Pg 3 Of 8 v. Khar Gymkhana, (2016) 385 Itr 162 (Bom

18.itxa.882.2016.doc dik IN THE HIGH COURT OF JUDICATURE AT BOMBAY O.O.C.J. INCOME TAX APPEAL NO. 882 OF 2016 Pr. Commissioner of Income Tax (Central) vsM/s Ashoka Education Foundation ...Appellant ...Respondent. WITH INCOME TAX APPEAL NO. 892 OF 2016 Pr. Commissioner of Income Tax (Central) vsM/s Ashoka Education Foundation ...Appellant ...Respondent. ..... Mr Sham Walve for the Appellant in both appeals. Mr Mihir Naniwadekar a/w Mr Ruturaj Gurjar for the Respondent in both appeals. ..... CORAM : AKIL KURESHI & B.P.COLABAWALLA, JJ. JANUARY 07, 2019. P.C. : Leave to amend. The amendment to be carried outforthwith. Re-verification is dispensed with. 2These appeals arise on common background and concern the same assessee which is a public charitable trust. Tax Appeal No.892 of 2016 filed by the Revenue raise a question of correctness of thedecision of the Income Tax Appellate Tribunal (“the Tribunal”forshort) of reversing the order of the Commissioner cancelling the Pg 1 of 8 18.itxa.882.2016.doc registration of trust under Section 12AA of the Income Tax Act, 1961(“the Act” for short). The Commissioner noted that the trust hadparted with the possession of part of the immovable property infavour of one M/s Ashoka Buildcon Ltd. The Commissioner noted thatthe assessee trust and said M/s Ashoka Buildcon Ltd. would be thepersons referred to in clause (c), sub-section (1) and sub-section (2)of Section 13 of the Act and as listed in sub-section 3 thereof on thepremise that before entering into such an agreement, no permissionfrom the Charity Commissioner was obtained by the trust, theCommissioner exercised powers under Section 12AA(3) of the Actand cancelled the registration of the trust. In such an order theCommissioner noted that the trust deed did not permit the trusteesto deal the trust land in the manner in which it was done and that toowithout permission from the Charity Commissioner. He noted thatthe agreement under which the land was transferred was also notregistered. Inter alia on such grounds the Commissioner passed theorder of cancellation of registration. 3The Tribunal, in an appeal by the assessee, reversed thedecision of the Commissioner primarily holding that if there is anybreach of the provisions of Section 13(1), the Assessing Officer canexamine its effect at the time of passing of the Assessment Order.The Tribunal was of the opinion that for cancellation of registration of Pg 2 of 8 18.itxa.882.2016.doc the trust, the inquiry before the Commissioner would be, whether thetrust activities are genuine or not, and the activities are being carriedon to fulfill the object of the trust. 4In Income Tax Appeal No. 882 of 2016 the similar issuearise in the context of continuity of exemption under Section 80G(5)of the Act. The section is contentment to the main consideration ofcancellation of registration under Section 12AA of the Act and wetherefore need not take note of detailed discussion in connection ofthe same in the orders passed by the Commissioner and the Tribunal. 5Learned counsel for the Revenue submitted that the trusthad parted with the immovable property of the trust in favour of acompany which was connected with the trust. This was done withoutobtaining permission of the Charity Commissioner. TheCommissioner, therefore, correctly exercised the powers andcancelled the registration of the trust. Learned counsel relied on adecision of the Division Bench of Kerala High Court in the case ofCommissioner of Income Tax, KottayamVs Annadan Trustreported in (2018) 258 Taxman 54 (Kerala)in support of hiscontentions. 6On the other hand, learned counsel Mr Naniwadekar forthe assessee opposed the appeals containing that there are specialreasons for parting with the possession of portion of the immovable Pg 3 of 8 5Learned counsel for the Revenue submitted that the trusthad parted with the immovable property of the trust in favour of acompany which was connected with the trust. This was done withoutobtaining permission of the Charity Commissioner. TheCommissioner, therefore, correctly exercised the powers andcancelled the registration of the trust. Learned counsel relied on adecision of the Division Bench of Kerala High Court in the case ofCommissioner of Income Tax, KottayamVs Annadan Trustreported in (2018) 258 Taxman 54 (Kerala)in support of hiscontentions. 6On the other hand, learned counsel Mr Naniwadekar forthe assessee opposed the appeals containing that there are specialreasons for parting with the possession of portion of the immovable Pg 3 of 8 18.itxa.882.2016.docproperty of the trust. The activities of the trust are educational innature and are being carried out to such purpose. The Tribunal,therefore, correctly reversed the decision of the Commissioner.Learned counsel relied on a decision of Division Bench of Gujrat HighCourt in the case of Director of Income TaxVs N H KapadiaEducation Trust dated 28/09-01/10/2018 in R/Tax Appeal No. 356 of2012 and that of Division Bench of this Court in the case of Directorof Income Tax Vs Khar Gymkhana, (2016) 385 ITR 162 (Bom). 