ITAT Delhi has dismissed Congress leader Rahul Gandhi’s plea to make Young Indian a charitable trust
Young Indian Vs CIT (Exemption) (ITAT Delhi)
[Appeal Number : ITA No. 7751/Del/2017]
Charitable trust are under high scanner. In the last week, the Registration u/s 12A was cancelled for Tata Trusts which is expected to cost around Rs. 12000 Cr.
In this week, ITAT bench of Delhi has dismissed Congress leader Rahul Gandhi’s plea to make Young Indian a charitable trust.
Effect of Rejetion: Income tax case of Rs. 100 crore against it will be re-opened.
The rejection was based on the basis of material facts on record which conveys that the trust has concealed the material facts and not disclosed the entire events of transactions which had undergone from the date of inception of assessee company till the grant of registration.
One of the conditions on which the registration has been granted stood violated from the day one. It was held that CIT(E) was fully justified in law and on facts in cancelling the registration from the date of granting of registration itself, i.e., from the assessment year 2011-12.
On the second front, it was found that even after grant of registration u/s. 12AA, no genuine activities have been carried out by the assessee either in furtherance of its objects or otherwise which can be held to be for charitable purpose.
Here is complete Judgment for the readers:
01 The aforesaid appeal has been filed by Young Indian [ in short ‘YI’] , appellant-assessee against impugned order dated 26.10.2017, passed by the ld. CIT(Exemption), New Delhi, cancelling the registration u/s. 12AA(3) of the Income-tax Act, 1961[ In short “ The Act’] , granted earlier to the assessee u/s. 12A r.w.s. 12AA, vide certificate dated 09.05.2011 w.e.f. assessment year 2011-12.
02 In the grounds of appeal, the appellant assessee has raised following grounds:
“1. On the facts and circumstances of the case and in law, the CIT (E) erred in withdrawing the registration granted u/s. 12A retrospectively from A.Y. 2011-12 on the alleged grounds that the activities carried on by the Appellant are not genuine and are not in accordance with the objects of the assessee.
- On the facts and circumstances of the case and in law, the CIT (E) erred in not appreciating that the Assessee had suo moto surrendered its registration u/s. 12A in March 2016 and that once the registration u/s. 12A is surrendered in March 2016, nothing survives to be cancelled subsequently.
- The Appellant craves leave to add, to amend, to alter and/or to delete all or any of the above grounds of appeal.”
03 Before us, during the course of marathon hearing, four volumes of paper books on behalf of the appellant-assessee have been filed, along with two separate sets of paper books of additional evidences, one filed during the course of arguments and other during the course of rejoinder submissions. On behalf of the department, two sets of paper books have been filed along with a statement giving dates and evident of various stages. Besides this, various documents and judgments were also filed from both the sides. All the submissions and relevant documents that are germane to the issue involved shall be discussed hereinafter.
Brief facts and background of the case:
04 The appellant, Young Indian was incorporated as a company on 23.11.2010 u/s. 25 of the Companies Act, 1956. It applied for registration u/s. 12A r/w section 12AA on 31.03.2010. It was granted registration by then DIT (Exemption), New Delhi vide order/certificate dated 09.05.2011 w.e.f. assessment year 2011-12. As a prelude, certain vital events precursor to grant of registration u/s. 12AA and antecedent to application for registration us 12AA need to be elaborated which are germane to the issue involved.
05 Assessee had filed an application for incorporation of a company u/s. 25 of the Companies Act, 1956 on 14.10.2010. Memorandum of Association was subscribed by two Directors, namely, Mr. Suman Dubey, having 550 equity shares, and Mr. Satyan Gangaram Pitroda (Sam Pitroda) with 550 equity shares. License u/s. 25 of the Companies Act, 1956 was granted to YI on 23.11.2010. Later on, both the Directors transferred their shares to Mr. Oscar Fernandes and Mrs. Sonia Gandhi; and Mr. Sam Pitroda and Suman Dubey were appointed as Directors of a company, M/s Associated Journals Limited (herein referred to as ‘AJL’) on 21.12.2010. On 13.12.2010, Mr. Rahul Gandhi was appointed as Director of YI, who acquired 1900 shares resulting in 36% stake in YI; and later on, Mrs. Sonia Gandhi became the director on 22.01.2011 having 36% of stakes with 1900 shares. Another relevant fact to this chain of events is that various loans were advanced by All India Congress Committee [ In short ‘The AICC”] to AJL from time to time and as on 31.03.2010, there was outstanding of Rs. 88,86,68,976/- . Further loan of Rs. 1,35,000/- was received during the period 01.04.2010 to 16.12.2010. On 16.12.2010, AICC, who had given loan to AJL over the period of around Rs. 90 crores, transferred the entire loan of Rs. 90 crores due from AJL in favour of YI for a consideration of Rs. 50 lakhs. Thus, AICC assigned loan of Rs. 90 crores outstanding as payable in books of AJL to YI at Rs. 50 lakhs. Since YI did not had funds to pay consideration of Rs. 50 lakhs, it took loan of Rs. 1,00,00,000/- (one crore) from M/s. Dotex Merchandise Pvt. Ltd., Kolkata. Out of said loan, Rs. 50 lakhs were paid to AICC on 01.03.2011. However, before the payment of Rs. 50 lakhs to AICC, AJL had allotted 9,02,16,898 shares (almost 99.99% of the holding) to YI in lieu of loan of Rs. 90 crores by increasing the share capital from Rs. 1 crore to Rs. 10 crores. Thus, almost entire shareholding of AJL went to YI. Certain additional shares of AJL were also purchased by Mrs. Sonia Gandhi, Mr. Rahul Gandhi and Mrs. Priyanka Gandhi to gain full control of AJL. At the time of making an application for registration u/s. 12AA, the assessee company disclosed the list of shareholders and directors of Young Indian during the assessment year 2011-12 as under:
|Name||Position in YI & No. of shares held|
|Mrs. Sonia Gandhi||Director since 22.01.2011
– 1900 shares (36%)
|Shri Rahul Gandhi||Director since 22.01.2011
– 1900 shares (36%)
|Shri Moti Lal Vora||Director since 22.01.2011
– 600 shares
|Shri Oscar Fernandes||Director since 22.01.2011
– 600 shares
Gangaram Pitroda (Sam Pitroda)
|Director since 23.11.2010
– Held 550 shares but transferred it to Shri Oscar Fernandes
|Shri Suman Dubey||Director since 23.01.2010
– Held 550 shares but transferred it to Mrs. Sonia Gandhi.
06 The Chronology of events right from the date of inception of Young Indian u/s. 25 of the Companies Act till the date of application of registration u/s. 12AA as available from record can be summarized in the following manner: –
|13.08.2010||Application made for incorporation of YI as Section 25 Company|
|01.09.2010||Resolution passed by board of directors of AJL for change of address of office.||Registered office of AJL shifted from Lucknow to Delhi at 5A Herald House, Bahadur Shah Zafar Marg, New Delhi to provide easy and efficient control and management to the Directors.|
|14.10.2010||Objects of Young Indian were incorporated||Main object was
“To inculcate in the mind of India’s Youth………… ”
|18.11.2010||Grant of license u/s. 25 of the
Companies Act, 1956
|· To promote object in terms of
|23.11.2010||Incorporation of Young Indian||· Authorised capital of Rs. 5,00,000 being 500 shares of Rs 100/- each as on 31.03.2011
· Address of Registered office was at the same property of AJL, i.e., 5A Herald House, since inception.
|23.11.2010||Commencement of directorship of Mr. Sam Pitroda||He held 550 shares in YI, which were later on, were transferred to Mr. Oscar Fernandes.
He was Director of AJL since
|23.11.2010||Commencement of directorship of Mr. Suman Dubey||He held 550 shares in YI which were later on transferred to Mrs. Sonia Gandhi
He was Director of AJL since 21.12.2010
|13.12.2010||First Managing Committee Meeting of YI||· Mr. Rahul Gandhi appointed as director|
|13.12.2010||Commencement of directorship of Mr. Rahul Gandhi||· 1900 shares held for 36% stake in YI|
|16.12.2010||Transfer of Loan by of Rs 90 Crores By AICC to AJL assigned to YI by Journal Entry||Within 25 days of incorporation of Young Indian|
|21.12.2010||Mr. Suman Dubey and Mr. Sam Pitroda appointed directors of AJL in Extra Ordinary General meeting||· Initially directors of YI, were appointed as director of AJL before allotment of shares;|
|28.12.2010||Assignment of Loan through letter to Young Indian||· At the time, YI had no funds to pay Rs. 50 lakhs to AICC , therefore it obtained a loan of Rs. 1 crore from M/s. Dotex Merchandise Pvt. Ltd., Kolkata
· Assignment Deed was executed
|28.12.2010||Letter by Mr. Motilal Vora, as Treasurer of
AICC to AJL
|· That the loan has been assigned by AICC to YI
· Mr. Motilal Vora was Director of AJL since 2002
|A.Y. 2011- 12||Loans advanced by AICC to AJL||· Rs. 88,86,68,976 till 31.03.2010
· Rs. 1,35,000 during 01.04.2010 to 16.12.2010
· Total Loan by AICC to AJL is Rs
90 Crores.AY 2011-12List of shareholders and directors
· Mr. Suman Dubey and Mr. Sam Pitroda – Founder Members with 550 Shares each
· Rs. 53,21,290 spent towards objects including RS 50 lakhs paid to AICC towards acquisition of loan of Rs 90 Crores and only Rs. 200 as income from subscription
21.01.2011EGM of AJL· Approving fresh issue of 9.021 crore shares22.01.2011Commencement of directorship of Mrs. Sonia Gandhi· Holds 1900 shares 36% stake in YI22.01.2011Commencement of directorship of Mr. Moti Lal Vora
Held 600 shares in YI
· Chairman and MD of AJL since 22.03.2001
22.01.2011Commencement of directorship of Mr. Oscar Fernandes
Held 600 shares held in YI
· Director in AJL since 17.06.2010
14.02.2011Bank Account of YI opened· After issue of PAN by IT authorities15.02.2011Loan from Dotex Merchandise (P) Ltd., Kolkata
Loan of Rs 1 crore was taken from this company to pay AICC Rs. 50 Lakhs for assignment of loan in AJL
· Confirmation letter dated 24.12.2010
26.02.2011Allotments of shares in AJL to YI
· 9,02,16,898 shares issued in lieu of assignment of loan of Rs. 90 Crore by increasing its authorized share capital to 10 crores from 1 crore.
· Mrs Sonia Gandhi, Mr. Rahul Gandhi and Ms. Priyanka Gandhi purchased additional shares to gain full control of AJL
01.03.2011Payment of Rs. 50 Lakhs to AICC for loan assignmentPayment of Rs 50 lakhs was disclosed as an expenditure for the object enshrined in MOA of YI
07 One of the main objects of Young Indian as enshrined in the Memorandum of Association (MOA) and Article of Association (AOA)for which is claimed to be of ‘charitable’ in nature, was as under:
“1. To inculcate in the mind of India’s youth commitment to the ideal of a democratic and secular society for its entire populace without any distinction as to religion, caste or creed and to awaken India’s youth to participate in activities that may promote the foregoing objective in any manner whatsoever including, without limitation, participating in all democratic activities through open and transparent electoral process, so as to conform to the ideals of the founding fathers of India, Mahatma Gandhi and Pandit Jawaharlal Nehru.”
