TMI Blog2018 (12) TMI 1465X X X X Extracts X X X X X X X X Extracts X X X X ..... aving been offered, the registration; if enabled, would be applicable from the first day of the financial year in which the application is made. What assumes relevance is the fact that the assessee herein was entitled to exemption under Section 10(20) by virtue of its registration as a local authority and the same was taken away by an amendment of 13.11.2002, which came into effect from 01.04.2003; when the exemption was withdrawn. We notice that there has been a delay of about 3 years. The need for registration as a trust carrying on activities of charitable purposes arose only for reason of the exemption having been withdrawn. The assessee which was enjoying exemption from income-tax from its inception was suddenly faced with the prospect of being made liable under the taxing statute. This would have required considerable research and as was rightly pointed out by the assessee, the Ports, all over the Country had been suddenly deprived of their exemption and had filed applications under Section 12AA with considerable delay. Taking all these aspects into account; we find that the explanation offered is satisfactory and the delay has to be necessarily condoned. We agree with th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the dictum in (2004) 12 SCC 42 [Berger Paints India Ltd. v. Commissioner of Income Tax, Calcutta] ? 2. On facts, suffice it to notice that the assessee had been carrying on activities of a Port having been notified under the Indian Ports Act, 1908 by virtue of notification Nos.SRO 57, 58 and 59 dated 08.01.1952 issued by the Ministry of Transport, Government of India. Like other Ports in India, before 13.11.2002, the assessee herein was registered as a 'local authority' as defined under Section 3(31) of the General Clauses Act, 1897. By virtue of such registration prior to 2002, the assessee was also availing exemption from income-tax as a 'local authority' under Section 10(20) of the IT Act. When an Explanation was added under Section 10(20) by which 'local authority' was defined, the restricted meaning; took the assessee along with some others out of the definition of 'local authority' and hence, was then on exigible to tax under the IT Act. 3. The assessee then made an application to the Commissioner of Income Tax to register it as a charitable institution as defined under Section 2(15) of the IT Act. This was for the purpose of claiming ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with law. In any event, having found that the delay was not entitled to be condoned, the Commissioner went ahead and looked at the issue of registration, since even if the delay is not condoned the registration could be granted from the financial year in which the registration is sought for, under Section 12A. 5. The contentions of the assessee with respect to the various provisions of the Major Port Trusts Act, 1963 and the functions carried on by the assessee were extracted. The constitution of the trust was also noticed along with the manner in which the income generated was to be applied. The Commissioner found that there was no trust created in the manner envisaged under Sections 11, 12 and 12A of the IT Act. The Major Port Trusts Act was found to have merely appointed a Board of Trustees, without any creation of trust as such by a specific provision. The definition of 'trust' under the Trusts Act, 1882 was referred to as an obligation annexed to the ownership of the property and arising out of a confidence reposed in and accepted by the owner or declared and accepted by him for the benefit of another or of another and the owner. The Commissioner noticed that the Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich is a similarly situated entity, was granted registration under Section 12AA of the IT Act by the Panaji Bench of the Income Tax Appellate Tribunal. The issue was considered in the meeting of the Committee on Disputes (CoD) on 26.06.2008. The specific issue considered as item No.13 and the decision as given in the minutes of the CoD meeting produced along with Annexure-R1(a) are as below: Whether the Mormugao Port Trust is eligible for registration under Section 12A i.e. whether the income of Mormugao Port Trust is eligible for exemption under Section 11. The representative of CBDT stated that the issue has attained finality as the apex court has since decided it against the department. He sought permission of the Committee to withdraw the case. The Committee directed that the case may be treated as withdrawn. 8. The assessee had claimed on the basis of the decision in Berger Paints India Limited (supra) that the Income Tax Department shall not be allowed to pursue the appeal, in view of a specific decision having been taken in the case of Mormugao Port Trust to accede to the decision of ITAT granting registration under Section 12AA. The minutes of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce in an altruistic thought and often the money to carry out the same is generated from voluntary contributions; the exemption under Section 11 and 12 has to be read along with Section 2 (15). A charitable purpose as defined under Section 2 (15) takes within its ambit advancement of any object of general public utility. The exemption under Section 12 is for income of trusts or institutions from voluntary contributions