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Entertainment Society of Goa v. Commissioner of Income-tax
Factual and Procedural Background
The assessee society was granted registration under Section 12A of the Income Tax Act on 13.4.2006, based on the then existing definition of "charitable purpose" under Section 2(15). Subsequently, the definition of "charitable purpose" was amended by the Finance Act, 2008, inserting a proviso that excluded activities involving trade, commerce, or business from being charitable if receipts exceeded Rs. 10 lakh. The Commissioner of Income Tax (CIT) issued notices to the assessee questioning the validity of the registration in light of the amended definition, noting that the society's activities, including holding the International Film Festival of India (IFFI), licensing multiplexes, hiring auditoriums, and other commercial activities, resulted in income exceeding the threshold. The CIT cancelled the registration from assessment year 2009-10 onwards. The assessee challenged the cancellation, contending that the receipts were incidental to its charitable objectives and that it was a regulatory body of the Government of Goa. The appeal was filed after a delay of one day, which was condoned by the tribunal.
Legal Issues Presented
- Whether the cancellation of the registration granted under Section 12A of the Income Tax Act to the assessee society was valid in light of the amendment to the definition of "charitable purpose" under Section 2(15)?
- Whether the activities of the assessee society constitute carrying on any activity in the nature of trade, commerce or business or rendering any service in relation thereto, thereby disqualifying it from being treated as charitable under the amended Section 2(15)?
- Whether the CIT had the jurisdiction and authority under Section 12AA(3) to cancel the registration on grounds other than those specified in the statute, i.e., activities not genuine or not in accordance with the objects?
- Whether the assessee society qualifies as a regulatory body or an arm of the Government exempt from the proviso to Section 2(15)?
Arguments of the Parties
Appellant's Arguments
- The assessee was established primarily for holding the International Film Festival of India (IFFI), a charitable object of general public utility.
- The main sources of income, including licence fees, hire charges, and miscellaneous receipts, were incidental and ancillary to the primary charitable objectives and were used only to defray expenses related to the festival.
- The assessee is a regulatory arm/body of the Government of Goa and Ministry of Information and Broadcasting, thus not engaged in trade, commerce or business.
- The assessee does not own immovable property but is given temporary possession by the Government of Goa, and the receipts from hiring premises are nominal and meant to encourage film culture.
- The receipts such as sponsorships, authorization charges, administrative charges, and membership fees are connected directly with the festival and not profit-oriented.
- The proviso to Section 2(15) does not apply to the assessee since it is not carrying on any trade or business but only recovering costs.
- Reliance placed on decisions holding that mere receipt of fees or charges incidental to public utility objects does not amount to carrying on business.
- CIT has no power under Section 12AA(3) to cancel registration unless activities are not genuine or not in accordance with objects, neither of which is the case.
Respondent's Arguments
- The assessee's activities, including licensing multiplexes, hiring auditoriums, selling tickets, and letting out stalls, constitute carrying on activities in the nature of trade, commerce or business for consideration.
- The amendment to Section 2(15) by insertion of proviso excludes such activities from charitable purpose, regardless of the use or application of income.
- The assessee no longer qualifies as a charitable institution from the date of insertion of the proviso, warranting cancellation of registration.
- The assessee is not a regulatory body authorized by statute and hence cannot claim exemption on that ground.
- Reliance on the decision in Goa Industrial Development Corporation case where similar cancellation was upheld.
- The proviso applies even if the activity is not profit-oriented but is in the nature of trade, commerce or business.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Thyagarajan Charities v. Addl. CIT and Ors | Test for charitable purpose under Section 11 read with Section 2(15): predominant object must not be profit-making. | Applied to hold that the assessee's predominant activity was profit/income motivated and thus not charitable. |
| Self Employer's Service Society v. CIT (KER) 247 ITR 80 | Commissioner's powers under Section 12AA to grant or refuse registration based on genuineness of objects and activities. | Applied to justify refusal of registration where charitable work was not actually done despite objects. |
| Himachal Pradesh Environment Protection & Pollution Control Board v. CIT [2010] 42 SOT 343 | Regulatory bodies pursuing objects of general public utility qualify as charitable even if collecting fees. | Distinguished on facts as the present assessee was engaged in commercial activities unlike the regulatory board. |
| Addl. CIT v. Surat Art Silk Cloth Mfg. Association [1980] 121 ITR 1 (SC) | Profit motive test for "activity for profit" under Section 2(15) prior to amendment. | Held inapplicable to current case as proviso to Section 2(15) amended the test and removed profit motive as sole consideration. |
| Goa Industrial Development Corporation v. CIT [IT Appeal/26/PNJ/2012] | Application of proviso to Section 2(15) and validity of cancellation of registration under Section 12A. | Followed to uphold cancellation of registration in similar circumstances. |
| H.P. Govt. Energy Development Agency v. CIT [2010] 134 TTJ (Chd) (U.O) 33 | Scope and limits of CIT's power to cancel registration under Section 12AA(3). | Applied to hold that CIT can cancel registration only if activities are not genuine or not in accordance with objects. |
| Commissioner Of Income-Tax v. Sarvodaya Ilakkiya Pannai [2012] 343 ITR 300 (Mad.) | Validity of cancellation of registration under Section 12AA(3) when no violation of prescribed grounds. | Not binding on the present tribunal and distinguished on facts. |
| Commissioner Of Income-Tax v. Thana Electricity Supply Ltd. [1994] 206 ITR 727 (Bom.) | Binding nature of High Court decisions limited to territorial jurisdiction. | Applied to reject binding effect of Madras High Court decision on this tribunal. |
| M.K. Venkatachalam, ITO v. Bombay Dyeing & Mfg. Co. Ltd. [1958] 34 ITR 143 (SC) | Principles on rectification of mistakes apparent on record by tax authorities. | Applied to hold that cancellation of registration was a rectification of a legal mistake arising from amendment to Section 2(15). |
| IAC of Agricultural Income Tax & Sales Tax (Special) V.M. Ravi Namboodiripad [1974] 96 ITR 73 (SC) | Same as above regarding rectification and powers of tax authorities. | Supported the view that cancellation was valid as rectification of mistake apparent on record. |
| J.M. Bhatia, Appellate Asstt. CWT v. J.M. Shah [1985] 156 ITR 474 (SC) | Same as above on rectification powers. | Referenced to affirm validity of cancellation as rectification. |
| GTC Industries Ltd. v. Dy. CIT [2007] 104 ITD 86 (Mum.) (TM) | Binding precedent on rectification of registration orders. | Followed to confirm cancellation of registration. |
Court's Reasoning and Analysis
The court analyzed the facts in light of the amendment to Section 2(15) of the Income Tax Act, which added a proviso excluding from charitable purpose any institution carrying on activities in the nature of trade, commerce, or business, or rendering services related thereto, for consideration, if receipts exceed Rs. 10 lakh. The court examined the assessee's objects and activities, including organizing the International Film Festival of India and related commercial activities such as licensing multiplexes, hiring auditoriums, selling tickets, and other receipts.