08 Since the main object was to inculcate in the minds of Indian Youths commitment to the ideal of a democratic and secular society in conformity with the ideals of Mahatma Gandhiji and Pt. Jawahar Lal Nehru, stated to be of charitable in nature in terms of section 2(15) of the Act, assessee company applied for registration u/s. 12AA before the ld. DIT (E), New Delhi. Along with the application, the assessee had filed list and names of founder members, Memorandum of Association and Article of Association, license granted u/s. 25 of the Companies Act, future annual income & expenditure estimates and assets and liabilities statements.
09 On 18.04.2011, a show-cause notice was issued to the assessee from DIT(E) asking following documents / clarifications:
“1.Original MOA & Registration certificate from Registrar/Trust deed for verification.
- No objection certificate from the landlord along with the proof of ownership/occupancy.
- A note clarifying what is the focus area of your charitable activities and giving a projection/plan of action for the main charitable activities to be undertaken by you during the next two years.
- Copy of accounts for the period since the inception of the Trust / Society or Last years during which the trust has been in existence.
- Please insert a clause in the deed /MOA providing that the funds /property of the trust will be used only for the objectives of the Trust/Society.
- Please insert a provision relating to the dissolution of the Trust/Society providing inter alia that in the event of dissolution of funds/ assets will be transferred only to some other trust having similar objectives.
- A note on activities carried out since inception/last 1/2/3/4 years with supporting documentary evidence.
- Please justify your claim for registration u/s. 12AA & 80G.
- Please explain the change in fact & circumstances of the case since the last rejection order.
- Please furnish the details of donation including corpus donations received & made giving Name, Address, PAN of donors.
- Please furnish contact No & E-mail Address of the Applicant & its members.
- Justify with the bill/vouchers of the income applied for charitable activities along with proof of beneficiaries.
- Please file the undertaking that there shall be no infringement to the proviso to the section 2(15) of the IT Act.”
10 In response, the assessee had filed certain documents including ‘Note on activities’ which were as under:
“Young Indian (“YI”) is a Company registered u/s. 25 of the Companies Act, 1956 (“the Companies Act”) with the main object of inculcating in the mind of India’s youth commitment to the ideal of a democratic and secular society for its entire populace without any distinction as to religion, caste or creed and to awaken India’s youth to participate in activities that may promote the foregoing objective in any manner whatsoever including, without limitation, participating in all democratic activities through open and transparent electoral process, so as to conform to the ideals of the founding fathers of India, Mahatma Gandhi and Pandit Jawaharlal Nehru.
The Company is incorporated with a small capital and funds by way of contribution from Patron Members may provide support to earn recurring income, which would be deployed for the main object for which the Company is incorporated. Nevertheless, within the framework of this main object the activities, their magnitude and pace will necessarily depend on the funds available with YI which in turn, depends on the ability to attract donation (from Patron Members or otherwise) which, in its own turn is linked to the ability of the Donors to claim deduction u/s. 80G of the income Tax Act. The application for -registration u/s 12AA is the first step in that direction.”
11 Another fact, which may be mentioned here, is that in application for registration filed, the address mentioned was Herald House, 5A Bahadur Shah Zafar Marg, New Delhi, which was the premises belonging to AJL and in this regard, NOC was given from the Chairman of AJL to the ld. DIT(E).
12 Thereafter, registration certificate u/s. 12A r/w section 12AA was granted by the DIT (E) to the assessee company vide order dated 09.05.2011 w.e.f. assessment year 201112. Such a registration was subject to the following terms and conditions:-
“Order u/s.12A(a) read with Section 12AA (1)(b) does not conform any right of exemption upon the application u/s.11, 12 and 13 of the Income Tax Act, 1961. Such exemption from taxation will be available only after the Assessing Officer is satisfied about the genuineness of the activities promised or claimed to be carried on in each Financial Year relevant to the Assessment Year and all the provisions of law acted upon.
- The Trust/ Society/ Non Profit Company shall comply with the provision of section 139A(A)(ii) and (Hi) of the Act within one month of the date of this order to obtain a Permanent Account Number and shall communicate the PAN to this office.
- The Trust/ Society/ Non Profit Company shall maintain accounts regularly and shall get these audited in accordance with the provisions of section 12A(b) of the Income Tax Act, 1961. Separate accounts in respect of each activity and specified in memorandum shall be maintained. A copy of such account shall be submitted to the Assessing Officer. A public notice of the activities carried on/ to be submitted to the Assessing Officer. A public notice of the activities carried on/ to be carried on and the target group(s) (intended beneficiaries) shall be duly displayed at the Registered/ Designated Office to the organization.
- Separate books of accounts in respect of profits and gains of business incidental to, attainment of objects shall be maintained in compliance to section 11(44) of the Income Tax Act 1964.
- All the Public Money so received including for Corpus or any contribution shall be communicated to this office.
- No change in the Trust Deed/ Memorandum of Association/ instrument shall be effected without the approval of the jurisdictional High Court/ Appropriate Authority and it shall continue to serve the main object of the trust in further without any change.
- No asset shall be transferred without the knowledge of the undersigned to anyone, including to any Trust/ Society/ Non profit Company, etc.
- The registered office of the principle place of activity of the applicant should not be transferred outside the national capital territory, Delhi except with the prior approval of the DIT (E), Delhi.
- If later on, it is found that the registration has been obtained fraudulently by misrepresentation or suppression of any fact, the Registration so granted is liable to be cancelled as per provisions u/s 12AA(3) of the Act.
- No fee or any other consideration shall be received which comes under the proviso to section 2(15) of the Income Tax Act.”
[Emphasis in bold is ours]
13 After the grant of registration u/s 12AA in the aforesaid manner, assessee company in the 5th year of registration, i.e., on 21.03.2016, wrote a letter to CIT(E), that it is suo moto surrendering the registration u/s. 12AA granted vide order dated 09.05.2011. Thus, the benefit of being a charitable institution and registration was given up. The letter for surrender of registration reads as under:
“March 21, 2016
Director of Income Tax (Exemption)
Pratyaksh Kar Bhawan
Room No. 2602, E-2 Block
26th Floor, Dr. S.P. Mukherjee
Civic Centre, J.L.N. Marg
New Delhi – 110002
Sub: Registration u/s 12A read with Section 12AA of the Income Tax Act, 1961 of Young Indian
We are currently holding shares of The Associated Journals Limited (“AJL”). It was never intended to make any gain. This is, indeed, fully borne out of the fact that the shareholders of AJL had passed a unanimous resolution on January 21, 2016 to get the company registered under Section 8 of the Companies Act, 2013. We may amplify the effect of the foregoing by bringing out that a Section 8 company is prohibited from declaring dividend or distributing or paying any amount to its members.
“Investment” presupposes return. However, holding these shares does not envisage any dividend, either present or expected. Therefore, in our view, our continuing to hold shares of The Associated Journals Limited does not militate against Section 11(5) of the Income Tax Act, 1961. However, currently and in the foreseeable future we do not have significant surpluses, which presently makes our registration under Section 12AA virtually academic in nature.
After considering all aspects we have decided to surrender our registration u/s 12A read with Section 12AA with immediate effect. The original Registration Certificate issued u/s 12AA bearing no. 2011-12/100 DEL-YR21296 dated 9/5/2011 is surrendered herewith. This is to call upon you to note that the registration stands cancelled with immediate effect.
Encl: Original Registration Certificate bearing no. 2011-12/100 DEL-YR21296 dated 9/5/2011”
FINDING GIVEN IN THE IMPUGNED ORDER OF CIT (E)
14 In the impugned order, the ld. CIT(E) in para 3 has noted that an intimation was received from ACIT(E), Cir 1(1) vide letter dated 16.08.2017 regarding contravention of conditions subject to which the assessee was granted registration u/s. 12A r/w section 12AA. In the said communication, following facts were stated:
“In this case, this office has been conducting certain inquiries with regard to take over of M/s. Associated Journals Ltd. (AJL) by the YI since July 2015 and subsequent to these inquiries the following important findings are observed:-
- YI has been engaged in activities, which were not in accordance with objects of YI.
- YI has carried out activities in a manner that the provisions of section 11 and 12 of the Act do not apply.
- YI has been engaged in commercial activities of construction of commercial complexes and earning commercial interest income through AJL by acquiring 99.99% shares of AJL, since Assessment Year 2011-12 to till date.”
15 Thereafter, in para 4, the ld. CIT (E) observes that he has examined the annual reports of the assessee as well as of AJL for the relevant period and from scrutiny of such records and on going through the findings of the Assessing Officer and the information given by him, the aforesaid allegations gets corroborated with the facts on record of the assessee as well as of AJL. He further took note of the fact that the assessee vide letter dated 21.03.2016 had informed for surrendering of registration without explaining the actual reason for such surrender. Further, DIT (Inv.) and the Assessing Officer was conducting various enquiries with regard to the take-over of AJL by the assessee since the year 2014 and the main reason for surrendering the registration u/s. 12AA was the finding arrived by the Investigation Wing and the Assessing Officer that the assessee has not carried out the activities in accordance with its objects and these activities were not in conformity with the terms and conditions subject to which registration u/s. 12AA was granted to the assessee. After taking note of these facts and records available before him, he reached to a prima facie conclusion that the assessee had not been carrying out its activities in accordance with its objects. In a show cause notice issued on 21.08.2017 to the assessee, he called for the following information:
- M/s. Young Indian was incorporated with main object of inculcating in the mind of India’s youth, commitment to ideal of democratic and secular society for its entire population without any distinction as to religion, caste or creed and to awaken India’s youth to participate in activities that promote foregoing objectives. In this context, you are requested to furnish details along with evidence of charitable activities undertaken by M/s. Young Indian to fulfill above object during A.Y. 2011-12 to 2016-17. Please clarify if there is any change in aim and objects of M/s. Young Indian during AY 2011- 12 AY 2016-17.
- It is evident from the records that the only substantial activity undertaken by M/s. Young Indian during P.Y. 201011 was to acquire M/s Associated Journals Ltd. by acquiring its 99.99% shares. It is important to mention here that M/s AJL has been engaged in the business of real estate and the source of its income was rental income as well as other business income from construction and development of commercial complexes since FY 2008-09. Please explain whether earning of income from real estate business through M/s AJL is covered within the aims and objects of M/s Young Indian and whether these activities are in conformity with the terms and conditions subject to which registration u/s 12A of the was granted to M/s Young Indian.
- You are requested to furnish complete details of source of fund/income, of M/S Young Indian and its application during Assessment Year 2011-12 to 2016-17.”
16 In response to the show cause notice, the assessee had
submitted a reply, the extract of which has been incorporated in para 5 of the impugned order. In sum and substance, the assessee’s submissions were: –
- That the findings of the Assessing Officer are merely based on the facts that the assessee had surrendered the registration u/s. 12A of the Act and has failed to substantiate his findings that How the assessee is engaged in activities not in accordance with its objects, the Assessing Officer failed to provide any reasons why he believed that the activities of the assessee were not in compliance to the provisions of section 11 & 12.
- The assessee was not engaged in any commercial activities of construction of commercial complexes and the assessee was only an investor and it does not mean earning of the same nature what an Industry earns and in support, reliance was placed on the judgment of Hon’ble Supreme Court in the case of Bacha F. Guzdar vs. CIT reported in (1955) 27 ITR-1. A shareholder of a company is not the owner of the property of the company. It does not have any ownership interest, whatsoever, in the properties owned by the company because the company owning the property is supposed to be a separate and distinct legal entity responsible in law to make records of assets and liabilities owned by it. A shareholder is not expected in law to maintain the records of the properties and liabilities of the company whose shares are owned by him. The percentage of share holding has no relevance. Thus, it was stated that it would be incorrect to hold that the assessee was engaged in some kind of commercial activities in construction of commercial complexes through AJL.
