M/s The Youngmen's Happy Club, Kakinada v. The CIT, Rajahmundry

ITA 348/VIZ/2009 | misc
Pronouncement Date: 25-10-2010 | Result: Allowed

Appeal Details

RSA Number 34825314 RSA 2009
Assessee PAN AAATT5145R
Bench Visakhapatnam
Appeal Number ITA 348/VIZ/2009
Duration Of Justice 1 year(s) 4 month(s) 10 day(s)
Appellant M/s The Youngmen's Happy Club, Kakinada
Respondent The CIT, Rajahmundry
Appeal Type Income Tax Appeal
Pronouncement Date 25-10-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted DB
Tribunal Order Date 25-10-2010
Date Of Final Hearing 05-10-2010
Next Hearing Date 05-10-2010
Assessment Year misc
Appeal Filed On 15-06-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV JUDICIAL MEMBER AND SHRI BR BASKARAN ACCOUNTANT MEMBER ITA NO. 348 & 489 /VIZAG/ 20 09 ASSESSMENT YEAR S : N.A. THE YOUNGMENS HAPPY CLUB KAKINADA CIT RAJAHMUNDRY (APPELLANT) VS. (RESPONDENT) PAN NO.AAATT 5145R APPELLANT BY: SHRI G.V.N. HARI CA RESPONDENT BY: SHRI D.S. SUNDER SINGH DR ORDER PER SHRI S.K. YADAV JUDICIAL MEMBER : - THESE APPEALS ARE PREFERRED BY THE ASSESSEE AGAINST THE RESPECTIVE ORDERS PASSED BY THE CIT U/S 80G AND 12AA(3) OF THE I.T. ACT RESPECTIVELY FOR THE REASONS THAT ASSESSEE HAS STOPPED ITS CHARITABLE ACTIVITIES AND HAS STARTED COMMERCIAL ACTIVITIES. SINCE THE ISSUES ARE COMMON IN THESE APPEA LS WE HEARD THEM SIMULTANEOUSLY AND PREFER TO ADJUDICATE THEM THROUGH THIS CONSOLIDATED ORDER. 2. THE BRIEF FACTS BORNE OUT FROM THE RECORD ARE THAT ASSESSEE SOCIETY CAME INTO EXISTENCE IN THE YEAR 1927 UNDER THE SOCIETY REGISTRATION ACT 1860 WITH THE OBJECTIVE TO PROMOTE FINE ARTS IN GENERAL AND HISTRIONICS IN PARTICULAR AND TO MAINTAIN AND EDUCATE POOR STUDENTS AND ALSO TO HELP POOR AND DISTRESSED PERSONS. THE SOCIETY HAS BEEN ACCORDED REGISTRATION U/S 12A OF THE ACT. EXEMPTION U/S 80G WAS ALSO ACC ORDED TO THE ASSESSEE AND IT WAS ALSO RENEWED TIME TO TIME. LAST CERTIFICATE OF EXEMPTION WAS GRANTED UP TO 31.3.2005 THEREAFTER NO APPLICATION FOR RENEWAL OF EXEMPTION WAS FILED UP TO THE YEAR 2008. VIDE FRESH APPLICATION DATED 19.11.2008 THE ASSESSEE SOCIETY SOUGHT RENEWAL OF EXEMPTION. IN ORDER TO EXAMINE THE NATURE OF ACTIVITIES ACTUALLY PURSUED THE CIT REQUISITIONED DETAILED INFORMATION FROM THE ASSESSEE SOCIETY AND ALSO CAUSED ENQUIRIES UPON WHICH IT WAS FOUND THAT THE ASSESSEE SOCIETY HAD UNDERT AKEN MULTIPLE COMMERCIAL TRANSACTIONS WITH A P ROFIT MOTIVE 2 DURING THE FINANCIAL YEAR 2005 - 06 TO 2007 - 08 INVOLVING TAKING OF LAND ON LEASE CONSTRUCTION OF COMMERCIAL COMPLEX AND OBTAINING OF ADVANCES/DEPOSITS FROM A NUMBER OF PARTIES FOR LEASING OUT THE PR EMISES IN COMPLETE DISREGARD OF ITS PRECLAIMED CHARITABLE OBJECTS AS ENUNCIATED IN ITS DEED OF MEMORANDUM. IT WAS ALSO ASCERTAINED FROM THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE THAT THE SOCIETY HAD STOPPED PURSUING THE CHARITABLE ACTIVITIES SUCH AS GRANTING OF SCHOLARSHIP FOR THE EDUCATION OF THE CHILDREN AND POOR ARTISTS