THE PRANSUKHLAL MAFATLAL HINDU SWIMMING BATH & BOAT CLUB TRUST,MUMBAI vs. DIT (E), MUMBAI

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ITA 558/MUM/2012Status: DisposedITAT Mumbai30 October 2015AY 2009-105 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the DIT(E) failed to record satisfaction on the two conditions precedent for cancellation of registration under Section 12AA(3): that the activities were not genuine or not carried out in accordance with the trust's objects. Therefore, the impugned order was set aside.

What were the facts?

The Director of Income Tax (Exemption) cancelled the registration of a swimming club under Section 12AA(3) of the Income Tax Act, 1961. This was based on the club receiving significant guest fees and fees from 'learn to swim' camps, which the DIT(E) considered business income exceeding the threshold under the proviso to Section 2(15).

What were the issues?

Whether the DIT(E) properly followed the conditions laid down in Section 12AA(3) for cancellation of registration, and whether the activities of the trust fell outside the scope of 'charitable purpose' due to business-like receipts.

Which sections of the Income-tax Act were involved?

Section 12AA(3),Section 12A,Section 2(15)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “C” BENCH, MUMBAI

Hearing: 15.09.2015Pronounced: 30.10.2015

आदेश / O R D E R PER PAWAN SINGH (JM) The assessee has filed this appeal challenging the order dated 16.12.2011 passed by Director of Income Tax (Exemption), Mumbai U/S 12AA(3) for withdrawal / cancellation of Registration u/s 12A of the Income Tax Act, 1961(the Act). On the following grounds of appeal:

1. The learned DIT(E) erred in law and on facts by holding that allowing the guests accompanied by members was an activity in the nature of trade, commerce or business and the fees received form guests amounting to Rs.35,57,960/- was in the nature of business income.

2. The learned DIT(E) erred in law and on facts in holding that learn to swim camps conducted by the appellant was an activity in the nature of trade, commerce or business and the fees received form learn to swim amounting to Rs.5,10,136/- was in the nature of business income.

3. The learned DIT(E) erred in law and on facts by holding that objects of your appellant trust are not ‘charitable purpose' under the proviso to section 2(15) of the Act and therefore the trust is not genuine.

4. The learned DIT(E) erred in law and on facts by not appreciating that the swimming and other sports activities conducted by the appellant trust can also be considered as an activity of 'education' and therefore the proviso to section 2(15) is not applicable.

5. The learned DIT(E) erred in law and on facts in making erroneous observation that registration was granted to us under section 12AA of the Act 6. The learned DIT(E) erred in law and on facts by cancelling the registration under section 12AA(3) of the Act 7. Without prejudice to above the learned DIT(E) erred in law and on facts in cancelling the registration with retrospective effect from A.Y.2009-10.

1.

The brief facts of the case as gathered from the material available on record are that a proposal was received from the LT.O.(E) 11(1), Mumbai for cancellation of registration granted to the assessee i.e. The Pransukhlal Mafatlal Hindu Swimming bath & Boat Club Trust, u/s.12A on the ground that the assessee has been carrying on activities in the nature of trade, commerce or business etc and gross receipts there-from are m excess of Rs. 10 lacs. Accordingly, the proviso to section 2(15) of the LT. Act, 1961 is attracted in the case from A.Y. 2009-10.

2.

A show cause notice vide office letter No.DIT(E)/ITO(HQ)/ Withdrawal/47/2011-12 dated 08.11.2011 was issued to the assessee as to why the registration as granted to it should not be withdrawn by invoking the provisions of section 12AA(3) of the IT. Act, 1961. The show cause contained the activities as carried out by the assessee which were in the nature of trade, commerce, business etc. during the A.Y.2009-10.

3.

In response to the notice the representative of assessee , appeared and, furnished his written submission vide their reply dated 01.12.2011 and discussed the case.

4.

After considering the reply of assessee the DIT(E), hold as under:

in the assessee's case there are receipts of huge amounts by way of Guest fees Rs.35,57,960/- and of business income and since these receipts are in excess of monitory limit as laid down in the aforesaid proviso, there is a clear cut contravention of the provisions of Section 2(15) r.w. proviso which has come into effect from A.Y. 2009-10. Once a charitable Trust/Institution hit by aforesaid proviso, then there is deeming provision that such entity shall not be for a charitable purpose, Hence, once the assessee Trust / Institution loases its charitable character then obviously there is change in the status of such assessee and it is no longer can be hold to be for charitable purpose. Once it is held that the assessee is not for charitable purpose then the trust itself becomes non genuine as it looses its public charitable status and accordingly the provision of Section 12AA(3) of the Act get attracted. Thus in view of the facts and circumstances as discussed above, I therefore, accordingly hold that the assessee trust has become non-genuine and the registration as allowed to it in earlier years u/s. 12AA is 'hereby cancelled/withdrawn w.e.f. A.Y. 2009-10 and the assessee trust is accordingly held as non charitable Trust/Institution.

5.

We have heard ld. AR of the assessee and DR for the revenue and perused the material available on record. The ld. AR of the assessee relied upon the judgment of Hon’ble Karnataka High Court reported vide (2015 taxmann.com 34 (Kar) titled as DIT(E) vs. Karnataka Industrial Area Development Board wherein the Hon’ble Karnataka High Court while dealing with the similar issue held as under: “A reading of the section 12AA(3) make it very clear, a registration granted, earlier under section 12A can be cancelled under two circumstances: (a) If the activities of the trust or the institution are not genuine,(b) the activity of the trust or the institution not being carried out in accordance with the object of the trust or the institution. Only on these two conditions being satisfied, the registration granted under section 12A could be cancelled by the authorities."

6.

Before us the preliminary objection raised is that DIT has invoked the power of cancellation provided in section 12AA(3) of the Act without complying in the prescribed condition.

7.

As we have seen, in the impugned order passed by ld. DIT(E), there is no recording of satisfaction that the activities of the assessee are not genuine and/or are not being carried out in accordance with the object of the trust, are totally missing, which are the only these two condition precedent for cancellation of registration u/s 12AA(3) of the Act. 8. Since the ld. DIT(E) while passing the impugned order on the proposal of ITO(E)-II(1),Mumbai as ignored the basic principle of law as laid down by Hon’ble Karnataka High Court, hence we set- aside the impungned order of DIT(E) dated. 16.12.2011 passed u/s 12AA of the Act and accept the appeal of the assessee. 9. In the result, the appeal of the assessee is treated as allowed. Pronounced in the open court on 30th October, 2015 घोषणा खुले �यायालय म� �दनांकः 30th October, 2015 को क� गई । Sd/- Sd/- (G.S. PANNU) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER मुंबई Mumbai: 30th October,2015. �न.स./ Sharwan,PS

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