- In so far as the allegation that the assessee was engaged in the construction of commercial complexes and earning commercial interest income through AJL by acquiring 99.99% of the share holding of AJL, it was submitted that neither any commercial activities nor any commercial interest income was earned by the assessee and even in the audited accounts filed with the return of income from year to year, it can be seen that no income has been credited to the income & expenditure account of the company. Thus, such an allegation is baseless.
- Regarding surrendering of registration certificate issued u/s. 12A, it was submitted that the assessee never admitted that its activities are not in conformity with the terms of registration, rather it was clearly stated that currently and in the foreseeable future, the assessee do not expect significant surplus and therefore, registration u/s. 12AA virtually became academic in nature. It is purely a prerogative of an assessee whether it would like to avail any benefit of exemption provided under law and it is well-settled law that if the assessee does not desire to avail benefit provided in law, then he may chose not to avail the same. Reliance is placed on the judgment of Hon’ble Supreme Court in the case of CIT vs. Mahindra Mills (2000) 243 ITR 56 (SC). Thus, after having surrendered its registration certificate w.e.f. 21.03.2016, it ceases to enjoy the benefit of the provisions of exemption of income, if any, accruing to it from and after the said date. Accordingly, the question of cancelling the registration does not arise.
- Regarding proposal to cancel the registration w.e.f. assessment year 2011-12, it was stated that, firstly, the payments towards acquisition of shares of AJL does not amount to investment because the term investment pre-supposes a return and holding these shares does not envisage any dividend whether at present or expected. In fact, payment towards shares of AJL amounts to utilization of funds towards objects of Young Indian; and secondly, such surrender cannot be construed as admission that any of its activities were not in conformity with the terms of registration.
17 The ld. CIT (E) after discussing the provisions of sub-sec. (3) of section 12AA of the Act and considering the written submissions filed by the assessee, observed that the assessee has not furnished any details or evidences in support of the claim that it has carried out any activities in accordance with its objects, in response to specific query raised to the assessee in this regard in the show cause notice given u/s. 12AA (3). He also examined the Income-tax Returns and annual reports of the assessee for the relevant period and found that the assessee had shown income of Rs. 200 in form of annual fee and has claimed expenditure of Rs. 53,21,290/-, out of which expenditure of Rs. 50 lakhs were claimed to be incurred on the objects of youth commitment of democratic and secular society. The income and expenditure account for the period 23.11.2010 to 31.03.2011, as extracted in the impugned order, is reproduced as under:
18 In the notes to accounts, the assessee explained the nature of Rs.50 lakhs spent in the following manner:
“1. In pursuit of its objects, the Company acquired loan owed of Rs. 90,21,68,980 by The Associated Journals Ltd. (“the said company”), presently engaged in achieving a recast of its activities so as to have its main object congruent to the main object of the Company, for a consideration of Rs. 50 lacs. As a part of restructuring exercise of the said Company, the said loan was converted into 9,02,16,898 ordinary shares of Rs. 10 each fully paid. Since said acquisition is treated as application on the objects of the Company (and accordingly, treated in the financial statements of the Company), the same has not been reflected as an investment in shares. Besides, even if the shares were to be treated as an asset (“investment”), having regard to the fact that the net worth of the said company is negative, recognizing the entire cost as “diminution in value” would result in an equivalent charge to the Income & Expenditure Account.”
19 After incorporating aforesaid details, the ld. CIT (E) proceeded to analyze the Income & Expenditure Accounts for the assessment years 2012-13 to 2014-15 and from the perusal of the same, he observed that the assessee had not incurred any expenditure on its objects except for creating provision for interest payment for loans of Rs. 1.00 crore taken to acquire AJL, which, according to him, was a Real Estate Company. He also incorporated the expenditure incurred by the assessee for the assessment year 2012-13 to 2014-15 which were as under:
|AY 2012-13||AY 2013- 14||AY 2014-15|
|Expenditure on object||–||–||–|
|Interest on loan||14,00,000||14,00,000||14,00,000|
From the above details, he concluded that the assessee had not incurred any expenditure on activities in accordance with its objects except for acquiring the Real Estate Company, which was not in conformity with the main objects of the assessee company. Hence, the assessee had not carried out any genuine activities in accordance with its objects and therefore, the contention of the assessee that it had carried out activities in accordance with its objects is incorrect and non-genuine.
20 Thereafter, the ld. CIT(E) dealt with the activities carried out by AJL and noted that AJL was a company incorporated under the Companies Act, 1956 and in earlier years engaged in publishing newspaper like ‘National Herald’, ‘NavJeevan’ and ‘Qaumi Awaz’ newspapers. However, the business of publication of newspapers ceased to exist, w.e.f. 02.04.2008 and all the employees of the company took VRS w.e.f. 02.04.2008. After the publication of newspapers ceased to exist, the income of AJL was mainly from real estate business and this company was engaged in purchase, construction and sale and renting out of its properties. He also took note of important properties held by the AJL in various parts of the country, the details of which are as under:
He also noted that these properties were acquired by AJL either as free hold or on lease from Central/State Government solely for the purpose of publication of newspaper by paying token price and after closure of newspaper business in the year 2008, AJL started the business of construction of buildings for commercial purpose and had let out or sold its existing building on rent or sale consideration. To corroborate this fact, he also took note of disclosure of AJL in the annual report, which for the sake of ready reference is also incorporate hereunder:
“3. In respect of construction activity at Lucknow for sale of shops and floors, advances made to contractors and booking money received from intending purchaser in earlier years, are included under Schedule IV “ Current Assets Loans and Advances” and Schedule V “Current Liabilities & Provisions” respectively. During the year Company paid Rs. 2,22,17,743/-for buy-back of shops at Lucknow the amount paid has been shown as development expenditure.
- (a) Freehold land includes 2 plots of Land allotted to the Company in 1983 by Government of Maharashtra at Bandra, Mumbai for Rs. 31,23,054/- on deferred payment basis. However, in 1991 the Govt. of Maharashtra on representation by the company had agreed to convert the said land from free hold to lease hold. Fresh representation has been made to Govt. of Maharashtra for reversing this decision, converting this land to Freehold, which is pending.
(b) The payment made up to 31.03.2009 to Govt. of Maharashtra on account of annual lease rent etc. has been shown under the head “capital work in progress”.
(c) The Title Deed in respect of land allotted in Mumbai, Patna and Panchkula is yet to be registered/ executed.
- (a) Advances/ Security Deposits received from the parties in earlier years relating to construction activity on company’s land at Lucknow and Mumbai has been grouped under “Other Liabilities” and “Unsecured Loans” and no provision of interest has been made thereon.
(b) No provision has been made of interest on amount of Rs. 165 lakhs received from parties as advance towards construction activity at Mumbai, due to non-execution of final agreement.”
[Extracted from Schedule X – Notes forming part of the Account for the year ended 31.03.2009 and emphasis supplied]
“4. The Company has no employees as on 31.03.2010 on its records.
- In respect of construction activity at Lucknow for sale of shops and floors, advances made to contractors amount paid for buy-back of shops and booking money received from intending purchaser in earlier years, are included under Schedule IV “Current Assets Loans and Advances” and Schedule V “Current Liabilities & Provisions” respectively. During the year Company paid Rs. 9,28,45,160/- (Prev. Year Rs. 2,22,17,743/-) for buy-back of shops at Lucknow the amount paid has been shown as development expenditure.
- (a) Free hold land includes 2 plots of land allotted to the Company in 1983 by Government of Maharashtra at Bandra, Mumbai for Rs. 31,23,054/- on deferred payment basis. However, in 1991 the Govt. of Maharashtra on representation by the company had agreed to covert the said land from free hold to lease hold. Fresh representation has been made to Govt. of Maharashtra for reversing this decision, converting this land to Freehold, which is pending.
(b) The payment made to 31.03.2010 to Govt, of Maharashtra, on account of annual lease rent etc. has been shown under the head “Capital Work in Progress”.
(c) The Title Deed in respect of land allotted in Mumbai, Patna and Panchkula is yet to registered/ executed.
- Advances/ Security Deposits received from the parties in earlier years relating to construction activity on company’s land at Lucknow and Mumbai has been grouped under “Other Liabilities” and “Unsecured Loans” and no provision of interest has been made thereon.
21 Thus, according to ld. CIT (E), AJL had earned substantial income from Real Estate business from AY 2012-13 to 2014-15. He also incorporated the details of such income as disclosed in the return of income of AJL.
22 Further, on perusal of financial details of AJL with reference to the claim of the assessee that the expenditure of Rs. 50 lakhs incurred on acquisition of AJL was in accordance with the objects, the ld. CIT(E) held that the claim of the assessee was factually incorrect and was not tenable for the following reason:
- It is evident from the financial records of the assessee company, as summarized above that during assessment year 2011-12 to 2014-15, the assessee had not carried out any activities in accordance with its object except for acquisition of AJL, a company solely engaged in profit making business from real estate.
- Since, the assessee had full control over AJL by acquiring its 99% of total shareholding, some of the directors/ share holders of the assessee company namely Shri Moti Lal Vora, Sh. Oscar Fernandes, Sh. Sam Pitroda and Sh. Suman Dubey were Chairman and Managing Director of AJL since 22.03.2002, Director since 17.06.2010, Director since 21.12.2010 and Director since 21.12.2010 of the AJL respectively during AY 2011-12 to 2014-15 and the only activities carried on by the assessee was to manage and run business of the AJL by engaging in the real estate business with the help of its directors and shareholders. In these circumstances, it would be reasonable and logical to infer that the only activities carried on by the assessee during AY 2011-12 to 2014-15 was to control, manage and run the real estate business of AJL. These facts clearly prove that the assessee had in fact was engaged in the real estate business through its subsidiary, AJL and no other activities were carried on by the assessee in accordance with its objects.
- Active involvement of the assessee company in managing, controlling and conducting real estate business through its director and shareholder during AY 2011- 12 to 2014-15 was the activity not in accordance with the object of the assessee.
- While explaining the investment to take over AJL the assessee had claimed in notes to account for FY 2010-11 that the investment was for the purpose of the stated object of the assessee company namely Youth Commitment to the ideal of democratic and secular society and the AJL was in process of realigning its business to the stated object of the assessee company. However, findings as discussed above had proved beyond doubts that AJL had never changed its business activities of real estate during AY 2011-12 to 2014-15 to realign itself with the stated object of the assessee company.
23 Thus, in view of the aforesaid reasons, Ld. CIT (E) held that the activities carried out by the assessee were to manage, control and engage in business of the AJL and thus, the activities were not in accordance with the stated objects of the assessee company.
24 The ld. CIT (E) further held that the acquisition of shares of AJL was never meant for objects of the assessee, i.e., for youth commitment for ideals of democratic and secular society for the reason that AJL was engaged solely for earning income from real estate business and never carried out activities and the objects for which it was granted registration. Even the assessee in the notes to account for the year ending 31.03.2011, stated that AJL was in the process of real estate business to manage the assessee company, which was also found to be factually correct. AJL had never changed or re-aligned its business with the objects of the assessee company and for this reason, the expenditure of Rs. 50 lakhs cannot be held to have been incurred for the activities as per objects of the assessee company.
