Commissioner Of Income Tax vs Orissa Cricket Association
2023 Latest Caselaw 7519 Ori

 IN THE HIGH COURT OF ORISSA AT CUTTACK

                       I.T.A. No.55 of 2018


     Commissioner of Income Tax,          ....               Appellant
     (Exemption), Hyderabad

                               -versus-
     Orissa Cricket Association,          ....              Respondent
     Cuttack

     Advocates appeared in this case:

     For Appellant :                 Mr. R. Chimanka, Advocate
                                     Senior Standing Counsel (IT)

     For Respondent :                Mr. S. Ray, Senior Advocate

        CORAM:

        JUSTICE ARINDAM SINHA
        JUSTICE SANJAY KUMAR MISHRA

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         Date of hearing and judgment : 13.07.2023
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ARINDAM SINHA, J.

1. Appellant/revenue has preferred appeal against common

order dated 26th December, 2017 made by the Income Tax

Appellate Tribunal (ITAT), Cuttack Bench in ITA

no.335/CTK/2017, pertaining to assessment year 1997-98 and ITA

no.210/CTK/2016, pertaining to assessment year 2011-12. This

appeal impugns the former.

2. The appeal was admitted on the substantial question of law,

reproduced below.

"Where an assessee seeking registration under section 12AA in course of conducting its activities under the objects has suffered survey and, search and seizure of its honorary secretary and there has been violation of provisions in section 13(1)(c), can the facts be considered for the purpose of satisfaction on the application for grant of registration?"

3. Mr. Chimanka, learned advocate, Senior Standing Counsel

appears on behalf of appellant/revenue. He submits, the

Commissioner of Income Tax (CIT) Exemption correctly

appreciated the position emerging on earlier application of the

assessee, rejected by order dated 26th May, 2017. The CIT(E)

refused to grant registration mainly on the ground that funds of the

assessee were diverted for personal benefits of the executives of the

society, in violation of provisions of section 13 (1)(c) of Income

Tax Act, 1961. Furthermore, receipts from Board of Control for

Cricket in India (BCCI) were shown as corpus fund instead of

treating them as revenue receipts. The CIT(E) had relied on survey

operation under section 133A, conducted in premises of the

assessee association along with search and seizure operation under

section 132 in residential premises of the honorary secretary.

Incriminating documents, books of accounts were found and

impounded and demand was raised for block period from

assessment year 2000-2001, as confirmed by the first appellate

authority. In the circumstances, rejection of the application was

duly made. The tribunal, setting aside the same by impugned order,

gave rise to the substantial question of law, to be answered in

favour of revenue.

4. Mr. Ray, learned senior advocate appears on behalf of

respondent/assessee. He submits, his client has got provisional

registration under section 12A for assessment years 2022-23 to

2026-27. He hands up order of provisional registration dated 28th

May, 2021 along with order dated 2nd August, 2022 made by

coordinate Bench. Text of said order dated 2nd August, 2022 is

reproduced below.

"1. Mr. Sidhartha Ray, learned counsel for the Respondent has handed over a copy of the order for provisional registration in Form-10 AC granting registration to the Respondent under Section 12-A of the Income Tax Act, 1961 for the Assessment Years (AYs) 2022-23 to 2026-27.

2. Mr. Ray, learned counsel for the Respondent, accordingly contends that the issues raised in the present appeals have become academic. Mr. R.S. Chimanka, learned Senior Standing Counsel

for the Department states that he will have to seek instructions.

3. List along with W.P.(C) No.18701 of 2016 on 14th December, 2022."

He submits, the question has indeed become academic.

5. Without prejudice to above he relies on judgment of the

Supreme Court in C. I. T. (ADDL.) v. SURAT ART SILK

CLOTH MFRS. ASSN., reported in (1980) 2 SCC 31, in

particular a passage from concurring judgment of Pathak, J.

(paragraph 31 of the report). Said passage from the paragraph is

extracted below.

