GASS MEMORIAL CENTRE,RAIPUR vs. COMMISSIONER OF INCOME TAX ( EXEMPTION), BHOPAL

आयकर अऩीऱीय अधधकरण, रायऩुर न्यायऩीठ, रायऩुर IN THE INCOME TAX APPELLATE TRIBUNAL RAIPUR BENCH, RAIPUR श्री रविश सूद, न्याययक सदस्य एवं श्री अरुण खोड़वऩया, ऱेखा सदस्य के समक्ष । BEFORE SHRI RAVISH SOOD, JM & SHRI ARUN KHODPIA, AM आयकर अऩीऱ सं./ITA No.02/RPR/2019 (ननधाारण वषा / Assessment Year :2015-2016) Gass Memorial Centre, Vs CIT(Exemption), Bhopal Ground Floor, K.K. Road, Moudhapara, Raipur PAN No. : AABHG 3026 M (अऩीऱाथी /Appellant) (प्रत्यथी / Respondent) ..

ननधााररती की ओर से /Assessee by : Shri Kishore M. Deshpandey, CA राजस्व की ओर से /Revenue by : Shri P.K.Mishra, CIT-DR सुनिाई की तारीख / Date of Hearing : 01/08/2022 घोषणा की तारीख/Date of Pronouncement : 21/09/2022 आदेश / O R D E R Per Arun Khodpia, AM :

This appeal is filed by the assessee trust against the order passed by the CIT(E), Bhopal, dated 14.11.2018, for the assessment year 2015- 2016, on the following sole ground :- 1. On the facts and in the circumstances of the case, invoking provisions of Section 12AA(3) of Income Tax Act, 1961 and cancelling registration u/s.12AA granted to the assessee vide order dated 17.12.1976 with effect from A.Y.2015-16, is unjustified and unwarranted. 2. Brief facts of the case are that the assessee is a trust having registration u/s.12AA of the Act vide order dated 17.12.1976. The assessee trust is stated to be entrusted by “United Church of Northern India Trust Association” to make arrangement for maintenance and care of properties (Building, Land, Play Ground etc.) owned by it located at Raipur. The assessee trust is engaged in the activity of providing cheap accommodations, meeting halls, sports & games and conducting

2 ITA No.02/RPR/2019 programmes on grounds and other social programmes on rental basis. The activities of the Society were considered by the AO as well as Ld CIT(E) to be in the nature of advancement of any other public Utility as defined u/s 2(15) of the IT Act which is subjected to certain restrictions imposed under the proviso to the said section. The AO, during the course of assessment proceedings for AY 2015-16 u/s.143(3) of the Act alleged that the society is engaged in the activities covered by the proviso to Section 2(15) of the Act, consequently receipts from the activities by the assessee trust which were considered as generated by advancement of any other object of general public utility, were calculated and found to be in excess of 20% of the total receipt of the trust, resultantly, AO invoked provision of section 2(15) made disallowances accordingly. Thereafter, the CIT(E) on perusal of the activities of the assessee society has concluded that proviso to section 2(15) is applicable in the assessee trust and hence activities carried out by the assessee cannot be held as charitable activities for the purpose of public at large and therefore not entitle for registration u/s 12A. Therefore, registration of the trust U/s 12AA granted on 17.12.1976 was cancelled u/s 12AA(3) of the Act w.e.f. AY 2015-16. 3. Against rejection order of the CIT(E), the assessee is in appeal before the Tribunal. 4. Ld. AR before us submitted that the assessee trust is a social service organisation and a wing of the Church of North India. The assessee trust is providing cheap accommodation, halls for meetings,

3 ITA No.02/RPR/2019 sports and games, programs etc and ground for huge meetings, entertainment, sports at the most nominal charges. The properties consists of Building at Moudhapara, Raipur which is used for concessional occupancy of hostellers, use of hall for seminar/ conference, some part is on rent to Punjab & Sindh bank. One open ground is used for Sport and other activities. The society is earning is from rental income from properties held as beneficiary and care taker for the United Church Northern India Trust Association (UCNITA), Mumbai. The Society is carrying out charitable activity like computer training (education) conference & seminars (education), Games & Sports, Social education, Cultural & Literacy activity (education), several women camp expenses (education). It is also submitted by the Ld AR that activities of the assessee trust are not in the nature of trade or commerce hence even if the receipt from the activity of letting of the property are in excess of 20% of the gross receipts, the same are covered under Charitable purpose as defined u/s 2(15). The Ld AR also submitted the society was having surplus of only 6.46%, thus having such a meagre % of income, it cannot be considered as an activity for making profit or in the nature of trade or commerce. Facts of activity of the trust were elucidated by the Ld AR by mentioning that the trust is running a hostel / like dharmshala for poor people to proviode them with low cost accommodation at a per day room charge from Rs. 250/- to 500/- per day which is quite at concessional rates as compared to any hotels nearby, who are charging at Rs. 2000/- to Rs. 4000/- per day. With respect to cancellation of registration u/s 12A

