Ita/345/2013 Of The Director Of Income Tax v. Sri Kuthethur Gururajachar Charities

1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THR 12[th]DAY OF JANUARY, 2015 PRESENT THR HON' BLE MR. JUSTICK N.KUMAR AND THR HON' BLE MR. JUSTICEK B. VEBRAPPA INCOME TAX APPEAL No. 3495/201 BRHTIWHR 1.The Director of Income Tax, Exemptions,C.R. Building,|Queens Road,Bangalore.C.R. Building,|Queens Road,Bangalore. ? The Director of Income Tax, Exemptions,C.R. Building,|Queens Road,Bangalore._. APPBELLANTS (BY SRI K V ARAVIND, ADVOCATE) AND: ori Kuthethur Gururajachar Charities,No.29, Crescent Road,High Grounds,Bangalore.... RESPONDENT (BY SRI 8S. PARTHASARATHI, ADVOCATE) This ITA is filed under Section J6O0O-A of thIncome Tax Act, 1961 arising out of Order dated 2 20.02.2013 passed in ITA No. 1304/Bang/2010 prayingto formulate the substantial questions of law statedtherein and allow the appeal and set aside the order ofthe ITAT Bangalore in ITA No.1304/Bang/2010, dated20.02.2013 and confirm the order passed by theDirector of Income Tax (Exemption), Bangalore.| This Income Tax Appeal coming on for Hearingthis day,B.VAEARAPPA ., delivered the following: JUDGMENT The above appeal is filed by the revenueChallenging the order dated 20.2.2013 passed by theTribunal setting aside the order of the Director ofIncomeTax(Exemptions)dated26.10.2010|1nNcancelling the registration of the Trust as a CharitableTrust under Section 12A of the Income Tax Act, 1961)(for short hereinaiter referred to as ‘the Act’). 2. Ihe respondent-assessee —- Sri KuthethurGururajachar Charities was granted registration undersection 12A of the Act on 10.7.1994 by an order passedby the Commissioner of Income Tax. Subsequently, anotice came to be issued on 6.10.2010 as to whyregistration under Section 12A of the Act should not be 3 revoked by invoking the provisions of Section 12AA(3) ofthe Act by the authorities. In response to the saidnotice, the assessee filed its written submission andcontested the matter. The authorities took note of the|fact that for the assessment year 2010-11 excess ofincome over expenditure is at Rs.3,12,000/ and excessof income over expenditure is only 19.35% of the gross.receipts. 3. The Director of Income Tax (Exemption)considering the entire material on record, by his orderdated 26.10.2010, exercising his powers under theprovisions of Section 12A of the Act has cancelled theregistration|observingthat|the.examinationOT records shows that the dominant activity of the Trust isletting out the choultry on daily rental basis which is inthe nature of business and hence, not charitable)irrespective of quantum of rent charged and theassessee has earned huge profits and after taking noteof the change in definition of Section 2(15) of the Act. 4 which came into effect from 1.4.2009, it held that the)activity carried on by the assesse is in the nature oftrade, commerce or business or any activity of renderingany service in relation to any trade, commerce orbusiness.Therefore,theconsiderationreceived|irrespective of nature of use of the application, orretention, of the income from such activity would takethe case out of Section 2(15) of the Act and alterreferring the various judgments, the Director hascancelled the registration. Aggrieved by the said order,the assessee filed an appeal — ITA No.1304/2010 beforethe Tribunal. 4. The Tribunal after considering the entire.material on record recorded a finding that theregistration granted under Section 12A of the Actcannot be revoked on account oft commercial activitiesby the assessee in pursuing the advancement of objectsof general public utility and registration can becancelled only on arriving at a finding that the activities 5 of the assessee are not genuine and not carried inaccordance with the objects of the Trust. Accordingly,the Tribunal by its impugned order dated 20.2.2013 has.allowed the appeal against which the present appeal ispreferred by the revenue. oO. The substantial questions of law which arisefor our consideration are as follows:| 4. The Tribunal after considering the entire.material on record recorded a finding that theregistration granted under Section 12A of the Actcannot be revoked on account oft commercial activitiesby the assessee in pursuing the advancement of objectsof general public utility and registration can becancelled only on arriving at a finding that the activities 5 of the assessee are not genuine and not carried inaccordance with the objects of the Trust. Accordingly,the Tribunal by its impugned order dated 20.2.2013 has.allowed the appeal against which the present appeal ispreferred by the revenue. oO. The substantial questions of law which arisefor our consideration are as follows:| UWhether the Tribunal was correct|in holding that the assessee 1S|entitled to continue’ registrationunder Section 12A of the Act,|without appreciating the fact that,in view of the amendment to|section 2(15) of the Act, the|activities|carriedOrlby|theaSsSSCSSCLwWercommercialin.nature and therefore cannot be|considered as charitable under'section 2(15) of the Income Tax|Act?in holding that the assessee 1S|entitled to continue’ registrationunder Section 12A of the Act,|without appreciating the fact that,in view of the amendment to|section 2(15) of the Act, the|activities|carriedOrlby|theaSsSSCSSCLwWercommercialin.nature and therefore cannot be|considered as charitable under'section 2(15) of the Income Tax|Act? i)Whether the Tribunal was correct|in holding that the WDtrector ofin holding that the WDtrector of 6 Income Tax (Exemption) has not|given any finding with regard to|genuineness of the activities or the|activities not in accordance with§the objects of the _ institutionwithout appreciating that clear|finding1S|recordedholding activities of the assessee were not|in accordance with the objects|and the objects are amended|withoutapprovalof|thedepartmentand.therefore,provisions of Section I2QAA(S3) otheActWereapplicableandrecorded a perverse finding?