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Income Tax Appellate Tribunal, ‘A’ BENCH: BANGALORE
Before: SHRI N.V.VASUDEVAN & SHRI ABRAHAM P.GEORGE
Per ABRAHAM P. GEORGE, AM: In this appeal, filed by the assessee, it is aggrieved that the Director of Income-tax(Exemption)[‘DIT(E)’ for short] cancelled the registration given to it u/s 12A of the Income-tax Act, 1961 [hereinafter referred to as 'the Act' for short] invoking powers vested on him under sec.12AA of the Act.
Facts apropos are that the assessee, a statutory body formed by the Government of Karnataka for promoting and
ITA No.12/Bang/2012 Bangalore Development Authority Page 2 of 9 securing the development of Bangalore metropolitan area, was granted registration u/s 12A of the Act on 26/3/2003 based on an application filed by it. On 15/3/2011 the ld.DIT(E) issued a show cause notice to the assessee seeking reasons why the registration should not be revoked in view of the amendment made to sec.2(15) of the Act. The reply of the assessee was that its activities fell within the definition of charity viz., relief of poor, education, medical relief and advancement of any other object of general utility. As per the assessee, its predominant object was to secure a balanced development of Bangalore metropolitan area and it was having functions which were otherwise the duty of the State Government. The assessee pointed out that a registration granted under section 12A could be cancelled only if the activities of the assessee were not genuine or if the activities were not carried out in accordance with the objects.
However, the DIT(E) was not impressed by the above reply. According to him, objects of BDA were hit by proviso to sec.2(15) of the Act as amended w.e.f. 1/4/2009. As per the ld.DIT(E), the assessee was also involved in commercial activities like development of shopping complex. Ld.DIT(E) noted that the assessee had receipts of Rs.12,083/- lakhs on sale of houses/sites. The assessee was also conducting auctions of the sites. These activities had no element of charity as per the ld.DIT(E). Ld.DIT(E) also noted from schedule 15 of the Income & Expenditure Account filed by the assessee that it had various
ITA No.12/Bang/2012 Bangalore Development Authority Page 3 of 9 receipts totaling to Rs.25,563/- lakhs in financial year 2008-09. Ld.DIT(E) also did not accept the contention of the assessee that it was doing the work of a department of Government of Karnataka. Ld.DIT((E) thus held that the assessee was not eligible to enjoy the exemption u/s 11 of the Act. He cancelled the registration granted to the assessee u/s 12A of the Act w.e.f assessment year 2009-10.
Now before us, the ld.AR strongly assailing the order of the ld.DIT(E), reiterated the contentions taken by him before the ld.DIT(E). Reliance was placed on the judgment of the Hon’ble jurisdictional High Court in the case of Director of Income- tax(Exemption) vs. Karnataka Industrial Area Development Board (Income-tax Appeal No.261/2013 dated 7/11/2014). According to him, the Hon’ble High Court had held that the Karnataka Industrial Area Development Board, which was also having substantial receipts in the nature of sale of application Form, Water supply charges, Recovery of fine etc., was still eligible for registration u/s 12A of the Act. According to him, their Lordships held that only if the two conditions mentioned in sec.12AA of the Act were met, a registration granted u/s 12 of the Act could be cancelled. Both the conditions were not met. Per contra, learned Departmental Representative supported the order of the ld.DIT(E).