and under Section 11 for income from property held for charitable or religious purposes. The misconception of the Commissioner was, first, in having decided the issue of registration looking solely at how the income was generated without a consideration of how it is applied; which is the most relevant aspect to be considered under Section 12AA. 12. Yet again; on the question of whether the assessee is a trust or not, we see that the Commissioner laboured on the definition of Trust in the Indian Trusts Act, without avail and misunderstood the true import of the definition. We find that all the ingredients which have been referred to by the Commissioner is available, insofar as the present assessee is concerned. The statute as has been found by the Commissioner const ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Port, lighthouses, lightships, beacons, buoys, pilot boats, vessels, tugs or other boats and sinking of tube-wells and equipment, maintenance, are all, included in the works and appliances that are covered under Section 35. Section 37 confers the power on the Board to order sea-going vessels to use docks, wharves managed by the Board and not others with an auxiliary power to compel all sea going vessels to use the docks and wharves managed by the Port Trust alone, when there is sufficient accommodation under Section 38. The services offered by the Board has been further elaborated in Section 42 which refers to services for landing shipping or transshipping passengers and goods and so on and so forth. The Board also has been mulcted with the responsibility for loss etc., of the goods on board, which it has taken charge under the provisions of the Act, by Section 43. The Board has also the responsibility to provide accommodation to the Customs Officers of the Central Government under Section 44. 14. The functions as seen from Chapter V in fact specifically commends us to find a public utility service being carried on by the Board, facilitating the movement of goods into and w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y for profit, we refer to Paragraph 16 and part of 17 in Surat Art Silk Cloth Manufacturers Association (supra): 16. The other interpretation is to see whether the purpose of the trust or institution in fact involves the carrying on of an activity for profit or in other words whether an activity for profit is actually carried on as an integral part of the purpose or to use the words of Chandrachud, J, as he then was in Dharmodayam case (1977) 4 SCC 75 , as a matter of advancement of the purpose . There must be an activity for profit and it must be involved in carrying out the purpose of the trust or institution or to put it differently, it must be carried on in order to advance the purpose or in the course of carrying out the purpose of the trust or institution. It is then that the inhibition of the exclusionary clause would be attracted. This appears to us to be a more plausible construction which gives meaning and effect to the last concluding words added by the legislature and we prefer to accept it. Of course, there is one qualification which must be mentioned here and it is that if the constitution of a trust or institution expressly provides that the purpose shall be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ominant object of the activity involved in carrying out the object of general public utility is to subserve the charitable purpose or to earn profit. Where profit making is the predominant object of the activity, the purpose, though an object of general public utility, would cease to be a charitable purpose. But where the predominant object of the activity is to carry out the charitable purpose and not to earn profit, it would not lose its character of a charitable purpose merely because some profit arises from the activity. The exclusionary clause does not require that the activity must be carried on in such a manner that it does not result in any profit. It would indeed be difficult for persons in charge of a trust or institution to so carry on the activity that the expenditure balances the income and there is no resulting profit. That would not only be difficult of practical realisation but would also reflect unsound principle of management. ( UNDERLINING SUPPLIED BY US) We find it apposite also to extract Paragraphs 9 and 10 of the APSRT C : 9. It was not disputed that the object of the activity carried on by the respondent Corporation was one of general publ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... What is the predominant object of the activity - whether it is to carry out a charitable purpose or to earn profit? If the predominant object is to carry out a charitable purpose and not to earn profit, the purpose would not lose its charitable character merely because some profit arises from the activity. 