Ita/1486/2009 Of Commissioner Of Income Tax, Kottayam v. A.y.broadcast Foundation, Manjadi

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE B.P.RAY TUESDAY, THE 22ND MARCH 2011 / 1ST CHAITHRA 1933 ITA.No. 1486 of 2009() ---------------------- AGAINST ORDER IN ITA.526/COCH/2006 of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPELLANT / RESPONDENT ----------------------------- THE COMMISSIONER OF INCOME TAX, KOTTAYAM. BY ADV. SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT(S): / APPELLANT --------------- A.Y.BROADCAST FOUNDATION, G.F.A. BUILDING, MANJADI, THIRUVALLA-689 105. ADV. SRI.A.KUMAR FOR R THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 22/03/2011, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: C.N.RAMACHANDRAN NAIR & BHABANI PRASAD RAY, JJ. ---------------------------------- I.T.A.No.1486 of 2009 --------------------------------- Dated, this the 22[nd] day of March, 2011 J U D G M E N T Ramachandran Nair, J. This is an Appeal filed by the Revenue challenging the order ofthe Income Tax Appellate Tribunal directing the Commissioner ofIncome Tax to grant registration to the respondent Company as aCharitable Institution under Section 12A of the Income Tax Act(hereinafter referred to as the Act for short). 2.We have heard learned Senior Counsel appearing for theappellant Revenue and Shri.A.Kumar learned counsel appearing forthe respondent. We have also gone through the orders of theCommissioner issued on the application filed by the assessee underSection 12AA of the Act and the orders of the Tribunal allowing theclaim and have also considered the argument note submitted by theassessee's counsel. 3.The assessee is a Company registered under Section 25of the Companies Act. According to the assessee, it is formed forthe purpose of advancement of the object of general public utility,which is one of the charitable purposes covered by Section 2(15) of the Act and so much so it is entitled for registration as “charitableinstitution” under Section 12A of the Act. In this regard, anapplication under Section 12AA was submitted before theCommissioner of Income Tax on 27/03/2006 which is for theassessment year 2006-07. However while considering theapplication, the Commissioner found that the assessee is notentitled to registration under the head “charitable institution” forthe following reasons:- (1) The benefit of the foundation, according to the main objectclause, will go to the members of the foundation. (2) The activities covered by the object clause are essentiallybusiness activities which are not intended to serve any benefit forthe public generally and so much so it is not formed foradvancement of object of any general public utility. (3) Since the assessee is formed for starting telecasting and broad casting of television and radio programmes respectively, benefits ifany of the same are not confined to residents of India and so muchso, the activities outside the territories of the country will disentitlethe assessee from getting the benefit of exemption because underSection 11 of the Act, exemption is confined to charitable activitiescarried on in India. (1) The benefit of the foundation, according to the main objectclause, will go to the members of the foundation. (2) The activities covered by the object clause are essentiallybusiness activities which are not intended to serve any benefit forthe public generally and so much so it is not formed foradvancement of object of any general public utility. (3) Since the assessee is formed for starting telecasting and broad casting of television and radio programmes respectively, benefits ifany of the same are not confined to residents of India and so muchso, the activities outside the territories of the country will disentitlethe assessee from getting the benefit of exemption because underSection 11 of the Act, exemption is confined to charitable activitiescarried on in India. 4.On the first objection, the assessee contended before theCommissioner of Income Tax that it made an amendment in theMemorandum and Articles of Association deleting the words “forbenefit of the members”, and so much so, this clause in the mainobject should not be a ground for denying the benefit ofregistration as charitable institution. However, before theCommissioner the assessee had not produced any document orevidence in support of the amendment made to the object clause asstated above. The assessee further contended before theCommissioner that it is specifically provided in the Memorandumand Articles of Association of the Company that it will not declareany dividend to it's members, which is a statutory requirement forgetting registration under Section 25 of the Companies Act, whichthe assessee has. So far as the extra territorial operation of theassessee is concerned, the assessee explained before theCommissioner that it has not started operation and it will confineit's operations of telecasting and broadcasting of television andradio programmes only within India. The assessee, however, didnot explain as to what is the scope of the business it proposes totake up under the main sub clause, namely “to act as an agent,broker, liasioner, introducer etc.” 5.So far as the charitable object of the Company by way ofadvancement of object of general public utility is concerned, theassessee contended before the Commissioner that the televisionand radio programmes like, documentary, telefilm, serial etc. areproposed to be made and telecasting and broadcasting of the sameare intended for promoting social and spiritual upliftment of generalpublic. Even though the Commissioner raised an objection that thegeneral public are not beneficiaries under Memorandum ofAssociation of the Company the assessee contended that benefitthat goes to the public from the assessee Company is thatprogrammes to be telecast and broadcast by them will help forspiritual and social upliftment of the public. The Commissionerafter considering details of the contentions raised by the assessee,rejected the claim stating that the assessee is not a charitableinstitution established for advancement of any object of any generalpublic utility. 