Tca/450/2013 Of The Tamilnadu Cricket v. The Directorof Income Tax

IN THE HIGH COURT OF JUDICATURE AT MADRAS Dated : 21.10.2013 Coram The Honourable Mrs.Justice CHITRA VENKATARAMANandThe Honourable Mr.Justice T.S.SIVAGNANAM Tax Case (Appeal).No.450 of 2013and M.P.No.1 of 2013 --- The Tamil Nadu Cricket AssociationNo.5, M.A.Chidambaram StadiumVictoria Hostel RoadChepauk, Chennai-600 005 ... Appellant-vs- 1.The Director of Income Tax (Exemptions) No.121, Mahatma Gandhi Road Nungambakkam, Chennai-600 034 2.The Deputy Director of Income Tax Exemptions-I 121, Mahatma Gandhi Road Chennai-600 034 3.The Joint Director of Income Tax (Exemptions) 121, Mahatma Gandhi Road Nungambakkam, Chennai-34 ... Respondents Tax Case (Appeal) filed under Section 260A of the Income Tax Act,1961 against the order dated 22.02.2013 passed by the Income TaxAppellate Tribunal, 'B' Bench, Chennai in ITA.No.396(Mds)/2012against the Order of the Director of Income Tax [exemptions]M.G.Road, Nungambakkam, Chennai dated 29.12.2011 and made in DIT[E]No.2[424] 2002-03 / 11-12 against the show cause notice dated19.7.2011 in DIT[E] No.12ASA[3] TNCA/2010-11.For appellant : Mr.P.S.Raman, Senior counsel for Mr.P.R.RamanFor respondent : Mr.J.Narayanaswamy Standing Counsel for I.T.Department. J U D G M E N T (The Judgment of the Court was made byCHITRA VENKATARAMAN, J.) The assessee is on appeal as against the order of the Income TaxAppellate Tribunal and seeks admission of Tax Case (Appeal) on thefollowing substantial questions of law:- "1. Whether the Tribunal was right inupholding the cancellation of registration underSection 12AA(3) of the Income Tax Act, 1961 on theground that the activities of the appellant couldnot be said to be genuine after the amendment ofthe definition of 'charitable purpose' ? 2. Whether the Tribunal was right in law inholding that the activities of the appellant couldbe said to be "not genuine", when the appellantwas carrying on activities in accordance with itsobjects and similar to its activities in earlieryears, merely on account of the amendment to thedefinition of 'charitable purpose' in the Act ?3. Whether the Tribunal was right in notfollowing the decisions of the jurisdictional HighCourt and coordinate benches of the Tribunal, onthe ground that certain aspects had not been high-lighted before the Hon'ble High Court and thecoordinate Benches ?" 2. The assessee is a Society registered under the Tamil NaduSocieties Registration Act. The said Society was grantedregistration under Section 12AA of the Income Tax Act, 1961 on28.03.2003. As is evident from the reading of the Memorandum ofAssociation, the objects of the Association are as follows:-(a) to maintain a general control of the game of cricket in theState and the Union Territory of Pondicherry and give its decision onall matters concerning the game either when referred to or suo moto. (b) to spread the game throughout the State by organizingtournaments, including Inter-University, Inter-School and Inter-Association matches, to educate young sportsmen in the game generallyand also in the field of physical culture and the spirit ofsportsmanship. The benefits would be available to the General Publicirrespective of caste, creed, religion or sex. (c) to maintain a library of books, publications and periodicalsof interest of sportsmen and to diffuse knowledge of cricket and itsideals of sportsmanship. (d) to communicate with public authorities and various sportsorganizations in India and abroad and concert and promote measuresfor the development of the game and to provide social security safe https://hcservices.ecourts.gov.in/hcservices/ guards for the players, officials such as Managers, Coaches, Umpires,Selectors and others who are directly connected with the game. (c) to maintain a library of books, publications and periodicalsof interest of sportsmen and to diffuse knowledge of cricket and itsideals of sportsmanship. (d) to communicate with public authorities and various sportsorganizations in India and abroad and concert and promote measuresfor the development of the game and to provide social security safe https://hcservices.ecourts.gov.in/hcservices/ guards for the players, officials such as Managers, Coaches, Umpires,Selectors and others who are directly connected with the game. 3. Apart from this, yet another object is to afford requiredfacilities for the cricketers, officials such as Managers, Coaches,Umpires, Selectors and others who are directly connected with thegame, members to acquire by purchase, lease, hire or otherwisesuitable playgrounds, stadia and any other property, movable andimmovable, rights or privileges etc. 4. The objects further seek to impart physical education throughthe medium of cricket and take all steps to assist the citizens todevelop their physique and have a healthy mind and a healthy body; toestablish, promote or assist in establishing and promoting and tosubscribe to and become a member of any other Association or Clubwhose objects are similar or in part to the objects of theAssociation; to create, foster and maintain friendly relations withand among the population of the area under its control throughsports, tournaments and competitions connected therewith, to create,develop and foster a healthy spirit of sportsmanship and a broad andgenerous outlook devoid of all prejudices and to mould the characterof citizen through the medium of sports in general and cricket inparticular; to spread the ideals of