TMI Blog2012 (7) TMI 266X X X X Extracts X X X X X X X X Extracts X X X X ..... at the activities of the assessee are not governed by “principles of mutuality” or it has been dealing with non members, thus, from this aspect also new proviso does not apply to the case of the assessee - decided in favour of assessee. - I.T.A. No. 319/Mum/2012. - - - Dated:- 30-5-2012 - Shri G.E.Veerabhadrappa, Shri Amit Shukla, JJ. Appellant by : Shri Arvind Sonde. Respondent by : Shri Pravin Varma. O R D E R Per Amit Shukla, J.M. : This appeal has been filed by the assessee against the order dated 08-12-2011 passed by the Director of Income Tax (Exemption), Mumbai u/s 12AA(3) cancelling the registration granted u/s 12AA. 2. The assessee is a Club which has been granted registration u/s 12AA with effect from 01-04-2001 on the following objects : 1. To provide a golf course at or near mazagaon sewri, reclamation in the city of Bombay and or elsewhere in the presidency of Bombay, and to lay out and prepare any such course for playing the game of golf and other purposes of the club, and to provide pavilions, lavatories, refreshment rooms and other conveniences in connection therewith, and with a view there to in particular to take on lease or oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lease mortgage, dispose of or otherwise deal with, all or any part of the property of the club, whether moveable or immovable, with power, especially to sell and distribute wine, spirits, tobacco and other stores among the members, for consumption inside the permanent or any temporary premises of the club. 13. Generally, to do all such other things, as are Since then the assessee has been given benefit for exemption u/s 11 by the Department. 3. From the facts borne out from the impugned order, it is seen that a proposal for cancellation of registration was sent from the ITO(E)I(1), Mumbai to the DIT(E) on the ground that the assessee has been carrying on activities in the nature of trade, commerce, business etc. and is hit by the proviso to section 2(15), applicable from assessment year 2009-10. Accordingly, a show cause notice dated 31-10-2011 was issued to the assessee for cancellation of registration u/s 12AA(3). The learned DIT(E), from the details of income and expenditure account, noted the following receipts which were in the nature of commerce or trade during the assessment year 2009-10: 1. Receipt from member Rs.192.12 Lacs. 2. Tournament, competition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 459 (Mad), (iii) Mukherjee Estate (P) Ltd. vs. CIT [2000] 244 ITR 1 (Cal). Accordingly he held that the assessee trust is directly hit by the proviso to section 2(15) which has been introduced from assessment year 2009-10, where there is a deeming provision that such an activity is not for charitable purposes. He, therefore, cancelled the registration u/s 12AA(3) with effect from assessment year 2009-10. 6. The learned Sr. Counsel appearing on behalf of the assessee submitted that nowhere the learned DIT(E) has recorded any satisfaction that the activities of the trust are not genuine or has not been carried out in accordance with the objects of the trust. Until and unless these two conditions are not satisfied, registration granted u/s 12AA cannot be cancelled. He further submitted that cancellation of registration u/s 12AA(3) was nothing to do with the amended provisions of section 2(15) and the DIT(E) was only required to look into genuineness of the activities and objects of the trust. All the aspects which has been highlighted in the impugned order is the subject matter of assessment which has to be seen and examined by the AO in the course of assessment. In sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he trust or institution are not genuine; or ii) the activities of the trust or institution are not being carried out in accordance with the objects of the trust or institution. Except for under these two conditions, the CIT/DIT cannot cancel the registration which has already been granted earlier. Thus, under the Act, registration already granted can be cancelled if two conditions u/s.12AA(3) are satisfied and not otherwise. From the perusal of the impugned order before us, it is seen that nowhere the DIT(E) has recorded any satisfaction that the activities of the assessee trust are not genuine or are not being carried out in accordance with the objects on which it was granted registration u/s 12AA. In absence of such satisfaction, registration u/s. 12AA cannot be cancelled. Section 12AA(3) does not extend to re-examination of the objects of the trust or institution once registration has been granted u/s. 12AA(1). It becomes fait accompli, unless twin conditions provided under sub section (3) of section 12AA are satisfied. The only reason for cancellation in this case is that in view of the amended provisions of section 2(15) read with proviso with effect from 01-04-2009 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nature of use or application. Second proviso carves out the exception to the first proviso wherein the receipts from such activities is less than Rs.10 lakhs. Thus, the nature and dominant object of general public utility should not be in the nature trade, commerce or business. The proviso inserted with effect from 01-04-2009 need not to be analyzed as it has been subject matter of judicial scrutiny specifically the term business , trade commerce by the Hon ble Delhi High court in the case of Institute of Chartered Accountants of India vs. DGIT(E) reported in (2011) 245 CTR (Del) 541 wherein it was held that : 12. As the first proviso was introduced with effect from 1st April, 2009, the scope and ambit of the said proviso to section 2(15) of the Act has to be examined and considered. Earlier orders under section 10(23C)(iv) are not relevant and are inconsequential, as they have not examined the scope and ambit of the first proviso. The proviso applies only if an institution is engaged in advancement of any other object of general public utility and postulates that such an institute is not charitable if it is involved in carrying on any activity in the nature of trade, c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 234, State of Punjab vs. Bajaj Electrical Ltd. (1968) 2 SCC 536, Khodey Distillary Ltd. vs. State of Kerala (1975) 1 SCC 574 and CST vs. Sai Publication Fund (2002) 4 SCC 57 and also referred to various other dictionary meaning and commentary and held that : 18. The word business is the broadest term and it encompasses trade, commerce and other activities. Sec. 2(13) of the IT Act defines the term business as under 2. Definitions . (13) 'business' includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture. 19. The word business is a word of large and indefinite import. Sec. 2(13) defines business to include any trade, commerce or manufacture or nay adventure or concern in the nature of trade commerce or manufacture. The intention of the legislature is to make the definition extensive as the term inclusive has been used. The legislature has deliberately departed from giving a definite import to the term business but made reference to several other general terms like trade , commerce , manufacture and adventure or concern in the nature of trade, commerce and manufacture. x x x x 29 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . An activity would be considered business if it is undertaken with a profit motive, but in some cases this may not be determinative. Normally the profit motive test should be satisfied but in a given case activity may be regarded as business even when profit motive cannot be established/proved. In such cases, there should be evidence and material to show that the activity has continued on sound and recognized business principles, and pursued with reasonable continuity. There should be facts and other circumstances which justify and show that the activity undertaken is in fact in the nature of business. The test as prescribe in Raipur Mfrs. Co. s case (supra) and Sai Publications Fund s case (supra) can be applied. The six indicia stipulated in Lord Fisher s case (supra) are also relevant. Each case, therefore, has to be examined on its own facts. 10. Thus, the test of business, trade or commerce has to be viewed from the angle that the activity of the trust has continued on business principle and pursued with reasonable continuity. If the principle and ratio laid down by the Hon ble High Court is applied in the instant case, it would be seen that none of its receipts can be s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 2(15). Hence, such entities will not eligible for exemption under section 11 or under section 10(23C) of the Act if they carry on commercial activities. Whether such an entity is carrying on an activity in the nature of trade, commerce or business is a question of fact which will be decided based on the nature, scope, extent and frequency of the activity . There are industry and trade association who claim exemption from tax under section 11 on the ground that their objects are for charitable purpose as these are covered under any other object of general public utility . Under the principle of mutuality, if trading takes place between persons who are associated together and contribute to a common fund for the financing of some venture or object and in this respect have no dealings or relations with any outside body, then any surplus returned to the persons forming such association is not chargeable to tax. In such case, there must be a complete identity between the contributors and the participants. Therefore, where industry or trade associations claim both to be charitable institutions as well as mutual organizations and their activities are restricted to contributions ..... X X X X Extracts X X X X X X X X Extracts X X X X
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