Despite the assessee's contention that these receipts were incidental and used solely to defray expenses, the court held that the proviso applies regardless of the use or application of income. The activities were found to be in the nature of trade, commerce, or business or rendering services related thereto for consideration, thus falling within the ambit of the proviso.
The court rejected the argument that the assessee was a regulatory body or an arm of the Government, noting the absence of statutory authority and that the proviso does not exempt such bodies. The court distinguished precedents relied upon by the assessee, especially those predating the amendment or involving genuine regulatory functions without commercial receipts.
Further, the court held that the CIT's cancellation of registration under Section 12AA(3) was valid as a rectification of a legal mistake apparent on record, due to the change in the definition of charitable purpose after the registration was initially granted. The court emphasized that the CIT's power to cancel registration is circumscribed but recognized that amendment in law can affect eligibility retrospectively.
Consequently, the court confirmed the cancellation of registration from assessment year 2009-10 onwards and dismissed the assessee's appeal.
Holding and Implications
The appeal filed by the assessee is dismissed and the cancellation of registration under Section 12A of the Income Tax Act from assessment year 2009-10 onwards is upheld.
This decision directly affects the assessee by confirming that it no longer qualifies as a charitable institution for exemption under the Income Tax Act following the amendment to Section 2(15). The ruling clarifies that activities involving trade, commerce, or business or rendering related services for consideration, exceeding the prescribed threshold, disqualify an institution from charitable status irrespective of the application of income.
No new precedent beyond the direct effect on the parties is established, as the decision follows existing interpretations of statutory amendments and prior coordinate bench rulings.
ORDER
P.K. Bansal, Accountant Member - This appeal filed by the Assessee is barred by limitation by one day. After the hearing the rival submissions and going through the Affidavit of the Chief Executive Officer of the institution stating therein that the appeal was drafted and signed on Friday, 2nd November, 2012 but could be filed only on the next working day i.e. Monday, 5th November, 2012. The limitation for filing the appeal since expired on 3.11.2012 and 3.11.2012 was a Saturday. Therefore, the appeal was filed on 5.11.2012. In view of this fact, we condone the delay and admit the appeal.
2. The only issue involved in this appeal filed by the assessee relates to the validity of the cancellation of registration by the CIT from assessment year 2009-10 which was guaranteed to the assessee u/s 12A of the Income Tax Act by the order dated 13.4.2006. The brief facts of the case are that the CIT noted that the assessee was granted registration u/s 12A by the CIT vide order dated 13.4.2006 on the basis of the definition of charitable purpose as it exists u/s 2(15) at that time. Subsequently, the definition of the charitable purpose was amended by inserting therein proviso. In view of this, the CIT issued notice to the assessee why the registration granted should not be cancelled. The CIT noted that the main objects of the activities of the trust / society is holding International Film Festival of India, advise the Govt. of India on various policies, issues relating to entertainment industry in the state of Goa, to create entertainment hub and to give global visibility, to inspect film education and film centre, to build multiplexes, cinema halls, auditoriums etc from the trust deed. The CIT noticed various aims and objects for which the institution 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. In this regard, the society has received licence fees from Multiplex, Hire charges for auditorium, income from sale of programme tickets, income from sale of tender forms, membership fees, income from authorization charges for conducting shootings and also income from stalls and usage of premises and disclosed them as revenue in the Income and Expenditure account. On perusal of Income and Expenditure account, it is seen that society has received major part of income by way of income from house property and government grant. Apart from house property income by way of income from house property and government grant. Apart from house property income and government grant, the society has earned substantial miscellaneous income from sale of programme tickets and web tender forms, bank interest, licence fee from multiplex, hire charge of auditorium, stall booking and administrative charges. All these activities hover around in the field of commerce or business or can be termed as rendering of service in relation to trade, commerce or business. Therefore, activities carried out by the society is akin to activities undertaken by private enterprises who are liable for tax. As per proviso to section 2(15) of the IT Act 1961 w.e.f. 01-04-2009, the advancement of any object general public utility will not be treated as for charitable purpose, if it involves the carrying on 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 a fee of any other consideration irrespective of the nature of use or application or retention of income from such activities. The society is clearly rendering some of the services in relation to trade, commerce or business for which it is charging fees which have been disclosed in Income and expenditure account as income. Section 2(15) further provides that the first proviso shall not apply if the aggregate value of receipts from the activities is Rs. 10 lakh or less. From the Income and expenditure accounts for A.Ys 2009-10 and 2010-11, it is seen that total receipts are Rs. 8,75,78,174 and Rs, 5,39,18,849 respectively. The society is also undertaking these activities and rendering service by charging income just like a commercial venture. Considering these facts, it is quit clear that the activities of society can not be held for charitable purposes and 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 aspirations of IFFI. In this regard, the society has received licence fees from Multiplex, Hire charges received from auditorium, sale of programme ticket, income from sale of tender form, membership fees, income from authorization charges for conducting shootings and also income received from stalls and usage of premises. Therefore earning is a predominant feature which negates the very concept of charitable purpose. The income generated by the society from these activities are not applied for general charitable purpose as is commonly understood but to further this commercial activity itself. The Supreme Court in the case of Thyagarajan Charities v. Addl. CIT and Ors has laid out that the test to find out if a trust is entitled to exemption u/s 11 r.w.s. 2 (15) of the Income Tax act,1961, because it has been established for the advancement of an object of general public utility not involving the carrying on of any activity for profit is whether the predominant object of the activity involved in carrying out the object of general public utility is to sub serve the charitable purpose or to earn the 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. In the present case the predominant and sole activity is itself profit/income motivated and as such cannot be called as "Charitable" as defined U/s 2(15) of the Income Tax Act, 1961.