cricket and all that it standsfor throughout the length and breadth of its area by arrangingschools for coaching, lectures, tournaments and run internationalmatches between India and other leading foreign countries so as todevelop mutual goodwill and better understanding between India andother countries; to collect funds and whenever necessary borrow withor without security for purposes of the Association and in particularby the issue of debentures or debenture stock perpetual or otherwisecharged upon all or any of the Association's property both or futureand to purchase, redeem or payoff any such securities and to utilisesuch funds in such manner as the General Body may consider desirablefor the fulfillment of the objects of the Association; to investmonies and funds of the Association as per the provisions of theIncome Tax Act, 1961; to maintain a panel of approved cricket umpiresand to do such acts as may be necessary for this purpose includingholding of prescribed periodical tests with a view to enable them toqualify themselves as first class umpires; to organise a propercoaching scheme for the benefit of cricketers in the City and in theDistricts under the supervision of coaches from India and abroad; totake such action as may be necessary to coordinate the activities ofaffiliated club, District Associations and institutions and theirmembers in relation to the Association and amongst themselves. 5. To achieve the objects, the assessee takes steps to arrange,supervise, regulate and finance visits of State teams or Foreignteams under the auspices of bodies like the Board of Control forCricket in India; to draw up and organise a proper coaching schemefor the benefit of young and promising cricketers within the State 5. To achieve the objects, the assessee takes steps to arrange,supervise, regulate and finance visits of State teams or Foreignteams under the auspices of bodies like the Board of Control forCricket in India; to draw up and organise a proper coaching schemefor the benefit of young and promising cricketers within the State and the Union Territory of Pondicherry, to draw up a scheme of netpractice whether free of charge or on payment for members ofaffiliated clubs, District Associations and for players selected torepresent the Association in various competitions within or outsideState, and to arrange for group coaching lectures, exhibition ofcricket films for this purpose, etc; to engage a person or persons asa professional or amateur cricket or cricketers and to payremuneration or honorarium to him or them; to start or sponsorcharity or benefit matches and/or to subscribe to funds for thebenefit of cricketers, coaches, umpires Staff of the Association ortheir families; to do all such other acts, deeds, and things as areincidental to or as the Association may deem conducive to theattainment of the objects of the Association. 6. After Considering the genuineness of these objects, as earlyas 2003 ,the assessee was granted registration as a Trust underSection 12AA of the Income Tax Act, 1961 (hereinafter called as the"Act"). However, on 19.07.2011. a notice was issued by the Directorof Income Tax (Exemptions) under Section 12AA(3) of the Act that thestatement of income and expenditure revealed that the assesseederived income from the following activities:- 1.Subscription 2.Rent for hiring cricket ground, rooms and premises 3.Fees for providing services to IPL 4.Income from advertisement 5.Subsidy from BCCI 6.Sale of ticket for conducting of matches 7.Restaurant and catering income etc.Thus, these receipts were held to be in the nature of trade orcommerce or business and hit by the proviso to Section 2(15) of theIncome Tax Act, 1961 (hereinafter called as the "Act"). In thecircumstances, notice was issued proposing to withdraw theregistration granted to the assessee under Section 12AA of the IncomeTax Act, 1961. 7. Immediately, on the receipt of the notice, the assesseereplied that the receipts were not in the nature of trade or commerceor business, since, the income of the assessee included interestincome earned from Fixed Deposits with Banks; subsidy from BCCI was avoluntary grant from the parent body for promotion and development ofthe game of cricket in Tamil Nadu; there was no commercial activityinvolved in the conduct of the IPL matches for which only subsidy wasreceived by the assessee from BCCI like other cricket associations;thus, the receipt of subsidy was not a payment for carrying on of anytrade, commerce or business; the TV subsidy was given to all StateAssociations and was part of the scheme of BCCI, being a voluntarydonation, there was no commercial character attached to thesereceipts; so too, the donations and contributions and the sale oftickets in conducting matches organised by BCCI. Pointing out thatthe Association was not running any canteen or restaurant,the assesse submitted that as far as fee for providing services to IPL isconcerned, the entire income from the sale of tickets belonged tothe franchisee, and therefore, there was no service rendered orcharges made by the assessee. 8. Referring to the satisfaction recorded as to the genuinenessof the objects of the association under the provision contained inSection 12AA of the Act, the assessee pointed out that thegenuineness of the objects of the trust, thus not being in questionand the objects of the trust thus remaining the same as before andthe activities also being in accordance with the objects of thetrust, there was no case made out for cancelling the Registration. submitted that as far as fee for providing services to IPL isconcerned, the entire income from the sale of tickets belonged tothe franchisee, and therefore, there was no service rendered orcharges made by the assessee. 