TMI Blog2016 (8) TMI 257X X X X Extracts X X X X X X X X Extracts X X X X ..... t such income cannot be said to be used for a charitable purposes so as to be entitled for exemption under sections 11/12 of the Act. Whether such income is eligible for the benefit of sections 11/12 of the Act or not, in our view, is not a relevant criteria to justify invoking of section 12AA(3) of the Act. Whether or not such incomes are entitled to exemption under section 11 of the Act are matters, which are to be decided in the course of the quantum assessment proceedings by the assessing authorities and do not enter the requisites contained in section 12AA(3) of the Act. Thus, so far as, the present controversy is concerned, in our view, the aforesaid reasons advanced by the Director are extraneous for the purposes of invoking section 12AA(3) of the Act. So, however, we may state here that it would be open for the assessing authorities to examine such aspects in appropriate proceedings, if so advised in law, but certainly the same are outside the purview of the pre-requisites contained in section 12AA(3) of the Act. Another aspect raised by the Director was that some of the clauses in the Memorandum and Articles of Association allowed assessee to do business and, there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Appellant. 1.2 It is submitted that in the facts and the circumstances of the case, and in law, the order so passed be held as bad in law, as the same is framed in gross breach of the principles of natural justice. WITHOUT PREJUDICE TO THE ABOVE: 2.1 The DIT (E) erred in cancelling the registration u/s. 12AA of the Income - tax Act, [ the Act ] of the Appellant. 2.2 It is submitted that in the facts and the circumstances of the case, and in law, the order passed by the DIT (E) is bad, illegal and void, as the same is passed - without jurisdiction / in excess of the jurisdiction conferred upon him u/s. - 12AA (3) of the Act. WITHOUTFURTHER PREJUDICE TO THE ABOVE: 3.1 Even on merits, the DIT (E) erred in cancelling the registration u/s. 12AA of the Act, already granted to the Appellant in 2001. 3.2 While doing so, the DIT (E) erred in: (i) Basing his action on suspicious, surmises and conjectures; (ii) Taking into account irrelevant and extraneous considerations; and (iii) Ignoring relevant material and consideration. 3.3 It is submitted that in the facts and circumstances of the case, and in law, no such cancellation was called for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng, the appellant is a Project Implementing Agency for the Railway component of the Mumbai Urban Transport Project (MUTP). The appellant was granted registration under section 12A of the Act by the Director on 29/10/2001 w.e.f. 12/07/1999. It has been stated before us that thereafter scrutiny assessments under section 143(3) of the Act have been finalized for almost 10 years and the benefit of sections 11/12 of the Act has been granted. Subsequently, the Director issued a show-cause notice dated 3/12/2013, proposing to cancel the registration granted under section 12A of the Act for the reasons mentioned in the said notice, a copy of which has been placed in the Paper Book at pages 516 to 529. Notably, a detailed show-cause notice has been issued but in sum and substance the charges made against the assessee were (i) that it is a Public Sector Company under section 617 of the Companies Act, 1956 and not a non- profit making organization under section 25 of the Companies Act,1956 or a Trust; (ii) that majority of the objects show that it exists for the purposes of profit; and, (iii) that in terms of the proviso to section 2(15) of the Act and taking into account the objects, asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome for general public utility it would be deemed to be non-charitable purpose as it involved carrying on of business; that entire expenses were incurred for establishment and administration/ depreciation and it was leveraging its funds to earn income, which was also not being applied for the object for any general public utility . 4.2 In the above background, the Ld. Representative for the assessee has vehemently pointed out that the Director erred in law as also on facts in invoking the provisions of section 12AA(3) of the Act for cancelling registration originally granted to the assessee under section 12A on 29/10/2001. It is sought to be canvassed that registration was granted after making due enquiries and verification on all aspects, including the objects clause contained in the Memorandum and Articles of Association and that withdrawing/ cancelling of registration already granted was invalid, as there is no change in the activities being carried out. The Ld.Representative for the assessee also emphasized that even after the grant of registration, on 06/02/2002 the then Director sought to withdraw it in view of certain clauses in the Memorandum and Articles of Associati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on for the reasons contained in the order. 6. We have carefully considered the rival submissions. The crux of the controversy before us arises from the action of the Director to cancel the registration already granted to the assessee under section 12A of the Act. In doing so, the Director has invoked the powers enshrined on him by section 12AA(3) of the Act. The first and the foremost argument set-up by the assessee is that the power of cancellation enshrined in section 12AA(3)of the Act has not been justifiably exercised by the Director, as the requisite conditions specified therein are not fulfilled. Notably, section 12AA(3) of the Act prescribes that registration once granted under section 12A of the Act can be cancelled/withdrawn only if one or both of the conditions contained therein are fulfilled, namely- that the activities are not genuine or that the activities are not being carried out in accordance with its objects. So far as the aforesaid legal position is concerned, it is supported by the phraseology of section 12AA(3) of the Act itself. Before us, the Ld. Representative for the assessee has relied upon the judgment of the Hon ble Madras High Court in the case of CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not permit a wholesale review of the ingredients which have been considered by the Director while granting registration under section 12A of the Act. To illustrate, we may point out that at the time of evaluating the application of registration under section 12AA (1) of the Act, the Director is mandated to satisfy himself on two conditions i.e. that the 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 under section 12AA (3) of the Act, the Director has to be satisfied about either or both of the conditions prescribed therein, namely, that the activities are 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 in accordance with section 2(15) of the Act, is not a condition mentioned in section 12AA(3) of the Act to cancel the registration already granted under section 12A of the Act. The ground available with the Director to cancel the registration is to either ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evelopment plan for Mumbai with rail capacity and purpose investments, undertake commercial development Railway land and air space, coordinate and facilitate improvements of track, drainage and removal of encroachments and trespassers and coordinate with organizations operating the train services and responsible for protection of Railway s right of way and urban development for purposeful resolution of allied issues and problems, and discharge its liabilities arising due to such projects and action. Before us, it has been elaborately brought out that under the first phase of MUTP (at a cost of ₹ 4501 crores) 101 EMU rakes have been procured, which have made 418 additional train services possible and generated an additional 33% carrying capacity in local trains in Mumbai. It has also been pointed out that a state of the art EMU maintenance car shed has been set up at Virar and additional 93 track kilometres have been added, which has facilitated segregating mainline operations from suburban operations. It was extended further to network expansion, service efficiency improvement, rolling stock procurement, institutional strengthening and R R is under progress under MUTP-II ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ground of the aforesaid features of assessee company, we now refer to the specific points raised by the Director to say that the activities of the assessee are not being carried out in accordance with its objects in order to justify his invoking of section 12AA(3) of the Act. As per the Director, the activities carried on by the assessee are not in accordance with the objects because (i)assessee is only leveraging its funds to earn interest income and the same is not applied for its objects; and (ii) the expenses are incurred for establishment, administrative functions and not for any charitable or general public utility purpose. On both the aspects, Ld. Representative for the assessee pointed out that the activities of assessee are totally controlled/managed by Government of India and subject to review by the Comptroller and Auditor General of India. It has also been pointed out that the activities of the assessee have been scrutinized by the Assessing Officer in the course of scrutiny assessments made under section 143(3) of the Act for various assessment years starting from 2003-04 to 2010-11 without any adverse findings, and copies of such assessment orders have been placed i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at no stage has Revenue disputed the fact that the assessee company is executing rail projects identified under the MUTP. In our considered opinion, the Director erred in not appreciating the difference between the functioning of administrative set-up, which is essential to execute the objects entrusted to the assessee and, the activity of executing the railway component of the MUTP. The administrative set-up and its functions cannot be viewed in isolation to say that assessee company is not carrying out activities in accordance with its objectives, which in the present case is quite clearly being undertaken by the assessee by executing the railway component of the projects under MUTP. Therefore, in our considered opinion, the Director has clearly misdirected himself in coming to conclude that assessee has carried out activities that are not in accordance with its objects. Thus, factually speaking, we find no reason to uphold the inference of the Director that the activities are not in accordance with its objects. 6.4 Secondly, in so far as, the other condition in section 12AA(3) of the Act regarding genuineness of the activities is concerned, there is no adverse finding on thi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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