtd. 04.02.2020 that the Trust is not genuine because it is hit by proviso toSection 2(15) of the Act, is in fact, negatived by CircularNo.21 of 2016. In fact, the above Circular No.21 of 2016clearly provides that mere receipts on account of businessbeing in excess of the limits in the proviso would not resultin cancellation of Registration granted under Section 12AAof the Act unless there is a change in nature of activities ofthe institution. Admittedly, there is no change in nature ofactivities of the institution during the subject Assessment Year.The further submission on behalf of the Revenue that looking atthe quantum of receipts on account of commercial activities, it isun-likely/improbable that in the subsequent Assessment Years,the receipts would fall below Rs.25 lakhs and therefore, theCommissioner is entitled to cancel the Registration. Theaforesaid submission made on behalf of the Revenue is based noton facts as existing but on probability of future events. We areunable to accept the submission based on clairvoyance. Further,we are unable to understand what prejudice is caused to theRevenue since whenever the receipts on account ofcommercial activities is in excess of the limits provided inproviso to Section 2(15) of the Act, the Assessing Officer ismandated/required to deny exemption under Section 11 ofthe Act as provided in Circular No.21 of 2016 dated 27thMay, 2016. Accordingly, the issue stands covered in favour ofthe Revenue by virtue of Circular No.21 of 2016.” (Emphasis supplied) 20.In the case of Maharashtra Housing & Area DevelopmentAuthority (MHADA) (supra), yet another Division Bench of thisCourt upset the view taken by the Director in cancelling the 11 TXA No.2 of 13 dtd. 04.02.2020 registration by reference to the amended provisions under Section2(15) of the said Act. The Division Bench observed that since nothingwas found to indicate that the assessee was undertaking any activitiesto demonstrate that it was not a genuine institution and further, therewas nothing to indicate that the assessee or its affairs are not beingcarried out in accordance with the object of the institution, there wasno reason for the Director to exercise the power to withdrawregistration granted to the assessee. 21.The relevant discussion is to be found in paragraph 7 whichreads as follows:- “7.We have referred to the order passed by the Director andimpugned before the Tribunal in great detail with the assistanceof Mr. Malhotra. We do not find anything in the matterreferred by the Director which could be termed that theassessee was activities which would undertaking anydemonstrate that it is not a genuine Trust or institution. Wehave also not found any material which would which wouldindicate that the assessee or its affairs are not being carriedout in accordance with the object of the Trust or institution.If these are two aspects referred to in sub-section (3) ofSection 12AA and the materials in that behalf werecompletely lacking, then, we do not find any reason for theDirector to exercise the which he to power purportedexercise in the present case. On this short ground alone theassessee's appeal should have been allowed by the Tribunal.Though the Tribunal has discussed the ambit and scope ofthe 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 the facts andcircumstances of the present case, any such discussion wasnecessary and warranted, once the appeal could have beenallowed on the above short ground. With this conclusion, weuphold the order of the Tribunal. We need not assign any otherreason nor examine the contentions raised before us in furtherdetails. The questions, as are posed by Mr. Malhotra and in thebackdrop of these proceedings can be decided in a proper case.With these observations, the appeal fails and it is dismissed.” (Emphasis supplied) 12 TXA No.2 of 13 dtd. 04.02.2020 Section 12AA, we do not find that in the facts andcircumstances of the present case, any such discussion wasnecessary and warranted, once the appeal could have beenallowed on the above short ground. With this conclusion, weuphold the order of the Tribunal. We need not assign any otherreason nor examine the contentions raised before us in furtherdetails. The questions, as are posed by Mr. Malhotra and in thebackdrop of these proceedings can be decided in a proper case.With these observations, the appeal fails and it is dismissed.” (Emphasis supplied) 22.In Karnataka Industrial Area Development Board (supra), theDivision Bench of Karnataka High Court, in terms has held that theregistration granted cannot be cancelled in view of the amendment ofSection 2(15) as this is not a ground specified in the statute forcancellation of registration. In this case, the Division Bench rejectedthe contention that on account of the amendment to Section 2(15) ofthe said Act, the activities undertaken by the Karnataka Industrial AreaDevelopment Board could be styled as non-genuine activities. 23.The relevant discussion is to be found in paragraph 9 whichreads as follows:- “ 9.It is not in dispute that there is no violation of the saidtwo conditions by the assessee. The activities carried on bythe assessee is a genuine one. As could be seen from theprofits they have generated, the said profit is earned by carryingon the activities in accordance with the object of the trust. 13 TXA No.2 of 13 dtd. 04.02.2020 Therefore, the two conditions stipulated in subsection (3) ofSection 12AA of the Act, which empowers the authority tocancel registration, do not exists in this case. Theregistration granted is cancelled in view of the amendmentof first proviso to Section 2(15) of the Act. That is not aground specified in the Statute for cancellation of theregistration. In fact, sub-section (8) to Section 13 which isintroduced by Financial Act, 2012 which came into effect from1.4.2009 categorically provides that, nothing contained inSection 11 or Section 12 shall operate so as to exclude anyincome from the total income of the previous year or any receiptthere of. If the provisions of the first proviso to Clause (15)of Section 2 becomes applicable in the case of such personin the said the Statute has the previous year, protectedinterest of revenue. the fact that the Not-withstandingassessee is conferred registration under Section 12A of theAct, unless the assessee falls within Section 2(15) of the Act,excluding the first proviso, the assessee