PROVIDING BOARDING AND STAYING FACILITIES TO THE POOR ARTISTS AND CONDUCTING OF TRAINING CLASSES IN ACTING AND DIRECTING OF STAGE DRAMAS ETC. THE ASSESSEE HAS EXPLAINED THAT IT HA D ENTERED INTO SUCH COMMERCIAL TRANSACTIONS FOR CONSTRUCTION AND RENTING OUT COMMERCIAL COMPLEX IN ORDER TO AUGMENT ITS DWINDLING FUNDS AND THAT IT HAD THE INTENTION TO REVIVE ITS CHARITABLE ACTIVITIES AFTER ATTAINING A SOUND FINANCIAL POSITION IN THE FUTU RE. THESE EXPLANATIONS DID NOT SATISFY THE COMMISIONER AND HE HELD THAT ASSESSEE SOCIETY HAD CLEARLY DEVIATED FROM ITS CHARITABLE OBJECTS AND ACTIVITIES AND HAD VENTURED INTO COMMERCIAL TRANSACTIONS WITH A STRONG PROFIT MOTIVE AND THAT IT S CLAIM THAT PROF IT/INCOME ADDITION FROM THE VARIOUS BUSINESS TRANSACTIONS INCLUDING THE RENTAL RECEIPTS FROM LETTING OUT OF THE SEGMENTS OF THE COMMERCIAL COMPLEX TO VARIOUS TENANTS WOULD BE WHOLLY CHANNELISED FOR THE ATTAINMENT OF THE PRECLAIMED OF OBJECT OF THE SOCIETY REMAINED UNSUBSTANTIATED WITHOUT ANY SUPPORTING EVIDENCE. 3 . HAVING OBSERVED THAT THE ASSESSEE SOCIETY HAS FAILED TO COMPLY WITH THE CONDITIONS LAID DOWN IN THE CLAUSE (I TO V) OF SUB - SECTION 5 OF 80G OF THE ACT THE COMMISSIONER REJECTED THE REQUEST SEE KING RENEWAL OF CERTIFICATE OF EXEMPTION U/S 80G OF THE ACT. AT THE SAME TIME THE COMMISSIONER ALSO CONTEMPLATED FOR CANCELLATION OF REGISTRATION ALREADY GRANTED U/S 12A OF THE ACT AND THEREAFTER ISSUED SHOW CAUSE NOTICE TO THE ASSESSEE SOCIETY AS TO WHY SUCH REGISTRATION SHOULD NOT BE CANCELLED ON ACCOUNT OF ASSESSEE SOCIETY HAVING PURSUED BUSINESS ACTIVITIES. 4 . DURING THE PROCEEDINGS FOR THE PROPOSED CANCELLATION FOR REGISTRATION U/S 12AA(3) OF THE ACT THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED T HAT TRANSACTION ENTERED INTO VARIOUS PARTIES FOR PURCHASE OF LAND CONSTRUCTION OF 3 COMMERCIAL COMPLEX LETTING OUT OF DIFFERENT PORTION OF SUCH COMPLEX TO VARIOUS TENANTS ON RENT CAN BE SAID TO BE IN CONFORMITY WITH THE OBJECT OF THE SOCIETY WHICH ARE FOR PROMOTION OF FINE ARTS IN GENERAL AND HISTRIONICS ART IN PARTICULAR MAINTENANCE AND EDUCATION OF THE POOR STUDENTS HELPING THE POOR AND DISTRESSED AND DOING ALL SUCH OTHER THINGS AS ARE INCIDENTAL OR CONDUCIVE TO THE ATTAINMENT OF ABOVE OBJECTS IN AS MU CH AS THE SOCIETY HAD BEEN FACING ACUTE PAUCITY OF FUNDS SINCE THE LAST FEW YEARS WHICH PREVENTED IT FROM UNDERTAKING ITS CHARITABLE ACTIVITIES VIGOROUSLY AND WITH THE INTENTION TO AUGMENT ITS FUNDS FOR THE CHARITABLE ACTIVITIES IT SET OUT ON A PRAGMATIC C OURSE TO EXPLOIT ITS EXISTING ASSETS AND ALSO ACQUIRE SOME MORE ASSETS FOR ENSURING THE REGULAR FLOW OF INCOME. 