7Sub-section 1 of Section 13 of the Act provides inter aliathat nothing contained in Section 11 or 12 shall operate so as toexclude from the total income of the previous year of the person inrespect thereof. The Division Bench of Gujrat High Court in case of NH Kapadia Education Trust(supra) had occasion to examine theeffect of alleged breach of objects on the part of trust while carryingout its objects. The Court held and observed that in terms of sub-section 3 of Section 12AA of the Act, the registration of the trust becancelled in case of trust or institution, if the Commissioner issatisfied that the activities of the trust or institution are not genuineor are not being carried out in accordance with the objects of thetrust or institution. It was further observed as under- “16.Section 13 carries a title “Section 11 not to apply in certain cases”.Sub-section (1) of section 13 inter alia provides that nothingcontained in section 11 or 12 shall operate so as to exclude from theSub-section (1) of section 13 inter alia provides that nothingcontained in section 11 or 12 shall operate so as to exclude from the Pg 4 of 8 total income of the previous year of the person in respect thereof incase of a trust for charitable or religious purposes or a charitable orreligious institution, any income thereof if any part of such income orproperty of the trust or institution is during the previous year unusedor applied directly or indirectly for the benefit of any person referredto in sub-section (3). “16.Section 13 carries a title “Section 11 not to apply in certain cases”.Sub-section (1) of section 13 inter alia provides that nothingcontained in section 11 or 12 shall operate so as to exclude from theSub-section (1) of section 13 inter alia provides that nothingcontained in section 11 or 12 shall operate so as to exclude from the Pg 4 of 8 total income of the previous year of the person in respect thereof incase of a trust for charitable or religious purposes or a charitable orreligious institution, any income thereof if any part of such income orproperty of the trust or institution is during the previous year unusedor applied directly or indirectly for the benefit of any person referredto in sub-section (3). From the above provisions, it can be immediately seen that the eventof cancellation of registration of a Trust in exercise of powers undersub-section (3) of section 12AA of the Act would arise when theCommissioner is satisfied that the activities of such Trust orinstitution are not genuine or are not being carried out in accordancewith the objects of the Trust or institution. Mere breach of theprovisions contained in section 11(1)(d) or 13(1)(c) per se wouldnotfall within the either of the two grounds available to theCommissioner to cancel the registration viz. the activity of the Trustnot being genuine or not being carried out in accordance with theobjects of the Trust. The Tribunal was thus perfectly justified incoming to such a conclusion. Our view that we expressed gets forcefrom the decision of Uttranchal High Court in case of Welham Boy'sSchool, Society Vs Central Board of Direct Taxes and anrreported in 285 ITR 74.”of cancellation of registration of a Trust in exercise of powers undersub-section (3) of section 12AA of the Act would arise when theCommissioner is satisfied that the activities of such Trust orinstitution are not genuine or are not being carried out in accordancewith the objects of the Trust or institution. Mere breach of theprovisions contained in section 11(1)(d) or 13(1)(c) per se wouldnotfall within the either of the two grounds available to theCommissioner to cancel the registration viz. the activity of the Trustnot being genuine or not being carried out in accordance with theobjects of the Trust. The Tribunal was thus perfectly justified incoming to such a conclusion. Our view that we expressed gets forcefrom the decision of Uttranchal High Court in case of Welham Boy'sSchool, Society Vs Central Board of Direct Taxes and anrreported in 285 ITR 74.” 8Similarly, Division Bench of this Court in the case of Khar Gymkhana(supra) had occasion to examine the question ofcontinuity of registration of the trust upon alleged breach of Section 2(16) of the Act. The Court held and observed as under- “10. We find that the Circular No. 21 of 2016 when read as a whole,specifically lists out in paragraphs 4 and 5 reproduced herein abovethat the registration granted under section 12AA could not becancelled, only when the receipts on account of business exceededspecifically lists out in paragraphs 4 and 5 reproduced herein abovethat the registration granted under section 12AA could not becancelled, only when the receipts on account of business exceeded Pg 5 of 8 the cut off, specified in the proviso to section 2(15) of the Act. Thejurisdiction to cancel the registration only arises if there is change inthe nature of activities of the institution or the activities of theinstitution, are not genuine. The aforesaid Circular by placing relianceupon section 13(8) of the Act inter alia provides that the registrationgranted to the trust would continue even when the receipts onaccount of business is in excess of Rs. 25 lakhs. In such case, theAssessing Officer while framing the assessment for the subjectassessment year would be entitled to deny the benefit of exemptionto such a trust for that year. Pg 5 of 8 the cut off, specified in the proviso to section 2(15) of the Act. Thejurisdiction to cancel the registration only arises if there is change inthe nature of activities of the