8. Referring to the satisfaction recorded as to the genuinenessof the objects of the association under the provision contained inSection 12AA of the Act, the assessee pointed out that thegenuineness of the objects of the trust, thus not being in questionand the objects of the trust thus remaining the same as before andthe activities also being in accordance with the objects of thetrust, there was no case made out for cancelling the Registration. 9. After hearing the assessee, the respondent passed the orderunder Section 12AA (3) rejecting the claim of the assessee andthereby cancelling the registration as trust. 10. The Director of Income Tax (Exemptions) viewed that thoughBCCI confirmed the payment to the assessee on IPL matches as grant ofsubsidy , the same was not in the nature of grant. It was alsopointed out that most of the advertisements through TV telecastingare received by the BCCI, it being the apex body, thus the so calledsubsidy given by the BCCI is nothing but some sort of sharing of theadvertisement income on account of holding of international testmatches and ODI matches, due to which the BCCI has gathered hugeadvertisement income; thus, the nature of receipt, even though calledsubsidy by the assessee was necessarily in the nature of incomereceived by the activity of the assessee. 11. As regards the entrance fee charged, the the Director ofIncome Tax (Exemptions) held that the receipts out of IPL matches bygiving its ground for conducting those matches were commercial innature. 12. Referring to Section 12AA(3) read with Section 2(15) of theIncome Tax Act, 1961, the respondent/Director of Income Tax(Exemptions) viewed that even if the activities were carried on inaccordance with the arrangement with the other party, the activitiesbeing not charitable, it was hit by Section 12AA(3) of the Income TaxAct, 1961; thus it was held that the activities were not carried onin accordance with the objects of the trust; the activities not beingcharitable, the same could not be held to be genuine and theinstitution was not a charitable institution. Reading genuinenessinto the activities of the trust and looking at the the objects ofthe trust, the Director of Income Tax (Exemptions) held that"genuineness" was a term used only to find out whether theinstitution was charitable or not; thus once the institution washeld as not for charitable purpose, Section 12AA registration had tobe necessarily cancelled. In the circumstances, the registrationoriginally granted to the assessee stood cancelled with effect from 01.04.2009. 01.04.2009. 13. The assessee contended before the Income Tax AppellateTribunal that since its inception and the date of granting of theregistration under the Act, the objects of the Association everremained same and it has not undergone any change to question itsgenuineness. The assessee contended that the view of the Director ofIncome Tax (Exemptions) that the assessee was not carrying oncharitable activity as per Section 2(15) of the Act is erroneous inlaw; in any event, all that Section 12AA(3) of the Act prescribes forcancellation is the genuineness of the activities of the trust orthat the activities are not carried on in accordance with theobjects of the trust. The assessee contended that it conductsNational and International matches including the District League. Inaddition to the income arrived by sale of tickets, income out ofadvertisement revenue arising out of the telecast rights auctioned todifferent visual media, obtained from BCCI in India was distributedamong the different States in India and this is in the nature ofgrant/subsidy from BCCI which had been confined by BCCI. 14. The Income Tax Appellate Tribunal pointed out that thephysical play of cricket game was not the sole point which woulddecide as to whether the asssessee association was carrying on itsactivities as stated in the memorandum of association or theactivities were genuine or not. The Tribunal pointed out that theactivities were genuine; however the matches conducted did not go tothe extent of "advancement of any other object of general publicutility". The Tribunal also pointed out that the activities did notcome within the conceptual framework of charity, vis-a-vis theactivity of general public utility as given under Section 2(15) andthe activities were all commercial in character. Thus the matchesconducted were not conducted in accordance with the objects of theassociation and as explained in the proviso to the provision inSection 2(15). Thus, according to the Tribunal, when the assessee'scase was fully covered by the proviso, the proceedings taken underSection 12AA(3) were justified. Thus the Tribunal viewed that theprovisions under Section 12 AA (3) could not be read in disregard ofSection 2(15) first proviso. It further held that after theinsertion of first proviso to Section 2(15) of the Income Tax Act,1961, effective from 1st April, 2009, every activity on theadvancement of the general public utility to be called as for"charitable purpose" has to qualify itself as charitable activitywithin the meaning of the expression 'charitable purpose'. As such,the activities of the assessee could not