5 . IT WAS ALSO EXPLAINED BEFORE THE CIT THAT SOCIETY HAD CONSTRUCTED AN AUDITORIUM FOR ITS USE DURING THE PURSUIT OF ITS OBJECT SUCH AS TRAININ G IN HISTRIONICS AND DRAMATICS TO BUDDING ARTISTS EXHIBITION OF DRAMAS ETC. HOWEVER IT WAS GIVEN ON LEASE IN THE YEAR 1935 TO M/S. CINEMA MAJESTIC LIMITED FOR COMMERCIAL EXHIBITION OF CINEMAS BY SUCH CONCERN. THE ASSESSEE HOWEVER RETAINED A SMALL PORTI ON OF SAID BUILDING FOR ITS OWN USE TOWARDS ITS OBJECTS. OVER THE YEARS THE ENTIRE AUDITORIUM COMPLEX REACHED A DILAPIDATED CONDITION NECESSITATING MAJOR REPAIRS OR RENOVATIONS. ALSO DUE TO SLOW DOWN IN CINEMA BUSINESS AND REDUCED COLLECTION FROM SALE O F TICKETS THE LESSEE WAS NOT ABLE TO REGULARLY PAY MONTHLY RENTALS. IN ORDER TO TIDE OVER THE SITUATION THE ASSESSEE ENTERED INTO A MEMORANDUM OF UNDERSTANDING WITH THE LESSEE FOR DEMOLITION OF THE OLD STRUCTURE AND CONSTRUCTION AND LETTING OUT OF SHOPP ING COMPLEX ON THE EXISTING SITE FOR UTILIZATION OF ITS ASSETS PROFITAB LY AND GAINFUL. THE ASSESSEE HAD NO OTHER OPTION SINCE THE LESSEE WAS NOT HANDING OVER THE PREMISES AND THE LEGAL PROCESS COULD HAVE TAKEN A NUMBER OF YEARS TO EVICT THE LESSEE. 6 . IT WAS ALSO CONTENDED THAT THE ASSESSEE INSTITUTION HAS PRODUCED NUMBER OF CELEBRITIES LIKE S.V. RANGA RAO ANJALI DEVI A.V. SUBBA RAO ETC. AND IN APPRECIATION OF ITS CONTRIBUTION TOWARDS PROMOTION OF THEATRE ARTS AND DRAMA THE MINISTRY OF CULTURE GOVER NMENT OF INDIA USED TO GRANT FINANCIAL ASSISTANCE. SINCE THE OBJECT OF THE ASSESSEE SOCIETY CONTINUES TO BE THE SAME AS IT USED TO BE BEFORE AND THE ASSESSEE HAS THE INTENTION TO PURSUE AND 4 PROMOTE ITS OBJECT IN A VIGOROUS MANNER WITH THE HELP OF SUFFICIE NT FUNDS FROM THE NEWLY ENTERED INTO BUSINESS VENTURE THE REGISTRATION GRANTED EARLIER SHOULD NOT BE CANCELLED. THE CIT EXAMINED THE EXPLANATIONS OF THE ASSESSEES AND NEGATED EACH AND EVERY CONTENTION BY GIVING HIS OWN REASONS IN ITS ORDER. THE RELEVANT OBSERVATION OF THE CIT IS EXTRACTED HEREUNDER FOR THE SAKE OF REFERENCE: IT IS AN ADMITTED POSITION ON BEHALF OF THE ASSESSEE AND ALSO AS EVIDENT FROM THE COPY OF THE MEMORANDUM OF UNDERSTANDING BETWEEN THE ASSESSEE AND M/S. THE MAJESTIC ENCLAVES LIMITED (THE ERSTWHILE M/S. THE CINEMA MAJESTIC LTD. ) THAT BOTH THE PARTIES TOOK A CONSCIOUS DECISION TO CONVERT THE EXISTING PROPERTY INTO A COMMERCIAL SHOPPING COMPLEX IN ORDER TO DERIVE RENTS FOR THE MUTUAL BENEFIT IN THE SHARING RATIO OF 60:40 FOR THE ASSESS EE AND THE M/S. THE MAJESTIC ENCLAVES RESPECTIVELY. IT IS ALSO CLEAR THAT OUT OF 82 SHOPS CONSTRUCTED THE RENT FROM 16 SHOPS WOULD EXCLUSIVELY ACCRUE TO THE ASSESSEE AND THE RENT FROM THE REST OF 66 SHOPS SHALL BE SHARED AT THE RATIO OF 60:40 BETWEEN TH E ASSESSEE AND THE SECOND PARTY RESPECTIVELY. SIMILARLY THE MUNICIPAL TAXES AND THE ENDOWMENT RENTS WERE AGREED TO BE BORNE IN THE SAME RATIO. IT HAS ALSO BEEN THAT IN THE EVENT OF CHANGE OF OWNERSHIP OF THE TENANT THE NON RECOVERABLE ADVANCE PAID BY T HE NEWE TENANT TO SUCH SHOP SHALL BE SHARED BETWEEN THE ASSESSEE AND THE SECOND PARTY IN THE SAME RATIO OF 60:40. THUS A PERUSAL OF THE TERMS AND CONDITIONS OF THE MEMORANDUM OF UNDERSTANDING BETWEEN THE ASSESSEE AND THE SECOND PARTY INDICATES THAT THERE IS NO ELEMENT OF DURESS ON THE PART OF THE ASSESSEE FOR AGREEING