We have perused the order of the ld.DIT(E). It is not disputed that the assessee has substantial other receipts about
ITA No.12/Bang/2012 Bangalore Development Authority Page 4 of 9 Rs.25,563/- lakhs and also income from sale and auction of houses/sites. It is also not disputed that the BDA is an authority set up by the State Government with primary object of designing the layouts and securing the development of Bangalore metropolitan area. The ld.DIT(E) had cancelled the registration granted to the assessee on 26/3/2003 for a reason that it was hit by the proviso to sec.2(15) of the Act which came in by virtue of substitution of sec.2(15) of the Act by the Finance Act, 2008 w.e.f.1/4/2009. We find that in the case of Karnataka Industrial Area Development Board (supra) also, the ld.DIT(E) had cancelled the registration granted u/s 12A of the Act for the same reason. The said Board was also having substantial receipts in the nature of sale of application Form, recovery of fines and penalties, rent receipt, water supply charges, gain on disposal of land, forfeiture of deposit and interest. Their Lordships, on an appeal filed by the Revenue against the order of the Tribunal, wherein it had set aside the cancellation of registration held as under at paras.2 to 9 of its judgment dated 7/11/2014: “2. The assessee, Karnataka Industrial Area Development Board, (for short hereinafter referred to as ‘KIADB’) was granted registration under Section 12A of the Act vide order dated 20.6.1988 passed by the Commissioner of Income Tax (Exemption). A notice was issued to the assessee under Section 12AA(3) of the Act calling upon to show cause as to why the said registration should not be cancelled on the ground that case falls under first proviso to Section 2(15) of the Act. The assessee appeared, contested the matter. The authorities took note of the fact that the accounts for the year ended 31.3.2009 shows receipts by way of gain on disposal of land to the extent of Rs.18,69,72,000/- and excess of income over expenditure at Rs.155,76,64,004. An extract of the Income and Expenditure account for the financial year 2008-09 is reproduced as under:
ITA No.12/Bang/2012 Bangalore Development Authority Page 5 of 9 INCOME AND EXPENDITURE ACCOUNT FOR THE YEAR ENDED 31.3.2009
EXPENDITURE Rs. INCOME Rs. To repairs and By sale of application maintenance 76,18,544 forms 1,11,91,886 Administrative Recoveries of fines expenses 15,42,79,785 and penalties 7,01,51,481 Water and electricity charges 10,61,92,021 Interest received 1,31,17,52,356 special and other charges 9,43,78,709 Other receipts 14,16,03,730
Depreciation 63,04,074 Rent received 1,92,90,492
Forfeiture of deposits 1,12,40,038 Water supply charges 17,42,26,156 To Excess of income over by gain on disposal of expenditure 1,55,76,64,004 land 18,69,72,000
From the aforesaid figures, it is evident that the KIADB charges for every services it renders. Therefore, the authority was of the view, there is no element of charity or providing any services or industrial sites free of cost. After meeting all the expenses, KIADB has earned a net profit of Rs.155,76,64,004/-. Under various heads, KIADB has earned huge profit. Thereafter, taking note of the change in the definition of Section 2(15) of the Act, which came into effect from 1.4.2009, it was held that the activity carried on by the assessee is in the nature of trade, commerce or business or any activity of rendering any services in relation to trade, commerce or business and therefore, the consideration received irrespective of the nature of the use or application, or retention, of the income, from such activity would take the case out of Section 2(15) of the Act and therefore after referring to the various judgments relied on it, proceed to pass an order cancelling the registration granted under Section 12AA with effect from the assessment year 2009-10. Aggrieved by the said order, the assessee preferred an appeal to the Tribunal. The Tribunal relying on the judgment in the case of Karnataka Badminton Association in ITA No.1272/Bang/2011 held; the registration already granted under Section 12A cannot be revoked for the
ITA No.12/Bang/2012 Bangalore Development Authority Page 6 of 9 reason that the Charitable Trust or Institution pursuing of advancement of objects of general public utility carried on commercial activities and therefore as the conditions stipulated in Section 12AA(3) do not exists in this case, set aside the order of cancellation and registration of assessee under Section 12A of the Act. Aggrieved by the said order, revenue is in appeal. 4. This appeal is admitted to consider the following substantial questions of law: i). Whether the Tribunal was correct in holding that the assessee is entitled to continue registration under Section 12A of the Act, without appreciating the fact that, in view of the amendment to Section 2(15) of the Act, the activities carried on by the assessee were commercial in nature and therefore cannot be considered as charitable under Section 2(15) of the Income Tax Act? ii). Whether the Tribunal was correct in holding that Director of 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 institutions, without appreciating that clear finding is recorded holding activities of the assessee were not in accordance with the objects and the objects are amended without approval of the department and therefore, provisions of Section 12AA(3) of the Act were applicable and recorded a perverse finding? 