would not beentitled to the benefit of exemption from the tax. If the caseof the assessee fals with first proviso to Section 2(15) of theAct, the benefit of registration which flow from Section 12Aof the Act is not available. Anyhow, that is a matter to beconsidered by the Assessing Authority. But on that ground,registration cannot be cancelled, which is precisely theTribunal has held. In that view of the matter, we do not seeany merit. The substantial questions of law are answered infavour of the assessee and against the revenue. Hence, theappeal is dismissed.” (Emphasis supplied) 24.Finally, in Tamil Nadu Cricket Association (supra), the DivisionBench of Madras High Court rejected the contention similar to that 14 TXA No.2 of 13 dtd. 04.02.2020 raised by Mr. Kalburgi in the present case that post amendment toSection 2(15), the activities undertaken by the Tamil Nadu CricketAssociation could not be styled as genuine activities and therefore,there was jurisdiction to exercise powers under Section 12AA(3) of thesaid Act. 25.The relevant discussion is to be found in paragraph 56 whichreads as follows:- (Emphasis supplied) 24.Finally, in Tamil Nadu Cricket Association (supra), the DivisionBench of Madras High Court rejected the contention similar to that 14 TXA No.2 of 13 dtd. 04.02.2020 raised by Mr. Kalburgi in the present case that post amendment toSection 2(15), the activities undertaken by the Tamil Nadu CricketAssociation could not be styled as genuine activities and therefore,there was jurisdiction to exercise powers under Section 12AA(3) of thesaid Act. 25.The relevant discussion is to be found in paragraph 56 whichreads as follows:- “ 56. The assessee is a member of Board of Control for Cricketin India (BCCI), which in turn is a member of ICC(International Cricket Council). BCCI allots test matches withvisiting foreign team and one day international matches tovarious member cricket association which organise the matchesin their stadia. The franchises conduct matches in the Stadiabelonging to the State Cricket Association. The StateAssociation is entitled to all in-stadia sponsorship advertisementand beverage revenue and it incurs expenses for the conduct ofthe matches. BCCI earns revenue by way of sponsorship andmedia rights as well as franchisee revenue for IPL and itdistributes 70% of the revenue to the member cricketassociation. Thus the assessee is also the recipient of therevenue. Thus, for invoking Section 12AA read with Section2(15) of the Act, Revenue has to show that the activities arenot fitting with the objects of the Association and that thedominant activities are in the nature of trade, commerce andbusiness. We do not think that by the volume of receipt onecan draw the inference that the activity is commercial. TheIncome Tax Appellate Tribunal's view that it is an entertainmentand hence offended Section 2(15) of the Act does not appear tobe correct and the 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 cheergroup and given the irrelevant consideration. Theseconsiderations are not germane in considering the question as towhether the activities are genuine or carried on in accordancewith the objects of the Association. We can only say that theIncome Tax Appellate Tribunal rested its decision onconsideration which are not relevant for considering the testspecified under Section 12AA(3) to impose commercialcharacter to the activity of the Association. In thecircumstances, we agree with the assessee that the Revenuehas not made out any ground to cancel the registrationunder Section 12AA(3) of the Act.” (Emphasis supplied) 26.Upon perusal of the impugned orders we find that there are nocategorical findings that the activities of GIDC are not genuine or arenot in accordance with the objects of the trust or the institution.Merely because, by reference to the amended provisions in Section2(15), it may be possible to contend that the activities of GIDC arecovered under the proviso, that, by itself, does not render the activitiesof GIDC as non-genuine activities so as to entitle the CIT to exercisepowers under Section 12AA(3) of the said Act. We however clarifythat we have really not gone into the question as to whether theactivities of GIDC are indeed covered under the proviso to Section2(15) of the said Act as amended. This is because we are satisfied thatthe substantial question of law at (b) is required to be answered in the Upon perusal of the impugned orders we find that there are no 16 TXA No.2 of 13 dtd. 04.02.2020 favour of the appellant and against the Respondent Revenue. Oncethis is done, there is really no necessity to go into the other issue as isreflected in the substantial question of law at (a). Upon perusal of the impugned orders we find that there are no 16 TXA No.2 of 13 dtd. 04.02.2020 favour of the appellant and against the Respondent Revenue. Oncethis is done, there is really no necessity to go into the other issue as isreflected in the substantial question of law at (a). 27.We also add that the Circular No.21/2016 also, supports thecontentions of Mr. Vaidya, inasmuch as it reiterates that the process ofcancellation of registration has to be initiated strictly in accordancewith the provisions under Section 12AA(3) and after carefullyexamining the application of the said provisions. The Circular, in thecontext of income limits under the proviso also explains that merelybecause in a particular year the limits may be exceeded is not a goodground to cancel the registration itself, though, all these aspects, can betaken into consideration at the stage of assessment. In fact in case ofKhar Gymkhana (supra), as also in Karnataka Industrial AreaDevelopment Board (supra), the Division Benches of our Court havetaken the view that such matters can be evaluated in the course ofassessment but this shall not be a ground for cancellation of theregistration itself. 28.For all the aforesaid reasons, we allow this appeal by answeringthe substantial question of law at (b) above in favour of the appellantand against the respondent Revenue. For all the aforesaid reasons, we allow this appeal by answering 29.As a result, the impugned orders made by the CIT and ITAT are hereby quashed and the registration held by the GIDC is ordered to berevived. 30.In the facts and circumstances of the present case, there shall beno order as to costs. SMT. M. S. JAWALKAR, J. M. S. SONAK, J. ss