THE DIRECTOR OF INCOME TAX vs M/S BOOK ROOM

IN THE HIGH COURT OF KARNATAKA AT BENGALURU

DATED THIS THE 23RD DAY OF SEPTEMBER 2020

PRESENT

THE HON’BLE MR. JUSTICE ALOK ARADHE

AND

THE HON’BLE MR. JUSTICE H.T.NARENDRA PRASAD

I.T.A. NO.659 OF 2013 BETWEEN:

THE DIRECTOR OF INCOME TAX (EXEMPTIONS), C.R. BUILDINGS QUEENS ROAD, BANGALORE-560001. ... APPELLANT (BY SRI. E.I. SANMATHI, ADV.,)

AND:

M/S. BOOK ROOM NO.2, MAHATMA GANDHI ROAD BANGALORE. ... RESPONDENT (BY SRI. MAHESH, FOR SRI. VANI H, ADV.) - - - THIS ITA IS FILED UNDER SECTION 260-A OF I.T. ACT, 1961 ARISING OUT OF ORDER DATED 08.08.2013 PASSED IN ITA NO.114/BANG/2012 FOR THE ASSESSMENT YEAR 2009-10, PRAYING THAT THIS HON’BLE COURT MAY BE PLEASED TO: (I) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN. (II) SET ASIDE THE COMMON APPELLATE ORDER DATED 08- 08-2013 PASSED BY THE ITAT, ‘B’ BENCH, BANGALORE IN APPEAL PROCEEDINGS ITA NO.114/BANG/2012 DATED 08-08-2013, AS SOUGHT FOR IN THIS APPEAL.

THIS ITA COMING ON FOR HEARING, THIS DAY, ALOK ARADHE J., DELIVERED THE FOLLOWING:

JUDGMENT

This appeal under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as the Act for short) has been preferred by the revenue. The subject matter of the appeal pertains to the Assessment year 2009-10. The appeal was admitted by a bench of this Court vide order dated 25.04.2014 on the following substantial question of law:

“Whether the Income Tax Appellate Tribunal was right in setting aside the order passed by the Director of Income Tax (Exemptions) under section 12AA(3) of the Act even when the said authority has passed the order within the parameters of said section and further as the activates of the assessee does not fall under the limb “Education” and given the fact that the assessee is not carrying on any activities which are charitable in nature, for the

purpose for which such registration was granted and its predominant activity is commercial in nature?”.

Facts leading to filing of the appeal briefly stated are that assessee is a Trust, which was constituted as per Trust deed dated 10.04.2000. The main object of the Trust is to procure and promote sale of all items of publications, audio / video cassettes, calendars, diaries, greeting cards, stationery items and other products of public interest. The assessee applied for registration under Section 12A(a) of the act and was granted the same vide order dated 22.08.2000. The Director of Income Tax (Exemption) on perusal of details of income and expenditure accounts filed by the assessee for the Assessment Years 2009-10 and 2010- 11 came to the conclusion that major portion of the receipts of the assessee are from commercial activities like sale of books, CDs and other items. The Director of Income Tax (Exemption) issued a notice under Section

12AA(3) of the Act to the assessee to show cause as to why the registration granted to it under Section 12A(a) of the Act be not cancelled. The Director of Income Tax (Exemption) by an order dated 20.12.2011 inter alia held that though the original registration of the Trust for wholly charitable trust, but the activities of the Trust are not for charitable purposes as per amended provisions of Section 2(15) of the Act. The Director of Income Tax (Exemption) vide order dated 20.12.2011 cancelled the registration of the assessee. Being aggrieved, the assessee filed an appeal. The Tribunal by an order dated 08.08.2013 set aside the order passed by the Director of Income Tax (Exemption) and allowed the appeal preferred by the assessee. In the aforesaid factual background, this appeal has been filed.

Learned counsel for the revenue has submitted that the activities of the Trust must fall within the expression ‘charitable purpose’ as defined under Section

2(15) of the Act and the Tribunal grossly erred in holding that even though the activities of the Trust are not covered by the main provision but are covered by the proviso, therefore, the activities of the Trust are charitable. It is also argued that the Director of Income Tax (Exemption) has rightly passed an order that the assessee does not carry on any charitable activity as it is engaged in selling books and CDs and the Tribunal grossly erred in interfering with the order of the Director of Income Tax (Exemption). In support of aforesaid submission, learned counsel for revenue has placed reliance on decision of this court in ‘SANUJEEVAMMA HANUMANTHE GOWDA CHARITABLE TRUST VS. DIRECTOR OF INCOME-TAX (EXEMPTIONS)’, (2006) 285 ITR 327 (KARN).

On the other hand, learned counsel for the assessee submitted that the definition of ‘charitable purposes’ in Section 2(15) of the Act includes any other

object of general public utility and the expression has a wide connotation. It is submitted that the condition precedent for invocation of power under Section 12AA(3) of the Act have not been fulfilled. It is further submitted that the order passed by the Director of Income Tax (Exemption) is per se bad in law.

We have considered the submissions made by learned counsel for the parties and have perused the record. Section 12AA(3) of the Act reads as under:

12AA(3)-Where a trust or an institution has been granted registration under clause (b) of sub-section (1) 6[or has obtained registration at any time under section 12A and subsequently the Commissioner is satisfied that the activities of such trust or institution are not genuine or are not being carried out in accordance with the objects of the trust or institution, as the case may be, he shall pass an order in writing cancelling the registration of such trust or institution:

Provided that no order under this sub- section shall be passed unless such trust or institution has been given a reasonable opportunity of being heard.

It is well settled legal principle that if the conditions in which power is to be exercised are also specified by the statute, then on fulfillment of those conditions only the power conferred becomes annexed with the duty to exercise the power in that manner. In this connection, reference may be made to the decision of the Supreme Court in THE OFFICIAL LIQUIDATOR VS. DHARTI DHAN (P) LTD. AIR 1977 SC 740 and INDIRA SAWHNEY & ORS. V. UNION OF INDIA AIR 1993 SC 477. In the light of aforesaid well settled legal principle, it is evident that power under Section 12AA(3) of the Act can be invoked only on fulfillment of the conditions viz., (a) if the activities of such trust or institution are not genuine (b) the activities of trust or institution not being carried out in accordance with the

object of the trust or institution. The Tribunal in paragraph 8.3 of the order has recorded a finding that the Director of Income Tax (Exemption) has no where recorded a finding with regard to aforesaid two conditions, which is a sine qua non for exercise of powers under Section 12AA(3) of the Act. Therefore, the Tribunal has rightly set aside the order passed by the Director of Income Tax (Exemption). In KARNATAKA INDUSTRIAL AREA DEVELOPMENT BOARD supra, it has been held that even if the case of the assessee falls with first proviso to Section 2(15) of the Act, the benefit of registration under Section 12A of the Act is not available. However, the aforesaid aspect has to be considered by the Assessing Officer and on this ground the registration cannot be cancelled.

In view of preceding analysis, the substantial question of law is answered accordingly.

In the result, the appeal fails and is hereby dismissed.

Sd/- JUDGE

Sd/- JUDGE ss

THE DIRECTOR OF INCOME TAX vs. M/S BOOK ROOM