Entertainment Society of Goa v. CIT

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The Tax PublishersI. T. A. No. 90/PNJ/2012 2013 TaxPub(DT) 1474 (Panaji-Trib) : (2013) 023 ITR (Trib) 0635 INCOME TAX ACT, 1961 --Charitable trust--Cancellation of registration under section 12AA(3) Charitable purpose as amended by Finance Act, 2008 with effect from 1-4-2009--Commissioner noted that assessee was granted registration under section 12A vide order dated 13-4-2006 on the basis of definition of charitable purpose as it exists under section 2(15) at that time. Subsequently, definition of 'charitable purpose' was amended by inserting therein proviso. In view of this, the Commissioner issued notice to assessee why registration granted should not be cancelled. Therefore, after hearing assessee and going through income and expenditure of assessee, he took the view that activities carried on by institution were in the nature of trade, commerce or business or rendering service in relation with trade, commerce or business which were more than Rs. 10 lakhs in each year and institution fell within the purview of amendment to section 2(15) Commissioner, therefore, cancelled the registration. *Held:* Was Justified. Activities carried on by the institution was in the nature of trade, commerce or business and contention of assessee was mainly that it is not carrying on any trade commerce or business for earning profit but the proviso does not talk of that as such, proviso to section 2(15) was therefore, clearly attracted with effect from 1-4-2009 and as such registration was rightly cancelled. It is essential for the assessee for the purpose of the registration under the Income Tax Act to prove that it has been established for charitable or religious purpose. It is not the case of the assessee-society that it is a religious society. Section 2(15) defines the 'charitable purpose'. This section was amended by the Finance Act, 2008. The Commissioner vide his order dated 13-4-2006 granted registration to the assessee institution as its objects were within the term 'the advancement of any other object of general public utility'. Subsequently, the definition of the charitable purpose has been amended by adding proviso. [Para 14] From the perusal of section 2(15) after the insertion of the proviso which is applicable only in the case where the assessee is engaged in the advancement of any other object of general public utility, the definition of 'charitable purpose' got amended. The proviso as is apparent clear states that the advancement of any other object of general public utility shall not be charitable purpose and subsequent to that it gives certain conditions if the institution fulfils those conditions as are stipulated in the proviso, the institution will not be regarded to have been engaged in the advancement of any other object of general public utility for the purpose of section 2(15) and will no longer remain to have been engaged in charitable purposes. In fact, this proviso puts an embargo on the institution that in case the institution falls within the proviso, it will no longer be regarded to have been engaged for charitable purpose even if it is engaged in the advancement of any other object of general public utility. The embargo states that if the institution is engaged in carrying on of any activity in the nature of trade, commerce or business or any activity or rendering any service in relation to any trade, commerce or business for cess or fee or any other consideration, the institution shall not be regarded to have been involved in carrying on charitable purpose. This proviso in the last sentence further states that nature of use or application or retention of the income by the institution from such activity will not be a relevant consideration. In view of this specific provision, one is not concerned to look into how an institution has used, applied or retained its income, if the said income has been received by the institution from any activity carried out in the nature of trade, commerce or business or from any activity of rendering any service in relation to trade, commerce or business. The words used in the proviso are 'carrying on of any activity in the nature of trade, commerce or business' not the words 'carrying on trade commerce or business'. Using of the words 'any activity in the nature of' prior to 'trade, commerce or business' has a specific meaning while interpreting the proviso. These words cannot be ignored. This mandates that the institution need not actually be carrying on trade, commerce or business but the activity carried on by him are similar to trade, commerce or business. The profit motive is required while an institution is carrying on trade, commerce or business. The use of words 'carrying on any activity in the nature of trade, commerce or business' will mean that there need not be profit motive in carrying on the activity by the institution. If Tribunal will interpret the words 'carrying on of any activity in the nature of trade, commerce or business' equivalent to the words 'carrying on trade, commerce or business'. There was no need of incorporating in the proviso, the words 'of any activity in the nature of' prior to the words 'trade, commerce or business'. The Legislature is fully aware of that an institution which is incorporated for charitable purpose cannot not have profit motive. [Para 16] Even the institution has given various stalls on hire and got receipt from that. This involves the carrying on activities in the nature of commerce or business. The nature of the receipts, even though might have been shown under the head 'Other receipts' under income and expenditure are, receipts received from carrying on activity in the nature of trade, commerce or business or from the activity of rendering any service in relation to commerce or business. Receipts by way of sponsorship, administrative charges, listing of hotels on their website, conducting film appreciation course clearly represent the receipts from the activity of rendering services in relation to trade, commerce or business. It is not denied by the authorised representative that exhibiting of the films, providing multiplexes, auditoriums, etc., are not for any fee or consideration. His main argument circled around the utilisation of these receipts that the purpose of these receipts is to defray the expenses of the film festival and film promotion. Proviso to section 2(15) clearly states that for determining whether the assessee is engaged in charitable purpose, the use or application or retention of the consideration received is not relevant at all. Activities carried on by the institution by any stretch of imagination cannot be regarded not to be in the nature of trade, commerce or business. The contention of the authorised representative is mainly that it is not carrying on any trade, commerce or business for earning profit but the proviso does not talk of that. [Para 18] It is a case where the eligibility of the assessee to get the registration undergoes a change due to the fact that the assessee no more remains being established for charitable purpose after the amendment being made in the definition of 'charitable purpose' given under section 2(15). The assessee, when it applied for registration, was very much a charitable institution as per the definition of the charitable purpose given under section 2(15) at that time, therefore entitled for the registration under section 12A. Once, the assessee no more remains being established for charitable purpose after the insertion of the proviso in section 2(15), the eligibility of the assessee for registration stands cancelled. Commissioner is the law implementing authority under section 12A and therefore, it has power to rectify its order by cancelling/ withdrawing the registration by rectifying the order passed under section 12A from the date when the assessee no more remains to be charitable institution as is held in the preceding para. A legal mistake has occurred in the order of the Commissioner dated 13-4-2006 from the date when the proviso under section 2(15) has been inserted as the institution no more remains to have been created/ established for charitable purposes or religious purposes. It is not the case of the assessee institution that it has been created or established for religious purposes. If the registration will remain continued, the purpose of amendment made in section 2(15) will be defeated and injustice will be caused to those institutions having the similar objects as the assessee has but created or established after the amendment in section 2(15). Tribunal cannot read the proviso in this manner. [] Commissioner has rightly cancelled the registration granted under section 12A as a mistake apparent on record as occurred in the order due to the amendment in section 2(15) and therefore, no interference is called for in the order of the Commissioner. [Para 27] SUBSCRIBE FOR FULL CONTENT