| 6. The learned Counsel for the revenue assailingthe impugned order contended that the definition of‘charitable institution’ has undergone a change witheffect from 1.4.2009. The activities carried on by theassessee is renting the choultry for marriages, socialactivities as well as commercial activities i.e, to put upexhibition for sale of various consumer products andthe aggregate value of the receipts from the said 7 activitiesexceedsRs.25,00,000/- andtherefore, 1T squarely talls under the first proviso to Section 2(15) ofthe Act. Therefore, it ceases to be an institution forcharitable purpose and therefore, rightly the registrationunder Section 12A of the Act was cancelled which has|been erroneously interfered with by the Tribunal. 7/7. Per contra, learned Counsel for the assesseecontended that once a person is granted registrationunder Section 12A of the Act, the said benefit could be)denied only if the case falls under Section 12AA(3) of theAct. Admittedly, the case of the assessee does not fallunder the aforesaid provision. Even if the activitiescarried on by the assessee ceases to be a charitablepurpose in view of the amendment brought about to thedefinition of ‘charitable purpose’ under Section 2(15) ofthe Act, it is a matter to be considered by the assessingauthority to extend the benefit of exemption or not andsought to justify the impugned order passed by theTribunal. 8. We have given our thoughtful consideration tothe rival contentions urged by the parties to the lis andit is not in dispute that the assessee was grantedregistration under Section 12A of the Act. Now the saidregistration is cancelled by invoking the power conferredunder the provisions of Section 12AA(3) of the Act. |Therefore, it is necessary to find out under whatcircumstances the registration granted earlier could becancelled. section 12AA(3) of the Act reads as under: 8. We have given our thoughtful consideration tothe rival contentions urged by the parties to the lis andit is not in dispute that the assessee was grantedregistration under Section 12A of the Act. Now the saidregistration is cancelled by invoking the power conferredunder the provisions of Section 12AA(3) of the Act. |Therefore, it is necessary to find out under whatcircumstances the registration granted earlier could becancelled. section 12AA(3) of the Act reads as under: “(3) Where a trust or an institution hasbeen granted registration under clause(b) of sub-section (1) Jor has obtainedregistration at any time under section12A /as it stood before its amendmentby the Finance (No. 2) Act, 1996 (33 of1996) andsubsequentlythe Commissioner 1s_ satisfied that theactivities of such trust or institution arenot genuine or are not being carried outin accordance with the objects of the 9 trust or institution, as the case may be,he shall pass an order in writingcancelling the registration of such trustor institution: Provided that no order under this sub-section shall be passed unless suchtrust or institution has been given areasonable opportunity of being heard.|” 9. A plain reading of the aforesaid provision|makes it very clear that a registration granted underSection 112A ot the Act can be cancelled under twocircumstances 1i.e., (i) If the activities of such trust orinstitution are not genuine and (11) The activities of trustor institution not being carried out in accordance withthe object of the trust or institution. Only on these twoconditions/grounds being satisfied, the registrationeranted under the provisions of Section 12A of the Actcould be cancelled by the authorities. 10. It is not in dispute that the Director of|Income Tax (Exemptions) has not recorded any such 10 finding about the violation of the two conditions statedabove. The Tribunal while deciding the matter hasrightly recorded a finding that a perusal of impugnedorder shows that Director of Income Tax (Exemptions)has not arrived at any such finding. The fact that thereceipts from commercial activities are more comparedto the overall receipts of the charitable organization canneither lead to the conclusion that the activities of the|trust or institution are not genuine nor it can be saidthat the activities of the trust or institution are not'being carried out in accordance with the objects of thetrust or institution and therefore, the two conditions|stipulated under the provisions of Sub-section (3) ofsection 12AA of the Act, which empowers the authorityto cancel the registration, do not exist in the presentcase. The registration granted is cancelled in view ofthe amendment of first proviso to Section 2(15) of theAct. That is not a ground specified in the statute forcancellation of the registration. In fact, Sub-section (8)of Section 13 of the Act which is introduced by Financial 11 Act, 2012 which came into effect from 1.4.2009|categorically provides that, nothing contained in Section11 or 12 shall operate so as to exclude any income fromthe 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 suchperson in the said previous year, the statute hasprotected the interest of the revenue. Notwithstandingthe fact that the assessee is conferred registration underthe provisions of Section 12A of the Act, unless theassessee falls within the provisions of Section 2(15) ofthe Act, excluding the first proviso, the assessee wouldnot be entitled to the benefit of exemption from the tax. ©Ii the case of the assessee falls in the first proviso tosection 2(15) of the Act, the benefit of registration whichflow from Section 122A of the Act is not available.Anyhow, that is a matter to be considered by theAssessingAuthority.But.OT]that|eround, theregistration cannot be cancelled, which is precisely the 12 Tribunal has held by allowing the appeal in the presentimpugned order. 12 Tribunal has held by allowing the appeal in the presentimpugned order. 11. In that view of the matter, we do not see anymerit in the present appeal and no interference is calledfor. The substantial questions of law are answeredagainst the revenue and in favour of the assessee. —Hence, the appeal is dismissed.| sd/-.Judgeod/-/JudgeNsu/-_