9. As laid out in the case of Self Employer's Service Society v. CIT (KER) 247 ITR 80 under the provisions of Section 12 AA, the Commissioner shall call for documents and information and hold enquiries regarding the genuineness of the trust or institution. If he is satisfied about the charitable or religious nature of the objects and genuineness of the activities of the trust or institution, he will be pass an order granting registration and if he is not satisfied can refuse registration. Even if several charitable objects/activities were included in the objects of the society, but no charitable work and activities are done, the rejection of the application is justified.
10. Although the objects of the society falls under the limb "any other object of general public utility". The activities are commercial in nature to meet out its purpose of holding International Film Festival and develop film culture and propogation. 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 on various policies, issues related to promotion of entertainment industry in the State of Goa, to create entertainment hub and to give global visibility, to spread film education and film culture, to build multiplexes, cinema halls, auditoriums etc. and to develop infrastructure to meet the ends of IFFI, to set up international film city and to establish film and T.V. institute etc. It was contended that the assessee is a regulatory arm and body of the Government of Goa in hosting IFFI. Our attention was drawn towards the main sources of income of the society which consists of licence fee from multiplexes, hire of auditoriums, usage of premises charges and miscellaneous income. For the details of miscellaneous income, attention was drawn towards page 37 of the audited Balance Sheet. Thus, it was contended that the main sources of income of the society is income from housing property and income from other sources. The society does not derive any income from business or profession. Mere owning and letting out of the building property will not amount to carrying on activity in the nature of a trade, commerce or business. It was stated that the assessee is a nodal agency and has been incorporated in accordance with the agreement between the Central Government and the State Government but the copy of the agreement was not provided. It was stated that as per the Memorandum of Understanding entered into between the Director of Film Festival, Ministry of Information and Broadcasting, Government of India and the State Government of Goa, the society is bound to create an atmosphere of mutual sharing and co-operation to share the invitation for opening and closing ceremonies between the Directorate of Film Festival and Goa Government including the labels for VIP parking for these events. The society is primarily controlled by the Ministry of Information and Broadcasting, Government of India and the Government of Goa and therefore it cannot be denied that it is not a charitable organization. Both, the Director, DFF and the State Government can invite film producers, directors, actors/actresses, film professionals, journalists both from India and abroad and decide upon the travel and hospitality to be extended to these guests. The society is bound to incur the expenditure on travelling as well as hospitality extended to these invitees. To meet out the costs of holding the 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 of the year, the premises are given on hire almost exclusively to various Government Departments. The auditoriums are hired out at very nominal rent to encourage film culture. The assessee does not own any immoveable property. For this, attention was drawn towards the audited Balance Sheet. The purpose of various receipts is only to defray the costs incurred in organizing and holding the film festival. In respect of the various receipts given under the head miscellaneous receipts, following written submission were made :-
"1. Sponsorship & contributions
ESG receives sponsorship from various parties on the occasion of the film festival in return for deliverables such as branding their company via logo presence or advertising their services.
The receipt is directly connected with the film festival and the only object is to defray the expenses of the film festival.
2. Authorization charges for conducting shooting
As per the directives of the Goa Government, ESG issues NOC for film shooting in Goa. The amount collected is towards the same. For convenience, ESG acts as the agency of Government to collect these charges in form of single window system. 30% of the amount is remitted to the concerned panchayat where the shooting is done. Remaining 70% is retained by ESG for defraying its film festival and film promotion expenses.
3. Hire of Auditorium
Goa Government has given temporary possession of some of the property in Maquinez Palace ground to ESG which includes Old GMC Complex, Art Gallery, two auditoriums (232 seater and 81 seater) and office space. Except for the office space, other premises are utilized only during film festival. Since there premises remain idle during the rest of the year, the same are given on hire, mainly to Government Departments in need of office space. The auditoriums are hired out at nominal rent to encourage a film culture. Some of the expenses incurred on the complex are (refer Schedule "L" of accounts) :
| Rs. | ||
| (a) Security and cleaning | 20,07,513 | |
| (b) Water charges | 5,12,522 | |
| (c) Electricity charges | 22,54,970 |
On an average, revenue is received of Rs. 12-15 lakhs per annum. The average maintenance expenditure of Maquinez Palace, Old GMC building etc. is in the region of Rs. 40-50 lakhs per annum.