be considered as for acharitable purpose. The Income Tax Appellate Tribunal pointed outthat the proviso inserted with effect from 01.04.2009 clearly pointedout that advancement of any other object of general public utilityshall not be a charitable purpose, if it involved the carrying on ofany activity in the nature of trade, commerce or business or anyactivity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration,irrespective of the nature of use or application, or retention, ofthe income from such activity. Considering the said amendment andlooking at the activities of the assessee, the Income Tax AppellateTribunal held that the conduct of the matches by cricket associationscould be nothing but in the nature of commercial ventures and theassessee was selling the game for the highest amount of revenue andthe effect and the thrust of the assessee was towards maximising therevenue. Citing IPL matches held and the manner of selection ofplayers, the Income Tax Appellate Tribunal held that the matches werebig game with big money involved; in the words of the Income TaxAppellate Tribunal, "In fact it is an entertainment industry byitself". It pointed out that 78% of the total receipts came out ofadvertisement revenue and in the background of the nature of activityundertaken, the entire activity of commercial nature were orientedtowards earning hyper profits and these activities contributed 86.5%of the receipts of the assessee in the Financial Year 2008-09. Inthis background, the Income Tax Appellate Tribunal referred to thedecision reported in 77 ITR 435 in the case of Bangalore Race ClubVs. Commissioner of Income Tax, which related to the case of horseracing and held the same could not be held to be of public utility orinterest. After referring to the decision of this Court reported in343 ITR 300 in the case of CIT Vs. Sarvodaya Ilakkiya Pannai,wherein, this Court considered the effect of Section 12AA(3) of theAct, the Income Tax Appellate Tribunal held that this Court had notconsidered the effect of Section 2(15) proviso and the necessaryfacts of the case relating to charitable purpose was not highlighted.It also referred to the decision of the Ahmedabad Bench-A renderedin the case of Gujarat Cricket Association Vs. DIT (Exemption) inITA.No.93(Ahd)/2011 dated 31.01.2012 as well as other decision of theNagpur Bench rendered in the case of M/s.Vidarbha Cricket AssociationVs. Commissioner of Income Tax-I, Nagpur in ITA.No.3/Nag/10 dated30.05.2011, which were against the similar rejection order passed andreversed by the Income Tax Appellate Tribunal and held that theseorders had considered only the physical aspect of the cricket gamepromoted by the assessee; however, all the assessee's activitiescentered around the celebrated game of cricket. 15. As far as on the crucial question of general public utilitywas concerned, the Income Tax Appellate Tribunal held that theactivities of the assessee are all commercial activities. The IncomeTax Appellate Tribunal held that the activities of the associationare not in the nature of activities for advancement of any object ofgeneral public utility; consequently, the appeal has to be dismissed.The Income Tax Appellate Tribunal upheld the rejection order passedunder Section 12AA of the Income Tax Act. The Income Tax AppellateTribunal further viewed that there was no conflict between the firstproviso to Section 2(15) of the Act and the conditions laid downunder Section 12AA(3) of the Act for cancelling the registration;thus, when the assessee's case is hit by Section 2(15) of the Act, consequential action is automatic to pass an order under Section 12AA(3) of the Income Tax Act, 1961. It further pointed out that whenthe assessee was given registration originally, it was on the groundthat it was a charitable institution inasmuch as it engaged itselfin the advancement of an object of general public utility; however,when the Revenue had found the assessee's activities were orientedtowards generating income by converting the sport of cricket into acelebrated industry, the activities not being genuine, rightly, theRevenue had cancelled the registration granted under Section 12AA ofthe Income Tax Act, 1961. Aggrieved by the same, the present appealhas been preferred by the assessee. consequential action is automatic to pass an order under Section 12AA(3) of the Income Tax Act, 1961. It further pointed out that whenthe assessee was given registration originally, it was on the groundthat it was a charitable institution inasmuch as it engaged itselfin the advancement of an object of general public utility; however,when the Revenue had found the assessee's activities were orientedtowards generating income by converting the sport of cricket into acelebrated industry, the activities not being genuine, rightly, theRevenue had cancelled the registration granted under Section 12AA ofthe Income Tax Act, 1961. Aggrieved by the same, the present appealhas been preferred by the assessee. 16. Learned Senior counsel appearing for the assessee took usthrough the various objects of the Association and pointed out to theclear distinct words used in Section 12AA(1) and 12AA(3) of the Actas well as the first proviso to Section 2(15) of the Act and pointedout that the grant of registration originally as early as 2003clearly pointed out the satisfaction of the authorities that theassessee was public charitable trust under Section 12AA of the Act.Referring to Section 12AA (3) of the Act, he further pointed out thatthe cancellation of registration granted is possible only under thestated circumstances, viz., on the Commissioner recording hissatisfaction that the activities of the trust are not genuine or arenot being carried out in accordance with the objects of the trust orinstitution; thus unless and until the show cause notice issuedcontained the grounds and materials as prescribed under Section 12AA(3) of the Act, the question of cancellation of registration, per se,does not arise. 17. Learned Senior Counsel appearing for the appellant furtherpointed out that the appellant was granted registration under Section12AA of the Act only on the Commissioner satisfying himself on theobjects of the trust and the genuineness of the activities. Thenature of activity carried on by the assessee continues to be thesame without any change till this date and if any of the activitiescarried on by the assessee resulted in an income not incidental andnot connected with the main activity or main object of the Trust, itwould be a matter for assessment. Thus what has to be a subjectmatter for assessment cannot be considered as a ground for cancellingthe registration under Section 12 AA (3). 18. Taking us through Circular No.11 of 2008 of Central Board ofDirect Taxes dated 19.12.2008 issued immediately in the wake of theinsertion of proviso to Section 2(15) of the Income Tax Act, 1961,learned Senior counsel appearing for the assessee submitted that asis evident from the reading of the circular, the question ofrejection of registration under Section 12AA(3) would arise onlyin those cases where an entity uses this status of charitableinstitution with a charitable object of general public utility as amask or a device to hide the true purpose and that object is nothing other than trade, commerce or business or the rendering of anyservice in relation to trade, commerce or business; as far as thepresent case is concerned, Revenue has not substantiated with anymaterial to show the absence of genuineness; all that the Revenuealleges is by conduct of matches, it has exhibited a sense ofbusiness or commercial character. This according to the assessee isnot a good ground for cancelling the registration under Section 12AAof the Income Tax Act, 1961. other than trade, commerce or business or the rendering of anyservice in relation to trade, commerce or business; as far as thepresent case is concerned, Revenue has not substantiated with anymaterial to show the absence of genuineness; all that the Revenuealleges is by conduct of matches, it has exhibited a sense ofbusiness or commercial character. This according to the assessee isnot a good ground for cancelling the registration under Section 12AAof the Income Tax Act, 1961. 19. Going by the tenor of the language in Section 12AA(3) of theAct and Section 12AA(1) of the Act, the cancellation of theregistration under Section 12AA of the Income Tax Act, 1961 iswithout any substance. He further pointed out that when in a similarassessee's case viz., Gujarat Cricket Association Vs. DIT (Exemption)in ITA.No.93(Ahd)/2011 and in the case of M/s.Vidarbha CricketAssociation Vs. Commissioner of Income Tax-I, Nagpur the Income TaxAppellate Tribunal Ahmedabad Bench-A dated 31.01.2012 and inI.T.A.No.3/Nag/10 dated 30.05.2011 of the Nagpur Bench, respectivelyon the very same allegations for cancellation of registration underSection 12AA(3) had held that the cancellation of the registrationunder Section 12AA of the Income Tax Act, 1961 was contrary to law,the Chennai Bench of the ITAT ought to have followed these decisions,which were rendered as early as 2011 and 2012. He further pointedout to the unreported decision of this Court in the case of GowriAshram Vs. Director of Income Tax (Exemptions) in T.C(A).No.91 of2013 dated 29.04.2013 as well as 315 ITR 428 in the case ofCommissioner of Income Tax Vs. National Institute of AeronauticalEngineering Educational Society and submitted that they stand on adifferent line, they being the decisions rendered on the rejection ofthe application for registration. He also referred to the decisionof this Court reported in 343 ITR 300 in the case of CIT Vs.Sarvodaya Ilakkiya Pannai, wherein, under similar circumstances, thisCourt had held that when a trust is registered with definite objectsto carry on its activities and under Section 12AA of the Income TaxAct, 1961, the Commissioner is empowered to cancel registration onlyon two conditions laid down under Section 12AA(3) of the Income TaxAct, 1961. He further pointed out that whether the income derivedfrom such transaction would be assessed to tax or whether the trustwould be entitled to exemption under Section 11 of the Income TaxAct, 1961 are entirely matters to be considered at the time ofassessment. Thus, placing reliance on the decision of this Courtreported in 343 ITR 300 (CIT Vs. Sarvodaya Ilakkiya Pannai), learnedSenior Counsel appearing for the assessee submitted that the IncomeTax Appellate Tribunal committed serious error in upholding therejection order passed by the Director of Income Tax (Exemptions). 20. Countering the claim made by the learned Senior Counselappearing for the assessee, learned Standing counsel appearing forthe Revenue, however, submitted that the condition for continuance ofthe registration depends on the satisfaction of the conditions given https://hcservices.ecourts.gov.in/hcservices/ 20. Countering the claim made by the learned Senior Counselappearing for the assessee, learned Standing counsel appearing forthe Revenue, however, submitted that the condition for continuance ofthe registration depends on the satisfaction of the conditions given https://hcservices.ecourts.gov.in/hcservices/ under the definition of ‘charitable purpose’ laid down under Section2(15) of the Act; when the assessee's activities do not go hand inhand with the objects of the assessee's assessment, rightly, theRevenue had cancelled the registration. He further pointed out thatat the time of grant of registration, the Commissioner is empoweredto look into the objects of the trust, for the purpose of grant ofregistration. However, after granting registration, if the Revenuefinds that the activities of the trust are not genuine and that theadvancement of the object of the general public utility is not interms of the objects of the trust and that the objects are in thenature of carrying on trade, commerce or business, the grant ofregistration originally given may be cancelled; thus, rightly, theregistration was cancelled, hence, no exception could be taken to theorder of the Income Tax Appellate Tribunal. 21. Heard learned Senior counsel appearing for the assessee andlearned Standing counsel appearing for the Revenue and perused thematerials available on record. 22. We had already extracted in the preceding paragraph, theobjects of the association. Going by the objects , we find that thetrust falls under the head of "any other object of general publicutility" and hence falls within the meaning of charitable purposeunder Section 2(15) of the Act. Section 2(15) of the Act defines"charitable purpose" as it originally stood at the time of grant ofregistration as under:- " 'charitable purpose' includes relief of the poor,education, medical relief and the advancement of any otherobject of general public utility." 23. Section 2(15) was amended under Finance Act,2008, with effectform 1.4.2009 by substituting the following provision which reads sunder: "2. Definitions..... (15) "charitable purpose" includes relief ofthe poor, education, medical relief, preservation ofenvironment (including waterheds, forests andwildlife) and preservation of monuments or places orobjects of artistic or historic interest, and theadvancement of any other object of general publicutility. Provided that the advancement of any other object ofgeneral public utility shall not be a charitablepurpose, if it involves the carrying on of anyactivity in the nature of trade, commerce orbusiness, or any activity of rendering any servicein relation to any trade, commerce or business, for a cess or fee or any other consideration,irrespective of the nature of use or application, orretention, of the income from such activity;) "2. Definitions..... (15) "charitable purpose" includes relief ofthe poor, education, medical relief, preservation ofenvironment (including waterheds, forests andwildlife) and preservation of monuments or places orobjects of artistic or historic interest, and theadvancement of any other object of general publicutility. Provided that the advancement of any other object ofgeneral public utility shall not be a charitablepurpose, if it involves the carrying on of anyactivity in the nature of trade, commerce orbusiness, or any activity of rendering any servicein relation to any trade, commerce or business, for a cess or fee or any other consideration,irrespective of the nature of use or application, orretention, of the income from such activity;) 24. Section 2(15) as it stood prior to 1983 defined 'charitablepurpose' to include relief of the poor, education, medical relief,and the advancement of any other object of general public utility notinvolving the carrying on of any activity for profit. The phrase "notinvolving the carrying on of any activity for profit" was omittedfrom the Section by the Finance Act 1983, with effect from01.04.1984, consequent on the amendment to Section 11, where underprofits and gains of business in the case of charitable or religioustrust and institutions would not be entitled to exemption under thatSection, except in cases where the business fulfilled the conditionsunder Section 11 (4). The Section was once again amended bysubstitution in the year 2008 under the Finance Act, 2008, witheffect from 01.04.2009, streamlining the definition of 'charitablepurpose', considering the fact that taking advantage of the phrase'advancement of any other object of general public utility', numberof entities operating on commercial lines claimed exemption on theirincome either under Section 20(23c) or under Section 11 of the Act.Thus, to limit the scope of this expression, Section was amended inthe year 2008 that the advancement of any other object of generalpublic utility shall not be a charitable purpose, if the objectinvolved the carrying on of any activity in the nature of trade,commerce or business, or any activity of rendering any service inrelation to any trade, commerce or business, for a cess or fee or anyother consideration, irrespective of the nature of use orapplication, or retention, of the income from such activity. Thoughthe section as it stood prior to the substitution in 2008 containedno provision as in the proviso under the 2008 amendment, yet theSupreme Court held that that if the primary or dominant purpose of atrust or institution is charitable, another object which by itselfmay not be charitable but which is merely ancillary or incidental tothe primary or dominant purpose would not prevent the trust orinstitution from being a valid charity: vide CIT v. Andhra Chamber ofCommerce [1965] 55 ITR 722 (SC) (referred to in the decision reportedin (1980) 121 ITR 1(Addl. Commissioner of Income-tax v. Surat ArtSilk Cloth Manufacturers Association). Thus if the dominant object orthe primary object was charitable, the subsidiary object for thepurpose of securing the fulfillment of the dominant object would notmilitate against its charitable character and the purpose would notbe any the less charitable. The amendment in the year 2008 made adrastic amendment to deny the status of a charitable purpose to aninstitution with the object of general public utility, having anyactivity in the nature of trade, commerce or business, or anyactivity of rendering any service in relation to any trade, commerceor business, for a cess or fee or any other consideration. 25. Proviso to Section 2(15) of the Income Tax Act states that ifthe objects involve the carrying on any activity in the nature oftrade, commerce or business, for a cess or fee or any otherconsideration, irrespective of the nature of use or application, orretention, of the income from such activity, the status of theinstitution will not be one for 'charitable purpose'. 26. The Central Board of Direct Taxes, in paragraph 3.2 pointedout to the scope of the circular as under:-" In such a case, the object of 'general publicutility' will be only a mask or a device to hide thetrue purpose, which is trade, commerce or business orthe rendering of any service in relation to trade,commerce or business. Each case would, therefore, bedecided on its own facts and no generalization ispossible. Assessees, who claim that their object is'charitable purpose' within the meaning of Section 2(15), would be well advised to eschew any activitywhich is in the nature of trade, commerce or businessor the rendering of any service in relation to anytrade, commerce or business." 27. Thus, the anxiety of the Parliament in introducing theproviso to Section 2(15) of the Act is only to check thoseinstitution, which attempt to gain exemption under the cloak of atrust. 28. Section 11 of the Act states that income from property heldfor religious or charitable purposes shall not be included in thetotal income of the previous year. Section 12 deals with income oftrusts or institutions from contributions. Section 12A deals withmaking application for registration of the trust/association so thatthe said institution will have the benefit of exemption under Section11 and 12 of the Act. 29. Section 12AA of the Act prescribes procedure forregistration. As per this, on receipt of the application forregistration, the Commissioner is to call for such documents orinformation from the trust or institution in order to satisfy himselfabout the genuineness of activities of the trust or institution. TheSection further empowers the Commissioner to make such enquiry as hedeems necessary in this regard. Once the Commissioner is satisfiedhimself about the objects of the trust or institution and thegenuineness of the activities of the trust, he has to pass an orderin writing registering the trust or institution; if he is not sosatisfied, he has to pass an order in writing refusing to registerthe trust or institution. 30. Section 12AA(3) of the Act inserted with effect from01.10.2004 under the Finance (No.2) Act, 2004 and the amendmentinserted by Finance Act, 2010, with effect from 01.06.2010 thereinempowering the Commissioner to cancel the registration granted underthe stated circumstances, reads as under:-Provision inserted under Finance Act, 2004:Section 12AA(3):- Where a trust or an institutionhas been granted registration under clause (b) of sub-section (1) and subsequently the Commissioner issatisfied that the activities of such trust orinstitution are not genuine or are not being carriedout in accordance with the objects of the trust orinstitution, as the case may be, he shall pass an orderin writing cancelling the registration of such trust orinstitution. Provided that no order under this sub-section shall bepassed unless such trust or institution has been givena reasonable opportunity of being heard. Provided that no order under this sub-section shall bepassed unless such trust or institution has been givena reasonable opportunity of being heard. 31. After amendment in the year 2010, Section 12AA(3) of theIncome Tax Act reads as follows:"Section 12AA(3):- Where a trust or an institutionhas been granted registration under clause (b) of sub-section (1) or has obtained registration at any timeunder section 12A as it stood before its amendment by theFinance (No.2) Act, 1996 (33 of 1996) and subsequentlythe Commissioner is satisfied that the activities of suchtrust or institution are not genuine or are not beingcarried out in accordance with the objects of the trustor institution, as the case may be, he shall pass anorder in writing cancelling the registration of suchtrust or institution:Provided that no order under this sub-section shall bepassed unless such trust or institution has been given areasonable opportunity of being heard." 32. Thus in contrast to Section 12AA(1)(b) of the Income Tax Act,1961, where the grant of registration requires satisfaction about theobjects of the trust as well as genuineness of the activities, forthe cancellation of the registration under Section 12AA(3), all thatit is insisted upon is the satisfaction as to whether the activitiesof the trust or institution are genuine or not and whether theactivities are being carried on in accordance with the objects ofthe trust. Thus, even if the trust is a genuine one i.e., theobjects are genuine, if the activities are not genuine and the samenot being carried on in accordance with the objects of the trust,this will offer a good ground for cancellation. Thus, in every case,grant of registration as well as cancellation of registration rests on the satisfaction of the Commissioner on findings given on theparameters given in Section 12AA(1) and 12AA(3) of the Act, as thecase may be. 33. Registration of the trust under the Act, confers certainbenefits from taxation under the provisions of the Act. Theconditions under which the income of the trust would be exemptedunder the provisions of the Act are clearly laid down under Section11 as well as in Section 12 of the Act. Section 11 of the Actspecifically points out the circumstances under which income of thetrust is not to be included in the total income of the previous yearof the person. So too, Section 12 of the Act on the income derivedfrom property held for charitable or religious purposes. 34. Thus, when the assessee is in receipt of income fromactivities, which fits in with Sections 11 and 12 of the Act as wellas from sources which do not fall strictly with the objects of thetrust, would not go for cancellation of registration under Section12AA of the Act on the sole ground that the assessee is in receipt ofincome which does not qualify for exemption straight away by itself.All that ultimately would arise in such cases is the question ofconsidering whether Section 11 of the Act would at all apply toexempt these income from liability. These are matters of assessmentand has nothing to do with the genuineness of the activity or theactivities not in conformity with the objects of the trust. Asrightly pointed out by learned Senior counsel appearing for theassessee, as is evident from the reading of Circular No.11 of 2008dated 19.12.2008, the object of the insertion of first proviso toSection 2(15) of the Act was only to curtail institution, which underthe garb of 'general public utility', carry on business or commercialactivity only to escape the liability under the Act thereby gainunmerited exemption under Section 11 of the Act. 36. In the decision reported in (2012) 343 ITR 23 (Bom)(Sinhagad Technical Education Society V. Commissioner of Income Tax(Central), Pune & Anr), the Bombay High Court held as follows:"As a result of the amendment, which has been broughtabout by the Finance Act of 2010, Subsection (3) of Section12AA has been amended specifically to empower theCommissioner to cancel a registration obtained underSection 12A as it stood prior to its amendment by theFinance (No.2) Act, 1996. SubSection (3) was inserted intothe provisions of Section 12AA by the Finance (No.2) Act,2004 with effect from 1 October 2004. As it originallystood, under subsection (3), a power to cancel registrationwas conferred upon the Commissioner where a trust or aninstitution had been granted registration under clause (b)of subsection (1) of Section 12AA. The Commissioner, aftersatisfying himself that the objects of the trust or aninstitution are not genuine or are not being carried out in accordance with the objects of the trust or institution, asthe case may be, was vested with the power to pass an orderin writing cancelling the registration of such trust orinstitution. By the Finance Act of 2010, subsection (3) wasamended so as to empower the Commissioner to cancel theregistration of a trust or an institution which hasobtained registration at any time under Section 12A (as itstood before its amendment by the Finance (No.2) Act,1996). As a result of the amendment, a regulatoryframework is now sought to be put in place so as to coveralso a trust or an institution which has obtainedregistration under Section 12A as it stood prior to itsamendment in 1996. ...........power under Section 12AA(3) can be exercised by theCommissioner in respect of a trust registered prior to 1June 2010. The mere fact that a part of the requisites forthe action under Section 12AA (3) is drawn from a timeprior to its passing namely registration as a charitabletrust under Section 12A prior to 2010 would not make theamendment retrospective in operation. The amendment doesnot take away any vested right nor does it create newobligations in respect of past actions." 37. As already pointed out earlier, the question as to whetherthe particular income of trust is eligible for exemption underSection 12 of the Act is a matter of assessment and this Court hadpointed out in the decision reported in 343 ITR 300 in the case ofCIT Vs. Sarvodaya Ilakkiya Pannai, as under:- " In order to avail the benefit of exemption underSection 11 of the Income Tax Act, 1961, a Trust canmake an application to the Commissioner forregistration under Section 12A of the Income Tax Act,1961. On receipt of the said application forregistration of a trust or institution, theCommissioner should satisfy himself about thegenuineness of the activities of the trust orinstitution. In order to satisfy himself, theCommissioner may also make such enquiry as he may deemnecessary in that behalf. In the event theCommissioner satisfies himself that the trust isentitled to registration keeping in mind the objects,shall grant registration in writing in terms of Section12AA(1)(