Subscription   Feedback   New User   Login      
Tax Management India .com
TMI - Tax Management India. Com
Articles Highlights TMI Notes SMS News Newsletters Calendar Imp. Links Database Experts Contact us More....
Extracts
Home List
← Previous Next →

Mumbai Railway Vikas Corpn. Ltd. Versus The DIT (E) , Mumbai

2016 (8) TMI 257 - ITAT MUMBAI

Cancelling/withdrawing the registration granted to the assessee under section 12A - Held that:- 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, w .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

eraging its funds to earn interest income. Before us also, it has been contended that 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, whic .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

o 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, therefore, it is hit by the amended proviso to section 2(15) of the Act. On this point also, it is sufficient to notice that the same is not a relevant criteria for cancellation of registration envisaged in section .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

granted under section 12A of the Act. - Decided in favour of assessee. - ITA No. 1057/Mum/2014 ITA No.2626/Mum/2014 - Dated:- 3-8-2016 - Shri G. S. Pannu, Accountant Member And Shri Ram Lal Negi, Judicial Member Appellant by : Shri Vipul Joshi Respondent by : Shri E. Sankaran/ Shiddaramappa Koppaattanvar ORDER Per G. S. Pannu, A. M. The captioned are two appeals by the assessee, which substantively involve a solitary issue, arising from the action of the Director of Income Tax (Exemption) (in sh .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

t dated 24/03/2014, whereby the registration cancelled earlier by order dated 10/01/2014 has been held to be effective from 29/01/2001. Each of the aforesaid actions of the Director have been challenged by the assessee, by raising multiple Grounds of appeal, which are as under:- Grounds of appeal in ITA No.1057/Mum/2014: 1. BREACH OF THE PRINCIPLES OF ATURAL JUSTICE 1.1 The Director of Income - tax (Exemption), Mumbai ["the DIT (E)"] erred in not granting proper, sufficient and adequat .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

;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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

1961 ["the Act']. 1.2 It is submitted that in the facts and the circumstances of the case, and in law, the order so passed is bad, illegal and without jurisdiction as the necessary preconditions for initiating the proceeding and completion thereof were not fulfilled. 1.3 Without prejudice to the generality of the above, it is submitted that in the case of the Appellant, there was no "mistake apparent from the records" within the meaning of section 154 of the Act. WITHOUT PREJ .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

assessee has raised multiple Grounds of appeal but the action of the Director in cancelling/withdrawing registration granted under section 12A of the Act has been sought to be challenged on two grounds. Firstly, on the ground that the Director exceeded his jurisdiction by invoking section 12AA(3) of the Act and cancelling the registration on eventualities, which are not specified therein. Secondly, it is also sought to be canvassed that even otherwise, on merits too, the activities being carrie .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

r section 617 of the Companies Act, 1956. It s shareholding is jointly owned by the Ministry of Railways (Government of India) and the Government of Maharashtra in the ratio of 51:49. Broadly speaking, 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 assessme .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

inst 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, assessee is engaged in non-charitable activities. In response, assessee company made detailed submissions, wh .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

an Railway system alongwith infrastructure required to cater to the Sub-urban needs of the train commuters. It was thus, contended that it was not carrying out any activity of non-charitable or commercial in nature. One pertinent submission put-forth by the assessee was to the effect that on an earlier occasion a notice was issued on 06/02/2002 proposing to withdraw the registration granted under section 12A of the Act by the then Director on the plea that certain clauses of the Memorandum and A .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ded that the proceedings initiated to cancel/withdraw registration be dropped. 4.1 However, the Director was not impressed with submissions put- forth by the assessee and instead he held that the activities of the assessee were not in accordance with its objects and, therefore, the condition laid down under section 12AA(3) of the Act has been fulfilled; and, hence he cancelled the registration granted under section 12A of the Act. The main points which the Director has noted in order to arrive a .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

d 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e appropriately amended by the assessee and consequently, the proceedings to cancel/withdraw the registration was dropped by way of a written order dated 15/12/2003. It was therefore, contended that on more than one occasion the objects clause and the activities being carried out by the assessee have been examined by the Director and in the absence of any change in either of them, it is not permissible for the Director now to say that the activities are not for charitable purpose within the mean .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

limited only in a situation where the Director was satisfied, (a) that the activities are not genuine; or (b) that the activities are not being carried on in accordance with the Objects of the assessee. It was pointed out that both the aspects are missing in the present case, inasmuch as, the reasons advanced by the Director to cancel the registration are other than those specified in section 12AA(3) of the Act. 5. On the other hand, Ld. Departmental Representative has primarily relied upon the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