TO ANY PROPOSAL WITH THE SECOND PARTY FOR UNDERTAKING A CONSTRUCTION OF A COMMERCIAL COMPLEX AND SHARING OF RENTAL INCOME THEREFROM. IT WAS A CONSCIOUS DECISION BY BOTH THE PARTIES TO EARN AND SHARE PROFITS FROM SUCH VENTURE. SUCH BEING THE FACTS IN THE ASSESSEES CASE IT NEEDS TO BE EXAMINED AS TO WHETHER THE BUSINESS ACTIVITY OF CONSTRUCTION AND LETTING OUT OF THE COMMERCIAL COMPLEX AND SHARING OF THE PROFITS WITH A SECOND PARTY CAN BE SAID TO BE A BUSINESS WHICH IS INCIDENTAL TO THE ATTAINMENT OF THE OBJECTS OF THE ASSESSEE SOCIETY OR NOT. TO CITE AN EXAMPLE OF INCIDENTAL BUSINESS ACTIVITY BY A CHARITABLE TRUST IT MAY BE STATED THAT IN THE CASE OF A HOSPITAL OR A MEDICAL INSTITUTION P ROVIDING HEALTH CARE FACILITY AND RUNNING A MEDICAL SHOP FROM ITS PREMISES THE PROFIT FROM SUCH MEDICAL SHOP CAN BE SAID TO BE INCIDENTAL TO THE ACTIVITY OF DISPENSING OF HEALTH CARE TREATMENT IN AS MUCH AS WITHOUT THE USE OF MEDICINES THE PROCESS OF HEA LTH CARE REMAINS INCOMPLETE. SIMILARLY WHEN AN EDUCATIONAL INSTITUTION IN THE PROCESS OF IMPARTING EDUCATION DERIVES PROFIT ON SALE OF BOOKS FOR THE CONVENIENCE OF STUDENTS THE INCOME THEREFROM PARTAKES OF THE CHARACTER OF INCOME FROM INCIDENTAL BUSINES S. TO GIVE A STILL BETTER EXAMPLE IN THE CASE OF A CHARITABLE TRUST FOR PROTECTION OF OLD UNCARED FOR AND ABANDONED COWS IF SUBSEQUENT 5 TO THE DELIVERY OF CALVES SOME COWS GIVE MILK AND SUCH MILK IS SOLD IN THE MARKET AND THE PROFIT DERIVED THEREFROM THE SAME CLEARLY TAKES THE COLOUR OF INCIDENTAL BUSINESS INCOME TOWARDS THE ATTAINMENT OF OBJECTS OF PROTECTION OF THE COWS. THEREFORE WHAT IS REQUIRED TO BE PERCEIVED IS THAT WHETHER IN THE PURSUIT OF THE OBJECTS OF THE TRUST ANY BUSINESS INEVITABLY AR ISES OR NOT. IF SO THE PROFIT THEREFROM TAKES THE CHARACTER OF A BY - PRODUCT OF THE CHARITABLE ACTIVITY OTHERWISE NOT. APPLYING THE SAID ENUNCIATION IN THE ASSESSEES CASE IT COULD BE OBSERVED THAT THERE DOES NOT APPEAR TO BE ANY EMERGENCE OF INEVITABL E AND INCIDENTAL BUSINESS ACTIVITY IN THE PURSUIT OF PROMOTION OF DRAMA PLAYS AND HISTRIONIC ARTS THAT COULD BE TERMED AS A BY - PRODUCT. THE ACT OF CONSTRUCTION OF COMMERCIAL COMPLEX TAKING OF NON REFUNDABLE RENTAL ADVANCES FROM VARIOUS TENANTS (PAGDI) AND SHARING OF RENTAL INCOME WITH ANOTHER PARTY IS SURELY A REGULAR BUSINESS ACTIVITY WHICH IS COMPLETELY DETACHED FROM AND HAS NO NEXUS WHATSOEVER WITH THE OBJECTS OF THE PROMOTION OF DRAMS PLAY ETC. IT IS A WELL SETTLED POSITION OF LAW RELATING TO C HARITY FOLLOWING THE DECISION OF THE HONBLE SUPREME COUIRT IN THE CASE OF ASST. COMMISSIONER OF INCOME - TAX VS. THANTHI TRUST [2001] 247 ITR 785 (SC) THAT CHARITABLE ACTIVITIES IN ORDER TO REMAIN AS SUCH CANNOT BE ALLOWED TO BE FED BY PROFITS FROM BUSINE SS UNLESS SUCH PROFITS SPRING INEVITABLY FROM ANY INCIDENTAL BUSINESS ACVITITY. HENCE BUSINESS IS A TABOO FOR A CHARITABLE INSTITUTION OR SOCIETY. IF THE CLAIM THAT NON - INCIDENTAL BUSINESS ACTIVITY COULD