4. Web Tender Forms Receipts
ESG tenders various works 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 A.Y. 2009-10 receipts from short film was Rs. 2,60,486 whereas the expenses was Rs. 56,94,205. (Refer Schedule "K" of accounts).
8. Usage of premises
Identical to Item 3 above. The buildings require a huge expenditure every year prior to monsoon for upkeep and maintenance. A Committee from Delhi visits each year prior to film festival and makes suggestions for further improvements/repairs to the premises.
9. Membership fees - Cinephile
ESG runs a club called "Cinephile" where film lovers can become a member. The object is to encourage the culture of watching films. A nominal amount is collected as membership fees. The membership is to be renewed annually by paying stipulated charges. The members are entitled to passes for the film festival. Further, they are also entitled, free of charge, to watch some other movies during the year. The expenditure to screen films is much more than the annual fees collected from the members. Annual Membership fee is approximately Rs. 1300/- per member. A single film screening costs Rs. 7000-8000.
10. Administrative charges
A.Y. 2009-10 - ESG had installed Projection system at Ravindra Bhavan for Directorate of Art & Culture (Govt. of Goa) and the amount was received as Administrative charges purely as a reimbursement of cost.
A.Y. 2010-11 - Directorate of Social Welfare (Govt. of Goa) had asked one producer to produce filler for their Department and the ESG was assigned job of verifying the same. Administrative charges were received towards the same purely as a reimbursement cost.
These are occasional receipts. No receipts of such nature have occurred in future years.
The above are one-off reimbursements.
11. Receipt towards listing of hotels on ESG website
In order to give ready reference of accommodation available to the delegates participating in film festival, ESG upload list of hotels along with their rates on the ESG website. The amount was received from different hotels as charges for listing their name on ESG website. However, the amount was collected for only one year. After that, the listing has been done free of cost till date. In any event, the receipt was directly connected with the film festival.
12. Receipts from stalls
ESG erects stalls during film festival. The same are given on hire. The receipts are towards the same. It is directly connected with film festival. The object is to enable 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 Year 2009-10. The amount is towards entry fees for screening film in the Portuguese Film Festival which is negligible. For A.Y. 2010-11 - expenditure of Rs. 39763/- is incurred against receipts of Rs. 3800/-."
4. It was contended that the assessee has been created for carrying on the object of general public utility. Reliance was placed towards decision of Chandigarh Bench in the case of Himachal Pradesh Environment Protection & Pollution Control Board v. CIT [2010] 42 SOT 343 . The activities and objects carried on by the society at the time of grant of registration under Section 12A are same and there is no change in the activities as well as objects of the society. The registration under Section 12A(3) can be withdrawn when the CIT is satisfied that (i) activities of assessee are not genuine or (ii) activities of the assessee are not being carried on in accordance with the objects of the Trust or institution. The activities of the assessee cannot be regarded to be not genuine and the assessee is pursuing the objects for which it was established. Attention was drawn in this regard towards decision in H.P. Govt. Energy Development Agency v. CIT [2010] 134 TTJ(Chd) (U.O) 33 in which it was held that the CIT has power to cancel the registration only on being satisfied about either of the two points mentioned in section 12AA(3) and not for any other reason. Since in the case of the assessee, neither of the conditions is fulfilled, therefore, the registration cannot be cancelled. Reliance was also placed in this regard towards the decision of Ahmedabad Bench as well as Mumbai Bench of the Tribunal also which has been discussed by us subsequently. Reliance was also placed on the decision of Hon'ble Madras High Court in the case of Commissioner Of Income-Tax v. Sarvodaya Ilakkiya Pannai [2012] 343 ITR 300/20 taxmann.com 546/206 Taxman 115 (Mag.) in which it was held that in the absence of any activity carried out by the assessee contrary to the objects, the registration could not be revoked. This bench's attention was drawn to the decision of this bench in the case of Goa Industrial Development Corporation in which the registration granted under Section 12A was cancelled by the CIT was upheld by this tribunal. The Learned AR pointed out that the case of the assessee is distinguishable from the case of Goa Industrial Development Corporation as the dominant object in the case of the assessee is to conduct international film 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 only to enable the assessee to defray its expenses or as a reimbursement of its costs. The assessee has no real earning from organizing and holding of film festival. If receipts would not have been there, the Goa Government would have been compelled to give higher grants to the assessee. Reliance was placed on the decision of Addl. CIT v. Surat Art Silk Cloth Mfg. Association [1980] 121 ITR 1/[1979] 2 Taxman 501 (SC) . It was submitted that in that case, while considering the expression "activity for profit" for the purpose of section 2(15) of the Income Tax Act, the Hon'ble Supreme Court held that the test that must be applied is not whether, as a matter of fact, the activity results in profit but whether the activity is carried on with the object of earning profit. In other words, profit making must be the end to which the activity is directed or the pre-dominant object of the activity must be making of profit. In case of the assessee, there is no objective of making profit. When a person incurs expenditure far in excess of its receipts each year it is indicator of charitable activity and not a business activity.
5. The Learned DR, on the other hand, vehemently contended that the case of the assessee is covered by the decision of this bench in the case of Goa Industrial Development Corporation v. CIT [IT Appeal /26/PNJ/2012 dtd. 22.6.2012]. This tribunal has in that case dealt with all the arguments of the assessee. It is a case where the CIT has rectified his order passed for registration under Section 12A as Section 2(15) has been amended by insertion of proviso to Section 2(15) by the Finance Act, 2008. In view of the amendment in law, the assessee no more continues to be one created for charitable purpose. Referring to section 2(15) of the Income Tax Act, it was stated that the proviso nowhere talks of whether the assessee is engaged for earning profit from the activities or not. The assessee is not denying that it was engaged in advancement of any other objects of general public utility which was a charitable purpose when the registration was granted. But since now the assessee is getting income/receipt by carrying out activity in the nature of trade/commerce or business, the assessee is getting fees for exhibiting films, the assessee is getting charges towards sponsorships, letting out of multiplexes, auditoriums, entertainment hubs, even getting charges for letting out stalls, may be 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 :-
7. The society was granted registration under Section 12A(a) by the Commissioner of Income-Tax, Panaji, Goa vide order dtd. 13.4.2006. The registration was granted when Section 2(15) defined "charitable purpose" as under :
"Charitable purpose includes relief to the poor, education, medical relief, and the advancement of any other object of general public utility."
8. Subsequently this section was amended by the Finance Act 2008 by adding the proviso thereto and thereafter, this section reads as under: -
"Charitable purpose includes relief of the poor, education medical relief, preservation of environment (including water shades, forest and wild life) and preservation of monuments or places or objects of artistic or historic interest and the advancement of any other object of general public utility:
Provided that the advancement of any other object General Public Utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for cess or fee or any other consideration, irrespective of nature of use or application, or retention, of the income from such activity:
Provided further that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is 10 Lakh rupees or less in the previous year."
After insertion of the proviso to Section 2(15), the CIT issued a notice to the assessee dtd. 12.12.2011 stating therein the subject for review of the registration granted under Section 12A of the Income Tax Act. This letter reads as under :
"In view of the amendment to Section 2(15) of the I.T. Act 1961 of definition of "Charitable Purpose", it has been brought to my notice that your institution has not fulfilled the conditions laid down u/s 2(15) 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 activity in the nature of trade, commerce or business.
It has been held in the case of H.P. Environment Protection Control Board v. CIT (Chd) (2009) 125 TTJ 98 that "There is no conflict in an assessee being a regulatory body and its pursuing an "object of general public utility" which qualifies to be a Charitable activity u/s. 2(15). The scope expression "any other objects of general public utility" is indeed very wide, though it would indeed exclude the objects of private gains such as an undertaking for commercial profit even as the undertaking may sub-serve general public utility."
"It has been further held that in any case, insertion of proviso to s.2(15) does not mean that an assessee would be hit by the proviso in case it is to receive any payment for anything done for trade, commerce or business - Where an object of General Public Utility is not a mere mask to hide true purpose or rendering of any service in relation thereto, and where such services are rendered as purely incidental to or as subservient to the main object of "General Public Utility", the carrying on of bona fide activities in furtherance of such objects is not hit by the proviso to sec. 2(15) - Since the expression 'Rendering of any Service to business, trade or commerce' is used in conjunction with the words 'business, trade or commerce', these 2 expressions must be interpreted in their cognate sense - Thus, in order to invoke second limb of proviso to sec. 2(15), rendering of service to trade, commerce or business must be such that it has a profit motive - Activities performed by the assessee are regulatory function for the public good, and any collection of fees or charges in the course of discharging these regulatory functions cannot be viewed as a consideration for rendering these services - There is no substance in the CIT's stand that the income earned by the assessee as licence fees, consent fees and testing charges are receipts in consideration of rendering the services to trade, commerce or business - These are not the services with the profit motive - Assessee is admittedly pursuing the objects for which it was established and it cannot be said that its activities are not genuine." Copy of said decision is enclosed hereto as 'ANNEXURE - I'
In view of the above, we submit that ESG is not carrying on any activity in the nature of trade, commerce or business as envisaged under 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 the exception contained in the provisions of sub-section 4(A) of section 11.
In this connection it is worth noting the recent decision in the case of Gujarat Industrial Development Corporation v. ACIT , ITAT, AHMEDABAD 'C' BENCH (2011) 138 TTJ (Ahd) 714 . Copy of the said decision is enclosed hereto as 'ANNEXURE - II'.
iii. It is observed from the Show Cause notice of your Hon. Under reference that it has not stated under which provisions of Income Tax Act, the Registration granted to ESG u/s 12A(a) of the Income Tax Act, 1961 is proposed to be withdrawn. However, considering the earlier letters about Review of Registration and personal discussion in the matter during the course of hearing, it is presumed that the proposed action of withdrawal is u/s. 12AA(3) of the Income Tax Act, 1961.
In connection with the above proposed action u/s. 12AA(3), it is submitted that the activities and objects carried on by ESG at the time of grant of Registration u/s. 12A are the same and there are no changes in its activities or its objects till this date.
A plain reading of Sec. 12AA(3) would indicate that a Registration granted u/s. 12AA can only be withdrawn when the CIT is satisfied that -
There cannot be any other legally sustainable reasons for canceling or withdrawing the registration granted u/s. 12AA.
In the light of the above, if activities carried on by ESG are verified and reviewed since its inception till this date then one can not say by any stretch of logic to be not genuine and ESG is admittedly pursuing the objects for which it is established. When ESG is engaged in bona fide activities, within the frame work of law, to pursue its objective, it can not be said that the activities of ESG are not genuine.
In connection with the above, recently in the case of H.P. Govt. Energy Development Agency V/s Commissioner of Income-Tax, ITAT, Chandigarh 'A' Bench, (2010) 134 TTJ (Chd) (UO) 33, it has been held at para 8 of page 39 as under -
"It is evident that Power of the CIT to cancel the Registration is not unfettered. It is circumscribed by the conditions prescribed in Section 12AA(3) of the Act. It is also clear that such power does not permit wholesale review 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 accordance with the objects of the trust or institution as the case may be. In our considered opinion the CIT is bound to function strictly in accordance with the provisions of the Act. A Statutory Authority has no power, jurisdiction or discretion to go beyond the Statutory Provisions. No power can be assumed in the absence of any specific provision. It is quite clear that as per Sub-Section (3) of Section 12AA of the Act, CIT has power to rescind the registration only on being satisfied about either of the two points mentioned therein, and not for any other reason. We may conclude here that the registration already granted u/s. 12AA(1)(b) of the Act can be cancelled only on the fulfillment of the conditions mentioned in Section 12AA(3) of the Act and not for any other reasons."
Copy of the above decision is enclosed herewith as 'ANNEXURE-III'
In view of the above facts and legal submissions we sincerely believe that ESG has fulfilled the conditions as laid down u/s.2(15) of the Income Tax Act, 1961 and your Hon. may be satisfied with the above explanations, and hence we request your Hon. not to withdraw the Registration granted to ESG u/s. 12A(a) of the Income Tax Act, 1961."
10. After analyzing the various receipts of the assessee alongwith the reply of the assessee, the CIT withdrew the registration already granted to the assessee under Section 12A of the Income Tax Act, 1961. Now, the question before us is whether the assessee is regarded to have been established for charitable purpose even after insertion of proviso to section 2(15) of the Income Tax Act, 1961. The proviso regarding the registration and procedure for registration are given under the Income Tax Act, 1961 under Section 12A, 12AA and Rule 17 which are re-produced as under :
"Section 12A
The provisions of section 11 and section 12 shall not apply in relation to the income of any trust or institution unless the following conditions are fulfilled, namely:-
(a) the person in receipt of the income has made an application for registration of the trust or institution in the prescribed form and in the prescribed manner to the Commissioner before the 1st day of July, 1973, or before the expiry of a period of one year from the date of the creation of the trust or the establishment of the institution is registered under section 12AA] :
Provided that where an application for registration of 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, -
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, 2007.
(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 exceeds the maximum amount which is not chargeable to income-tax in any previous year, the accounts of the trust or institution for that year have been audited by an accountant as defined in the explanation below sub-section (2) of section 288 and the person in receipt of the income furnishes along with the return of income for the relevant assessment year the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed.
| (c)** | ** | ** |
(2) where an application has been made on or after the 1st day of June, 2007 the provisions of sections 11 and 12 shall apply in relation to the income of such year in which such application is made"
Procedure for registration
"Section 12AA
12AA. (1) The Commissioner, on receipt of an application for registration of a trust or institution made under clause (a) [or clause (aa) of sub-section (1)] of section 12A, shall—
Provided that no order under sub-clause (ii) shall be passed unless the applicant has been given a reasonable opportunity of being heard.
[(1A) All applications, pending before the Chief Commissioner on which no order has been passed under clause (b) of sub-section (1) before the 1st day of June, 1999, shall stand transferred on that day to the Commissioner and the Commissioner may proceed with such applications under that sub-section from the stage at which they were on that day.]
(2) Every order granting or refusing registration under clause (b) of sub-section (1) shall be passed before the expiry of six months from the end of the month in which the application was received under clause (a) [or clause (aa) of sub-section (1)] of section 12A.]
[(3) Where a trust or an institution has been granted 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 :—
11. From the provision of the section 12A, it is clear that this section states that provision of Section 11 and 12 are not applicable unless condition for registration of the Trust or institution is fulfilled. Section 12(1)(a) requires making of an application for registration; in the prescribed form and in the prescribed manner to the Commissioner before the expiry of 01 year from the date of the constitution of the Trust or institution. In case application is made after the expiry of the period of 01 year the provisions of section 11 & 12 are not applicable. For an application made prior to 1st day of June 2007, the commissioner has the power to condone the delay, if he satisfied that the person was prevented from making the application before the expiry of aforesaid period for sufficient reason. Such Trust or institution has also to get its account audited by an accountant as defined in the explanation below Section 288(2) in the case the total income of the Trust or institution without considering the provision Section 11 & 12 exceeds the maximum amount not chargeable to tax in any previous year. Such Trust or institution was bound to furnish such audit report in the prescribed form duly signed and verified by such accountant. Explanation to section 288(2) defines accountant to mean a Chartered Accountant and who is competent to act as an auditor u/s 226(2) of the Company's Act.
12. The provisions of section 11 are applicable only to the persons deriving income from property held under Trust for charitable or religious purposes. They are not applicable if the person is not in receipt of the income derived from property held for charitable or religious purposes. Section 12AA 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 religious society. Section 2(15) defines the charitable purpose. This section was amended by the Finance Act 2008. The CIT vide his order dt. 13/04/2006 granted registration to the assessee institution as its objects were within the term "the advancement of any other object of General Public Utility". Subsequently, the definition of the charitable purpose has been amended by adding the following proviso: -
"Provided that the advancement of any other object General Public Utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for cess or fee or any other consideration, irrespective of nature of use or application, or retention, of the income from such activity:
Provided further that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is 10 Lakh rupees or less in the previous year."
14. Since the definition of charitable purpose got amended, it is incumbent on the part of the assessee to prove that it is not hit by the proviso to section 2(15). The contention of the department is that the assessee is carrying on activity in the nature of trade, commerce or business for a consideration, while the assessee contents that it is not hit by the proviso. The assessee is not carrying on any trade, commerce or business.
15. From the perusal of Section 2(15) after the insertion of the proviso which is applicable only in case where the assessee is engaged in the advancement of any other object of general public utility, the definition of charitable purpose got amended. The proviso as is apparent clearly states that the advancement of any other object of general public utility shall not be charitable purpose and subsequent to that it gives certain conditions if the institution fulfils those conditions as are stipulated in the proviso, the institution will not be regarded to have been engaged for the advancement of any other object of general public utility for the purpose of section 2(15) of the Income Tax Act and will no longer remain to have been engaged in charitable purposes. In fact, this proviso puts an embargo on the institution that in case the institution falls within the proviso, it will no longer be regarded to have been engaged for 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 the nature of' prior to 'trade, commerce or business' in our opinion has a specific meaning while interpreting the proviso. These words cannot be ignored. This in our opinion mandates that the institution need not actually be carrying on trade, commerce or business but the activity carried on by him are similar to trade, commerce or business. The profit motive is required while an institution is carrying on trade, commerce or business. The use of words 'carrying on any activity in the nature of trade, commerce or business' in our opinion will mean that there need not be profit motive in carrying on the activity by the institution. If we will interpret the words 'carrying on of any activity in the nature of trade, commerce or business' equivalent to the words 'carrying on trade, commerce or business'. In our opinion, there was no need of incorporating in the proviso, the words 'of any activity in the nature of' prior to the words 'trade, commerce or business'. The legislature is fully aware of that an institution which is incorporated for charitable purpose cannot not have profit motive. Due to this reason, if we go to the background of Sec. 2(15), the Hon'ble Supreme Court interpreted Sec. 2(15) in the case of Surat Art Silk Cloth Mfg. Association (supra) when the Section 2(15) contained the words "not involving the carrying on of any activity for profit" after "advancement of any other object of general public utility". Profit motive in respect of an institution cannot be main object but it may be ancillary and incidental to the main objects due to which Sec. 11(4A) was also incorporated under the Income Tax Act initially by Finance Act, 1983 w.e.f. 1.4.1984. The Learned AR even though relied before us on the decision of Hon'ble Supreme Court in case of Surat Art Silk Mfg. Association (supra), but this decision is not applicable in the case of the assessee at all as it relates to the interpretation of Sec. 2(15) prior to its amendment by the Finance Act, 1983 when the words 'not involving any activity for profit' were there under Section 2(15) after the words 'advancement of any other objects of general public utility'. This decision does not define the words 'carrying on of any activity in the nature of trade, commerce or business or any activity or rendering any services in relation to any trade, commerce 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, comprehensive infrastructure facilities etc. for holding such events. We have gone through the Income & Expenditure of the Assessee on which our attention was drawn during the course of the hearing which is available at pg. 37 of the paper book. The details of the various income shown in the Income & Expenditure account under the head "Other Receipts" for the year ended 31.3.2009 and 31.3.2010 are as under :
| Other Receipts | ||
| 31.03.2010 | 31.03.2009 | |
| Sponsorship & Contributions | 61,50,000 | 32,86,500 |
| Authorization charges for conducting shooting | 35,49,000 | 18,93,500 |
| Hire of Auditoriums | 36,42,892 | 12,60,288 |
| Bank interest | 2,04,255 | 4,16,410 |
| Tender Forms Receipts | 77,500 | 1,37,200 |
| Licence fees from Multiplex | 3,79,00,008 | 3,79,00,008 |
| Right to information | 1,374 | 642 |
| Film Screening Receipts | - | 60,098 |
| Short Film Receipts | 2,19,752 | 2,60,486 |
| Usage of Premises | 13,653 | 2,23,741 |
| Membership fees - Cinephile | 3,20,725 | 5,01,733 |
| Administrative charges | 39,450 | 8,45,243 |
| Interest on Income Tax Refund | 3,65,160 | - |
| Receipt towards listing of Hotels on ESG | ||
| Website | 41,000 | - |
| Receipt from Stalls | 9,73,766 | - |
| Film Appreciation Course Receipts | 72,500 | - |
| Receipts from Portuguese Film Festival | 3,800 | - |
| Total | 5,35,74,835 | 4,67,85,849 |
The nature of each receipt was duly explained by the Learned AR as has been reproduced hereinabove in the submissions of the AR. The institution itself accepts that so far as sponsorship and contributions are concerned, that it is directly connected with the film festival. It has received authorization charges for conducting the shooting, it has received hiring charges for hiring out the auditorium, it has received the licence fees for issuing licence to the multiplexes, even the premises usage charges has also been received and it has received charges for listing hotels in their website. This in our opinion represents activity of rendering the service in relation to film industry. It is not denied that all the services were rendered for a consideration. It has also 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 proviso as has been mentioned by us earlier, clearly states that for determining whether the assessee is engaged in charitable purpose, the use or application or retention of the consideration received is not relevant at all. The activities carried on by the institution by any stretch of imagination cannot be regarded not to be in the nature of trade, commerce or business. The contention of the learned AR before us is mainly that it is not carrying on any trade, commerce or business for earning profit but the proviso does not talk of so.
17. Now, we will deal with the next submission of the institution that it is a regulatory body to discharge the functions of the Government. The institution, in our opinion, cannot be regarded to be a regulatory body discharging the Government function and working as an arm of the Government. Had it been a regulatory body, it must have been authorized and incorporated under a separate Act of the Parliament as part of the Government Dept. for regulating the exhibition of film, hosting of film festival, shooting of the films and providing licence and control over the multiplexes and the picture theatres. The institution is not authorized under any law and not been incorporated as such. Even for the sake of argument if we accept that the institution is a regulatory body, Sec. 2(15) does not provide any exception under the proviso that the proviso will not apply to a regulatory body or a body incorporated by the State Government or Central Government. If the interpretation as suggested by the learned AR has to be accepted, in that case, all the public sector undertakings shall be regarded to have been created for charitable purpose i.e. advancement of objects of general public utility. The public sector undertakings have more strong case as they are enacted under the statute of Government. They are also financed and controlled by the Government. In this regard, the learned AR vehemently relied on the decision of Himachal Pradesh Environment Protection & Pollution Control Board (supra). This decision is also not applicable in the present case as in the case before us the institution is engaged in an activity in the nature of trade, commerce or business and also the activity of rendering service in relation to trade, commerce or business for a consideration while in that case, the assessee was not rendering any service in relation 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 v. Commissioner Of Income Tax [2010] 8 taxmann.com 210/[2011] 129 ITD 73 (Ahd.) 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 v. CIT [2010] 35 SOT 15 .
19. The co-ordinate bench of this tribunal has also taken similar view in the case of Goa Industrial Development Corporation (supra). Thus, since due to the insertion of the proviso in section 2(15), we are of the view that the assessee society no longer remain to have been established or created for carrying out the charitable purposes. This, in our opinion, is a mistake of law apparent on record which has crept in to the order of the CIT passed u/s section 12A granting the registration to the assessee society from the date of insertion of the proviso in section 2(15) and the order so passed requires rectification. Our aforesaid view is supported by the following decision :-
M.K. Venkatachalam, ITO v. Bombay Dyeing & Mfg. Co. Ltd. [1958] 34 ITR 143 (SC) .
IAC of Agricultural Income Tax & Sales Tax (Special) V.M. Ravi Namboodiripad [1974] 96 ITR 73 (SC) .
J.M. Bhatia, Appellate Asstt. CWT v. J.M. Shah [1985] 156 ITR 474/23 Taxman 58 (SC) .
GTC Industries Ltd. v. Dy. CIT [2007] 104 ITD 86 (Mum.) (TM) .
The decision of the third member in the case of GTC Industries Ltd. (supra) is binding on us.
20. No doubt, section 12AA(3), does empower the CIT to withdraw the registration under two circumstances only:-
The case of the assessee is different. The CIT issued notice to the assessee as the definition of "charitable purpose" undergoes a change by the Finance Act, 2008. We have already held that it is a case where the eligibility of the assessee to get the registration undergoes a change due to the fact that the assessee no more remains being established for charitable purpose after the amendment being made in the definition of charitable purpose given u/s 2(15) of the Income Tax Act. The assessee when applied for registration was very much a charitable institution as per the definition of the charitable purpose given u/s 2(15) at that time, therefore entitled for the registration u/s 12A. Once, in our opinion, the assessee no more remains being established for charitable purpose after the insertion of proviso in section 2(15), the eligibility of the assessee for registration stands cancelled. The CIT 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 Sarvodaya Ilakkiya Pannai (supra). The issue before the Madras High Court 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. Even otherwise, the decision of the Madras High Court is not binding on us in view of the decision of the jurisdiction High court in the case of Commissioner Of Income-Tax v. Thana Electricity Supply Ltd. [1994] 206 ITR 727 (Bom.) in which the Hon'ble Mumbai High Court has held as under :
"(b) The decisions of the High Court are binding on the subordinate courts and authorities or Tribunals under its superintendence throughout the territories in relation to which it exercises jurisdiction. It does not extend beyond its territorial jurisdiction……
(d) the decision of one High Court is neither binding precedent for another High Court nor for courts or Tribunals outside its territorial jurisdiction. (Head Notes)"
22. We have also gone through the decision of Chaturvedi Har Prasad Educational Society v. CIT [2011] 45 SOT 108 (Luck.) (URO) . This decision, in our opinion, will not help the assessee as in this case also, the question before the Tribunal was not whether the CIT can rectify its order of granting the registration in view of the definition of charitable purpose being amended. We have also gone through the decision of Bombay Bench in ITA No. 1095/Mum/2012 in the case of Women India Trust relied on by the Learned AR. In this case, we noted the Hon'ble Tribunal has given a clear-cut finding under para 18 that the items of sales figuring in the Profit & Loss account are only of items made by the residents and companion ladies who are attached to the assessee trust and the sales are not in the nature of trading activity of the assessee trust. In view of this clear-cut finding, the Tribunal has set aside the order of CIT cancelling the registration. This decision, in our opinion, will also not assist the assessee. We have also gone through the decision of the Ahmedabad 'A' Bench relied by learned AR in the case of Gujarat Cricket Association v. DIT(E) [2012] 19 ITR (Trib.) 520 (Ahd.) . In this case also, the Tribunal has not examined the issue whether a legal mistake apparent on the record has occurred in the order of CIT granting registration after the amendment being made in Section 2(15) by insertion of the proviso thereto.
23. In view of the aforesaid discussion and the decision of coordinate Bench in the case of Goa Industrial Development Corporation (supra), we are of the firm view that CIT has rightly cancelled the registration granted under Section 12A as a mistake apparent on record as occurred in the order due to the amendment in section 2(15) of the Income Tax Act and therefore no interference is called for in the order of the CIT.
24. We, accordingly, confirm the order of the CIT. In the result, the appeal of the assessee stands dismissed.
VARSHA
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