The Tax PublishersI. T. A. No. 90/PNJ/2012
2013 TaxPub(DT) 1474 (Panaji-Trib) : (2013) 023 ITR (Trib) 0635

INCOME TAX ACT, 1961

--Charitable trust--Cancellation of registration under section 12AA(3) Charitable purpose as amended by Finance Act, 2008 with effect from 1-4-2009--Commissioner noted that assessee was granted registration under section 12A vide order dated 13-4-2006 on the basis of definition of charitable purpose as it exists under section 2(15) at that time. Subsequently, definition of 'charitable purpose' was amended by inserting therein proviso. In view of this, the Commissioner issued notice to assessee why registration granted should not be cancelled. Therefore, after hearing assessee and going through income and expenditure of assessee, he took the view that activities carried on by institution were in the nature of trade, commerce or business or rendering service in relation with trade, commerce or business which were more than Rs. 10 lakhs in each year and institution fell within the purview of amendment to section 2(15) Commissioner, therefore, cancelled the registration. Held: Was Justified. Activities carried on by the institution was in the nature of trade, commerce or business and contention of assessee was mainly that it is not carrying on any trade commerce or business for earning profit but the proviso does not talk of that as such, proviso to section 2(15) was therefore, clearly attracted with effect from 1-4-2009 and as such registration was rightly cancelled.