institution or the activities of theinstitution, are not genuine. The aforesaid Circular by placing relianceupon section 13(8) of the Act inter alia provides that the registrationgranted to the trust would continue even when the receipts onaccount of business is in excess of Rs. 25 lakhs. In such case, theAssessing Officer while framing the assessment for the subjectassessment year would be entitled to deny the benefit of exemptionto such a trust for that year. 11. The submission made on behalf of the Revenue that the Circular No. 21 of 2016 would have only prospective effect in respect ofassessment made subsequent to the amendment under section 2(15)of the Act, with effect from April 1, 2016 is also not sustainable. Theamendment in section 2(15) of the Act brought about by Finance Act,2016, with effect from April 1, 2016, is essentially that where earlierthe receipts in excess of Rs. 25 lakhs on commercial activities wouldexclude it from the definition of 'charitable purpose' is nowsubstituted by receipts from commercial activities in excess of 20 percent, of the total receipts of the institution. In the above view,Circular No. 21 of 2016 directs the Officer of the Revenue not tocancel Registration only because the receipts on account of businessare in excess of the limits in the proviso to section 2(15) of the Actwould also apply in the present case. The impugned order has heldthat cancellation of a registration under section 12AA(3) of the Act,can only take place in case where the activities of the trust orinstitution are not genuine and/or not carried on in accordance withits objects. The aforesaid Circular No. 21 of 2016 is in line of thefinding of the Tribunal in the impugned order. The submission onbehalf of the Revenue that the trust is not genuine because it is hit byproviso to section 2(15) of the Act, is in fact, negatived by CircularNo. 21 of 2016. In fact, the above Circular No. 21 of 2016 clearly Pg 6 of 8 provides that mere receipts on account of business being in excess ofthe limits in the proviso would not result in cancellation ofregistration granted under section 12AA of the Act unless there is achange in nature of activities of the institution. Admittedly, there is nochange in nature of activities of the institution during the subjectassessment year. The further submission on behalf of the Revenuethat looking at the quantum of receipts on account of commercialactivities, it is unlikely/improbable that in the subsequent assessmentyears, the receipts would fall below Rs. 25 lakhs and therefore, theCommissioner is entitled to cancel the Registration. The aforesaidsubmission made on behalf of the Revenue is based not on facts asexisting but on probability of future events. We are unable to acceptthe submission based on clairvoyance. Further, we are unable tounderstand what prejudice is caused to the Revenue since wheneverthe receipts on account of commercial activities is in excess of thelimits provided in proviso to section 2(15) of the Act, the AssessingOfficer is mandated/required to deny exemption under section 11 ofthe Act as provided in Circular No. 21 of 2016 dated May 27, 2016.Accordingly, the issue stands covered in favour of the Revenue byvirtue of Circular No. 21 of 2016.” 9In the present case, the Tribunal found that the assesseetrust had entered into an agreement with said M/s Ashoka BuildconLtd. under which the assessee handed over the possession of land tothe said concern for putting up a plant for manufacturing of ReadyMix Concrete. The said M/s Ashoka Buildcon Ltd. would supply ReadyMix Concrete required by the assessee for the construction of itsschool building on priority and at concessional rates. It was foundthat at the relevant time in the nearby area no such plant was there Pg 7 of 8 18.itxa.882.2016.doc 9In the present case, the Tribunal found that the assesseetrust had entered into an agreement with said M/s Ashoka BuildconLtd. under which the assessee handed over the possession of land tothe said concern for putting up a plant for manufacturing of ReadyMix Concrete. The said M/s Ashoka Buildcon Ltd. would supply ReadyMix Concrete required by the assessee for the construction of itsschool building on priority and at concessional rates. It was foundthat at the relevant time in the nearby area no such plant was there Pg 7 of 8 18.itxa.882.2016.doc from which the assessee could have procured the material to carryout its construction activities unhindered. It was noticed that theReady Mix concrete was supplied with concessional rate. 10Thus on law as well as on facts, we do not think that theTribunal has committed any error. The decision of the Kerala HighCourt in the case of Annadan Trust(supra) was rendered insomewhat different facts. The case in which the assessee trust wasengaged in implementing welfare schemes of various StateGovernments such as supplying food to poor school children in thedisbursed areas. The registration was cancelled by the Commissioneron the ground that the assessee failed to substantiate that the samewas done on charitable basis. 11In the result no question of law arises on the facts of thecase. Tax Appeals are dismissed. However, nothing stated in thisorder will prevent the department from carrying out the assessmentin accordance with law. (B.P.COLABAWALLA, J.) (AKIL KURESHI, J. ) Pg 8 of 8