25 He further held that suo moto surrender of registration u/s. 12A in March, 2016, was in the wake of the fact that the investigation was mounted against the assessee by the Investigation Wing in the year 2014 and after having received the enquiry report from the Investigation Wing, the Assessing Officer had started investigation against the assessee by way of issue of summons u/s. 131 and proceedings u/s. 133(6) in the year 2015. Because of this enquiry, the Assessing Officer had issued notice u/s. 148 in January 2017 for reopening the assessment for A.Y. 2011-12. Thus, the surrender was made by the assessee as a sequel to the investigation against the assessee and it was not suo moto action by the assessee. He further held that there was no provision for surrendering of certification of registration u/s. 12A by the assessee under the Act and the assessee had made the surrender after having claimed the benefit of exemption on the income of Rs. 2 crores received by it as contribution during the A.Y. 2016-17 in its return of income and suo moto surrendering registration will not lead to automatic cancellation of registration. He also distinguished the judgment of Hon’ble Supreme Court in CIT vs. Mahindra Mills (supra) as relied upon by the assessee.
26 Another important fact noted by the ld. CIT (E) was that the assessee was asked to submit the details and evidences to show that it has actually carried out any activities during the assessment years 2011-12 to 2016-17 in accordance with the stated objects. In all the written replies filed, he observed, that no evidence, whatsoever, were furnished to prove that the assessee company had actually carried out any genuine activities in accordance with the stated objects. In fact, audited Income & Expenditure accounts and disclosure in the annual report prove beyond doubt that the assessee had not carried out any activities in accordance with its stated objects and claim of assessee that the activities were carried out has not been found to be genuine. The only activity stated to be carried out was of acquiring AJL, which too was not in accordance with the objects of the assessee, for which it was granted registration.
27 Thereafter, he observed that the judgment of Hon’ble Supreme Court in the case of Mrs. Bacha F. Guzdar vs. CIT (supra) is not applicable in the facts of the case because here the issue is that the nature of activities carried out by the assessee through some of its directors who were also directors of AJL by managing, controlling and participating in real estate business of AJL on behalf of the assessee.
28 After making all these observations and analysis, Ld. CIT(E) reached to the following conclusions:
“On the basis of above referred to factual analysis of the return of income, annual reports and audited income and expenditure of the assessee, inquiries conducted by the AO and its subsidiary M/s AJL with reference to contention of the assessee and provisions of section 12AA(3), I have reached following conclusions:
- Even though assessee was specifically asked to furnish details and evidence of the activities carried out by it during AY 2011-12 to 2016-17 in accordance with its objects, the assessee did not furnish any details or evidence that it had actually carried out any genuine activities in accordance with its objects i.e. the assessee has not even discharged its initial onus. However, scrutiny of the returns of income and annual reports has revealed that the assessee had not carried out any activities in accordance with the objects.
- The claim of the assessee that information as contained in the report of the AO was without basis has been examined in detail with reference to disclosure made by the assessee and its subsidiary M/s. AJL in the return of income and annual reports and it has been noticed that the findings of the AO in report were verifiable were based on credible basis as evident from the discussion and findings as recorded in preceding paragraphs 8 to 11 of this order, accordingly, the contention of the assessee was found factually incorrect.
- The claim of the assessee that activity of AJL could not be held as activity of assessee has been examined in detail in paragraph 9 to 12 of this order and the claim was found both factually and legally untenable for the reason that only activity carried on by the assessee was to manage, control and engage in the real estate business or the AJL after acquiring all the properties of the AJL through Directors and shareholders of the assessee company as discussed earlier. In this context, the disclosure made by the assessee in the annual report ending 31.03.2011 as examined in detail above may also be referred to. The case law as cited by the assessee is not applicable to the peculiar facts of the case of the assessee where direct evidences are available to prove that the assessee was engaged in carrying out commercial business of real estate in contravention to stated object of the company through its directors/ shareholders.
- The contention of the assessee that it had suo moto surrendered the registration u/s 12A in the month of March 2016 has also been found factually incorrect as the surrender of 12A by the assessee was as sequel to investigation by the Directorate of Investigation and the AO since 2014.
- The argument of the assessee that surrender of certificate granted to it u/s 12A r.w.s. 12AA in the month of March 2016 has automatically cancelled the registration granted by the competent authority is legally untenable claim as the provisions of section 12AA do not stipulate cancellation of registration by way of surrender by the assessee. It is a different issue that in this case the assessee has chosen to surrender the certificate of registration after having claimed exemption of income of Rs. 2 crores in the return of income for AY 2016-17.”
29 Accordingly, Ld. CIT(E) held that in view of the aforesaid uncontroverted findings, he is satisfied that firstly, the activities of the assessee are not genuine; and secondly, are not carried out in accordance with its objects. Consequently, he withdrew the registration granted u/s. 12A r/w sec. 12AA w.e.f. the assessment year 2011-12 onwards. In other words, he cancelled the registration from the date of grant of granting registration itself.
Arguments placed by the appellant/assessee:
30 Before us, the ld. counsel Ms. Kavita Jha, who had initially appeared before us on behalf of the assessee, vide letter dated 05.08.2019 had submitted a petition for admission of additional evidences stating that the ld. CIT(E) had given various incorrect and factually misleading statements and has reached to the conclusion without giving any opportunity or making sufficient enquiry. The additional evidences paper book filed separately is running into 386 pages, containing list of 20 documents which are mostly in the nature of launch of Commemorative Edition of National Herald Publication in the year 2017 and 2018, launch of various websites by National Herald and Navjivan newspapers, erstwhile newspapers published by AJL, registration certificates of National Herald newspaper and Sunday Navjivan with Registrar of Newspapers for Indian and various kind of reports of Google showing the outreach of the online news portals operated by AJL. Further, resolution passed by the Board of Directors of AJL to resume the publication of newspapers on 26.09.2016 and letter of AJL to the Registrar of Newspapers of India to resume newspaper business, copy of Form No. 23 submitted before the ROC with amended MOA to show that the amended objects of the AJL were in consonance with the objects of Young Indian are placed in the additional evidence paper book. Besides this, various presentations, photographs showing operation of Young Indian were also filed.
31 The reason stated for filing all these additional evidences was that these are filed to counter various statements made by the CIT(E) which are mainly based on conjectures and surmises and the ld. CIT(E) without giving any proper opportunity have stated several incorrect facts. It was pointed out that the ld. CIT (E) observed that the object of AJL was never re-casted to match with the objects of the appellant-assessee. However, there was an amended MOA of AJL filed before the Registrar of companies [ROC] that these objects were re-casted in the year 2011 to align with the objects of the assessee. Secondly, relevant observation of the ld. CIT (E) that business of publication of Newspaper of AJL ceased to exist w.e.f. 02.04.2008 is also incorrect. In fact, there was no such closure of business, rather it was a suspension of publication of newspapers for temporary period and same had been revived in the year 2017-18, for which these additional evidences have been filed. Lastly, on issue that the ld. CIT (E) has concluded that AJL started the business of construction of buildings for the commercial purpose in the year 2008 and let out and sold the building on rent and for sale consideration, whereas the matter of fact is that activity of renting was part and parcel of the business of AJL since inception and no income has been earned from sale of any property. All these findings are based on unilateral reading of certain notes on financial statements of AJL without conducting any kind of enquiry from AJL.
32 Further, the ld. CIT (E) has mentioned the reasons for surrender of registration on account of findings of the Investigation Wing, but such observation has been made without providing any order or report from the Investigation Wing to the assessee. Even, reopening u/s. 148 was much later in the year 2017, whereas the assessee has surrendered the registration in March 2016. In support of admission of additional evidences u/r. 29 of ITAT Rules, 1963, strong reliance was placed on the decision of Hon’ble Delhi High Court in the case of Text Hundred India (P) Ltd. (2011) 197 Taxman 128.
33 Thereafter, the ld. counsel for the assessee, Sri Yogesh Thar gave para-wise submissions of the findings given in the impugned order. One of the contentions raised was that the order passed by the ld. CIT (E) u/s. 12AA (3) is mostly based on the borrowed satisfaction without application of mind. This was pointed out from para 2 of the impugned order wherein an allegation made by the ACIT vide communication dated 16.08.2017 has been made the basis by the ld. CIT (E) and based on that he has reached to the conclusion that prima facie finding of the Assessing Officer was corroborated from the facts on record of the assessee as well as AJL. Thus, the ld. CIT (E) has merely relied upon the information received from the ACIT and JCIT and had not independently and objectively applied his own mind. For instance, relevant observation made by the ld. CIT (E) at page 13 to 15 was highlighted before us. The ld. counsel further submitted that the requirement u/s. 12AA(3) before canceling the registration is that the ld. CIT(E) should be satisfied that the activities of the assessee are not genuine or are not in accordance with the objects. Such satisfaction cannot be a borrowed satisfaction based on the finding of another officer without application of mind independently. In support, reliance was placed on the following two decisions:
(i) PCIT v. Meenakshi Overseas (P) Ltd., 395 ITR 677
(ii) CIT v. SPL’s Siddhartha Ltd., 345 ITR 223.
34 With regard to various observations and allegations of the ld. CIT (E), the Ld. Counsel tried to give his point-wise rebuttal on various issues raised in the impugned order. First of all, with regard to the allegation that the MOA of AJL was never re-casted to align with the objects of the assessee company during the period relevant to assessment years 2011-12 to 2014-15, he submitted that the same is not correct because the MOA of AJL was re-casted on 13.09.2011 whereby new clause “(u)” was inserted to align with the objects of the assessee company. In support, amended MOA as passed by the shareholders of the company on 13.09.2011, placed on the additional paper book page 68 to 80, was referred to and relied upon. The new amended objects, Clause “(u)” placed at paper book page 224 in additional evidence, read as under:
“(u) To inculcate in the mind of India’s youth commitment to the ideal of a democratic and secular society for its entire populace without any distinction as to religion, caste or creed and to awaken India’s youth to participate in activities that may promote the foregoing objective in any manner whatsoever including without limitation, participating in all democratic activities through open and transparent electoral process, so as to conform to the ideals of the founding fathers of India, Mahatma Gandhi and Pandit Jawaharlal Nehru.”
35 Further, in the year 2016, AJL further amended its objects that it is the non-profit making company and it had applied u/s. 8 of the Companies Act 2013, for which reference was made to pages 281 to 295 of the additional evidence paper book. Our attention was drawn to form MGT 14 filed with the ROC and the main object of AJL at clause “(i)” was inserted, which reads as under:
“To inculcate in the mind of India’s youth commitment to the ideal of a democratic and / secular society for its entire populace without any distinction as to religion, caste or / creed and to awaken India’s youth to participate in activities that may promote the foregoing objective in any manner whatsoever including without limitation, participating in all democratic activities through open and transparent electoral process, so as to conform to the ideals of the founding fathers of India, Mahatma Gandhi and Pandit Jawaharlal Nehru and to achieve this through publication and distribution of newspaper, periodicals, magazine or journal, through physical, electronic, digital or any other media, as issued by the Company in accordance with the policy and principles of the Indian National Congress.”
Further, clause (v) of the MOA mentioned that –
(i) The profit, if any, or other income and property of the Company whenever derived shall be applied solely for the promotion of its objects as set forth in this Memorandum.
(ii) No portion of the profits, other income or property aforesaid shall be paid or transferred, directly or indirectly, by way of dividend, bonus or otherwise by way of profit to persons who, at any time, are or have been members of the Company or to anyone or more of them or to any persons claiming through anyone or more of them.
(iii) No remuneration or other benefit in money or money’s worth shall be given by the Company to any of its members, whether officers or members of the Company or not, except payment of out-of-pocket expenses, reasonable and proper interest on money lent, or reasonable and proper rent on premises let to the Company.”
36 Further clause (x) of the MOA provided that on winding up or dissolution of AJL, the surplus, if any, shall not be distributed among the members of the company but shall be given or transferred to such other section 8 company having objects similar to the objects of AJL. Thus, it was submitted that the observations of the ld. CIT (E) that the objects of the AJL were not re-casted during the years 2011-12 to 2014-15 is completely baseless and incorrect.
