Mumbai Metropolitan Region Development Authority vs The Director of Income Tax (Exemption)

This Appeal under Section 260-A of the Income Tax Act, 1961 (the Act), challenges the order dated 10th April, 2015, 2013 passed by the Income Tax Appellate Tribunal (the Tribunal). The impugned order relates to the Assessment Year 2009-10.

The impugned order dated 10th April, 2015 allowed the rectification application filed by the Appellant and re-called its order dated 31st December, 2013 passed in respect of Assessment Year 2009-10. However, after allowing rectification Application under Section 254(2) of the Act, the impugned order also partly disposes of the appeal by the same order under Section 254(1) of the Act. The two of the three issues which arose in the substantive appeal for consideration before the Tribunal are as under:--

"(i) Jurisdictional issue viz: whether the Registration granted under Section 12A of the Act could be withdrawn by the Director of Income Tax under Section 12AA(3) of the Act for violation of conditions other than those specified therein? and

(ii) Without prejudice to (i) above, whether the activity carried out by the Appellant is not for charitable purpose as defined under Section 2(15) of the Act being hit by the amended proviso thereto?"

The basic jurisdictional issue being (i) above was referred to the President of the Tribunal to consider the constituting of a Larger Bench to decide it and the without prejudice issue raised in ground (ii) is decided by the order dated 10th April, 2015. On issue (ii) the Tribunal held that Appellant''s activities are not activities for charitable purpose being hit by proviso to Section 2(15) of the Act. It is the grievance of the Appellant that the issue raised in ground (ii) above has been decided without hearing the Appellant on it.

We admit the Appeal on the following substantial questions of law:--

"(A) Whether on the facts and in the circumstances of the case and in law, the Tribunal was right in deciding Ground No. (ii) of the memorandum of appeal without deciding Grounds No. (i)of the memorandum of Appeal even though Grounds No. (ii) was without prejudice to Ground No. (i) and would only arise for adjudication if Ground No. (i) is decided against the Appellant?

(B) Whether on the facts and in the circumstances of the case and in law, the Tribunal was right in adjudicating Ground No. (ii) of the memorandum of appeal when the said ground was not argued by the parties on the basis that initially only ground No. (i) was argued and, if the same is against the Appellant, the matter would be re-fixed to argue the other grounds?

(C) Whether on the facts and in the circumstances of the case and in law, the Tribunal was right in referring Ground No. (i) to the President of the Tribunal for constitution of Special Bench to decide the Ground?

(D) Whether on the facts and in the circumstances of the case and in law, the order of the Tribunal is perverse and bad in law?"

As the issue is within a narrow compass coupled with the fact that the finding of the Tribunal on issue (ii) would affect all pending assessments as the same would conclude the issue of exemption before the Assessing Officer. Thus, at the request of the Counsel, the appeal itself is being disposed of at the stage of admission.

Brief facts:--

The Appellant is authority established under the Mumbai Metropolitan Regional Development Authority (MMRDA) Act, 1974. Its main object is, inter alia, to secure the development of Mumbai Metropolitan Region.

On 22nd July, 2002, the Appellant was granted registration under Section 12A of the Act on the ground that its activities are charitable in nature. Consequent to the same, the Appellant has filed its Return of Income claiming exemption under Section 11 of the Act with respect to the income earned in carrying out the activities of the development of Mumbai Metropolitan Region. By Finance Act, 2008, a proviso was inserted to the definition of charitable purpose in section 2(15) of the Act w.e.f. 1st April, 2009. The proviso, inter alia, provided that advancement of any other object of general public utility would not be considered to be a charitable purpose, if it involves carrying on any trade, commerce and/or business irrespective of nature of use or application of income from such activities.

On 13th December, 2011, the Respondent issued a show cause notice to the Appellant, calling upon the Appellant to show cause why the registration granted under Section 12A of the Act should not be withdrawn/cancelled as the activity of the Appellant was in the nature of trade, commerce and/or business and, therefore, not a charitable purpose under Section 2(15) of the Act. The Appellant responded to the said notice inter alia, pointing out that a certificate of Registration once granted under Section 12A of the Act could only be withdrawn under Section 12AA(3) of the Act in case he is satisfied that one or both of the two eventualities mentioned therein are met namely - not being genuine or the activity is not carried on in accordance with its objects. It was contended that neither of the two conditions necessary for exercising the jurisdiction under Section 12AA(3) of the Act are satisfied. Thus, the Respondent had no jurisdiction. Without prejudice to the above, the Appellant also submitted that the activities carried out by it would not amount to carrying on any trade, commerce or business as it was essentially concerned with development of Mumbai Metropolitan Region. Therefore, would not be hit by the proviso to Section 2(15) of the Act.