6.The assessee filed appeal before the Tribunal raising thesame contentions raised before the Commissioner. The Tribunalaccepted the assessee’s contention that the broadcasting andtelecasting activities will improve social and spiritual upliftment ofgeneral public. So far as the objection raised by the Commissioner on the benefits going to the members of the Company and alsoabout the extra territorial operations of the assessee i.e. telecastingand broadcasting of programmes outside India are concerned, theTribunal held that these expressions are only “innocuousexpressions” in the object clause and therefore the Tribunal allowedthe appeal. It is against this order of the Tribunal, the Revenue hasfiled this appeal before us. 6.The assessee filed appeal before the Tribunal raising thesame contentions raised before the Commissioner. The Tribunalaccepted the assessee’s contention that the broadcasting andtelecasting activities will improve social and spiritual upliftment ofgeneral public. So far as the objection raised by the Commissioner on the benefits going to the members of the Company and alsoabout the extra territorial operations of the assessee i.e. telecastingand broadcasting of programmes outside India are concerned, theTribunal held that these expressions are only “innocuousexpressions” in the object clause and therefore the Tribunal allowedthe appeal. It is against this order of the Tribunal, the Revenue hasfiled this appeal before us. 7.During hearing of the appeal, we felt that since theassessee was registered 5 years back it would be beneficial to findout from the assessee as well as from the Department as to whetherthe assessee was engaged in any charitable activity includingproduction of television and radio programmes and telecasting andbroadcasting of such programmes, for which the assessee isformed. Both sides agreed that the assessee is a complete non-starter in as much as even as on today the assessee has not doneany activity pursuant to the object clause contained in theMemorandum and Article of Association of the company. In otherwords, the assessee for the last 5 years is a paper Company whichhas not been able to accomplish any of it's objects assuming suchobjects are charitable in nature. In any case, since registration as acharitable institution was sought for the assessment year 2006-07, the issue before us is whether the Tribunal was justified in grantingregistration overruling the findings of the Commissioner of IncomeTax. We have to necessarily consider the object clause withreference to which we have to decide whether the assessee isentitled to be treated as a Company formed for advancement of theobject of general public utility, which entitles the assessee forregistration as a charitable institution. The main object of theCompany as stated in Clause III of the Memorandum of Associationof the Company is as follows:- “111. (A).The main object of the company to bepursued by the Company on its incorporation are: 1.To carry on in India and elsewhere without profitmotive and for the benefit of the members of thisfoundation, the activity to promote, project, participate,prepare, develop, shot, expose, edit, exhibit, mix,remix, display, print, reprint, convert, manipulate,duplicate, finish, buy, sell, run, import, export, acquire,broadcast, distribution and act as agent, broker,liasioner, introducer, proprietor of all types oftelevision, radio programmes, video communicationsystemincludingvideoserials,telefilms,documentaries, educational and training films forpromoting human and spiritual values aimed at socialand spiritual upliftment of general public or sectionsthereof through company's own or hired channels bysatellite uplink, telecommunication, cable, internet,satellite network and / or terrestrial network and / orany other means of broadcasting and multimediacommunication using all technological, innovations /methodologies subject to Rules and Regulationsprescribed by the Government from time to time.” 8.Admittedly, the assessee is a Company registered underSection 25 of the Companies Act and so much so, there is noprovision for declaration of dividend to the members of theCompany. What is stated in one of the object clauses is that theentire income of the Company will be utilized for the purpose forwhich it is formed i.e. to carry on the activities stated in the mainclause, which is production of television and radio programmes forthe purpose of telecasting and broadcasting through assessee’s ownnetwork or through network hired by them. We have closelyexamined each and every object stated in the main object clause.Generally, the activities refereed to therein i.e. production oftelevision and radio programmes and telecasting and broadcastingof the same are commercial activities. Further the object clauseprovided for the assessee to act as an agent, broker, liasioner,introducer etc., which are purely commercial activities intended tomake profit. Since the assessee is not holding any business incharity or distributing any surplus for charitable purposes, thequestion to be considered is whether the carrying on of the activitiesreferred to in the object clause by itself constitute advancement ofany object of general public utility within the meaning of Section 2(15) of the Act. Learned counsel appearing for the assessee specifically referred to the purpose of the telecasting andbroadcasting of the programmes as stated in the Memorandum andArticles of Association i.e. social and spiritual upliftment of generalpublic. In our view, every television or