37 Another contention raised to rebut the finding of the ld. CIT (E) was that, the publication business was only temporarily suspended in the year 2008 and there was no closure of the business. It was submitted that publication business of the AJL had never ceased to exist and reference to Notes to accounts of AJL is not properly appreciated, because it nowhere states that the business of publication had been suspended. Nowhere, the note speaks about the intention to close the publication business. The ld. counsel submitted that the AJL is a very old company incorporated in the year 1937 as a public company in Lucknow under the Indian Companies Act, 1913, wherein various stalwarts of freedom movement, such as, Pt. Jawahar Lal Nehru, PD Tandon, Acharya Narendra Dev, Kailash Nath Katju, Rafi Ahmad Kidwai were the first subscribers and signatories to MOA of AJL. The main object of the AJL was to establish a publication business and to publish newspapers, magazines in accordance with the policy and principles of the Indian National Congress. The AJL started publishing newspapers, i.e., National Herald in English, Navjivan in Hindi and Qaumi Awaz in Urdu, which served as the voice of the freedom movement. It was also argued that from time to time, publication business of AJL was suspended and again it was revived. In the year 2008, since AJL started facing financial, operational and labour troubles, the company had to again temporarily suspend its publication business. In support, events leading to temporary suspension of publication business in 2008 were also submitted. These were stated to on account of labour unrest and strikes, printing machinery had become obsolete and there was dip in the circulation of its newspapers and most of its buildings were sealed due to non-payment of labour dues. Not only that, a fire had broken out in its Lucknow premises, which destroyed the printing press. Owing to the said trouble and continuous losses, the publication was temporarily suspended. The publication business was temporarily suspended, is clear from the fact that on 31.03.2008, AJL informed United News of India (UNI) about the temporary suspension of publication business. Even third party newspapers had published that there was temporary suspension of publication business by AJL. Thus, there was no closure of business or business itself had ceased to exist, rather it was only a temporary suspension. He submitted that, in fact, the publication had later on re-commenced, which is evident from the following facts, placed in the paper book of additional evidences:
– On 23/01/2014, AJL wrote to the Registrar of Newspapers for India (RNI) informing it of its intent to restart publication of the newspapers. Please see page 267 of the AB – PB I;
– On 26/09/2016, a resolution was passed by the Board of Directors of AJL to resume the publications of newspapers. Please see page 266 of the AB – PB I;
– On 14/11/2016, AJL launched National Herald Website. Please see pages 204 to 213 of the AB – PB I;
– On 15/11/2016, an agreement was entered between AJL and Press Trust of India for Wire News Services. Please see pages 245-249 of the AB – PB I;
– On 12/06/2017, AJL launched the Commemorative Edition of National Herald (Publication) in print in Bangalore. Please see pages 133-153 of the AB – PB I for the copies of various reports and photographs of said launch;
– On 23/06/2017, AJL obtained Registration Certificate for National Herald Newspaper from the Registrar Office of Newspapers for India, Ministry of Information and Broadcasting. Please see pages 239-240 of the AB – PB I;
– On 01/07/2017, AJL launched Commemorative Edition of National Herald (Publication) in print in New Delhi. Please see pages 154-185 of the AB – PB I for the copies of various reports and photographs of said launch;
– On 12/08/2017, AJL launched Qaumi Awaz Website in Urdu. Please see pages 215- 229 of the AB – PB I;
– On 29/08/2017, AJL launched Navjivan Website in Hindi. Please see pages 230-238 of the AB – PB I;
– On 24/11/2017, AJL obtained revised Registration Certificate for National Herald Newspaper from Registrar Office of Newspapers for India, Ministry of Information and Broadcasting. Please see page 241 of the AB – PB I;
– On 20/2/2018 and 11/01/2019, AJL obtained Registration Certificate of Sunday Navjivan with Registrar Office of Newspapers for India, Ministry of Information and Broadcasting. Please see pages 242-244 of the AB – PB I;
– On 10/12/2018, AJL launched Commemorative Edition of Navjivan newspapers (Publication) in print in Chandigarh. Please see pages 186-203 of the AB – PB I for the copies of various reports and photographs of said launch.
38 Further, it was submitted that there were several subscribers and readers of AJL publications, for which certificate issued by Audit Bureau of Circulations and the report of Google showing outreach of the online portals operated by AJL since November 2016 till date. It clearly shows that the publication business of the assessee company had revived and is running. The ld. counsel also relied on the judgment of Hon’ble Supreme Court in the case of CIT v. Vikram Cotton Mills Ltd. (1988) 169 ITR 597 (SC), wherein Hon’ble Supreme Court has held that to determine whether business was temporarily suspended, evidence of the assessee is important.
39 The ld. counsel further submitted that the allegation of the ld. CIT (E) that AJL is Real Estate Company is absolutely incorrect. It was pointed out that in public interest, State Governments, as a policy, had allotted lands/buildings to various entities engaged in the newspaper business to partly use it for running newspaper business and partly to rent it out. The same is done by the Government to ensure independence of the press. The newspaper publishing business, being capital intensive in nature, is primarily a loss making business. In fact, the price at which newspapers are sold is very nominal so that it can reach to masses and generally, the cost of publishing a newspaper is higher than the price at which the same is sold. Therefore, in order to promote press and ensure its freedom, the Government allots lands/buildings to various entities engaged in the newspaper business so that they can recoup their losses from publication business and survive by commercially exploiting the said allotted lands/buildings by renting out the same. The lease deed allotting the said lands/buildings specifically permits the lessees to use the property for renting out. Indeed, said practice of renting out the properties by newspaper business is permissible in standard newspaper leases and allotments of immovable property for newspaper user. The aforesaid facts are matter of public knowledge and policy. In support, reliance was placed on the judgment of Hon’ble Supreme Court in the case of Govt. of AP v. Maharshi Publishers Pvt. Ltd.(Civil appeal 7152-7157 of 2002), wherein Hon’ble Supreme Court has observed as under:
“Another contention urged before the Division Bench of the High Court and reiterated before us, is that there were no contracts signed by complying with the formalities under Article 299 of the Constitution and therefore, the Government was not obliged to honour its commitments. This contention has rightly been repelled by the Division Bench of the High Court by pointing out that the sale of the land was not a result of any commercial transaction by the State Government, but pursuant to its declared socio-economic policy reflected in the scheme of allotment of land to give incentives to Newspaper Concerns and Educational Institutions. The High Court rightly held that this was an executive act falling within the province of Article 162 and not within the ambit of Article 299 of the Constitution.” (underlined for emphasis).”
40 The ld. counsel also furnished the list of properties of major newspaper companies in India and list of properties allotted to AJL. All the newspapers companies have been partly renting out their properties to support their newspaper business. In support, list of tenants of various such companies in Delhi was also handed over to us at the time of hearing. Thus, it was submitted that practice of allotment of land to newspaper companies and such newspaper companies using the same for renting purpose is part and parcel of their publication business is not so uncommon. Therefore, if AJL has received rental income, it cannot be held that it is from Real Estate business and if said logic is applied to all the newspaper companies, all of them shall be treated as Real Estate Companies. Highlighting the role of newspaper in the democracy, the ld. counsel submitted that press is one of the important pillars of democracy and its freedom is of paramount importance. Reliance was placed on the judgment of Hon’ble Supreme Court in the case of Indian Express Newspaper v. UOI (1986 AIR 515) wherein Hon’ble Supreme Court has held that Press is the 4thestate of the country and freedom of speech and expression should, therefore, be given paramount importance and generous support and the government should be more cautious while levying taxes on other matters concerning newspaper industry. Reliance was also placed on another decision of Hon’ble Supreme Court in the case of Bennett Coleman & Co. &Ors. Vs. UOI (1973 AIR 106). Relying on these judgments, it was submitted by the Ld. Counsel that for the said freedom of press, lands were allotted to the companies and permission was granted to partly rent out the same and therefore, AJL cannot be regarded as engaged in the Real Estate business and it is part and parcel of publication business of AJL.
41 The ld. counsel further submitted that AJL had never purchased or sold any property after year 2008 as alleged by the ld. CIT (E). It was submitted that certain land parcels were allotted to AJL by the Government from time to time between the periods 1962 to 2005. In the year 1962, the Government of India allotted land to AJL situated at 5A, Bahadur Shah Zafar Marg, New Delhi for the purpose of carrying out newspaper publication. As per terms of allotment, AJL was allowed to let out part of the building to be constructed on the same. In the year 1983, Government of Maharashtra allotted a property to AJL in Mumbai for the purpose of carrying out publication of daily newspapers and establishing a Nehru Library cum Research Institute. Similarly, allotment was made by the Government of Bihar in Patna and Government of Haryana in Panchkula. Apart from that, AJL also owns freehold land in Lucknow purchased in the year 1975. Thus, allotment of land by the Government for publication business cannot be held that AJL had acquired the properties for any kind of Real Estate Business. Certain Annexure were filed by the assessee to show that the construction of the Delhi property was completed in the year 1967 and the same has been given on rent since year 1990. It was pointed out the Patna property is an encroached land on which no construction activity has been undertaken ever. Property in Lucknow is a freehold land comprising of two parts, Nehru Bhawan and Nehru Manzil. Construction of Nehru Bhawan was completed in the year 1984 and newspaper activity was conducted there from. However, a fire broke out in the year 2002 destroying the printing press, after which the building was repaired in the FY 2007-08 and given on rent to a charitable organization. In case of Nehru Manzil, construction had started in the year 1988, but was never completed due to financial constraints. In case of Panchkula property, the construction has been completed in 2013, from where newspaper activity is being conducted. In case of Mumbai property, the construction is still in process, which after completion would be used for newspaper activity, for establishing a Nehru Library cum Research Institute and be partly let out as per the permissible terms of allotment. Hence, it was submitted that CIT (E)’s observations that AJL started constructions after year 2008 is also untrue. It was submitted that there was temporary suspension of publication business in the year 2008, and to further strengthen and improve liquidity and to improve the financial position of the company, AJL substantially renovated two properties, namely Delhi and Lucknow, in order to earn higher rents from these immovable properties so as to be able to use the proceeds to resume newspaper and digital publication. It started renovation and construction of its properties so as to let them out and improve its financial position with the longterm view to first stabilize its financial position and then revive its publication business. Ld. Counsel pointed out that, in the years 2016-17 and 2017-18, the digital and print publication activities of AJL respectively have recommenced and the company is fully committed to continue to conduct its publication activities to their fullest potential. In FY 2016-17, the company had restarted its digital publication business and in the following financial year revived its traditional print newspaper business, thus ending the brief “temporary suspension”. Thus, renting of the properties has revived the financially distressed position of AJL and today it is a healthy going concern newspaper and digital publishing business run in the public interest. Thus, said activity cannot be said to be real estate business.
42 Regarding allegation of ld. CIT (E) that AJL had some properties which goes to show that it is a real estate company, for which reference was made by him to the notes on account of AJL as on 31.03.2009, wherein it was stated that the company has taken booking amount for sale of shops and floors from intended purchasers in Lucknow and has paid amount for buy-back of shops. Ld. Counsel submitted that the word “buy-back” has been loosely used in the said note because it represents repayment of the booking amount taken from the intended purchasers. In order to construct Nehru Manzil property at Lucknow, in the year 1988, AJL had raised fund by taking amounts in the form of booking amount towards shops that would have been sold in the constructed property. However, since AJL was unable to complete the construction due to financial constraints, it suspended the construction and gradually refunded the booking amount to the parties. Not a single property has been sold and all the properties remain in dilapidated conditions even today. In any case, the transaction, which has taken place in the year 1988, for which the booking amount was received, has no relevance for the period when the publication business was temporarily suspended. The fact that Lucknow property was never sold is also evident from the accounts of AJL for various years. Thus, when the assessee has not earned income from any sale of property then it can never be treated as Real Estate Company since 2011-12. AJL never stated in its account or its ITR that its income is from Real Estate business.