On 27th December, 2011, the Respondent by an order passed under Section 12AA(3) of the Act cancelled/withdrew registration granted to the Appellant under Section 12A of the Act with retrospective effect from 1st April, 2009.

Being aggrieved, the Appellant filed an Appeal to the Tribunal. In its Appeal, the Appellant challenges the order dated 27th December, 2011 of the Respondent on the following grounds:

"(i) The Respondent does not have jurisdiction to withdraw registration granted under Section 12A of the Act in exercise of its power under Section 12AA(3) of the Act. This is so as the withdrawal only can be done when the Appellant''s activities are not genuine or are not being carried out in accordance with its objects. As neither of the two above condition precedents were satisfied, the Respondent could not have exercised jurisdiction under Section 12AA(3) of the Act;

(ii) Without prejudice to (a) above, in any event, the activities of the Appellants are not business activities and thus not excluded from the definition of charitable purposes as provided under Section 2(15) of the Act read with proviso thereto; and

(iii) Without prejudice to (a) and (b) above, the Respondent has no jurisdiction to withdraw the registration under Section 12AA(3) of the Act with retrospective effect from Assessment Year 2009-10."

At the hearing before the Tribunal, the Appellant urged only one ground i.e. the jurisdiction of the Respondent under Section 12AA(3) of the Act to withdraw the registration granted under Section 12AA of the Act. The issue raised in grounds (b) and (c) were not urged, this was for the reason that if the first issue is decided in favour of the Appellant, the other issue would not arise for consideration. The Tribunal by its order dated 31st December, 2013 set aside the order of the Respondent dated 27th December, 2011 and restored the issue to him to decide not only the jurisdictional aspect but also the factual aspect of whether the activities of the Appellants are carried out in accordance with its objects.

Being aggrieved with the order dated 31st December, 2013 of the Tribunal to the extent it proceeded to decide the case on issues not argued and restored the issue to the Respondent, the Appellants filed an application dated 20th March, 2014 under Section 254(2) of the Act before the Tribunal, seeking to rectify mistake apparent from the record and recall the order dated 31st December, 2013. The Appellant submitted that the only issue which was argued before the Tribunal leading to the order dated 31st December, 2013 was with regard to the jurisdiction of the Director of the Income Tax to cancel and/or withdraw under Section 12AA(3) of the Act, the registration granted under Section 12A of the Act by relying upon the proviso to Section 2(15) of the Act. The other issue on which observations were made by the Tribunal and restoring to the Respondent to examine and adjudicate were not argued either by the Appellant-Assessee and/or by the Respondent-Revenue at the hearing leading to the order dated 31st December, 2013.

The application was heard on 8th August, 2014 and 16th January, 2015 at which time the Appellant also filed a written summary of its arguments. On 10th April, 2015, the Tribunal disposed of the Miscellaneous Application by allowing it and re-calling its order dated 31st December, 2013. Thereafter, the Appellants'' appeal against the order dated 27th December, 2011 of the Respondent was considered on merits under Section 254(1) of the Act and partly disposed of on merits with regard to issue (ii) and partly kept in abeyance by referring the issue (i) of the President of the Tribunal to consider and constitute a Larger Bench to decide the jurisdictional issue.

The grievance of the Appellant is not with regard to that part of the order dated 10th April, 2015 of the Tribunal by which the Appellants'' application under Section 254(2) of the Act for re-call of its order dated 31st December, 2013 was allowed. The grievance of the Appellants is with regard to that part of the order dated 10th April, 2015 which deals with the Appellants'' substantive Appeal, in terms of Section 254(1) of the Act from paragraph 6 onwards. Therefore, the order dated 10th April, 2015 is in effect a consolidated order dealing with an application under Section 254(2) of the Act and also an appeal under Section 254(1) of the Act. The challenge in this appeal is to the order dated 10th April, 2015 of the Tribunal to the extent it deals with the appeal under Section 254(1) of the Act.

We shall now deal with each of the above substantial questions as admitted.

Regarding Question A

"(a) The challenge here is to the order dated 10th April, 2015 to the extent it is passed under Section 254(1) of the Act by deciding ground (ii) in the memorandum of appeal which was taken without prejudice to issue (i) which dealt with the jurisdiction of the Respondent to pass an order under Section 12AA(3) of the Act. Without prejudice to issue (i), the Appellant had taken up issue (ii) contending that the activity carried out by it is not hit by the proviso to Section 2 (15) of the Act from being a charitable purpose;

(b) Mr. Suresh Kumar, learned Counsel appearing for the Respondent-Revenue submits that the Tribunal could not be faulted in taking a decision on ground (ii) as this issue would have to be decided sometime or the other. We do not accept the above submission made on behalf of the Revenue;