BE UNDERTAKEN TO SUPPORT CHARITY IS ACCEPTED THE N IT WOULD RESULT IN A SITUATION WHEREBY LARGE BUSINESS AND INDUSTRIAL HOUSES WOULD CLAIM TO PURSUE SOME CHARITABLE OBJECTS AND SEEK EXEMPTION OF HUGE BUSINESS INCOME WITH NO MECHANISM TO MONITOR THE RESPECTIVE PERCENTAGES OF SUCH BUSINESS INCOME GOING TOW ARDS CHARITY AND INTO THE POCKETS OF THE OWNERS OF THE BUSINESSES. THEREFORE THE CONTENTION OF THE ASSESSEE THAT IT WOULD BE IN A BETTER POSITION TO PURSUE ITS CHARITABLE OBJECTS WITH THE AID OF HIGHER FINANCIAL RESOURCES EMANATING FROM BUSINESS ACTIVITY IS PRIMA FACIE UNTENABLE AND AS SUCH DOES NOT INSPIRE CONVICTION. THE ASSESSEE HAVING EMBARKED UPON SUCH BUSINESS VENTURE WHICH CLEARLY CANNOT BE SAID TO BE INCIDENTAL TO THE ATTAINMENT OF ITS OBJECTS IT AT THE OUTSET LOOSES ITS CHARITABLE CHARACT ER AND AS SUCH THE REGISTRATION GRANTED EARLIER U/S 12A DESERVES TO BE CANCELLED. THE CLAIM OF THE ASSESSEE THAT IT HAD RECEIVED ACCOLADES AND APPRECIATION FROM VIPS FOR PROMOTING ITS OBJECT OF HISTRIONIC ARTS ETC. AND FOR HAVING PRODUCED EMINENT ACTO RS IN THE CINEMA AND DRAMA FIELDS WOULD NOT COME TO ITS RESCUE FOR THE SIMPLE REASON THAT ITS OBJECT OF DRAMA ARTS ETC. HAS BEEN SWAMPED OVER BY BOTH ITS INTENTION AND ACTION TO ENGAGE IN FULL - FLEDGED BUSINESS ACTIVITY WITH A PROFIT MOTIVE. AS THE VISIB LE BUSINESS ACTIVITIES OF THE ASSESSEE DO NOT ACCORD WITH ITS PROFESSED CHARITABLE ACTIVITIES IN THE PRESENT CIRCUMSTANCES IT IS HEREBY HELD THAT THE ASSESSEE SOCIETYS IS A FIT CASE FOR CANCELLATION OF REGISTRATION U/S 12A OF THE ACT. ACCORDINGLY THE REGISTRATION GRANTED EARLIER IS HEREBY CANCELLED. 6 7 . AGAINST THE DENIAL OF REGISTRATION U/S 80G AND 12A BY THE CIT THE ASSESSEE HAD PREFERRED THESE APPEALS BEFORE THE TRIBUNAL AND REITERATED ITS CONTENTIONS AS RAISED BEFORE THE COMMISSIONER OF INCOME TAX. THE LD. COUNSEL FOR THE ASSESSEES HAS ALSO INVITED OUR ATTENTION TO VARIOUS PHOTOS IN SUPPORT OF HIS CONTENTION THAT THE ASSESSEE HAD BEEN VIGOROUSLY ENGAGED IN CHARITABLE ACTIVITIES AND ALSO IN PROMOTING THE FINE ARTS. HE HAS ALSO INVITED OUR ATTEN TION TO THE GRANTS SANCTIONED BY THE STATE GOVERNMENT AND THE MEMBER OF PARLIAMENT AGAINST THEIR M PLADS I N SUPPORT OF HIS CONTENTION THAT THE GOVERNMENT HAS RECOGNIZED THE CHARITABLE ACTIVITIES OF THE ASSESSEES IN EARLIER YEARS AND ACCORDINGLY SANCTIONED V ARIOUS GRANTS TO IT. IT WAS FURTHER CONTENDED ON BEHALF OF THE ASSESSEES THAT TOTAL DEPOSITS COLLECTED FOR THE CONSTRUCTION OF SHOPPING COMPLEX ARE OF RS.82 LAKHS WHEREAS THE COST OF COMPLEX WAS ONLY OF RS.75 14 244/ - AND THE BALANCE AMOUNT OF RS.6 85 756 / - WAS UTILIZED FOR THE CONSTRUCTION OF NEW AUDITORIUM AND FOR FURTHERANCE OF ITS OBJECTS. THE SOCIETY HAS TAKEN A SITE OF 1604.66 SQ.YDS. FROM EAST GODAVARI DISTRICT HARIJAN SEVA SANGH THROUGH LEASE DEEDS. IT WAS ALSO STATED THAT BEFORE THE CIT THE AS SESSEE HAS FURNISHED AN ILLUSTRATIVE LIST OF SUCH SHOWS PROMOTED AND EXHIBITED BY THE SOCIETY THROUGH ITS LETTER DATED 8.4.2009. ALLASANI PEDDANNA IS A RECENT PRODUCTION OF THE SOCIETY WHICH WON `G OLDEN NANDI `S ILVER NANDI AND BEST ACTOR AWARDS FROM TH E GOVERNMENT. IT WAS FURTHER CONTENDED THAT SOCIETY IS ALSO PLANNING TO EXHIBIT IT IN VARIOUS CITIES OF USA WITH THE HELP OF SPONSORSHIP OF TELUGU ASSOCIATION OF NORTH AMERICA AND THEIR OFFICE BEARERS WOULD BE MAKING NECESSARY ARRANGEMENTS. 