16. We are of the opinion that the decisions squarely apply in the case of the assessee also. The public utility services are managed through Corporations or Departments of the Government. They are establishments and institutions independently carrying on such services for the benefit of the general public. APSRTC was found to be established for the purpose of facilitating the transport of passengers from one place to another which services are of public utility. Likewise, as we found earlier, the Cochin Port Trust, the assessee herein, facilitates imports and exports of goods by maintaining the port and also provides services and facilities for the importers and exporters. As was held in the aforesaid decisions, public utility services cannot be expected to make no profits and generate no income in which event, they would eventually fold up. The establishments thus providi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purpose of the assessee involved the carrying on of an activity for profit so as to attract the mischief of the last few words in Section 2 clause (15). Krishna Iyer, J., in the Indian Chamber of Commerce case while discussing the judgment of the Kerala High Court in the Dharmodayam case , observed, consistently with the interpretation placed by him on the last concluding words in Section 2 clause (15), that the decision of the Kerala High Court in this case proceeded on a wrong test and impliedly, therefore, was incorrectly decided. But this Court while disposing of the appeal from the decision of the Kerala High Court differed from the view taken by Krishna Iyer, J. and upheld the judgment of the Kerala High Court. This Court pointed out that the facts of Dharmodayam case were not before Krishna Iyer, J. and that the test applied by Kerala High Court was held by him to be wrong on the assumption that the case fell under the last clause of Section 2 clause (15) but, in fact, this assumption was invalid, as Dharmodayam case was not one falling under the last part of the definition clause. The finding of the Kerala High Court was that the business of conducting kuries was a b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o accept the said argument and unequivocally held that the business of kuries was held in trust. We specifically refer to the underlined portion in the above extract, to find that in the assessee's case also the purpose is to afford services and facilities to the exporters and importers to which end commercial activities are carried on by the Port. The lease of buildings and plots for setting up of warehouses and hotels are not the purpose for which the Port Trust is established. But the income generated from such activities are applied to the facilitation of various services and facilities to the exporters and importers. We are definitely of the opinion that it is a public utility service and the object of the Trust is not the carrying on of any activity of profit. 19. We also refer to the decision of the Hon'ble Supreme Court in Commissioner of Incom e -Tax v. Gujarat Maritime Board [(2007) 295 ITR 561] , a later decision on identical circumstances. Gujarat Maritime Board was also entitled to exemption under Section 10(20) being registered as a local authority. After the exemption was taken away by reason of the restriction provided in the definition of local author ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t or institution is granted registration, the Commissioner is empowered to look into the activities carried on to cancel the registration on satisfaction that the activities are not genuine or are not being carried out in accordance with the objects of the trust or institution as the case may be. The definition for the subject period did not have the words involving the carrying on of any activity for profit, in later amendments, it came in a different form, and then again was omitted. In APSRTC the finding was rendered even when the provision contained the specific restriction insofar as the carrying on of any activity for profit. Hence even when the carrying on activity of profit stood included the assessee would be entitled to be covered under Section 2(15). 22. We are also not convinced that the mere delay would have affected the registration being granted. Clause (a) of Section 12A provides an application to be filed in the prescribed form and in the prescribed manner to the Commissioner before the first day of July, 1973 or before the expiry of a period of one year from the date of creation of the trust or the establishment of the institution. The proviso also makes it cle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned Standing Counsel, Government of India (Taxes) to get instruction as to the document produced, by interim order dated 20.07.2018. Till 14.11.2018,no instructions were forthcoming and we directed the appearance of the Assistant Commissioner of Income Tax, Circle 2(1), Non-Corporate Range - 2, Thoppumpady, Kochi by interim order dated 14.11.2018. The Assistant Commissioner appeared on 22.11.2018 and he submitted before us that no decision can be taken by him. We hence directed the Commissioner of Income Tax, Cochin to file an affidavit as to why the litigation on the very same issue pending against the Mormugao Port Trust was withdrawn, while that against the Cochin Port Trust is being pursued by the Department. This was by interim order dated 22.11.2018. The Commissioner has filed an affidavit dated 28.11.2018 admitting that though the facts of the Mormugao Port Trust case is not known to him he is aware of the proceedings at Ext.R1(a). The Commissioner also expresses helplessness insofar as he being not competent to take a decision on the aspect of taking a similar decision in the case of Cochin Port Trust. It is also brought to our notice that by virtue of the later decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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