TMI Blog2014 (4) TMI 102X X X X Extracts X X X X X X X X Extracts X X X X ..... asonable opportunity to present its case - Ld. DIT(E), though not restricted to facts and figures for particular year, shall restrict his inquiry to factual aspect of case, i.e., qua satisfaction of condition/s of section 12AA(3) on facts - Assessee’s case would require being examined by tribunal thereon only if same survives an examination on facts, i.e., satisfies test of s. 12AA(3) on facts – Matter remanded back - Decided in favor of Assessee. - I.T.A. No.625/Mum/2012 & (Along wi th SA No.228/Mum/2013 - - - Dated:- 31-12-2012 - SHRI D. MANMOHAN, VP AND SHRI SANJAY ARORA, JJ. For the Appellant : Shri S. E. Dastur Shri Madhur Agarwal For the Respondent : Shri Pritam Singh ORDER Per: Sanjay Arora: This is an Appeal by the Assessee agitating the Order u/s. 12AA(3) of the Income Tax Act, 1961 ( the Act hereinafter) by the Director of Income Tax (Exemptions), Mumbai ( DIT(E) for short) dated 27.12.2011, withdrawing/cancelling the registration u/s.12A w.e.f. 01.04.2009, i.e., the assessment year (A.Y.) 2009-10, onwards. 2. The instant appeal by the assessee raises both legal and factual issues. The legal issue arising for consideration in this appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is no scope for the competent authority to visit the registration. The inference of non-genuineness of the assessee s activities by the ld. DIT(E) in-so-far as the same involves an activity that may be considered to be in nature of trade or commerce or business, or rendering any service in relation thereto, would not by itself make the activity as not genuine, which (activity) continues to be the same, i.e., both prior and after to the amendment to s.2(15). The said inference is only an attempt by the Revenue to fit the assessee s activity/s into the clear provision of law, even if it involves straining its clear language beyond all reasonable limits. There is no amendment in law, i.e., s. 12AA(3) (co-opted on the statue by Finance (No.2) Act, 2004, w.e.f. 01.10.2004), even after the amended s. 2(15) comes into force. The provision of section 13(8), inserted on the statute by Finance Act, 2012 w.r.e.f. 01.04.2009, i.e., simultaneous with the substitution of section 2(15), makes the intent of the law maker patently clear, i.e., that the registration under the Act for persons hit by the first proviso to section 2(15) is to continue, though would stand disentitled to exemption from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. The revenue s case 3.3 The Revenue s stand, on the other hand, is that when the object/s of the registered entity is no longer regarded as for a charitable purpose in view of the first proviso to section 2(15), the registration could not obtain inasmuch as the same becomes inconsistent with and defeative of the law, i.e., ss. 2(15) and 12AA (refer, inter alia, Tamil Nadu Cricket Association v. DIT(E)(infra)). It may be noted that there is no reference to section 2(15) either in section 12A or s.12AA, so that the same has to be considered as a condition precedent in view of the object and purpose of the registration under the Act (refer Maharashtra Housing Area Development Authority (supra) para 7.1). The registration confers the entity the status of a public charitable institution under and for the purposes of the Act, and which therefore cannot subsist when the object/s stands disqualified as charitable by the Act itself. In other words, the change in law would cause the removal of the fundamental basis on which the assessee s claim as a public charitable institution rests, and which is no longer available to it. The same operates on a perennial basis, warranting wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otherwise it may well be open for such a person to contend that being a charitable trust under the Act, exemption u/s.11 could not be denied to it where the conditions of sections 11 to 13 are satisfied. The same by itself does not preclude the Revenue to withdraw registration; the provision only confirming what is otherwise apparent, lest one argues of an absence of a legal basis for non-grant of exemption u/s.11 in such a case, where registration has not been cancelled or withdrawn. 3.4 The assessee has during the relevant previous year earned interest income at Rs.174.12 crores and income by way of lease rent and rent at Rs.63.52 crores. The same is only a systematic, commercial exploitation of its assets, amounting to a regular, business activity, and which if anything only reinforces the invocation of the first proviso to section 2(15), so that the assessee is not undertaking any charitable activity, i.e., in terms of the extant law, further justifying the withdrawal of registration. Reference was made to sections 24 and 24A of MMRD Act; the latter constraining the assessee from operating at a loss. Further, reliance stood placed on the following decisions: i. Enter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t entitle an entity for the continuation of its registration, or not so, under the Act. In legal terms, whether the condition of the object/s being charitable, an implied condition for the grant of registration, is also so for its continuation. Before, however, we may proceed with the matter, in our view the factual aspect of the controversy, afore-stated, would need to be determined first. That is, whether or not the activities being undertaken by the assessee-authority are in accordance with and in furtherance of its objects or not. This is as unless this aspect of the matter is clarified by issuing a finding of fact, one way or the other, it would neither be proper nor relevant to discuss the broader, legal issue afore-said. 4.2 The assessee is incorporated with the main object of securing the development of the Mumbai Metropolitan Region according to the regional plan. Chapter IV of the said Act contains the Powers and Functions of the Authority. Section 12(1) of the Act lists the functions as the following: CHAPTER IV POWERS AND FUCTIONS OF THE AUTHORITY Functions of the Metropolitan Authority. 12.(1) The main object of the Authority shall be to secure th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 18(1), falling there-under, provides for various sources of funds. The same includes contributions and moneys paid to the Authority by the State Government, including the sums placed at its disposal by the State Government out of the proceeds of any cess levied under Chapter VI of the Act; the proceeds of any betterment charges levied under Chapter IV; all fees, costs and charges received by the authority under the Act or any other law for the time being in force; moneys received by way of rents and profits or any other manner or from any other source; moneys received from the disposal of the lands, buildings or other property, moveable or immovable, or other transactions. The interest and rent, received at an aggregate of Rs.237.64 crores for the previous year relevant to A.Y. 2009-10, would form part of the gross receipt. As such, there is undoubtedly no question of application of second proviso, nor is so contended at any stage. During hearing, the ld. AR would explain us as to how the said receipts are integral to the functioning of the authority, and for which it has the requisite mandate under its charter, referring to sections 12(1)(g) and 21A of the MMRD Act for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r directly or indirectly (i.e., through a local authority or other authority in the Metropolitan Region), the interest receipt arises to it. All it says is of the said income as arising on loans to various organizations (refer para 3A(1) of its letter dated 26.12.2011 to the ld. DIT(E)/PB pgs.41-55), without specifying the details, so that it cannot by itself lead to the conclusion or the finding of being in relation to the stated projects. Rather, as we see it, the financing of the projects could only be incidental and/or secondary to the assessee s principal activity, and cannot by itself be the assessee s principal activity, if it is to be regarded as toward advancement of an object of general public utility. That is, financing as an aspect of business is an entirely different proposition from being the core or the principal activity, or business by itself, as in the case of a bank or a term lending institution. We are not for a moment advocating a strict meaning to its activity of financing, but only seek to emphasize that in order to be considered as a part of the assessee s regular business or functional activity, it has to be firstly in compliance of the objective of s. 12 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for its activities is not a relevant consideration or determinative of the matter. 4.4 We are, therefore, on the basis of the material on record, clearly unable to issue any positive finding, one way or the other, as to the interest and rent receipt, aggregating to Rs.237.64 crores (for the current year), as arising on the carrying out of activities integral to the assessee s functioning or its principal objects, so as to be considered as arising on account of activities which are necessary for the furtherance of the objects for which it is established, and thus falling under section 12(1)(1) of the MMRD Act. In fact, we have also noted that there must be some principal activity/s being pursued for the financing and rental activity to be at all considered as necessary and incidental thereto. The physical and/or functional correlation between the two would decide on this aspect of the matter. Such a finding/s, as would be patently clear, is necessary to arrive at a finding as to the satisfaction or otherwise of any of the two conditions of section 12AA(3), i.e., on facts. The primary onus to establish its case in this regard is on the assessee. Conclusion 5. The issue of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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