Ita/171/2014 Of Mahatma Gandhi Charitable Society v. The Commissioner Of Income-Tax

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON FRIDAY ,THE 22ND DAY OF FEBRUARY 2019 / 3RD PHALGUNA, 1940 ITA.No. 171 of 2014 AGAINST THE ORDER/JUDGMENT IN ITA 250/COCH/2011 ofI.T.A.TRIBUNAL,COCHIN BENCH DATED 18.07.2013 APPELLANT/APPELLANT/ASSESSEE: MAHATMA GANDHI CHARITABLE SOCIETY,T.C. VIII/52, LAKSHMI VIHAR, THIRUMALA, THIRUVANANTHAPURAM-695006, REPRESENTED BY ITS CHAIRMAN, K.R.PANDALAI. BY ADVS.SRI.O.K.NARAYANANSRI.P.REJINARK RESPONDENT/RESPONDENT/REVENUE: THE COMMISSIONER OF INCOME-TAX,AAYKAR BHAVAN, KAWDIAR, THIRUVANANTHAPURAM-695003. BY ADVS.SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES)SRI.JOSE JOSEPH, SC, FOR INCOME TAX OTHER PRESENT: SRI JOSE JOSEPH, SC FOR INCOME TAX DEPT. THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 22.02.2019, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ITA 171/14 -2- J U D G M E N T [ITA No.171 of 2014] Vinod Chandran, J. The appeal is from Annexure-A8 order of the Income Tax Appellate Tribunal. The questionsof law framed are as follows:- (1) Ought not the Tribunal have found that the Commissioner's order was passed on no materials and that there was absolutely nosatisfaction entered into as to the objects ofthe assessee being not genuine or the assessee having not carried on the activities as declared in the Memorandum of Association(MoA)? (2) Has not the Tribunal committed an erroramounting to perversity in having confirmed theorders of the Commissioner? ITA 171/14 2.The assessee is said to have beenformed in the year 1995 and applied for aregistration under Section 12A of the Income TaxAct, 1961 (“Act” for short). The application ofthe assessee was also favourably considered andregistration granted as per Annexure-A1. Later,the law stood amended and Section 12AA came intoforce which also contained a provision under sub-Section (3) for cancellation of registrations.Admittedly, Section 12AA(3) took into its fold eventhe registrations granted earlier to suchamendment. Further, by Finance Act, 2008 witheffect from 01.04.2009, the definition of“charitable purpose” under Section 2(15) of the Actstood amended by introduction of a proviso. Themain definition clause stood as it is. ITA 171/14 3.The definition clause along with theproviso as introduced with effect from 01.04.2009 is extracted hereunder:- “2(15)“Charitable purpose” includesrelief of the poor, education, yoga,medicalrelief,preservationofenvironment including watersheds, forestsand wildlife and preservation ofmonuments or places or objects ofartistic or historic interest, and theadvancement of any other object ofgeneral public utility: Provided that the advancement of anyother object of general public utilityshall not be a charitable purpose, if itinvolves the carrying on of any activityin the nature of trade, commerce orbusiness, or any activity of renderingany service in relation to any trade,commerce or business, for a cess or feeor any other consideration, irrespectiveof the nature of use or application, orretention, of the income from suchactivity; Provided further that the firstproviso shall not apply if the aggregatevalue of the receipts from the activitiestherein is ten lakh rupees or less in theprevious year.” ITA 171/14 Provided that the advancement of anyother object of general public utilityshall not be a charitable purpose, if itinvolves the carrying on of any activityin the nature of trade, commerce orbusiness, or any activity of renderingany service in relation to any trade,commerce or business, for a cess or feeor any other consideration, irrespectiveof the nature of use or application, orretention, of the income from suchactivity; Provided further that the firstproviso shall not apply if the aggregatevalue of the receipts from the activitiestherein is ten lakh rupees or less in theprevious year.” ITA 171/14 4.The Commissioner invoked sub-Section(3) of Section 12AA by a notice dated 31.01.2011.The notice specifically called upon the assessee toshow cause as to why the registration granted underSection 12A should not be cancelled for reason ofthe activities of the assessee no more beingconsidered as a charitable activity. The Chairmanof the assessee appeared before the Commissionerand contended that the activity of the assesseecomes within the meaning of “relief to the poor” asit gives employment to poor people. When theassessee was asked to demonstrate as to theactivities carried on which comes within thenomenclature of “relief to the poor”, it wassubmitted that the nature of job offered woulditself indicate that only poor people can apply forit. The Commissioner found that the assessee wasnot able to satisfy the requirement of the term ITA 171/14 “relief to the poor” and held that employment ofpersons by the society in a labour contract cannotbe categorised as a general public utility carriedon by the assessee. It was also found that thegross receipts from the contracts for the subjectyears indicated Rs.3 crores for the year 2008-09and Rs.4 crores for the year 2009-10. Finding thesecond proviso to Section 2(15) to be clearlyattracted, the Society was held to be not pursuingcharitable activities as defined under the Act andthe registration stood cancelled. 