43 Coming on to the point raised by the ld. CIT (E) that, since the assessee company (YI) had full control over AJL by acquiring 99% of the share holding and the directors being the same of the two companies, therefore, the assessee was indulged in the business of Real Estate, which is not in accordance with the objects of the assessee. The ld. counsel submitted that the ld. CIT (E) has given no basis to say so merely because the assessee holds the shares in AJL and has common directors, the assessee was conducting the business of AJL. It is trite law that by acquiring the shares of a company, the shareholder does not become the owner of the assets of the company. Reliance is placed on the decision of Hon’ble Supreme Court in the case of Rustom Cawasjee Cooper and Union of India (40 Company cases 325), wherein the Hon’ble Supreme Court held that the company registered under the Companies Act is a legal person separate and distinct from its individual members and the property of the company is not the property of shareholders. Similar view has been taken by Hon’ble Supreme Court in Mrs. Bacha F. Guzdar (supra) and catena of other judgments. Thus, it cannot be held that the assessee company was conducting the duties of AJL. In any case, the AJL is not into the Real Estate business but in publication activities. Therefore, the question of Assessee Company having been engaged in commercial activities does not arise. In fact, by acquiring the shares of AJL, it was never intended to make any gain.
The assessee being a section 25 company and even if any alleged gain would have been derived then it would not have been distributed as dividend. Therefore, there could not be any motive to undertake any commercial transaction to derive any benefit or gain. Further, AJL had passed resolution on 21.01.2016 to get the company registered under section 8 of the Companies Act, 2013, the effect of which is that even AJL is prohibited from declaring dividend or distributing any profit amount to the shareholders.
44 As far as allegation of the ld. CIT (E) that the assessee company did not carry out any genuine activities in accordance with its objects, Ld. Counsel submitted that the assessee company acquired 99% shareholding in AJL, which is a newspaper publishing company with objects similar to that of the assessee. The objects of both the companies was to reach out to the youth of India in pursuance to its charitable objects and accordingly in order to promote its objects through the platform of AJL, the assessee company approached AJL, whose objects were germane to those of the assessee and with infrastructure to publish newspapers. Thus, through AJL and its platform, the assessee wanted to reach Youth of India and spread message of morals as laid down in its objects. Since AJL was facing financial and operational troubles due to which it had to temporarily suspend its operation in 2008, therefore, as a part of its effort to revive AJL with an object to creating platform to achieve its objects, the assessee company took over loan which AJL was not in a position to repay from AICC for a sum of Rs. 50 lakhs. Accordingly, the loan was assigned by AICC to the assessee for consideration of Rs. 50 lakhs. After assigning of said loan, AJL step into the shoes of AICC and AJL converted the said loan into the equity shares by issuing 9.021 crore equity shares to the assessee company to discharge its liability. As a result, the assessee became 99% shareholder in AJL. This transaction was duly disclosed in the audited accounts of the assessee company in the balance sheet in the year ending 31.03.2011. It was emphatically reiterated that the AJL had re-aligned its objects with that of the assessee company in the year 2011 and further in the year 2016, it had amended its MoA again to achieve its objects and declared itself as a non-profit company. Thus, AJL being newspaper publication was an ideal platform to achieve the objects of the assessee, i.e., to spread the ideology of democratic and secular society. It was through AJL that the assessee was spreading its ideology to the youths. As a sample, the ld. counsel drew our attention through the Web of National Herald, where there is a separate tab for “Democracy” and “young India”. The said Web was launched in November 2016 whereas the show-cause notice was issued by the CIT (E) in November 2016. The assessee company has been spreading the ideology of democratic and secular society through various articles. In support, the ld. counsel also handed over a list of Articles published under the tab “Young India” on National Herald Web. The ld. counsel has also placed several presentations and photographs showing operations of the assessee at page 301 to 386 of the additional evidence paper book. Thus, he submitted that e-medium was the ideal platform to reach today’s youths as it was available on all electronic platforms in the form of mobiles, laptops, tabs etc. Apart from that, the ideology of democracy and secularism was also being spread through the newspapers of AJL. In support, he showed us the Commemorative Edition of National Herald. Thus, it was submitted that on the platform of AJL, Young Indian had achieved its objects for spreading the ideology of democratic and secular society. Accordingly, it cannot be held that no genuine activities were carried out by the assessee towards its objects.
45 Without prejudice to the submissions made above, the ld. counsel submitted that the cancellation order of the ld. CIT(E) is bad in law because before issuance of show cause notice, the assessee had suo moto surrendered its registration. He submitted that the assessee had already filed a letter before the DIT (E) surrendering its registration u/s. 12A r.w.s. 12AA and also communicated that unanimous resolution was passed on 21.02.2016 to get the AJL company registered u/s. 8 of the Companies Act, 2013 and therefore, the assessee would not have any earned income due to the said fact. It was for this reason, the registration u/s. 12AA had virtually become academic and accordingly, the same was surrendered with immediate effect. Once, on the date of issuance of show cause notice, the assessee had also surrendered the registration u/s. 12AA, and then notice itself is bad in law and without jurisdiction.
46 As far as the allegation of the ld. CIT (E) that the assessee had surrendered its registration as a sequel of investigation against the assessee, Ld. Counsel submitted that firstly, the entire premise was based on the ground that AJL was in Real Estate business, which it was incorrect as per the detailed submissions made by him. He pointed out that the investigation had started in July 2014 and the assessee had replied in August 2015 and thereafter, the assessee was never provided any report or order in respect of all these investigations and therefore, no adverse allegation could have been envisaged against the assessee. Even after surrendering of registration on 21.03.2016, no communication was received by the assessee from the department and it was only in January 2017, the assessee was visited with notice u/s. 148 for reopening the case for the assessment year 2011-12. Thus, surrender of registration had no link with the investigation as alleged by the ld. CIT (E). When the assessee was not provided any adverse order or report, the question of surrendering its registration because of investigation, cannot be arise. The sole reason for surrender of registration was because of the fact that AJL was in the process of converting into section 8 company, there would have been no income in future, and registration held by it would not have served any purpose. Besides this, even much before the investigation began, full disclosure was made in the annual account of the assessee company for F.Y. 2010-11, wherein it was categorically stated that the assessee in pursuit of its objects required the loan owned by AJL which was converted into shares of AJL and since said conversion was towards objects of the assessee, the same was not reflected as investment in the books. Thus, if cancellation of registration is not by any investigation report then how can investigation be the reason for surrender of registration by the assessee.
47 Lastly, Ld. Counsel submitted that the assessee is entitled to surrender the registration u/s. 12AA even though Act does not provide any specific provision prohibiting such surrender. In support, he has relied upon the judgment of Hon’ble Supreme Court in the case of Mahindra Mills (supra) and also following judgments:
(i) Cyanamid India Ltd. v. Collector of Central Excise, Baroda (1997) 1997 com 1518(CEGAT – New Delhi)
(ii) Gothi Plastic Industries vs. Collector of Central Excise, Trichy (1996) 1996 com 486 (CEGAT – Chennai)
48 Further, when the assessee had surrendered registration in March, 2016 and for a long period of 17 months, no action was taken, then in absence of any action taken by the department, it should be deemed to have been accepted by the department. The ld. counsel referred to sub-sec. (2) of section 12AA wherein, it has been stated that every order granting or rejecting registration, has to be passed within six months from the end of the months in which the application is filed. In support, he also referred to the following decisions:
(i) CIT v. Society for the promotion of Education, Adventure Sport & Conservation of Environment (2016) 67 com 264(SC)
(ii) CIT vs. TBI Education Trust (2018) 96 com 356 (Kerala)
(iii) State of Punjab v. Bhatinda District Coop. Mill (11 SCC 363)(SC)
(iv) CIT vs. NHK Japan Broadcasting Corp (305 ITR 137 (Del)
(v) Amalner Cooperative Bank Ltd. v. Commissioner of Central Excise (2012) 21 taxmann.com 433 (Mum. CESTAT)
49 Without prejudice, the Ld. Counsel submitted that registration cannot be cancelled retrospectively without giving specific opportunity to the assessee and further, registration cannot be cancelled with retrospective date. Reliance in this regard was placed on the judgment of Allahabad High Court in the case of Agra Development Authority (2018) 90 taxmann.com 282 and of Madras High Court in the case of Auro Lab v. ITO (2019) 102 taxmann.com 225 (Madras).
50 Again, without prejudice, Ld. Counsel submitted that even if it is held that the assessee had acquired shares of a commercial entity, it could not be a basis for denial of registration. He submitted that till insertion of sub-sec. (4) in section 12AA w.e.f. 01.10.2014, the registration could be cancelled only if CIT finds that the activities of the trust is not genuine or is not in accordance with the objects of the trust. Any other basis that the assessee is holding asset not permissible u/s. 11(5) or any other reason does not permit cancellation of shares. In support, he has relied upon the decision of Hon’ble Delhi High court in the case of DIT(E) v. Abdul Kalam Azad Islamic Awakening (2013) 33 taxmann.com 364 and the judgment of ITAT, Pune Bench in the case of Prabodhan Shikshan Prasarak Sanstha vs. DCIT(2014) 44 taxmann.com 33. Further, the reason for cancellation on the ground that holding of shares of AJL which was engaged in commercial activities, cannot be a ground for cancellation of registration because such ground, if at all, would have been under sub-section (4) of section 12AA inserted w.e.f. 01.10.2014 by which holding impermissible investment u/s. 11(5) can be a ground for cancellation of registration w.e.f. 01.10.2014 and therefore, any cancellation on this ground prior to the said date, is not permissible.
Submissions on behalf of the Revenue
51 On behalf of the Revenue, Ld. Special Counsel, Shri G. C. Srivastava, Advocate, first of all objected for admission of additional evidence filed by the assessee on the ground that, firstly, they are not relevant for deciding the issue in hand; secondly, most of the documents and materials, which have been placed in the additional evidence paper book-1, are post cancellation order of ld. CIT (E) dated 26.10.2017, which are placed in the additional evidences. For instance, documents placed at item No. 2, 5, 10 and 12; therefore, these documents should not be admitted; and lastly, he questioned the genuineness of the evidences.
52 Thereafter, Mr. Srivastava submitted that in order to appreciate entire gamut of facts and background of the case and to have an over view of entire factual matrix and the material available with the Commissioner and the records called by him for its perusal as concluded by the ld. CIT(E) in para 17 of his impugned order, the facts of the case can be divide into four part, namely –
- Facts as existed prior to the incorporation of the Assessee Company.
- Facts evidenced by events happening from the date of incorporation till the date of filing the application for registration;
iii. Facts stated in the application for registration or in the course of proceedings relating thereto;
- Events happening after the grant of registration till the date of cancellation of registration.