that assessee was only leveraging its funds to earn income, and such income was being used to defray establishment and administrative expenses only and not objects of any general public utility. It was, therefore, contended that its activities could not be said to be being carried out for any charitable purpose , and the Director was justified in cancelling the registration for the reasons contained in the order. 6. We have carefully considered the rival submissions. The crux of the controversy .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

n 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 reli .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

he assessee were not contrary to its objects and therefore, it was held that the power under section 12AA(3) was not properly exercised and it restored the registration already granted. The Hon ble High Court of Madras affirmed the order of the Tribunal by noticing that the power to cancel registration enshrined under section 12AA(3) of the Act can be exercised only on existence of the two conditions contained therein. According to the Hon ble High Court, whether an income derived by the assesse .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

le only under circumstances contained in section 12AA(3) of the Act. Similarly, in the case of CIT vs. Ved Niketan Dham, Public Charitable Trust, 219 Taxman 115(P&H), the Hon ble High Court set-aside the cancellation of registration effected by the Commissioner under section 12AA(3) of the Act on the ground that there was no satisfaction recorded by the Commissioner as to how the two conditions specified in section 12AA(3) were fulfilled. Apart from the aforesaid decisions of the Hon ble Hig .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ction 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 establish that the activities are not genuine or that the same are not being carried out in accordance with the objects of the institution. In our considered opinion, the Director, who is a statutory authority under the Act, is bound to function strictly in accordance with the provisions of the Act, and has no power, juri .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

he Director as to whether the conditions prescribed in section 12AA(3) of the Act are satisfied. Before we proceed further, we find it appropriate to briefly touch upon the peculiar features of the appellant before us. As noted earlier, the appellant before us is a Government Company incorporated on 12/07/1999 under section 617 of the Companies Act, 1956. It s shareholding is owned by the Ministry of Railways (Government of India) and the State Government of Maharashtra. At certain point of time .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

setting-up a Special Purpose Vehicle(SPV) for speedy and efficient implementation of railway component of MUTP. Accordingly, assessee company was set-up as a SPV for taking up projects concerning Mumbai Sub-urban Rail Network. In fact, a perusal of the Main Objects clause in the Memorandum and Articles of Association of the assessee- company bears testimony to the above, and it reads as under:- A. MAIN OBJECTS OF THE COMPANY TO BE PURSUED ON ITS INCORPORATION: (i) To develop coordinated plans an .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 a .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

undertaken by the assessee company are in public interest with the ultimate aim of improving transportation infrastructure in MMR. It was also emphazised before us, with reference to the material on record, that the projects undertaken by the assessee company were being earlier executed by Ministry of Railways itself departmentally. It has also been pointed out that the work undertaken by the assessee company is treated at par with Railways and reference has been made to the Memorandum of Under .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ays for operations, maintenance and replacement. 6.2 It was also pointed out that the Direction & General (D&G) charges being received by the assessee are nothing but inter- departmental allocations to cover administrative overheads. It has been explained that the D&G charges for work under MUTP is based on the quantum of work to be carried out by the assessee and are determined in terms of a standard policy of the Railways. It is also clear that assessee company functions under comp .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

that the task of the assessee is to act as an overall co-ordination and implementing agency for the railway component of MUTP works. 6.3 Be that as it may, in the background 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 a .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ler 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 in the Paper Book at pages 399 to 472. Ld. Representative for the assessee explained that no profits are earned from the activity of .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

has been made to a communication from Railway Board, a copy of which is placed at page 53 of the Paper Book titled INDEX of NOTES filed before us. It is also prescribed therein that any surplus with the assessee is also to be ploughed for funding of the MUTP projects. It is also pointed out that no commercial activity has been carried out and that all its activities are for the purpose for which assessee was set-up. In this context, we have carefully perused the impugned order of the Director an .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ntified under MUTP. In our considered opinion, the Director has completely misdirected himself in construing the activities of the assessee. The various projects being undertaken by the assessee have been completely lost sight of and rather much has been made of the items of receipts by way of D&G charges, interest incomes and expenses on administrative and establishment overheads. Quite clearly, any organization would require to spend on administrative overheads in order to carry out its ob .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 opi .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

impugned order. Thus, having regard to the material and evidence on record there is no ground to infer that the two eventualities mentioned in section 12AA(3) of the Act are met, namely, activities not being genuine or that the same are not carried out in accordance with its objects. Thus, invoking of section 12AA(3) by the Director has to fail in the present case. Therefore, on this preliminary aspect itself we find that the Director exceeded his jurisdiction prescribed in section 12AA(3) by c .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

aid 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 ente .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 

what is new what is new
  ↓     bird's eye view     ↓  


|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version