TMI Blog2013 (5) TMI 251X X X X Extracts X X X X X X X X Extracts X X X X ..... in the order of the CIT dtd. 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) of the Income Tax Act. As going through the decision of the CIT V/s Sarvodaya Ilakkiya Pannai (2012 (2) TMI 160 - Madras High Court) issue before relates to the power of the CIT given under Section 12AA(3) and under these facts, the Madras High Court has upheld the order of the I.T.A.T. cancelling the withdrawal of the registration by the CIT under Section 12AA(3) as Tribunal held that there was no violation of the provisions of Section 12AA(3). The question whether there had been a legal mistake in the order by which the registration was granted was not before the Hon'ble High Court. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ution was registered under the Societies Registration Act, 1980 and therefore in view of the amendment to section 2(15), the CIT was of the opinion that the assessee institution no more can be said to have carrying on charitable purpose and due to which the order passed granting the registration to the institution earlier requires review. Therefore, after hearing the assessee and going through the income and expenditure of the assessee he took the view that the activities carried on by the institution are in the nature of trade, commerce or business or rendering service in relation with trade, commerce or business which are more than Rs. 10 lakhs in each year and the institution fall within the purview of the amendment to section 2(15) of the Income Tax Act. CIT, therefore, cancelled the registration by observing as under :- "7. I have gone through assessee's submissions and various documents. The assessee society has been holding International Film Festival in Goa and to create entertainment hub to give the state global visibility, to spread film education, film culture, to build multiplexes, cinema halls, auditorium etc and to develop infrastructure to meet the needs of IFFI. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd it's activities are directly hit by the_amendment to section2(15) of the IT Act 1961 w.e.f 01-04-2009. The activities of society are therefore interconnected and interwoven with commerce or business. Therefore even if the main objective is to hold International Film Festival of India inter alia general public utility, in view of the insertion of proviso to section 2(15) w.e.f. 01-04- 2009, the society is no more eligible for exemption as a Trust/Society under section 11 read with section 12A of I.T. Act 1961. The various decisions cited by the assessee are distinguishable on facts and objects and each case has to be decided on its own facts and no generalization is possible. Many decisions relied on by the assessee are relatable to legal position prior amendment to section 2(15) w.e.f. 01-04-2009. In view of the aforesaid facts and legal position, the contentions of the assessee can not be accepted. 8. In fact, the functions of society are similar to that of film industry i.e. to create entertainment hub and give global visibility, to spread film education and film culture, to build multiplexes, cinema halls, auditorium etc. and to develop infrastructure to meet the needs and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As mentioned above, the activities are clearly in the field of trade, commerce or business and hence the society is not eligible for exemption u/s 11 of the I.T. Act. Therefore after careful consideration of the submissions and for the reasons as detailed above, I am of the opinion that the assessee society cannot be allowed the benefit of registration u/s 12A as a Charitable Trust w.e.f. 01-04-2009. Accordingly, the registration granted by the Commissioner of Income tax, Panaji vide order dated 13-04-2006 is hereby cancelled u/s 12AA (3) of the I. T. Act, from A.Y. 2009-10 onwards." 3. The Learned AR before us vehemently contended that the CIT was incorrect in law in cancelling the registration granted to the assessee under Section 12A of the Income Tax Act. The assessee has been established as per the aims and objects as contained in clause 3 of the Memorandum of Association and mainly for the purpose of holding International Film Festival of India since the Central Government, Ministry of Information Broadcasting as declared Goa as permanent venue for holding International Film Festival of India (IFFI) since 2004. Other aims and objects include advice to Government of Goa o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e International Film Festival as well as travelling and hospitality costs of the delegates, the society has to get the receipt by selling tickets in respect of films and the events being organized in auditoriums and multiplexes. The receipt, in fact, is not in the nature of carrying on any business. The learned AR did not deny that our charges for auditoriums and charges for usage of the premises and the receipt from the stalls as well as by way of sponsorships are also receipt but all these receipts are incidental and ancillary to the main objects of the assessee society. The assessee has not constructed the multiplexes but temporary possession of these multiplexes are regularly given to the assessee society as per the orders issued by the Government of Goa and these multiplexes are in their possession since October, 2004 till October, 2016. Even the Goa Government has given temporary possession of some property in Maquinez Palace Grounds comprising of Old GMC Complex, art gallery, two auditoriums (232 seater and 81 seater) and office space. Except for the office space, the balance premises are utilized only during the month leading to International Film Festival. During the rest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s for film festival. The tender forms are available in the office of ESG and on the ESG website. Whenever any bidder downloads the form directly from the website, they have to pay the cost of the tender form with the bid. The amount is towards cost of tender forms. This is a receipt directly connected with the film festival. The receipts only compensate partially towards administrative charges and stationery utilized to prepare the tender documents. 