53 He also submitted a chart of dates and events which gives details of: i) events prior to the year 2008; ii) events from 2008 till incorporation of Young Indian; iii) dates and evident from incorporation of Young Indian till filing of application for registration; iii) events and facts disclosed during the registration process; and v) lastly, the dates and events post registration and before cancellation. From these charts, he tried to highlight the facts and background of the entire case, which has been summarized by him in the following manner:
- The company in the name of M/s. Associated Journals Limited (“AJL”) was incorporated on 20.11.1937 with the object of publishing newspapers having a policy, which would be in tune with the principles of Indian National Congress. The business of AJL was suspended on various occasions due to financial difficulties or actions of the then government, labour problems, etc. AJL is in possession of land at various places in the country and deriving income from letting out of such properties. It was in the year 2008 that the AJL stopped the publication of newspapers and accordingly all the employees were given VRS w.e.f. 02.04. 2008.
- The registered office of AJL was moved from Lucknow to Delhi on 01.09.2010. Prior to that, on 17.06.2010, Mr. Oscar Fernandes was appointed director of AJL.
- Young Indian was incorporated on 23.11.2010. It was granted license u/s 25 of the Companies Act, 1956. The incorporation was done with Mr. Sam Pitroda and Mr. Suman Dubey being Directors, each having 550 shares in the company (which were later transferred to Mr. Oscar Fernandes and Smt. Sonia Gandhi). Mr. Sam Pitroda and Mr. Suman Dubey were also appointed as directors of AJL on 21.12.2010.
- Within 25 days of the incorporation of the Assessee Company, the AICC transferred loan of Rs. 90.21 crores which was due to them from AJL in favour of the Assessee Company for a consideration of Rs. 50,00,000/-. He pointed out that the paid-up capital of the Assessee Company was only Rs. 5,00,000/-and did not even have the funds to pay the meager consideration of Rs. 50 lakhs.
- The Assessee Company took a loan of Rs. 1 crore from M/s Dotex Merchandise Pvt. Ltd. (‘Dotex’) The Assessee Company paid the said Rs. 50 lakhs out of the loan from M/s Dotex to All India Congress Committee (AICC) on 01.03.2011. However, much before the payment of Rs. 50 lakhs to AICC, AJL had already allotted 9,02,16,898 shares in lieu of the loan of Rs. 90 crores (approx.) to the Assessee Company by increasing its share capital from Rs. 1 Crore to Rs. 10 Crores. Certain additional shares of AJL were also purchased by Smt. Sonia Gandhi, Sh. Rahul Gandhi and Smt. Priyanka Gandhi to gain full control of AJL. These transactions as appearing in the bank account of the Assessee Company were noted as suspicious transactions and the Financial Intelligence Unit (‘FIU’) received a note from the concerned agency to the effect that the loan transaction as also the acquisition of shares were suspicious in nature as these were not in accordance with the stated objects of the Assessee Company. This information was received and passed on to the Investigation Wing of the Department. Thus, the trigger of inquiry into the affairs of the company was the nature of transaction as reported to FIU.
- The Assessee Company applied for Registration of u/s. 12A r.w.s 12AA by its application dated 31.03.2010. The Application was accompanied by sets of annexure containing Names of Founder Members, Names of members of the Managing Committee, Memorandum of Association, Articles of Association, Certificate of Incorporation, License u/s. 25 of the Companies Act, 1956. All these documents form part of the Paper Book-1 filed by the Revenue and appear on pages 9 to 58. Therefore, it needs to be highlighted that though the Assessee Company had borrowed Rs. 1 crore from Dotex and had also invested in the acquisition of AJL through allotment of 99.999% shares, the statement in ‘Annexure – 5B’ stated that there are no assets and liabilities 7 days prior to the date of filing of application. This statement is claimed to have been signed on 14.10.2010 and the explanation offered by the assessee was that these documents were filed before Ministry of Corporate Affairs (“MCA”) for obtaining license under Section 25 and these documents, though not required to be filed under the Rules, slipped into the application. He pointed out that these Annexures (5(a) and 5(b)) were filed in response to point no. 2, which called for copies of accounts for the latest one year. If the document is filed on 31s’ March 2011, it follows that the facts have not undergone any change on the date of filing of the document. Revenue’s case is that there was a deliberate attempt on the part of the Assessee Company to place incorrect facts in order to ensure that factum of so-called borrowing by the Assessee Company and acquisitions of shares of AJL do not come to the notice of the Competent Authority.
- In the course of proceedings before the Commissioner, the Assessee Company did submit a note on 09.05.2011 giving a brief account of the activities of the Assessee Company till that date and the said records as under: –
“The company is incorporated with a small capital mid funds by way of contribution from Patron Members may provide support to emu recurring income, which would be deployed for the main object for which the Company is incorporated. Nevertheless, within the framework of this main object the activities, their magnitude mid pace will necessarily depend on the funds available with YI which in turn, depends on the ability’ to attract donation (from Patron members or otherwise) which, in its own turn is linked to the ability of the Donors to claim deduction u/s. 80G of the Income Tax Act. The application for registration u/s 12AA is the first step in that direction.”
- It has been pointed out by him that the Assessee Company never applied for registration u/s 80G and not a penny of donation was raised from any agency.
- Further, in the note dated 09.05.2011, the Assessee Company did not even whisper about the activity of acquisition of shares of AJL nor made any attempt to place on record a full and true account of the activities of the Assessee Company from the date of its incorporation till the request for grant of registration. Thus, he submitted that this fact further reinforces the contention that there was deliberate attempt to suppress and withhold information about the real motive of the activities of the Assessee Company during the course of proceedings for grant of registration.
- The application for registration was filed with the address of the Assessee Company as Herald House, New Delhi and when asked by the Revenue, the Assessee Company filed no objection certificate from the Chairman of AJL granting the use of Herald House to the Assessee Company. The registration was granted to the Assessee Company on 09.05.2011 subject to certain conditions. Revenue started making inquiries into the activities of the Assessee Company alter receiving the information through FIU and the Tax Evasion Petition. After the inquiries by the Investigation Wing, the AO sought various information from YI and also from AICC to reach to the correct state of affairs. He had also placed the entire correspondence that the AO had with YI and AICC and also the manner in which submission of information to the AO was resisted on various grounds like lack of authority to conduct the inquiries, making available the copy of the approval of Commissioner for calling information u/s 133(6), seeking inspection of the tile, etc. No worthwhile information was given to the AO. The letters in correspondence form part of the paper hook tiled by the Revenue. The vital pieces of information called for by the AO were not submitted and a general statement was made that it is available in accounts or in public domain.
- The Assessee Company, faced with the questionnaire of the AO and the reopening of assessment for A.Y. 2011-12, chose to surrender the registration u/s 12A on 21.03.2016. The AO reported to the CIT (E) how the activities of the Assessee Company were neither genuine nor carried out in furtherance of the stated objects. Based on the report of the AO and on perusal of the relevant records, the CIT (E) issued notice and after giving full opportunity to the Assessee Company passed order on 26.10.2017, withdrawing the registration w.e.f. A.Y. 2011-12 onwards. The primary basis on which registration has been withdrawn is contained in Para 17 of the order of the CIT (E). In substance, the foundation of the CIT(E)’s action is based on the fact that the Assessee Company has not been able to point out a single activity in furtherance of its stated objects for which it was created during the said period, and the only activity carried out by the Assessee Company was of borrowing the amount of Rs. 1Crore, making payment of Rs. 50 lakhs to AICC, applying for allotment of shares against cancellation of loan of Rs. 90 crores assigned by AICC to them, has absolutely nothing to do with the furtherance of objects of YI. The only move that was taken was to acquire AJL that had stopped its publication activities but was only holding on to certain properties and exploiting these for rental income or construction of shops, etc. The CIT (E) also pointed out that the surrender of registration after the investigation by the Department cannot be used as a tool to prevent the rigors of cancellation of registration.
54 Mr. Srivastava then drew our attention to another fact that while the Income tax and investigation proceedings were going on and parallel proceedings were also undertaken by Land Development office for taking back the possession of land allotted in New Delhi to AJL post cessation of the publication activity. Inspections were carried out on 13.09.2016 and 26.09.2016 that clearly demonstrated that there was no press activity at the given premises. Once it was realized that AJL was in contravention of the terms of lease, it passed a resolution on 26.09.2016 to resume the activity of the publication of newspapers. He further brought on record that a writ petition was filed by AJL before the Hon’ble Delhi High Court against the actions of the Land & Development Officer (‘LDO’). The petition was dismissed by the Writ Court and against that an appeal was filed before the Hon’ble Division Bench. A detailed order has been passed by the Hon’ble Division Bench upholding the actions of the LDO, bringing to public domain certain facts that have a direct bearing on this case also, which should be followed. The copies of the orders of the Hon’ble High Court were placed before us.
55 Further, by way of counter submissions in response to the arguments and submissions made by the ld. counsel for the assessee, Mr. Srivastava submitted that one of the core issues, on which the registration has been cancelled by the ld. CIT (A), is that the activities of the assessee company were not in accordance with its objects. The main thrust by the ld. counsel for the assessee was that the ld. CIT (E) was not justified in holding that AJL is Real Estate Company and since this is the core reason for cancellation of registration, therefore, the order of the ld. CIT (E) cannot be sustained. The case of the Revenue for cancellation of registration is not only confined to the fact that the AJL is a Real Estate company, albeit the assessee company has not carried out any activity, whatsoever, in furtherance of the stated objects and the only activity carried out in this regard was acquisition of AJL which was not in conformity with the objects, on the basis of which the registration was granted to the assessee. He drew our attention to the finding given by the ld. CIT (E) in para 15 and his observations summarized in para 17 of the impugned order. He further submitted that, from the documents placed before this Tribunal, which are forming part of the record, it is clearly shown that –
- Even before the incorporation of the Assessee Company, the registered office of AJL was shifted to Delhi.
- Directors managing the affairs of the Assessee Company were taken on Board of AJL.
iii. The appellant company was permitted to use the property of AJL as its head office/registered office.
- The manner in which a loan of Rs. 90 crores (approx.) was assigned by AICC in favour of the Assessee Company for a paltry consideration of Rs. 50 Lacs speaks volumes of the real intent and motive of the transaction.
- The Assessee Company was not having the financial capability by way of corpus or the revenue receipts to pay even this consideration and had to allegedly borrow a sum of Rs. 1 Crore from a company named M/s Dotex Merchandise Pvt. Ltd., based out of Kolkata.
- AJL promptly increased its share capital and allotted 99.99% shares to the appellant company, some of the directors separately acquired a small number of shares to have full control over AJL.
vii. These transactions were “questionable” and “speak volumes” as observed by the Hon’ble High Court of Delhi. (Para 20 of the Hon’ble High Court order in W.P. (C.) 12133/2018).
56 The second core argument taken on behalf of the Revenue was that, most of these vital facts were suppressed by the assessee company from DIT (Exemption) while making the application for registration and during the process of said registration. For instance, vide point No. 7 of the information/clarification dated 18.04.2011 (during the process of registration) seeking note on the activities carried out since inception with supporting documentary evidences was admittedly never supplied to by the assessee company. The copy of the said query/clarification sought from the assessee vide letter dated 18.04.2011 has been placed in the Paper Book-1 filed by the Revenue. Thus, it was submitted that there was clear cut suppression of information by the assessee company during the process of seeking registration u/s. 12AA, which itself vitiates the registration as the condition mentioned in the order granting registration has been violated.