"31. . . . The advancement of any other object of general public utility . . .". The object is not the purpose. The advancement of the object is the purpose. Harking back to the first three heads of charitable purpose, the definition defines purpose in terms of activity. When Sir Samuel Romilly, in the course of his argument in Morice v. Bishop of Durham summarized the main heads of charity, they included "relief of the indigent, the advancement of learning, the advancement of religion and the advancement of objects of general public utility". Note the sense of action, of something to be done in relation to an object. When Lord Macnaghten adopted the classification of charitable purposes in Special Commrs. v. Pemsel, he spoke of "trusts for the relief of poverty, trusts for the advancement of

education, trusts for the advancement of religion, and trusts for other purposes beneficial to the community not falling under any of the preceding heads". In the Indian law, the relief of poverty and the advancement of education were embodied as "relief of the poor" and "education". Medical relief was added. And for the fourth head, with which we are concerned, the language, an echo of Sir Samuel Romilly's classification, referred to "the advancement of any other object of general public utility. . .". It will be at once evident that the word "object' cannot by itself connote an activity. It represents a goal towards which, or in relation to which, an activity is propelled. The element of activity is embodied in the word "advancement". If "charitable purpose" is defined in terms of an activity, that is to say, the advancement of an object, the restrictive clause "not involving the carrying on of any activity for profit", which is also descriptive of an activity, must necessarily relate to "the advancement of an object . . .". I am of opinion, therefore, that the restrictive clause must be read with "the advancement of any other object of general public utility" and not with "the object of general public utility". En passant, it may be observed that much confusion can be avoided if in the context of the fourth head the purpose of the trust or institution is referred to as the "purpose" and not as the "object" of the trust or institution, because the purpose there

is defined as "the advancement of an object".

(emphasis supplied)

6. He then relies on view taken by High Court of Madras in

Tamil Nadu Cricket Association v. Director of Income Tax

(Exemptions) available at (2013) 40 taxmann.com 250 (Madras).

Paragraph 32 is reproduced below.

"32. Thus in contrast to Section 12AA(1)(b) of the Income Tax Act, 1961, where the grant of registration requires satisfaction about the objects of the trust as well as genuineness of the activities, for the cancellation of the registration under Section 12AA(3), all that it is insisted upon is the satisfaction as to whether the activities of the trust or institution are genuine or not and whether the activities are being carried on in accordance with the objects of the trust. Thus, even if the trust is a genuine one i.e., the objects are genuine, if the activities are not genuine and the same not being carried on in accordance with the objects of the trust, this will offer a good ground for cancellation. Thus, in every case, grant of registration as well as cancellation of registration rests on the satisfaction of the Commissioner on findings given on the parameters given in Section 12AA(1) and 12AA(3) of the Act, as the case may be."

(emphasis supplied) He also relies on paragraphs 37 and 45.

7. Next he relies on orders of the Supreme Court made in

Ananda Social and Educational; Trust v. CIT, reported in

(2020) 17 SCC 254, paragraphs 19 to 21. In context of said

orders, he also relies on judgment dated 16th August, 2012 of

the High Court of Delhi in Director of Income Tax v.

Foundation of Ophthalmic and Optometry Research

Education Centre, reported in (2013) 355 ITR 361,

paragraphs 10 and 11.

8. To answer the substantial question of law regarding

registration under section 12-AA, it is necessary to consider the

provisions therein. Relevant portion of sub-section (1) in

section 12-AA as it stood prior to amendment by Finance Act,

2019 w.e.f. 1st September, 2019, is reproduced below.

"12-AA. (1) The [* * *] [Principal Commissioner or] Commissioner, on receipt of an application for registration of a trust or institution made under clause

(a) [or clause (aa) [or clause (ab)] of section (1)] of section 12A, shall--

(a) call for such documents or information from the trust or institution as he thinks necessary in order to satisfy himself about the genuineness of activities of the trust or institution and may also make such inquiries as he may deem necessary in this behalf; and

(b) after satisfying himself about the objects of the trust or institution and the genuineness of its

activities, he--

(i) shall pass an order in writing registering the trust or institution;

(ii) shall, if he is not so satisfied, pass an order in writing refusing to register the trust or institution, and a copy of such order shall be sent to the applicant: Provided that no order under sub-clause (ii) shall be passed unless the applicant has been given a reasonable opportunity of being heard."