5. License fees from multiplex The multiplex is a Goa Government property, the temporary possession of which is given to ESG, only with an intention to meet the expenses of the film festival by earning rent. 6. Film screening receipts The amount collected is towards entry fees for screening film in the festival hosted by ESG - directly connected with the film festival. 7. Short films receipts ESG has a segment called "Short Film Centre" during film festival where entries were invited from the producers producing short films/fillers with duration from 6 minutes to 60 minutes. The best film was then awarded with trophy and cash prize. These receipts are again towards entrance fees directly connected with film festival. For the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le guests/delegates to be catered easily at the venues at reasonable prices. The expenditure to install the stall is borne by the ESG - many times this expenditure is not fully recovered. Further an amount of approximately Rs. 10.00 lakhs has to be paid to CCP for waste management. 13. Films appreciation course receipts ESG organizes Film Appreciation course every year in association with Film Television Institute of India. During the course, faculty from FTII National Film Archive of India are invited to deliver the lectures. The receipts are towards fees from the participants and is intended to cover the expenses of lecturers, whose travel expenses and boarding/lodging are paid for. This is part of education and general development of film industry. The expenditure is incurred on this course is much more than the receipts collected. The course is conducted to create an awareness among the masses regarding the film production and its allied activities. A total amount of Rs. 3500/- is charged for a 11 day program including lunch and snacks tea for all 11 days. 14. Receipts from Portuguese film festival ESG had organized Portuguese film festival during the Financial Ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilm festival and there is no direct receipt for organizing the said festival, the assessee is permitted by the Government of Goa to defray its expenses by earning some receipts from temporary hire, sponsorship, incidental receipts of the film festival etc. Even after earning such receipts to meet its costs by way of reimbursement, the assessee yet needs to receive grant from the Goa Government each and every year in order to make its ends meet. The Goa Government, in fact, from F.Y. 2004-05 onwards has given grant in excess of Rs. 58.31 crore to the assessee. There is substantial deficit in each and every year right from inception in case of the assessee while the Goa Industrial Development Corporation was earning substantial income. The assessee does not carry out any trading or commercial activity. In the case of the assessee, there is no allegation in the notice for the withdrawal of the registration and that the assessee is engaged in trading activities. The assessee is engaged in holding international film festival and the said object is one of general public utility. All the receipts of the assessee are directly connected with the international film festival and are received ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... temporary during the holding of international film festival, all these activities prove that the assessee is engaged in carrying on activities in the nature of commercial activity/business activity. All these activities are carried out by the assessee for consideration, may be in the nature of fees or otherwise. Due to the amendment being made to Section 2(15), the CIT found that a legal mistake has occurred in its order from the date from which the proviso under Section 2(15) was inserted and accordingly, CIT rectified its order passed under Section 12A by withdrawing the registration from the date when the proviso was inserted. 6. We have heard the rival submissions and carefully considered the same alongwith the order of tax authorities below. The assessee society was incorporated under the Societies Registration Act, 1860 vide registration no. 103/Goa/2004 dtd. 6.5.2004 for following aims and objectives :- i) "to frame entertainment policy for the State of Goa and implement the same with the help of various agencies. ii) to advise the Government of Goa on various policy issues related to promotion of entertainment industry in the State of Goa on a long term basis. iii) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt, pedestrians plaza. xii) To conduct publicity campaigns through print media, internet, videos and films and other new medium of communication that integrates information and marketing on a global level. xiii) To involve in networking and relation building in the interest of entertainment industry in the State of Goa and to adopt innovative ideas for improving the organization of film festival every year. xiv) To give awards, prizes and certificates to selected firms and artists in various categories like directors, producers, photographers, lyrics, musicians, acting artists etc. xv) In general to do such things or undertake to do such other things from time to time as shall be deemed necessary for the promotion of the ideas and attainment of the objectives of the Society to do all such acts and things, whether incidental to the power aforesaid or not, as may be required in order to further the objectives of the Society. xvi) The income and property of the Society, however, shall be used for the promotion of the objectives of the Society. xvii) The Society shall maintain a fund to which shall be credited :- a) all moneys received from the local or Central Government ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of IT Act 1961. Therefore, please explain why the registration granted to the institution u/s 12A(a) of the IT Act, 1961 should not be withdrawn." 9. Subsequently, after receiving reply of the assessee vide letter dt. 21.12.2011, CIT again issued so cause notice for withdrawal of the registration granted under Section 12A analyzing the receipts of the assessee and asking for explanation of the assessee society in view of the various receipts which are regarded to have been derived from carrying out the activities in the nature of trade, commerce and business.The assessee society vide its letter dtd. 16.12.2011 made the following submissions :- "i. From the above details of sources of income, your Hon. will observe that our main source of income are "Income from House Property and Income from Other Sources" and there is no income assessable under the head "Income from Business or Profession". In the case of Andhra Chamber of Commerce (1980) 130 ITR, 184(SC) and High Court decisions reported in 140 ITR, 795 (1982 MP), 147 ITR, 468 (1982 MP), and 246 ITR, 188 (2000 GUJ), it has been held that mere owning and letting out building property will not amount to carrying on of activi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er amended proviso to Sec. 2(15) of the Income Tax Act, 1961. ii. Without prejudice to the above, assuming but without admitting that ESG is carrying on business, still the same are protected under exceptions contained in the provisions of Section 4(A) of Section 11 of the Income Tax Act, 1961. In this connection, it is interesting to note that the provisions of sub section (4) and (4A) of section 11 have not been amended. Sub section (4) clarifies that "property held under trust" includes a business undertaking so held. Sub section (4A) enables exemption to be availed in respect of profits and gains of business if the business is incidental to the attainment of the objectives of the trust and separate books of accounts are maintained in respect of such business. While the intention of the new proviso is to deny exemption to income from business and similar other related activities, the purpose of sub section (4A) is to grant exemption to income from business subject to fulfillment of certain conditions. Since the proviso does not contain a non-obstinate clause, it cannot override the provisions of sub sec. (4A). Therefore, the newly inserted proviso should be read subject to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the ingredients which have been considered by the CIT while granting Registration u/s. 12AA of the Act. To illustrate, we may point out that at the time of evaluating the application of Registration u/s. 12AA(1) of the Act, the CIT is to satisfy himself on the two conditions i.e. that activities are genuine and that the objects of the applicant fall within the meaning of 'Charitable Purpose' as per Section 2(15) of the Act. In contrast at the time of cancelling of Registration u/s. 12AA(3) of the Act the CIT has to satisfy himself about either of the two conditions prescribed therein, namely that the activities not genuine or that the activities are not being carried out in accordance with the objects of the Trust or Institution, as the case may be. Pertinently, the satisfaction about the objects of the Trust or Institution being as per Section 2(15) of the Act, is not condition mentioned in Section 12AA(3) of the Act to cancel the Registration already granted u/s. 12AA(3) of the Act. The only ground available with the CIT to cancel the Registration is to either establish that the activities of the Trust or Institution are not genuine or same are not being carried out in accorda ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the trust or institution is made after the expiry of the period aforesaid, the provisions of sections 11 and 12 shall apply in relation to the income of such trust or institution, - (i) From the date of the creation of the trust or the establishment of the institution if the Commissioner is, for reasons to be recorded in writing, satisfied that the person in receipt of the income was prevented from making the application before the expiry of the period aforesaid for sufficient reasons; (ii) From the first day of the financial year in which the application is made, if the Chief Commissioner or Commissioner is not so satisfied; Provided further that the provisions of this clause shall not apply in relation to any application made on or after the 1st day of June, (a) The person in receipt of the income has made an application for registration of the trust or institution on or after the 1st day of June 2007 in the prescribed form and manner to the Commissioner and such trust or institution is registered under section 12AA (b) Where the total income of the trust or institution as computed under this Act without giving effect to the provisions of section 11 and section 12 exce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d registration under clause (b) of sub-section (1) [or has obtained registration at any time under section 12A [as it stood before its amendment by the Finance (No. 2) Act, 1996 (33 of 1996)]] and subsequently the Commissioner is satisfied that the activities of such trust or institution are not genuine or are not being carried out in accordance with the objects of the trust or institution, as the case may be, he shall pass an order in writing cancelling the registration of such trust or institution:- Provided that no order under this sub-section shall be passed unless such trust or institution has been given a reasonable opportunity of being heard.]" "Application for registration of charitable or religious trusts, etc. 17A. An application under [clause (aa) of sub-section (1)] of section 12A for registration of a charitable or religious trust or institution shall be made in duplicate in Form No. 10A and shall be accompanied by the following documents, namely :-- (a) where the trust is created, or the institution is established, under an instrument, the instrument in original, together with one copy thereof; and where the trust is created, or the institution is established, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom property held for charitable or religious purposes. Section 12 AA lays down the procedure for the registration of such Trust or institution. Rule 17A of the IT Act lays down how an application for registration of charitable or religious Trust is to be made. It also prescribes form No. 10A and also requires that the application for registration can be made only by a charitable or religious Trust or institution. This rule also prescribes the various documents which are to be enclosed along with the application. The copy of the instrument by which the trust is created or institution is established has to be filed. If the Trust or institution was in existence prior to the year in which the application is made, two copies of the accounts of the Trust such prior year being not more than 3 years has to be filed. Accounts in our opinion here means the audited accounts in case the provision of section 12 (1) (b) are applicable. 13. Therefore, in our opinion, 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 relig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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, we are not concerned to look into how an institution has used, applied or retained its income, if the said 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or business'. The Learned AR vehemently argued before us that whatever receipts or income the institution has received, that is for the purpose of holding of the film festival. This argument of the learned AR, in our opinion, does not have any leg to stand for deciding whether the proviso of Sec. 2(15) is applicable in the case of the assessee or not because the proviso clearly states that 'the nature of use or application or retention of the income from the activity carried on by the institution which are in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business' is not relevant. 16. Now, the question arises what activity the assessee institution is carrying on. The main activity of the institution as is apparent from its aims and objects is to organize and host international film festival, to promote the entertainment industry. The institution as per object (vi) is also entitled to earn revenue on long term basis from ventures in film entertainment and leisure projects. The institution is also entitled as per object (viii) to build multiplexes, cinema halls, media centres, screening rooms, auditoriums, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... received the film exhibit fees from the viewers for screening the film, it has received even short film receipts by way of entrance fees, Even the institution has given various stalls on hire and got receipt from that. This in our opinion 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" in the Income Expenditure are, in our opinion, 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. The receipts by way of sponsorship, administrative charges, listing of hotels on their website, conducting film appreciation course clearly represents the receipts from the activity of rendering services in relation to trade, commerce or business. It is not denied by the learned AR that exhibiting of the films, providing multiplexes, auditoriums etc. are not for any fee or consideration. His main argument circled around on the utilization of these receipts, that the purpose of these receipts is to defray the expenses of the film festival and film promotion. The pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on to any trade, commerce or business, rather it was discharging regulatory function for controlling pollution and collecting the fees or charges for that. The decision of the Gujarat Industrial Development Corporation Vs. ACIT, 138 TTJ(Ahd) 714 relates to A.Y. 2006-07 and is not concerned with the proviso to Sec. 2(15) of the Income Tax Act and the question involved therein relates to the applicability of the proviso of Sec. 11(4) of the Income Tax Act. 18. It is not rendering regulatory function only as Himachal Pradesh Environment Protection and Pollution Control Board is doing in the case before the Chandigarh Bench (supra). They were not entertaining the people by charging the entry fee etc by exhibiting films. We do not find any force in the submission made by the Ld. AR specially relying on the decision of Himachal Pradesh Environment Protection and Pollution Control Board. We, therefore, are of the firm opinion that after the insertion of the proviso in section 2(15), the assessee cannot be regarded to have been established for charitable purpose. Our view is also supported by the decision of the Amritsar Bench of the ITAT in the case of Jalandhar Development Authority Vs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is the law implementing authority u/s 12A and therefore, it has power to rectify its order by cancelling / withdrawing the registration by rectifying the Order passed u/s 12A from the date when the assessee no more remains to be charitable institution as is held by us in the preceding para. In our opinion, a legal mistake has occurred in the order of the CIT dtd. 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) of the Income Tax Act. We cannot read the proviso in this manner. 21. We have also gone through the decision of the Madras High Court in CIT V/s Sarvodaya Ilakkiya Pannai, 343 ITR 300 (Mad). The issue before the Madras High Court relates to the power of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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