5. Learned counsel for the revenue assailing the impugned order contended that the definition of charitable institution has undergone a change with effect from 1.4.2009. The activity carried on by the assessee is in the nature of trade, commerce or business or at any rate activity of rendering any services in relation to any trade, commerce or business and the aggregate value of the receipts from the said activities exceeds Rs.25,00,000/- and therefore, it squarely falls under the first proviso to Section 2(15) of the Act and therefore it ceases to be an institution for charitable purpose. Therefore, rightly the registration under Section 12A of the Act was cancelled which has been erroneously interfered with by the Tribunal. 6. Per contra, learned counsel appearing for the assessee contended, once a person is granted registration under Section 12A of the Act, the said benefit could be denied only if the case falls under Section 12AA(3) of the Act. Admittedly, the assessee’s case do not fall under that provision. Even if the activity carried on by the assessee ceases to be a charitable purpose in view of the amendment brought about to the definition of charitable
ITA No.12/Bang/2012 Bangalore Development Authority Page 7 of 9 purpose under Section 2(15) of the Act, that is a matter to be considered by the assessing authority to extend the benefit of exemption or not. Therefore he submits that, no case for interference is made out. 7. From the aforesaid facts and rival contentions, it is not in dispute that the assessee was granted registration under Section 12A of the Act. Now the said registration is cancelled by invoking the power conferred under Section 12AA(3) of the Act. Therefore, it is necessary to find out under what circumstances the registration granted earlier could be cancelled. Section 12AA(3) of the Act, reads as under: Section 12AA(3) [(3)Where a trust or an institution has been granted registration under clause (b) of sub-section (1) [or has obtained registration at any time under section 12A [as it stood before its amendment by the Finance (No. 2) Act, 1996 (33 of 1996) 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 subsection shall be passed unless such trust or institution has been given a reasonable opportunity of being heard.] 8. A reading of the aforesaid provision makes it very clear, a registration granted earlier under Section 12A of the Act can be cancelled under two circumstances; (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. Only on those two conditions being satisfied, the registration granted under Section 12A of the Act could be cancelled by the authorities. 9. It is not in dispute that there is no violation of the said two conditions by the assessee. The activities carried on by the assessee is a genuine one. As could be seen from the profits they have generated, the said profit is earned by carrying on the activities in accordance with the object of the trust. Therefore, the two conditions stipulated in subsection (3) of Section 12AA of the Act, which empowers the authority to cancel registration, do not exists in this case. The registration granted is cancelled in view of the amendment of first proviso to Section 2(15) of the Act. That is not a ground specified in the Statute for cancellation of the registration. In fact, sub-section(8) to
ITA No.12/Bang/2012 Bangalore Development Authority Page 8 of 9 Section 13 which is introduced by Financial Act, 2012 which came into effect from 1.4.2009 categorically provides that, nothing contained in Section 11 or Section 12 shall operate so as to exclude any income from the total income of the previous year or any receipt there of. If the provisions of the first proviso to Clause 15 of Section 2 becomes applicable in the case of such person in the said previous year, the Statute has protected the interest of revenue. Not withstanding the fact that the assessee is conferred registration under Section 12A of the Act, unless the assessee falls within Section 2(15) of the Act, excluding the first proviso, the assessee would not be entitled to the benefit of exemption from the tax. If the case of the assessee falls with first proviso to Section 2(15) of the Act, the benefit of registration which flow from Section 12A of the Act is not available. Anyhow, that is a matter to be considered by the Assessing Authority. But on that ground, registration cannot be cancelled, which is precisely the Tribunal has held. In that view of the matter, we do not see any merit. The substantial questions of law are answered in favour of the assessee and against the revenue.”
We find that the assessee herein stands on a similar footing as Karnataka Industrial Area Development Board (supra). Therefore, the view taken by the Hon’ble jurisdictional High Court in the said case will apply here also. If the assessee falls within the first proviso to section 2(15) of the Act, the benefit of registration which flow from sec.12A of the Act, would not be available to it. However, as noted by their Lordships, this was a matter to be considered by the assessing authority and not a ground for cancellation of registration. We have, therefore, no hesitation to set aside the order of the ld.DIT(E).
ITA No.12/Bang/2012 Bangalore Development Authority Page 9 of 9 5. Appeal of the assessee stands allowed.
Pronounced in the open court on 10th April, 2015.
sd/- sd/- (N.V.Vasudevan) (Abraham P.Jeorge) JUDICIAL MEMBER ACCOUNTANT MEMBER eksrinivasulu Copy to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. 6. Guard file By order Assistant Registrar Income-tax Appellate tribunal Bangalore