(emphasis supplied)

It is seen that for obtaining satisfaction about the genuineness of the

activities, the provision empowers obtaining it by calling for such

documents or information from the trust or institution. Satisfaction

on 'objects' was not there.

9. By concurrent judgment of Pathak, J., in paragraph 31 of

Surat Art Silk (supra), there was interpretation of the word

'object' used by Parliament in the provision. His Lordship said, the

object is not the purpose. The declaration was, advancement of the

object is the purpose. Facts found in this case are about activities of

the institution. The authority appears to have found that the

activities were done in such a way that it led to survey conducted

against the institution and search and seizure operation conducted

on its honorary secretary.

10. The Supreme Court in Ananda Social and Educational

Trust (supra) said in paragraph 12, as quoted below.

"12. Since Section 12-AA pertains to the registration of the trust and not to assess of what a trust has actually done, we are of the view that the term "activities" in the provision includes "proposed activities". That is to say, a Commissioner is bound to consider whether the objects of the trust are genuinely charitable in nature and whether the activities which the trust proposed to carry on are genuine in the sense that they are in line with the objects of the trust. In contrast, the position would be different where the Commissioner proposes to cancel the registration of a trust under sub-section (3) of section 12-AA of the Act. There the Commissioner would be bound to record the finding that an activity or activities actually carried on by the trust are not genuine being not in accordance with the objects of the Trust. Similarly, the situation would be different where the trust has before applying for registration found to have undertaken activities contrary to the objects of the Trust."

Paragraphs 19 to 21 relied upon relate to a separate civil appeal,

wherein there was cancellation of registration, after it had been

granted. The Supreme Court interpreted that 'activities' in the

provision includes proposed activities. Facts in this case are about

activities already undertaken. Hence, the interpretation is of no

assistance for answering the question. The High Court of Delhi in

Foundation of Ophthalmic and Optometry Research (supra),

had in relied upon paragraphs 10 and 11, earlier taken the view

regarding 'activities', as subsequently interpreted by the Supreme

Court in Ananda Social and Educational Trust (supra).

11. The High Court of Madras in paragraph 32 of Tamil Nadu

Cricket Association (supra) had said, section 12-AA(1)(b) is

provision where the grant of registration requires satisfaction about

the objects of the trust as well as genuineness of the activities. For

the assessment year under consideration on the application for

registration made, the institution had undertaken such activities that

led to survey operation being conducted and search and seizure

against its honorary secretary. It is nobody's case that the survey,

search and seizure were conducted in respect of activities or

transactions not related to the institution.

12. Prior to the amendment (by Finance Act, 2019 w.e.f. 1st

September, 2019), the requirement for obtaining satisfaction was

only about genuineness of activities of the trust or institution. By

the amendment satisfaction on the objects was also included.

Hence, we find no error committed by the authority in scrutinizing

genuineness of activities of the institution in obtaining satisfaction

to grant registration. When the authority was confronted by the

activities requiring survey, search and seizure, there was conclusion

that satisfaction had not been obtained for purpose of granting

registration. This, the authority did as required and empowered by

the provision existing prior to said amendment.

13. We answer the substantial question of law in the affirmative

and in favour of revenue. Impugned order is set aside in appeal.

14. The appeal is disposed of.

(Arindam Sinha) Judge

(S.K. Mishra) Judge

P.Pradhan

Signature Not Verified Digitally Signed Signed by: PRASANT KUMAR PRADHAN Designation: Personal Assistant Reason: Authentication Location: High Court of Orissa, Cuttack Date: 14-Jul-2023 17:59:19