8 . IT WAS F URTHER CONTENDED THAT COST OF REHEARSALS PRODUCTIONS AND EXHIBITIONS OF EACH PLAY IS MUCH HIGHER THAN THE SPONSORSHIP MONEY THE SOCIETY GET. THE SOCIETY HAS TO BEAR ALL EXPENSES OF THE ARTIST S SUCH AS CONVEYANCE BOARDING AND LODGING AND COST OF MEMENTOES . DUE TO THE PAUCITY OF FUNDS THE SOCIETY STOPPED MANY OF ITS CHARITABLE ACTIVITIES SUCH AS GIVING SCHOLARSHIP FOR EDUCATION OF THE CHILDREN OF POOR ARTIST S PROVIDING BOARDING AND STAY ARRANGEMENTS FOR POOR ARTISTS CONDUCTING TRAINING CLASSES IN ACTING AND DIRECTING SUCH DRAMAS ETC. THEREFORE THE NEW SHOPPING COMPLEX WOULD ENABLE THE SOCIETY TO REVIVE ITS ALL ACTIVITIES AND TO PURSUE ITS 7 OBJECTS MORE ACTIVELY TO PROMOTE A STAGE ARTS AND DEVELOPMENT OF ACTORS AND DIRECTORS OF THE TALENT OF S.V. RANGA R AO ANJALI DEVI AND ADI NARAYANA ETC. WHO WERE THE PRODUCTS OF THE SOCIETY. 9 . THE LD. D.R. ON THE OTHER HAND BESIDES PLACING HEAVY RELIANCE UPON THE ORDER OF THE CIT HAS CONTENDED THAT THE ASSESSEE HAS NOT SPENT ANYTHING ON CHARITABLE ACTIVITIES DURING THE PAST FEW YEARS. THEY HAVE ENTERED INTO AN AGREEMENT WITH M/S. MAJESTIC ENCLAVE LIMITED FOR THE CONSTRUCTION OF A COMMERCIAL SHOPPING COMPLEX IN ORDER TO DERIVE RENT FOR MUTUAL BENEFIT IN THE SHARING RATIO OF 60:40. IT IS ALSO CLEAR FROM THIS M.O.U. THAT OUT OF 82 SHOPS CONSTRUCTION THE RENT FROM 16 SHOPS WOULD EX CLUSIVE ACCRUE TO THE ASSESSEES AND RENT FROM 66 SHOPS SHALL BE SHARED AT THE RATIO ON THE 60:40 BETWEEN THE ASSESSEE AND THE SECOND PARTY RESPECTIVELY. TH US A PERUSAL OF THE TERMS AND COND ITIONS OF THE MOU BETWEEN THE ASSESSEE AND M/S. MAJESTIC ENCLAVE INDICATES THAT THERE IS NO ELEMENT OF DURESS ON THE PART OF THE ASSESSEE FOR AGREEING TO ANY PROPOSAL WITH THE SECOND PARTY FOR UNDERTAKING A CONSTRUCTION OF A COMMERCIAL COMPLEX AND SHARING OF RENTAL INCOME THERE FROM. THE LD. D.R. FURTHER CONTENDED THAT ONLY THOSE BUSINESS ACTIVITIES CAN BE ALLOWED WHICH ARE INCIDENTAL TO THE OBJECT OF THE ASSESSEE SOCIETY . BUT BY ANY STRETCH OF IMAGINATION THE CONSTRUCTION OF PROPERTY AND ITS LETTING OUT ON RENT CANNOT BE CALLED TO BE AN ACTIVITY INCIDENTAL TO THE OBJECT OF THE SOCIETY. THEREFORE ASSESSEE IS NOT ENTITLED FOR RENEWAL OF REGISTRATION U/S 80G AND 12A OF THE ACT. 10 . HAVING HEARD THE RIVAL SUBMISSIONS AND FROM A CAREFUL PERUSAL OF THE ORDER S OF THE LOWER AUTHORITIES AND DOCUMENTS PLACED ON RECORD WE FIND THAT THE ASSESSEE SOCIETY HAD BEEN ENGAGED IN PROMOTING THE FINE ARTS IN GENERAL AND HISTRIONICS IN PARTICULAR AND TO MAINTAIN AND EDUCATE POOR