5.An appeal was taken to the Tribunalwhich first resulted in Annexure-A5. Theassessee's contentions as noticed by the Tribunalwere that it was established for carrying outvarious activities, including giving employment toat least one member in a family which is needy anddeserving. Relying on clause 4(17) of the MoA, the learned counsel also contended that givingemployment opportunity to the poor is one of theobjects of the Trust which would fall in theadvancement of the object of carrying on generalpublic utility. The Tribunal found that merely byinvoking the monetary limit as existing in thestatute by the provisos, there could be nocancellation effected of the registration grantedunder Section 12A. However, the Tribunal alsolooked into the question of exemption and foundthat despite the registration being continued, theAssessing Officer could look into the income anddecide on the exemption applicable to such income.This was by Annexure-A5 order. poor would come under general public utility. Itwas always the stand of the assessee that it hadbeen providing employment to the poor only andhence the same would come within the objects asseen from the MoA, which is provision of employmentto the poor, a charitable activity. The standhence was that this activity of providingemployment to the poor would be a charitablepurpose and hence they are entitled to continuetheir registration granted under Section 12A. TheTribunal based on the above contentions, especiallylooking at an affidavit submitted by the Counselwho argued the matter before the Tribunal, that thearguments raised were not properly understood bythe Tribunal; withdrew its earlier order and postedthe matter for hearing. 7.The assessee filed an appeal beforethis Court from the above order of the Tribunal in ITA 171/14 7.The assessee filed an appeal beforethis Court from the above order of the Tribunal in ITA 171/14 the Miscellaneous Application at Annexure-A7, whichwas rejected by this Court by judgment in ITANo.170/2014 dated 14.10.2014. The learned counselappearing for the assessee also fairly concededthat, as of now, the assessee could not raise anycontention against Annexure-A5 order. Thequestions of law raised are also those arising fromAnnexure-A8. Annexure-A8 found that theCommissioner had rightly cancelled the registrationinvoking the provisions under Section 12AA(3). 8.The learned Counsel for the assesseehad placed reliance on the judgment of this Courtreported in (2016) 382 ITR 399 (Ker) [Sree AnjaneyaMedical Trust v. Commissioner of Income Tax]. Weare of the opinion that the said decision hasabsolutely no application to the facts as arisingfrom this case. The Division Bench in that casewas concerned with registration of Trust under ITA 171/14 Sections 12A and 12AA. The registration wasdeclined on the ground that an inspection conductedshowed receipt of amounts from students. Theappellant therein had taken up a specificcontention that the receipts were of advance feesreceived from Non Resident Indian students and thatit was to be adjusted towards the fees of each yearof study. The Division Bench of this Court foundthat when considering the aspect of registrationsimplicitor, there is no requirement of anexamination of the modus of fund application or theethical background of its settlers. The preliminaryrequirement is only an examination of whether thetrust is constituted genuinely for carrying oncharitable activities and whether it has thecapacity to so carry out its professed objects.The application of its funds and the operations assuch being in consonance with the objects are all ITA 171/14 considerations at the time of actual claim ofexemption which is made at the time of assessment.What distinguishes the present case is that thequestion raised is not of registration and is oneof cancellation of registration as provided underSection 12AA(3), that too looking at the activitiesof the trust. 9.The appellant-trust obviously was engaged in executing contracts as awarded by theIndian Railways for cleaning train coaches andrailway stations. The contention of the assesseewas also that considering the work of cleaning, forwhich the contract was awarded, it should beassumed that the employment would only be ofpersons from the marginalised sections of society.The Tribunal considered the question elaborately.The specific objects as available in the MoA of theTrust was extracted by the Tribunal. The reliance ITA 171/14 placed by the assessee was also on sub-clause (17)which reads as “giving employment at least for onemember in a family, which is needy and deserving”.The Tribunal first considered the question as towhether taking a contract from the Indian Railwaysand carrying out the contract work by employingpoor people as claimed by the assessee would amountto a charitable purpose or not. The Tribunal,according to us, correctly found that execution