(c) Ground (i) taken up by the Appellant before the Tribunal is a jurisdictional issue. Therefore, if ground (i) is decided in favour of the Respondent, there is no need for the Tribunal to examine ground (ii) in the appeal before it. This issue raised in ground (ii) needs to be examined by the Tribunal only if ground (i) is decided against the Appellant. However, ground (i) with regard to jurisdiction has been referred to the President of the Tribunal for considering the constituting of Larger Bench. Nevertheless, it proceeds to decide ground (ii). The foundation to decide ground (ii) is only if ground (i) is decided against the Appellant-Assessee. In these facts, the legal maxim sublato fundamento cadit opus would apply meaning thereby, in case the foundation is removed, the superstructure falls, so far as the Tribunal is concerned. It may be open to the Assessing Officer during the assessment proceedings to consider whether the activities of the Appellant are hit by the proviso to Section 2(15) of the Act and entitled to exemption. There is a difference between Registration and exemption;

(d) Accordingly, Question (A) is answered in the negative i.e. in favour of the Appellant-Assessee and against the Respondent-Revenue."

Regarding Question B

"(a) The challenge here is to the order dated 10th April, 2015 of the Tribunal to the extent it decides ground (ii) in the memorandum of appeal without hearing the Appellant.

(b) The appeal from the order dated 27th December, 2011 was originally disposed of by an order dated 31st December, 2013 of the Tribunal holding that ground (ii) raised in appeal would be required to be examined only if it comes to the conclusion that the Respondent had jurisdiction under Section 12AA(3) of the Act. The Appellant sought recall of the order dated 31st December, 2013 only because it did not deal with the above issue. This is evident from the order dated 10th April, 2015 of the Tribunal itself specifically recording in para 2 thereof as under:--

"2:-- Vide its instant application the assessee seeks a recall of its order afore-referred by the Tribunal for deciding its appeal afresh in accordance with law. In the alternative, the tribunal can, where the parties consent thereto, it having already heard the parties at length, proceed to decide assessee''s Ground No. 1, which it refrained to while passing the impugned order."

Besides, during the hearing of its Rectification/Miscellaneous Application, the Appellant had filed a summary of its arguments and from which it is very clear that the submissions were made by the Appellants only in respect of ground (i) and not with regard to ground (ii). Yet, the Tribunal disposed of the issue with regard to ground (ii) when the same was not argued before the Tribunal as it evident from the above.

(c) The ground of appeal urged in the memorandum of appeal before the Tribunal has been reproduced in paragraph 4.1 of the order dated 10th April, 2015 of the Tribunal. It is very clearly stated therein that ground (ii) is without prejudice to ground (i) viz- the jurisdiction of the Respondent to exercise its power of withdrawal under Section 12AA(3) of the Act. In spite of the aforesaid position, the impugned order proceeds to decide the ground Nos. (i) and (ii) by holding that both are taken without prejudice to the other. This is factually not correct;

(d) Mr. Suresh Kumar, learned Counsel for the Revenue urges that the Appellant be directed to obtain clarification from the Tribunal. In the above facts, as recorded in the order dated 10th April, 2015, we see no merit in it;

(e) In view of the above, ground (ii) is answered in the negative i.e. in favour of the Appellant-Assessee and against the Respondent-Revenue."

Regarding Question C

"(a) The challenge here is to the order dated 10th April, 2015 to the extent it has referred the issue of jurisdiction as raised in ground (i) by the Appellant to the President of the Tribunal for consideration to constitute a Larger Bench;

(b) We find that this reference to the President for constitution of a Larger Bench was in the face of seven decisions of the Tribunal concluding the issue of jurisdiction in favour of the Appellant. All these decisions are mentioned in the order passed on 31st December, 2013 (since re-called) in support of the Appellant''s submission that the Respondent has no jurisdiction to withdraw/cancel registration granted under Section 12AA of the Act in exercise of its power under Section 12AA(3) of the Act. In fact, the order dated 10th April, 2015 of the Tribunal itself in para 8 thereof records its knowledge of the seven decisions by relying upon the paragraph 3.1 to 3.4 of the order dated 31st December, 2013 where the seven decisions has been set out in seriatim. In spite of the above decisions of the Tribunal and also of the High Court of Madras in Commissioner of Income Tax-I, Madurai Vs. Sarvodaya Ilakkiya Pannai, , the impugned order holds that the issue is required to be referred to the President of the Tribunal to consider constitution of a Larger Bench in view of conflicting view of High Courts. No reference to any High Court decisions adverse to the stand taken by the Appellant is found in the order dated 10th April, 2015 of the Tribunal. In support of the stand of the revenue, the only decision to which reference is made is of the Tribunal in Entertainment Society of Goa v. CIT , (2013) 23 ITR 635 ;

(c) The issue raised in ground (i) above is referred to the President on the ground that there are conflicting views of the High Court. This is factually incorrect as the Tribunal does not refer to any order of the High Court, conflicting with the view of the Madras High Court in Sarvodaya Hakkiya Pannai (supra). It is true that the order places reliance upon the decision of this Court in Commissioner of Income Tax Vs. Thana Electricity Supply Ltd., which has observed to the effect that a decision of non-jurisdictional High Court is not binding upon the Tribunal. It appears prima facie to be rendered in the context of the question whether this Court is bound by a decision of another High Court. However, in the present facts, there were seven decisions of the Tribunal including of the Mumbai Bench in favour of the Appellant. Amongst the above decisions of the Tribunal is the decision in the Maharashtra Housing & Area Development Authority v. ADIT(E) 58 SOT 196 and Rajasthan Housing Board v. CIT 51 SOT 383 which were authored by the learned Member who scripted the impugned order. Further, these decisions were also noticed by the Tribunal in the impugned order but not communicated upon. There ought to have been consideration of those decisions and only thereafter it ought to have come to the conclusion to refer to the President of the Tribunal the issues raised therein for constitution of a Larger Bench. We are unable to understand as to how the Tribunal could completely overlook the same and more particularly when the same learned Member had also authored the decision in Rajasthan Housing Board (supra) and Maharashtra Housing & Area Development Authority (supra);

(d) In view of the order dated 10th April, 2014 referring the issue raised in ground (i) to the President of the Tribunal for constitution of Larger Bench is not supported by any reasons warranting a constitution of a Larger Bench. This is particularly so because the issue stands covered by the decision of the Madras High Court and no contrary decision of any other High Court has been cited in the order or any discussion why the Madras High Court''s decision should not be followed while holding a reference to the President for constitution of a Larger Bench. On consideration of the issues, the Tribunal could well come to the conclusion that the issue is required to be considered by a Larger Bench of the Tribunal and the same may not be faulted. Thus, we would be restoring the issue to the Tribunal for fresh consideration. However, in view of the above in the present facts in view of lack of consideration, question (C) is answered in the negative i.e. in favour of the Appellant-Assessee and against the Respondent-Revenue."

Regarding Question D

"(a) The challenge here is to the manner in which the order dated 10th April, 2015 has been passed. We find that the order dated 10th April, 2015 while dealing with the substantive appeal under Section 254(1) of the Act has finally disposed of the appeal in part. The decision on the issue raised in ground (i) is postponed to be rendered later i.e. after consideration of the issue by the Larger Bench of the Tribunal. While the issue raised in ground (ii) is finally disposed of.

(b) As pointed out above, ground (i) is in respect of jurisdiction i.e. it goes to the root of the dispute. Therefore, the normally expected manner would have been to dispose of ground (ii) only after deciding on the issue of jurisdiction of the Respondent to cancel registration under Section 12AA(3) of the Act. In case, the ground (i) is decided in favour of the Appellant, the entire exercise of deciding ground (ii) would be a wasted effort. Moreover, the authorities under the Act would have acted upon issue (ii) being finally decided only for the revenue to revise its decision if ground (i) is decided in favour of the Appellant.

(c) Besides, we also find that the order dated 10th April, 2015 has disposed of the Appellant''s appeal under Section 254(1) of the Act finally on one issue and kept pending on the other issues. The Tribunal under the Act is the final fact finding authority and has to consider all question that are raised before it arising from orders of Authorities under the Act. Thus, this piecemeal disposal of an appeal under Section 254(1) of the Act is not normally resorted to for the reasons pointed out in question (b) above. Moreover, such approach on the part of the Tribunal would lead to confusion viz: can an appeal be filed from such an order as the appeal is still pending with the Tribunal. Therefore, normally all Appellate Authorities dispose of the appeal before them at one stage and not at different stages. If during the pendency of the appeal there is an urgency to decide an issue, the same is decided by an interim order, pending the final disposal of the appeal.

(d) Therefore, in view of the above, question (D) is answered in the affirmative to the extent it deals with the substantive appeal under Section 254(1) of the Act."

For all the above reasons, we find that the order dated 10th April, 2015 to the extent it disposes of Appellant''s appeal under Section 254(1) of the Act as found from para 6 onwards of the order is not satisfactory in law. We, therefore, quash and set aside the order to the extent it is passed under Section 254 (1) of the Act. We restore the substantive Appeal filed by the Appellant from the order dated 27th December, 2011 of the Respondent before the regular bench of the Tribunal for fresh disposal after hearing the parties and considering their submissions. We expressly keep open all the contentions of the parties.

Accordingly, Appeal disposed of in the above terms. No order as to costs.