STUDENTS ETC. WHEN THE ASSESSEE HA D SATISFIE D THE REVENUE AUTHORITIES WITH REGARD TO THE CHARITABLE ACTIVITIES UNDERTAKEN BY IT THE REGISTRATION U/S 80G AS WELL AS U/S 12A WERE GRANTED TO THE ASSESSEES. AS APPARENT FROM THE ORDER OF THE LOWER AUTHORITIES THAT AFTER 2005 ASSESSEE HAD NOT APPLIED FO R THE RENEWAL OF THE EXEMPTION. IT MOVED AN APPLICATION ON 19.11.2008 FOR GRANT OF REGISTRATION U/S 80G OF THE ACT AND BEFORE GRANTING REGISTRATION THE CIT EXAMINED THE 8 ACTIVITIES ACTUALLY PURSUED BY THE ASSESSEE AND IT WAS NOTICED BY HIM THAT THE ASSESS EE SOCIETY HAD UNDERTAKEN MULTIPLE COMMERCIAL TRANSACTIONS DURING THE FINANCIAL YEAR 2005 - 06 TO 2007 - 08 AND CONSTRUCTED COMMERCIAL COMPLEX IN A JOINT VENTURE WITH THE MAJESTIC ENCLAVE LIMITED AND THE SHOPS WERE RENTED OUT. THROUGH LETTER DATED 2 7 . 4 .2009 IT WAS STATED THAT THE ASSESSEE HAS COLLECTED THE DEPOSITS FROM VARIOUS TENANTS AT RS.82 LAKHS AND INCURRED AN EXPENDITURE ON THE COMPLEX AT RS.75 14 244/ - . SURPLUS FUNDS OF RS.6 85 76 6/ - WAS FURTHER INVESTED TO TAKE THE SITE OF 1604.66 SQ.YDS. ON LEASE. IT WAS EXPLAINED BY THE ASSESSEE WITH DOCUMENTARY EVIDENCE THAT THEY HAVE PERFORMED THE STAGE SHOWS AND `ALLASANI PEDDANNA IS THE RECENT PRODUCTION OF THE SOCIETY WHICH WON ` GOLDEN NANDI ` SILVER NANDI AND ` BEST ACTOR AWARDS FROM THE STATE GOVERNMENT. IT WAS ALSO EXPLAINED BY THE ASSESSEE THAT THEY ARE PLANNING TO EXHIBIT IT IN VARIOUS CITIES OF USA WITH THE HELP OF SPONSORSHIP OF TELUGU ASSOCIATION OF NORTHERN AMERICA (TANA) AND THEIR OFFICE BEARERS ARE MAKING NECESSARY ARRANGEMENTS. ASSESSEE HAS AL SO FILED A LIST OF RECENT PERFORMANCES OF THE SAID MUSICAL PLAY WITH NAMES OF SPONSORERS AND BROCHURES HIGHLIGHTING ITS FEATURES. IT WAS ALSO EXPLAINED BY THE ASSESSEE THAT DUE TO PAUCITY OF FUNDS THE SOCIETY HAS STOPPED MANY OF ITS CHARITABLE ACTIVITIES SUCH AS GIVING SCHOLARSHIP FOR EDUCATION OF THE CHILDREN OF POOR ARTISTS PROVIDING BOARDING AND STAY ARRANGEMENTS FOR POOR ARTISTS CONDUCTING TRAINING CLASSES IN ACTING AND DI RECTING STAGE DRAMAS ETC. W ITH ITS NEW SHOPPING COMPLEX THE SOCIETY WOULD R EVIVE ALL ITS ACTIVITIES AND PURSUE ITS OBJECTS MORE ACTIVELY TO PROMOTE STAGE ARTS AND DEVELOP ACTORS AND DIRECTORS OF THE TALENT OF S.V. RANGA RAO ANJALI DEVI ADI NARAYANA RAO A.V. SUBBA RAO ETC. WHO ARE THE PRODUCTS OF THE SOCIETY. 11. DURING THE COURSE OF HEARING OF THE APPEAL THE LD. COUNSEL FOR THE ASSESSEE WAS ALSO ASKED TO FILE THE COMPUTATION OF INCOME STATEMENT OF AFFAIRS RECEIPT AND PAYMENT ACCOUNT AND INCOME EXPENDITURE ACCOUNT FOR THE LAST 3 YEARS I N ORDER TO ASSESS THE AMOUNT OF APPL ICATION OF THE FUNDS TO ACHIEVE THE CHARITABLE OBJECT. IN RESPONSE THERETO THE ASSESSEE HAS FILED THE SAME AND FROM ITS PERUSAL WE FIND THAT DURING THE FINANCIAL YEAR 2006 - 07 THE ASSESSEE HAS INCURRED ONLY A SMALL AMOUNT ON DRAMA EQUIPMENTS AND DRAMA D RESSES ETC. AS MAJOR AMOUNT WAS SPENT IN CONSTRUCTION OF THE PROPERTIES FOR 9 WHICH