ofa contract as awarded by the Indian Railways forthe purpose of cleaning train coaches and railwaystations is a purely commercial and businessactivity. The Tribunal also noticed that whenthere is employment given in pursuance of acontract work, there are many labour friendlylegislations which had to be complied with by theemployer. Mere employment of people from theweaker sections of Society would not absolve the ITA 171/14 ITA 171/14 contractor from the labour legislations and suchwork is one carried out with a clear intention atmaking profit. The assessee having bid in acompetitive tender had been awarded the work for aconsideration agreed upon between the parties andcarrying on of such work cannot be categorised as acharitable work merely because the poor or personsfrom marginsalised sections are given employment.The execution of the work awarded by the Railways,is not a public utility service carried on by theassessee and the mere fact that the poor areemployed in such execution of contract awarded,would not make it a charitable purpose. 10. Further though the assessee is said tohave provided employment to various people who areengaged in the actual cleaning work carried out inpursuance of the contract, there is absolutely nomaterial placed as to the categories from which ITA 171/14 such employees were sourced. But for the mereassertion that the nature of the work would itselfindicate that only poor people would come for thesame, the assessee has not indicated anything aboutthe source from which the assessee had employedsuch people. 11. The Tribunal correctly found that forcancellation of registration, there are twoconditions to be satisfied; one that there is aregistration granted earlier and the other thesatisfaction of the Commissioner that the trust orthe institution is not genuine or the activity ofthe trust is not being carried on in accordancewith the objects of the trust. The activityspecifically carried on by the assessee isexecution of contract awarded by the IndianRailways. This does not come within any of theobjects as professed by the assessee in its MoA. ITA 171/14 The provision of employment is an incidental andnecessary corollary to the execution of thecontract awarded by the Indian Railways to theassessee. Various High Court judgments as profferedbefore the Tribunal were discussed by the Tribunalto distinguish them on facts. We would not furtherlabour on the same, since the only argument was onthe basis of the aforesaid judgment of the DivisionBench of this Court itself. The Commissioner,according to us, has rightly found that theactivities carried on by the assessee being in thenature of execution of a contract work as obtainedfrom the Indian Railways, would not be a charitablepurpose coming under the definition under the Act.We, hence, uphold the order of the Tribunal anddismiss the Income Tax Appeal. We do not thinkthat consideration of the facts by the Tribunal wasperverse in any manner. We find no question of law ITA 171/14 -16- arising from the order of the Tribunal. We rejectthe Income Tax Appeal . No costs. Sd/-K.VINOD CHANDRANJUDGESd/-ASHOK MENONJUDGE jg ITA 171/14 APPENDIX APPELLANT'S EXHIBITS: ANNEXURE-A1TRUE COPY OF ORDER C.NO.301/TECH/TVM-6/93-94 DATED 30/1/95 PASSED BY THE 1STRESPONDENT U/S 12 A.6/93-94 DATED 30/1/95 PASSED BY THE 1STRESPONDENT U/S 12 A. ANNEXURE-A2TRUE COPY OF MEMORANDUM OF ASSOCIATION OF THE APPELLANT SOCIETY.OF THE APPELLANT SOCIETY. ANNEXURE-A3TRUE COPY OF ORDER C.NO.AAATM4153E/312/2/2010-11 DATED 24/2/2011 PASSED BY THE COMMISSIONER OFINCOME TAX,TRIVANDRUM.C.NO.AAATM4153E/312/2/2010-11 DATED 24/2/2011 PASSED BY THE COMMISSIONER OFINCOME TAX,TRIVANDRUM. ANNEXURE-A4TRUE COPY OF THE DETAILED ARGUMENT NOTEFILED BY THE COUNSEL FOR THE APPELLANT.FILED BY THE COUNSEL FOR THE APPELLANT. ANNEXURE-A5TRUE COPY OF THE ORDER IN ITA NO. 250/COCH/2011 DATED 16/11/2012 PASSED BY THE TRIBUNAL ALLOWING THE APPEAL FILED BY THE APPELLANT.250/COCH/2011 DATED 16/11/2012 PASSED BY THE TRIBUNAL ALLOWING THE APPEAL FILED BY THE APPELLANT. ANNEXURE-A6TRUE COPY OF M.A.NO.02/COCH/2013 DATED 12/12/2012 FILED BY THE APPELLANT.12/12/2012 FILED BY THE APPELLANT. ANNEXURE-A7THE COPY OF THE ORDER PASSED IN M.A.NO.02/COCH/2013 BY THE TRIBUNAL ON 8/2/2013.M.A.NO.02/COCH/2013 BY THE TRIBUNAL ON 8/2/2013. ANNEXURE-A4TRUE COPY OF THE DETAILED ARGUMENT NOTEFILED BY THE COUNSEL FOR THE APPELLANT.FILED BY THE COUNSEL FOR THE APPELLANT. ANNEXURE-A5TRUE COPY OF THE ORDER IN ITA NO. 250/COCH/2011 DATED 16/11/2012 PASSED BY THE TRIBUNAL ALLOWING THE APPEAL FILED BY THE APPELLANT.250/COCH/2011 DATED 16/11/2012 PASSED BY THE TRIBUNAL ALLOWING THE APPEAL FILED BY THE APPELLANT. ANNEXURE-A6TRUE COPY OF M.A.NO.02/COCH/2013 DATED 12/12/2012 FILED BY THE APPELLANT.12/12/2012 FILED BY THE APPELLANT. ANNEXURE-A7THE COPY OF THE ORDER PASSED IN M.A.NO.02/COCH/2013 BY THE TRIBUNAL ON 8/2/2013.M.A.NO.02/COCH/2013 BY THE TRIBUNAL ON 8/2/2013. ANNEXURE-A8TRUE COPY OF THE ORDER DATED 18/7/2013 PASSED BY THE TRIBUNAL IN ITA NO. 250/COCH/2011.PASSED BY THE TRIBUNAL IN ITA NO. 250/COCH/2011. jg