4 ITA No.02/RPR/2019 by invoking provisions of section 12 AA(3) of the Act, the Ld AR submitted that Section 12AA(3) can be invoked, where the activities of the Trust/ Institution are not genuine or are not being carried out in accordance with the objects of the trust/ institution, as the case may be. In the case of assessee Society, the activities are genuine and clearly fall under the general public utility. The provisions of section 11 to 13 are fully complied by the Assessee society. Assessee trust is maintaining proper books of accounts and are duly audited. The objects of the trust also contains running of hostel to provide low cost accommodation and maintenance of properties. Therefore, the cancellation of registration of the assessee is unjustified and unwarranted, Order of the CIT(E) is thus liable to be set aside. 5. Ld. CIT-DR, on other hand, relied on the order of the CIT(E). Ld DR further drew our attention to the page 18 of paper book showing objects of the assessee society, alleged that the provisions of section 12AA(3) are rightly invoked since the activities carried out by the assessee trust are not covered by the objects the society. Ld CIT-DR further submitted that activities of the assessee society are very much in the nature of advancement of any other object of general public utility, the same shall not be considered to be for charitable purpose, involves the carrying on of any activity in the nature of trade, commerce or business or any activity 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 of the income from such activity, hence will be

5 ITA No.02/RPR/2019 directly hit by proviso of section 2(15) of the Act and therefore order of the Ld CIT(E) passed u/s 12AA(3) is just and proper and shall be upheld. 6. We have heard the rival contentions, perused the submissions and material available on record. 7. At this juncture, we deem it essential to draw meaning of charitable purpose explained u/s 2(15) of the Income Tax Act. The Charitable purpose under section 2(15) includes six parameters, which are:- (a) relief of poor (b) education (c) medical relief (d) preservation of environment (e) preservation of monuments and (f) the advancement of any other object of general public utility. 8. Regarding advancement of any other object of general public utility section 2(15) was amended vide Finance Act, 2008 by adding a proviso which states that the „advancement of any other object of general public utility‟ shall not be a charitable purpose if it involves the carrying on of – (a) any activity in the nature of trade, commerce or business; or (b) any activity 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 of the income from such activity. However, it is further amended in the act that this proviso shall not apply, if the aggregate value of the receipts from the activities referred to therein is Rs. 25 Lakh or less in the previous year upto 01.04.2016 and w.e.f. 01.04.2016 the aggregate receipt from such activity during the relevant previous years shall not exceed 20% of the total receipts.

6 ITA No.02/RPR/2019 9. In the present case since the activity of letting out of carried out by the assessee trust is not specifically mentioned under its objects and does not fall within the ambit of first 5 limbs, the same would be covered by the 6th limb of the definition of Charitable purpose u/s 2(15) of the Act i.e. advancement of any other object of general public utility. The activities identified by the Ld CIT(E) are that the trust is running a centre for sports, games, hostel and conducting programmes on its grounds and other social programmes, provide accommodations to people and charge rent on it. Ld Lower authorities have not alleged that the society is making profit from these activities. The trust is registered since 1976 since then regularly enjoying the benefit registration u/s 12A and exemptions available u/s 11&12 of the Act. The objects of the trust were also never considered as non charitable by the revenue before impugned assessment year 2015-16. The activities of society including providing accommodations at a very nominal charge to people cannot be considered as an activity for trade and commerce, these are incidental to the main objects of the trust necessary for survival of the assessee society in order to fulfil its objects. Genuineness of activities was also not doubted by the revenue authorities. In view of these facts, the activities of the trust, although, covered by provisions of section 2(15) of the Act as advancement of any other object of general public utility, but shall not be considered as non charitable as not involved in carrying on of any of the activity in the nature of trade, commerce or business, thus 2nd proviso to section 2(15) cannot apply in the present case.