HE HAS ALSO RECEIVED THE GRANT FROM THE C ULTURAL D EPARTMENT CENTRAL GOVERNMENT. FROM THE PERUSAL OF TH E INCOME EXPENDITURE ACCOUNT AND RECEIPT AND PAYMENTS FOR THE YEAR END ED 31 ST MARCH 2008 WE FIND THAT ASSESSEE HAS SPENT A SUM OF RS.28 571/ - AS DRAMA EXPENSES AND ALSO PAID A SITE RENT AT RS.1 10 000/ - . WHATEVER RENTAL INCOME AND THE DONATION RECEIVED BY THE ASSESSEES WERE INVESTED IN THE CONSTRUCTION OF BUILDINGS AND TH E SITE OBTAINED FOR CONSTRUCTION OF AUDITORIUM. ON PERUSAL OF THE RECEIPT AND PAYMENT ACCOUNT FOR THE YEAR ENDED 31 ST MARCH 2009 WE FIND THAT ASSESSEE HAS SPENT A SUBSTANTIAL AMOUNT OF RS.3 44 140/ - ON DRAMA AND FELICITATION EXPENSES. IN THIS YEAR HE HAS SPENT A CONSIDERABLE AMOUNT IN THE CONSTRUCTION OF AUDITORIUM. HE HAS ALSO INCURRED EXPENSES ON RENT ADVANCES FOR AUDITORIUM AND STIPEND TO ARTISTS. THIS EXPENDITURE WAS MADE OUT OF THE DRAMA COLLECTIONS RENTS FROM SHOPS AND DONATIONS. FROM A CARE FUL PERUSAL OF THE STATEMENT OF AFFAIRS WE FIND THAT DUE TO PAUCITY OF FUNDS THE ASSESSEE HAS REDUCED ITS CHARITABLE ACTIVITIES BUT IT WAS NOT COMPLETELY STOPPED. IT STARTED INCREASING GRADUALLY DEPENDING UPON THE AVAILABILITY OF THE FUNDS. THOUGH THRO UGH LETTER DATED 27.4.2009 IT WAS STATED BY THE ASSESSEE THAT IT HAS STOPPED THE CHARITABLE ACTIVITIES BUT FROM THE PERUSAL OF THE STATEMENT OF AFFAIRS WE ARE OF THE VIEW THAT TH E CHARITABLE ACTIVITIES WERE NOT COMPLETELY STOPPED BUT IT WAS SIMPLY REDUC ED WHICH WAS GRADUALLY INCREASED DEPENDING UPON THE AVAILABILITY OF FUNDS IN SUCCEEDING YEAR. THEREFORE WE ARE OF THE VIEW THAT CIT HAS NOT LOOKED INTO THE STATEMENT OF AFFAIRS BEFORE COMING TO A CONCLUSION THAT SOCIETY HAS STOPPED THE CHARITABLE ACTIVIT IES AND ENGAGED ITSELF IN COMMERCIAL ACTIVITIES. 12. FROM PERUSAL OF THIS MATERIAL AVAILABLE ON RECORD WE ARE OF THE CONSIDERED OPINION THAT WHATEVER FUNDS ARE BEING GENERATED BY THE ASSESSEE ON ACCOUNT OF COMMERCIAL ACTIVITY I.E. CONSTRUCTION OF SHOPP ING COMPLEX THE SAME WERE UTILIZED FOR THE PURPOSE OF CHARITABLE ACTIVITIES EITHER FOR CONSTRUCTION OF THE AUDITORIUM OR TO ACHIEVE THE OBJECT OF THE SOCIETY I.E. PERFORMING OF DRAMAS REHEARSALS AND STIPEND TO ARTISTS. IN THESE CIRCUMSTANCES WE ARE OF THE VIEW THAT THERE IS NO VALID REASON FOR THE DENIAL OF EXEMPTION U/S 80G AND REGISTRATION U/S 12A OF THE ACT. WE ACCORDINGLY SET 10 ASIDE THE ORDER OF THE CIT(A) AND DIRECT HIM TO GRANT THE EXEMPTION U/S 80G AND REGISTRATION U/S 12A OF THE ACT. 1 3 . IN TH E RESULT THE APPEALS OF THE ASSESSEE ARE ALLOWED . PRONOUNCED IN THE OPEN COURT ON 25.10 .20 10 SD/ - SD/ - (BR BASKARAN) (SUNIL KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER VG/SPS VISAKHAPATNAM DATED 25 TH OCTOBER 20 10 COPY TO 1 THE YOUNGMENS HAPPY CLUB 9 - 1 - 40 VALLABHAI STREET KAKINADA 2 CIT RAJAHMUNDRY 3 THE CIT (A) VISAKHAPATNAM 4 THE DR ITAT VISAKHAPATNAM. 5 GUARD FILE. BY ORDER SENIOR PR IVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM