NCDEX INSTITUTE OF COMMODITY MARKET AND RESEARCH,MUMBAI vs. DIT (E), MUMBAI

The brief facts of the case are that the assessee is a wholly owned subsidiary of National Commodity & Derivatives Exchange Limited (NCDEX), registered as a company which was incorporated as on 08.09.2007 under Sec. 25 of the Companies Act, 1956 (No. 1 of 1956). The assessee had been registered under Sec. 12AA(1)(b)(i) of the Income-tax Act, 1961 (for short ‘Act’) by the Director of Income-tax (Exemption), Mumbai, vide his order dated. 31.03.2009, w.e.f 01.04.2008. The main objects of the assesee as stands gathered from its ‘Memorandum of Association’ (Page 25 of ‘APB’) are:-

That a proposal was received by the DIT(Exemption), Mumbai, from the office of the ADIT(E)-II(2), Mumbai, therein recommending cancellation of registration granted to the assessee under Sec. 12AA, for the reason that it was carrying on activities in the nature of trade, commerce or business etc., and the gross receipts from the same were in excess of the stipulated limit of Rs. 10 lac as stood contemplated under the first proviso of Sec. 2(15). The DIT(Exemption) referring to the ‘Income & Expenditure A/c’ of the assessee therein observed that the latter had during the year earned income by way of running courses and franchisee fees of Rs. 18,56,401/-. The DIT(Exemption) being of the view that as the activities carried on by the assessee were in the nature of trade, commerce, business etc., therefore the assessee would be hit by the first proviso to Sec. 2(15), and as per the mandate of law it would be deemed that the assessee trust was not existing for a charitable purpose. The DIT(Exemption) in the backdrop of his aforesaid observations thus concluded that once it was held that the assessee was not for charitable purpose, then it would no more stand entitled for claim of exemption under Sec. 11 of the ‘Act’. The DIT(Exemption) thus being of the view that the assessee had become non-genuine for the purpose of Sec. 11, therefore proceeded with and P a g e | 3 passed an order under Sec. 12AA(3) and cancelled the registration granted to the assessee, w.e.f Assessment Year: 2009-10.

That the assessee being aggrieved with the order passed by the DIT(Exemption) under Sec. 12AA(3), therein cancelling the registration which was granted to it under Sec. 12AA(1)(b)(i), had thus carried the matter in appeal before us.

That during the course of the hearing of the appeal, the Ld. Authorized representative (for short ‘A.R’) for the assessee had assailed the order passed by the DIT(Exemption) under Sec. 12AA(3), for reasons, which are culled out as under:-

We have heard the Ld. Representatives of both the parties, perused the order of the DIT(Exemption), and the material placed on our record. We find that the DIT(Exemption) referring to the ‘Income & Expenditure A/c’ of the assessee had therein observed that the latter had earned income by way of running courses and franchisee fees of Rs. 18,56,401/-during the year. The DIT(Exemption) being of the view that as the earning of income by the assessee from running of courses and franchisee fees was in the nature of a systematic generation of income from activities which were in the nature of trade, commerce or business, therefore the assessee was hit by the first proviso of Sec. 2(15), and as a fall out of the same it was to be deemed that the assessee was not existing for a charitable purpose and had become non-genuine, and as such ineligible for claim of exemption under Sec. 11. Thus, in the backdrop of his aforesaid observations, the DIT(Exemption) holding that the assessee was no more existing for charitable purpose, and as such having become non-genuine, therefore, vide his order passed under Sec. 12AA(3) cancelled the registration granted to the assessee w.e.f Assessment Year: 2009-10.

We would now advert to the contentions of the assessee which have been raised before us in the backdrop of the findings of the DIT(Exemption). We are of the considered view that though Sec. 2(15) and Sec. 11 are inextricably interlinked and rather interwoven, however the same is to the limited extent that where the case of an assessee falls within the sweep of first proviso of Sec. 2(15), then the same would lead to exclusion of the activities from the definition of the term ‘Charitable purpose’ contemplated in Sec. 2(15), as a result whereof the assessee would stand disentitled for raising a claim under Sec.11. However, the same cannot be stretched to lead to an interpretation that on being hit by the first proviso of Sec. 2(15), the very continuation of the registration of the assessee would stand jeopardized, and on the said count would lead to cancellation/withdrawal of the registration granted to the assessee under Sec. 12A/12AA of the ‘Act’. We find substantial force in the contention of the Ld. A.R that even if an assessee is hit by the monetary limits contemplated under Sec. 2(15) w.e.f 01.04.2009, the same would only adversely affect the entitlement of the assessee towards claim of exemption during the year under Sec. 11 of the ‘Act’, however the same cannot lead to cancellation/withdrawal of registration granted to the assessee under Sec.12A/12AA of the ‘Act’. We are of the considered view that the circumstances which would lead to cancellation of the registration of a Trust are loudly spelt out in Sec. 12AA(3), which reads as under:-

We are of the considered view that in the absence of anything being provided in Sec. 12AA(3) that the registration granted under Sec.12A/12AA would stand cancelled/withdrawn where the assessee is hit by the first proviso of Sec. 2(15), we are thus unable to persuade ourselves to subscribe to the findings of the DIT(Exemption) who had concluded to the contrary and had cancelled the registration of the assessee on the said count. We are not oblivious of the settled position of law that while interpreting the scope and gamut of a statutory provision, no violence can be done to its plain literal interpretation in the garb of giving effect to the underlying legislative intent. Thus in case if we subscribe to the observations of the DIT(Exemption), who we can safely conclude had transposed and read into Sec. 12AA(3) the narrowed definition of ‘Charitable purpose’ as stands contemplated in Sec. 2(15) and therein broadened the scope of Sec. 12AA(3), then the same would tantamount to nothing less than assuming upon ourselves the powers of legislation, which we are afraid strictly and exclusively fall within the jurisdictional domain of the legislature. Thus to be brief and explicit, reading the scope of Sec. 12AA(3) in the manner done by the DIT(Exemption) would inescapably lead to distortion of the plain meaning of the said statutory provision, which P a g e | 7 would be in absolute violation of the basic rule of strict literal interpretation. We are further of the considered view that the purposive, conscious and intentional usage of the term ‘Previous year’ in the second proviso of Sec. 2(15), therein leaves no scope of doubt that on being hit by the provisions of Sec. 2(15), even the entitlement of the assessee towards claim of exemption u/s 11 would stand adversely effected only in the ‘Previous year’ in which the monetary parameters contemplated therein are found to have exceeded. Thus to be brief and explicit, an assessee on being hit by Sec. 2(15) would not lead to jeopardizing of the very existence of its registration u/s 12A/12AA. We find that our aforesaid view stands fortified by the order of the ITAT, ‘G’ Bench, Mumbai, in the case of : Ghatkopar Jolly Gymkhana, Mumbai Vs. DIT(E), Mumbai (ITA No. 882/Mum/2012), wherein it was held as under:-

We are thus of the considered view that now when it is neither the case of the revenue that the assessee which after verification of the genuineness of its objects and activities had been granted registration by the department u/s Sec.12AA(1)(b)(i), had during the year embarked on to any such new activities, which can safely be characterized as non-genuine activities, nor is it the claim of the revenue that the assessee subsequent to its registration is found to be carrying out activities which are not in accordance with its objects, therefore in the absence of satisfaction by the assessee of either of the aforesaid preconditions which forms the very foundation for exercising of the jurisdiction by the DIT(Exemption) for cancelling the registration of the assessee under Sec. 12AA(3), it can safely be concluded that the DIT(Exemption) had wrongly cancelled the registration of the assessee vide his order passed u/s 12AA(3) of the ‘Act’. We thus in light of our aforesaid observations thus set aside the order passed by the DIT(Exemption) u/s 12AA(3) and therein restore the registration granted to the assessee u/s Sec.12AA(1)(b)(i).

We may however clarify that as we have set aside the cancellation of the registration of the assessee by the DIT(Exemption) vide his order passed under Sec. 12AA(3), which was assailed before us by the assessee, therefore we refrain from adjudicating the issue as to whether the activities of the assessee, viz running courses and being in receipt of franchisee fees would be hit by the provisions of Sec. 2(15), or not, which thus is left open, and the assessee shall remain at a liberty to raise and contest the same before the A.O. Thus the ‘Ground of appeal No. 2’ is disposed of by us in terms of our aforesaid observations, and as such is partly allowed.

The appeal of the assessee is partly allowed in light of our aforesaid observations.