radio programme to someextent promotes social, spiritual and intellectual upliftment of thepeople in as much as it imparts knowledge and helps to developone’s personality. In fact, it is not uncommon that several televisionchannels and radio stations are occasionally telecasting andbroadcasting religious, spiritual and other programmes as well. Ifthe assessee’s contention that telecasting and broadcasting ofvarious television and radio programmes will help spiritual andsocial development is accepted, then probably every televisioncompany and radio company whether it is engaged in business ornot is entitled to registration as a charitable institution becauseevery programme has some value for human development eithersocial or spiritual. While learned counsel for the Revenue has reliedon the decisions of the Supreme Court in East India Industries(Madras) Private Limitedv. Commissioner of Income Tax, Madras,reported in 1967 (Vol.LXV) ITR 611, and in U.P.Forest Corporationand Another v.Deputy Commissioner of Income Tax,reported in2008 (297) ITR 1 (SC), the assessee’s counsel has relied on the decision of the Supreme Court in Director of Income Tax v. BharatDiamond Bourse, reported in 2003 (179) CTR (SC) 225 and thedecision of the Privy Council in the case of The Trustees of theTribune, In Re, reported in 1939 (7) ITR 415 (PC) and the decision ofthe Rajasthan High Court in Umaid Charitable Trust v.Commissioner of Income Tax, reported in 1980 (15) CTR (Raj) 217.Other decisions cited by the assessee’s counsel are inDharmoposhanam Co.v. CITreported in 1978 114 ITR 463(SC), andin Sole Trustee Loka Shikishna Trust v. CIT,reported in 101 ITR234 and the decision of the Supreme Court in Umaid CharitableTrust v. CIT,reported in 125 ITR 55. 9.After hearing both sides and after going through theobject clause we are not persuaded to uphold the order of theTribunal because in our view, the activities of the assessee statedabove i.e. undertaking to telecast and broadcast programmes andto act as an agent, broker, liasioner etc. will not make the objectclause charitable. These are purely commercial activities notexclusively intended for advancement of any object of generalpublic utility, no matter as already held by us every publication,telecasting or broadcasting may lead to imparting some knowledgehelping human development. 9.After hearing both sides and after going through theobject clause we are not persuaded to uphold the order of theTribunal because in our view, the activities of the assessee statedabove i.e. undertaking to telecast and broadcast programmes andto act as an agent, broker, liasioner etc. will not make the objectclause charitable. These are purely commercial activities notexclusively intended for advancement of any object of generalpublic utility, no matter as already held by us every publication,telecasting or broadcasting may lead to imparting some knowledgehelping human development. 10.So far as other ground on which the Commissionerdeclined the application such as the profit goes to the members ofthe foundation in terms of the object clause contained in theMemorandum and Articles of Association is concerned, theassessee’s counsel produced documents showing that anamendment is made to the object clause deleting the aboveprovision. However, it is seen from the documents produced thatsuch amendment is certified by the Registrar of Companies only on01/12/2006. Obviously the assessee has not produced theamendment made to the Memorandum of Association of theCompany neither before the Commissioner nor before the Tribunal.In any case, the application for registration has to be consideredwith reference to the object of the assessee available as on the endof the previous year during which registration is sought underSection 12A of the Act and such amendment probably helps forseeking registration in later years. Of course the assessee’s counseljustified the Tribunal’s observation that the statement in theMemorandum and Articles of Association i.e. benefit goes to themembers of the foundation is innocuous, by stating that the clauseshould be read in line with other clauses in the Articles ofAssociation which prohibits declaration of dividend to the members of the assessee Company. Of course there is an apparent conflictbetween these two provisions and probably the assessee did notintend to give away the benefit of the Company to it's members.However, the assessee has not explained as to why the object clausespecifically provides that the benefit of the foundation goes to themembers in a narrow sense. This clause can be interpreted to meanthat production of programmes for telecasting and broadcasting isfor the benefit of members. In any case, since we have alreadyfound that the object is not charitable in nature, there is no need forus to consider whether retention of the above provision in the objectclause providing that benefits of the assessee go to the members,which was there in the previous year, has relevance at all. 11.So far as the extra territorial operation and activities ofthe Company as evident from the object clause is concerned, theassessee’s counsel also submitted that telecasting and broadcastingwill be limited within India. We do not know whether it is physicallyor practically possible for the assessee to limit broadcasting andtelecasting of programmes within the limit of a country. In anycase, there is no significance in this, because the assessee hasadmitted that it has not undertaken any of such activities for thelast 5 years and still remains a paper Company. For the reasons stated above, we allow the appeal by reversing the order of the Tribunal and restoring the order of theCommissioner declining registration to the assessee under Section12A of the Act. Sd/- (C.N.RAMACHANDRAN NAIR, JUDGE) Sd/- jg (BHABANI PRASAD RAY, JUDGE) //TRUE COPY// PA TO JUDGE.