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9 ITA No.02/RPR/2019 5] It is apparent from the record that the Commissioner has invoked its powers under Section 12(AA)(3) of the Act. The said powers are circumscribed by the limitations imposed under Sub Section 3 of Section 12AA of the Act. The Commissioner, nowhere has given the finding that the activities of the Respondent-institution are not genuine one or that the said activity carried out are not in consonance with the object of the institution. The Commissioner has merely relied on proviso to Sub-Section 2 of Section 15 of the Act, as it stood then. The said proviso has subsequently gone amendment. The CBDT Circular No.21 of 2016, dated 27th May, 2016, 6] has been considered by the Division Bench of this Court in case of Khar Gymkhana (supra). 7] Even considering the proviso, as it stood then, the case has not been made out so as to invoke Section 12AA(3) of the Act. The Tribunal as rightly considered the said aspect. 8] In view of that, the Appeal is bereft of any substantial questions of law. The Appeal as such is dismissed. No costs. 13. The Hon‟ble Bombay High Court in the case of DIT Vs. Khar Gymkhana, reported in [2016] 385 ITR 162 has held as under :- 6. At the very outset, the learned counsel for the respondent- assessee submitted that in view of the CBDT circular having Circular No. 21 of 2016 dt. 27th May, 2016 [(2016) 135 DTR (St) 161 : (2016) 286 CTR (St) 194], the Revenue cannot press this appeal. This submission is without prejudice to its submission that it is not carrying on any trade, commerce or business. For the present, it is submitted that even if it is assumed to be carrying o trade, commerce or business, the appeal cannot be pressed Revenue in view of the binding Circular No. 21 of 2016. 7. It would be appropriate to reproduce the above Circular No. 21 of 2016 in its entirety as under : "1. Secs. 11 and 12 of the IT Act, 1961 exempt income of charitable trusts or institutions, if such income is applied for charitable purpose and such institution is registered under s. 12AA of the Act. 2. Sec. 2(15) of the Act provides definition of 'charitable purpose'. It includes 'advancement of any other object of general public utility' provided it does not involve carrying on of any activity in the nature of trade, commerce or business etc., for financial consideration. The 2nd proviso to said section, introduced w.e.f. 1st April, 2009 vide Finance Act 2010, provides that in case where the activities of any trust or

10 ITA No.02/RPR/2019 institution is of the nature of advancement of any general public utility and it involves carrying on of any activity in nature of trade, commerce or business; but the aggregrate value of receipts from such commercial activities does not exceed Rs. 25,00,000 in the previous year, the purpose of such trust/institution shall be deemed as 'charitable' despite it deriving consideration from such activities. However, if the aggregate value of these receipts exceeds the specified cut-off, the activity would no longer be considered as charitable and the income of the trust/institution would not be eligible for tax exemption in that year. Thus, an entity pursuing advancement of object of general public utility, could be treated as a charitable institution in one year and not a charitable institution in the other year depending on the aggregate value of receipts from commercial activities. The position remains similar when the first and second provisos of s. 2(15) get substituted by the new proviso introduced w.e.f. 1st April, 2016 vide Finance Act, 2015, changing the cut-off benchmark as 20 per cent of the total receipts instead of the fixed limit of Rs. 25,00,000 as it existed earlier. 3. Temporary excess of receipts beyond the specified cut-off in one year may not necessarily be the outcome of alteration in the very nature of the activities of the trust or institution. Hence, s. 13 of the Act has been amended vide Finance Act 2012 by inserting a new sub-s. (8) therein to provide such organization would not get benefit of tax exemption in the particular year in which its receipts from commercial activities exceed the threshold whether or not the registration granted is cancelled. This amendment has taken effect retrospectively from 1st April, 2009 and accordingly, applies in relation to the asst. yr. 2009- 10 onwards. 4. In view of the aforesaid position, it is clarified that it shall not be mandatory to cancel the registration already granted under s. 12AA to a charitable institution merely on the ground that the cut-off specified in the provision (sic-proviso) to s. 2(15) of the Act is exercised in a particular year without there being any change in the nature of activities of the institution. If in any particular year, the specified cut-off is exceeded the tax exemption would be denied to the institution in that year and cancellation of registration would not be mandatory unless such cancellation becomes necessary on the ground(s) prescribed under the Act. 5. With the introduction of Chapter XII-EB in the Act vide Finance Act 2016, prescribing special provisions relating to tax on accreted income of certain trusts and institutions,