It is essential for the assessee for the purpose of the registration under the Income Tax Act to prove that it has been established for charitable or religious purpose. It is not the case of the assessee-society that it is a religious society. Section 2(15) defines the 'charitable purpose'. This section was amended by the Finance Act, 2008. The Commissioner vide his order dated 13-4-2006 granted registration to the assessee institution as its objects were within the term 'the advancement of any other object of general public utility'. Subsequently, the definition of the charitable purpose has been amended by adding proviso. [Para 14] From the perusal of section 2(15) after the insertion of the proviso which is applicable only in the case where the assessee is engaged in the advancement of any other object of general public utility, the definition of 'charitable purpose' got amended. The proviso as is apparent clear states that the advancement of any other object of general public utility shall not be charitable purpose and subsequent to that it gives certain conditions if the institution fulfils those conditions as are stipulated in the proviso, the institution will not be regarded to have been engaged in the advancement of any other object of general public utility for the purpose of section 2(15) and will no longer remain to have been engaged in charitable purposes. In fact, this proviso puts an embargo on the institution that in case the institution falls within the proviso, it will no longer be regarded to have been engaged for charitable purpose even if it is engaged in the advancement of any other object of general public utility. The embargo states that if the institution is engaged in carrying on of any activity in the nature of trade, commerce or business or any activity or rendering any service in relation to any trade, commerce or business for cess or fee or any other consideration, the institution shall not be regarded to have been involved in carrying on charitable purpose. This proviso in the last sentence further states that nature of use or application or retention of the income by the institution from such activity will not be a relevant consideration. In view of this specific provision, one is not concerned to look into how an institution has used, applied or retained its income, if the said income has been received by the institution from any activity carried out in the nature of trade, commerce or business or from any activity of rendering any service in relation to trade, commerce or business. The words used in the proviso are 'carrying on of any activity in the nature of trade, commerce or business' not the words 'carrying on trade commerce or business'. Using of the words 'any activity in the nature of' prior to 'trade, commerce or business' has a specific meaning while interpreting the proviso. These words cannot be ignored. This mandates that the institution need not actually be carrying on trade, commerce or business but the activity carried on by him are similar to trade, commerce or business. The profit motive is required while an institution is carrying on trade, commerce or business. The use of words 'carrying on any activity in the nature of trade, commerce or business' will mean that there need not be profit motive in carrying on the activity by the institution. If Tribunal will interpret the words 'carrying on of any activity in the nature of trade, commerce or business' equivalent to the words 'carrying on trade, commerce or business'. There was no need of incorporating in the proviso, the words 'of any activity in the nature of' prior to the words 'trade, commerce or business'. The Legislature is fully aware of that an institution which is incorporated for charitable purpose cannot not have profit motive. [Para 16] Even the institution has given various stalls on hire and got receipt from that. This involves the carrying on activities in the nature of commerce or business. The nature of the receipts, even though might have been shown under the head 'Other receipts' under income and expenditure are, receipts received from carrying on activity in the nature of trade, commerce or business or from the activity of rendering any service in relation to commerce or business. Receipts by way of sponsorship, administrative charges, listing of hotels on their website, conducting film appreciation course clearly represent the receipts from the activity of rendering services in relation to trade, commerce or business. It is not denied by the authorised representative that exhibiting of the films, providing multiplexes, auditoriums, etc., are not for any fee or consideration. His main argument circled around the utilisation of these receipts that the purpose of these receipts is to defray the expenses of the film festival and film promotion. Proviso to section 2(15) clearly states that for determining whether the assessee is engaged in charitable purpose, the use or application or retention of the consideration received is not relevant at all. Activities carried on by the institution by any stretch of imagination cannot be regarded not to be in the nature of trade, commerce or business. The contention of the authorised representative is mainly that it is not carrying on any trade, commerce or business for earning profit but the proviso does not talk of that. [Para 18] It is a case where the eligibility of the assessee to get the registration undergoes a change due to the fact that the assessee no more remains being established for charitable purpose after the amendment being made in the definition of 'charitable purpose' given under section 2(15). The assessee, when it applied for registration, was very much a charitable institution as per the definition of the charitable purpose given under section 2(15) at that time, therefore entitled for the registration under section 12A. Once, the assessee no more remains being established for charitable purpose after the insertion of the proviso in section 2(15), the eligibility of the assessee for registration stands cancelled. Commissioner is the law implementing authority under section 12A and therefore, it has power to rectify its order by cancelling/ withdrawing the registration by rectifying the order passed under section 12A from the date when the assessee no more remains to be charitable institution as is held in the preceding para. A legal mistake has occurred in the order of the Commissioner dated 13-4-2006 from the date when the proviso under section 2(15) has been inserted as the institution no more remains to have been created/ established for charitable purposes or religious purposes. It is not the case of the assessee institution that it has been created or established for religious purposes. If the registration will remain continued, the purpose of amendment made in section 2(15) will be defeated and injustice will be caused to those institutions having the similar objects as the assessee has but created or established after the amendment in section 2(15). Tribunal cannot read the proviso in this manner. [] Commissioner has rightly cancelled the registration granted under section 12A as a mistake apparent on record as occurred in the order due to the amendment in section 2(15) and therefore, no interference is called for in the order of the Commissioner. [Para 27]