11 ITA No.02/RPR/2019 cancellation of registration granted under s. 12AA may lead to a charitable institution getting hit by sub-s. (3) of s. 115TD and becoming liable to tax on accreted income. The cancellation of registration without justifiable reasons may, therefore, cause additional hardship to an assessee institution due to attraction of tax liability on accreted income. The field authorities are, therefore, advised not to cancel the registration of a charitable institution granted under s. 12AA just because the proviso to s. 2(15) comes into play. The process for cancellation of registration is to be initiated strictly in accordance with s. 12AA(3) and 12AA(4) after carefully examining the applicability of these provisions." (emphasis, italicized in print, supplied) It is evident from the aforesaid Circular No. 21 of 2016 that the amendment to the definition of charitable purpose by adding of the proviso, would not ipso facto give jurisdiction to the CIT to cancel the Registration under s. 12AA(3) of the Act. 8. The jurisdiction to cancel the registration would only arise if there is any change in the nature of activities of the institution. The above circular clearly directs the authorities not to cancel the registration of the charitable institution just because the proviso to s. 2(15) of the Act comes into play as receipts are in excess of Rs. 25 lakhs in a year. It also refers to s. 13(8) of the Act which provides that where the receipts on account of commercial activities is in excess of the limit of Rs. 25 lakhs provided in second proviso to s. 2(15) of the Act, then the AO would deny the benefit of registration as a trust for the subject assessment year while framing the assessment. 9. In response, Mr. Malhotra, learned counsel appearing for the Revenue in respect of the appeal, submits that the aforesaid Circular dt. 27th May 2016 is to be read as a whole and on so reading, it would be evident that IT Department has jurisdiction to cancel the registration whenever receipts from commercial activities have exceeded Rs. 25 lakhs. Learned counsel further submits that the aforesaid circular would have application only prospectively as it was issued consequent to Finance Act, 2016 which changed the cut-off from Rs. 25,00,000 to 20 per cent of the total receipts in respect of its commercial activities. It is also submitted that looking at the quantum of receipts on account of commercial activities it is unlikely/improbable that in the subsequent assessment year, the receipts are to fall below Rs. 25 lakhs. Therefore, the CIT is entitled to cancel the registration under s. 12AA(3) of the Act. 10. We find that the Circular No. 21 of 2016 when read as whole, specifically lists out in paras 4 and 5 reproduced hereinabove that the registration granted under s. 12AA could not be cancelled, only

12 ITA No.02/RPR/2019 when the receipts on account of business exceeded the cut-off, specified in the proviso to s. 2(15) of the Act. The jurisdiction to cancel the registration only arises if there is change in the nature of activities of the institution or the activities of the institution, are not genuine. The aforesaid circular by placing reliance upon s. 13(8) of the Act inter alia provides that the registration granted to the trust would continue even when the receipts on account of business is in excess of Rs. 25 lakhs. In such case, the AO while framing the assessment for the subject assessment year would be entitled to deny the benefit of exemption to such a trust for that year. 11. The submission made on behalf of the Revenue that the Circular No. 21 of 2016 would have only prospective effect in respect of assessment made subsequent to the amendment under s. 2(15) of the Act w.e.f 1st April, 2016 is also not sustainable. The amendment in s. 2(15) of the Act brought about by Finance Act, 2016 w.e.f. 1st April 2016, is essentially that where earlier the receipts in excess of Rs. 25 lakhs on commercial activities would exclude it from the definition of 'charitable purpose' is now substituted by receipts from commercial activities in excess 20 per cent of the total receipts of the institution. In the above view, Circular No. 21 of 2016 directs the officer of the Revenue not to cancel registration only because the receipts on account of business are in excess of the limits in the proviso to s. 2(15) of the Act would also apply in the present case. The impugned order has held that cancellation of a registration under s. 12AA(3) of the Act, can only take place in case where the activities of trust or institution are not genuine and/or not carried on in accordance with its objects. The aforesaid Circular No. 21 of 2016 is in line of the finding of the Tribunal in the impugned order. The submission on behalf of the Revenue that the Trust is not genuine because it is hit by proviso to s. 2(15) of the Act, is in fact, negatived by Circular No. 21 of 2016. In fact, the above Circular No. 21 of 2016 clearly provides that mere receipts on account of business being in excess of the limits in the proviso would not result in cancellation of registration granted under s. 12AA of the Act unless there is a change in nature of activities of the institution. Admittedly, there is no change in nature of activities of the institution during the subject assessment year. The further submission on behalf of the Revenue that looking at the quantam of receipts on account of commercial activities, it is unlikely/improbable that in the subsequent assessment years, the receipts would fall below Rs. 25 lakhs and therefore, the CIT is entitled to cancel the registration. The aforesaid submission made on behalf of the Revenue is based not on facts as existing but on probability of future events. We are unable to accept the submission based on clairvoyance. Further, we are unable to understand what prejudice is caused to the Revenue since whenever the receipts on

13 ITA No.02/RPR/2019 account of commercial activities is in excess of he limits provided in proviso to s. 2(15) of the Act, the AO is mandated/required to deny exemption under s. 11 of the Act as provided in Circular No. 21 of 2016 dt. 27th May, 2016. Accordingly, the issue stands covered in favour of the Revenue by virtue of Circular No. 21 of 2016. 12. In view of the issue being covered by the CBDT Circular No. 21 of 2016, no grievance against the impugned order can be made by the Revenue. Therefore, the question as framed becomes academic and does not give rise to any substantial question of law.