57 Further, the assessee company could not demonstrate that it has performed any single activity in furtherance of its objects either before the lower authorities or during the course of marathon arguments placed before this Tribunal. The contention raised by the assessee that acquisition of AJL was in furtherance of the objects of the assessee company is patently false as submitted in earlier part. Even from the Income-tax Returns, Ld. Spl. Counsel pointed out that, it can be seen that no expenditure has been made in any of the assessment years in furtherance of any of the objects till the cancellation of registration. It is an admitted fact that AJL was not publishing any newspaper either in print or digital form during the entire period. Hence, it can be easily deduced that the only reason to take over AJL was to commercially exploit its immovable asset. It cannot be held that by taking over the said company, the assessee would have been fulfilling its objects. Even after take over, no activity was done by the AJL to revive the newspaper business for a period of five years, it was only after the enquiry by the Revenue, and the proceedings for eviction initiated from the Land and Development Officers that the steps were taken for revival of business. The commencement of resuming the newspaper business in September 2016 was done much after the assessee has written to the Revenue surrendering its registration. Thus, the contention of the assessee that later on the newspaper business was started is of no consequence. The entire theory of revival of publishing newspaper business was after the AJL realized that it was in violation of clause of Perpetual Lease Deed of the Property, housed in 5A, Bahadur Shah Zafar Marg, New Delhi.
58 Another contention raised by the ld. counsel of the assessee that AJL had converted itself into section 8 company in January, 2016 as per Companies Act, 2013, i.e., non-profitable Company, enabling Young Indian, which was section 25 company as per Companies Act, 1956, to carry out its objectives. The contention raised was that both the companies were not for profit and therefore, any profit derived from its activities would have been solely applied for the promotion of the objects. In support, evidences have been filed in form MGT-14 along with amended MoA filed with the additional evidence. He pointed out that no such application is available on the MCA Website, as having been filed by AJL and most importantly, no license has been granted by the Registrar of Companies till date so as to establish that AJL had become a section 8 Company. Thus, it cannot be said that AJL was converted into section 8 Company. Mere amending the MoA of AJL does not lead to any inference that it is a non-profitable company. Till license is granted by ROC u/s. 8 of the Companies Act, 2013, it cannot claim that it is a non-profitable company. MoA can be amended at the sweet will and at any point of time and therefore, mere amendment in MoA will not serve the purpose. Even otherwise also, from the year 2011 when so called MoA was amended, nothing has been done till 2016 to align the functioning of the two companies. It cannot be the contention of the ld. counsel that since the company has adopted the changes in MoA, it has practically all the attributes a section 8 Company, is fallacious because it is always open to a company to amend its MoA and become a non-sec. 8 company anytime at its choice. Thus, to say that acquisition of AJL was to further the objects of the assessee company are not supported by such untenable propositions.
59 Regarding the contention that the cancellation of registration cannot be done retrospectively, Mr. Srivastava submitted that the Commissioner had the statutory power to cancel the registration u/s. 12A from the year 2004 and the same can be cancelled u/s. 12AA (3) where the Commissioner finds reason to believe that either the activities of the assessee are not in line with its objects or activities carried out by the assessee are not genuine. Knowledge of breach of conditions laid down in section 12AA (3) would only come to the notice of CIT after the breach had been committed and if such a breach is existing from day one then cancellation would always follow from the date of breach. The provision of section 12AA(3) cannot be read to mean that CIT has to disregard the period during which the breach occurs and he has the power to cancel the registration only from the future years. Such an argument is untenable and in support, strong reliance was placed by him on the principle elucidated by Hon’ble Madras High Court in the case of Prathyusha Educational Trust vs. Pr. CIT (Tax Case appeal No. 366 to 368 of 2019 and CMP Nos. 12438, 12446, 12447, 12450 and 12452 of 2019 vide judgment dated 27.06.2019, where their Lordships in para 22 of the judgment has made the following observations:
“At the first blush, the Court assumed that the argument of Mr. Anirudh Krishnan is to the effect that the cancellation/withdrawal was with effect from the date of grant of exemption/registration. However, on a perusal of the order dated 18.11.2014 withdrawing the approval granted under Section 10(23C)(vi) of the Act, it is seen that it has been given effect to from the assessment year 20102011. Likewise the order cancelling the assessee’s registration under Section 12AA of the Act is from the assessment year 2010-2011. Can it be said that these orders of cancellation are with retrospective effect. The definite answer for this question is an emphatic ‘No’. Admittedly, the business premises of the assessee was subjected to search during the assessment year 2010-2011. The Assessing Officer while completing the assessment found large scale diversion of funds and several improper actions on the part of the assessee in direct conflict to the terms of the Deed of Trust and conditions of registration/exemption. Therefore, it was recommended to the competent authority to initiate proceedings for cancellation of the exemption/registration. The matter was decided after due opportunity to the assessee and speaking orders have been passed and obviously these orders will take effect from the assessment year 2010-2011 and it is a misnomer to state that the orders are retrospective or retroactive. The lis which was the subject matter is for the assessment year 2010-2011 and though the orders of cancellation of the exemption/registration was passed on 18.11.2014 and 07.12.2016 they would take effect from the assessment year 2010-2011 during which year the cause of action arose. This being the factual position, the decision in the case of Aura Development Authority is not applicable to the facts of the present case. ”
60 In so far as the contention of the assessee that AJL is in the business of publication of newspapers and is not a Real Estate Company, is completely irrelevant in the matter at hand, because AJL is performing no activities in consonance with the objects of the assessee company. This is evident from the material placed on record even by the assessee that no activity of publication of newspaper was conducted by the AJL from 2008 to 2016 and in fact, it was enjoying rental income from properties. Whether there was temporary suspension or shut down of the publication business is not important and what is important is that whether AJL was still in the business of print media during the relevant time and was not mainly reaping the rental income from its properties. Furthermore, it is not the object or goal of the assessee company to run a newspaper company or a Real Estate company enjoying rental income. Even in the tax audit report for the assessment year 201213 onwards, the AJL has shown business of newspaper publication and business of renting and leasing of properties. Accordingly, the entire thrust of the ld. counsel that it is not Real Estate Company will not make any difference because no publication of newspaper was done during the period nor it can be said that the publication of newspaper was in furtherance of the objects of the assessee company.
61 Another key contention raised by the ld. counsel was that Young Indian and AJL are two separate and independent companies having a separate legal character from that the shareholders. It was contended that the share holders have no right in the property vested with the company and can only seek dividend and bonus on the shares and therefore, change in the ownership of the AJL would not make them owners of the said property. In support, strong reliance was placed on the judgment of Hon’ble Supreme Court in the case of Mrs. Bacha F. Guzdar (supra). To rebut such a pleading, Mr. Srivastava, placed before us two judgments of Hon’ble jurisdictional High Court (Delhi) in the case of Associate Journals Ltd. vs. Land & Development Office. Drawing our attention to the Division Bench order and judgment dated 28.02.2019 (LPA 10 of 2019 and CM No. 566/2019 and 649/2019), he submitted that identical submissions have been considered by the Hon’ble High Court and the matter regarding lifting of corporate veil was subject matter of detailed consideration by the Hon’ble court. After reading various arguments placed by both the parties before the Hon’ble Court, he drew our attention to para 65 and 66 of the judgment wherein this issue has been discussed threadbare. He submitted that if the company has been found to evade the obligation under law or indulged in any fraudulent activity under law or for the purpose of taking undue advantage or indulge in any fraudulent activity against the public interest, the doctrine of lifting of corporate veil can be invoked. The Hon’ble Court after examining this issue at length found that for assessing the actual nature of transaction or the modus operandi employed in carrying out a particular transaction, the theory of lifting of the corporate veil is permissible. Here also, in the given facts, this doctrine is squarely applicable and it is open for the Tribunal to see what is the actual nature of transaction in the backdrop of public interest or interest of the Revenue. Thus, the contention of the ld. counsel on this point cannot be sustained.
62 Coming to the issue of surrender of registration certificate, Mr. Srivastava submitted that the surrender of registration was neither genuine nor bona fide. First of all, such an act of surrender of registration is not permissible under the law for the reason that the registration granted was not any kind of award or some gratuitous action on the part of the government which could be rejected by the recipient or surrender the same after the receipt. The order of cancellation of registration is a statutory order passed on the basis of certain facts leading to the breach of the conditions of registration and such breach cannot be undone by voluntary surrender of registration. The cancellation of registration has to be followed in accordance with the statute. In so far as reliance placed by the ld. counsel on the decision in the case of CIT vs. Mahindra Mills (supra), he submitted that is completely ill founded for the reason that the decision was rendered in the context of section 32. Later on, Hon’ble Supreme Court in the case of Plastiblends India Ltd. vs. ACIT, 398 ITR 568, have clearly held that the decision in the case of Mahindra Mills (supra) would not apply in the case of section 80IA, which was a provision in Chapter VIA and constituted a code by itself. The decision of Mahindra Mills (supra) would not have any applicability in these circumstances. The provisions contained in section 11 to 13, governing charity are equally a code itself and therefore, the decision rendered u/s. 32 would not have any applicability under such circumstances. Even otherwise also, the case of the Revenue is that the act of surrender was not bona fide as it was post enquiries conducted by the Revenue and the materials found which clearly showed that the assessee was not entitled for registration at all. Further, there was clear-cut breach of conditions of investment as provided u/s. 13(1) (d). After having realized that the registration could be withdrawn both for the breach of the conditions as mentioned in sub-section (3) and sub-sec. (4) of section 12AA, the assessee company has written a letter of so called surrender of registration. Thus, said surrender was not bona fide and its activities were not in accordance with the objects and the real intent and motive and had failed to achieve the objectives for which it was created. The assessee company did not offer to surrender the registration from A.Y. 2011-12 when they acquire AJL, but only post year 2016. Thus, after enjoying benefit of registration, it was not open to the assessee to make voluntary surrender of registration for future years. Accordingly, the claim that surrender was bona fide cannot be accepted.
REJOINDER BY THE APPELLANT
63 In the rejoinder proceedings, the ld. counsel for the assessee first of all vehemently objected on the reliance placed on the judgments of Delhi High Court in the case of Associate Journals Ltd. (supra) on the ground that the same are subjudice. The ld. DR has relied upon various additional documents/orders, which were neither confronted to the assessee by the ld. CIT (E) nor were available at the time of passing the impugned cancellation order and, therefore, are wholly irrelevant in the present appeal. The ld. DR is trying to make out new case based on some additional evidences and the same ought not to be considered.
64 Now again in the rejoinder stage Assessee Company has filed another set of additional evidences paper book (marked as AE P B-2). These additional evidences contain list of 34 documents. It has been stated to be because of the fact that, department has placed additional papers and submissions, which were not discussed in the order of Ld. CIT (E) and certain allegations, have been made which are not part of cancellation proceedings.
65 As far as placing of heavy reliance on (i) order of the Hon’ble Delhi High Court dated Dec. 21, 2018 in the case of, i) Associated Journal Ltd. & Anr vs. Land & Development Office in WP. (C) 12133/2018 and CM 47131/2018; and (ii) order of Delhi High court dated 28.02.2019 in the case of The Associated Journal Lt. & Anr. Vs. Land & Development Office in LPA 10/2019 and CM Nos. 566/2019 &649/2019, he pointed out that the proceedings, pursuant to the said judgment of High Court have been stayed by Hon’ble Supreme Court vide order dated 05.04.2019 in SLP to Appeal (C) No. 7345/2019 and the matter is presently pending for disposal before the Hon’ble Supreme Court. Thus, the said order cannot be considered for the purpose of deciding the present appeal. Once the Apex Court has stayed the operation of Delhi High court order, the same became inoperative and therefore, inadmissible as on date. In view of such submissions, the ld. counsel prayed that this Tribunal firstly should not allow the Revenue to place reliance on the aforesaid orders and should not take into cognizance the points of law applied/ propounded on the said order; and secondly, without prejudice in case the judgments are to be considered, then it amounts to pre-judge the issue which is presently subjudice and therefore, the matter should be adjourned till the matter is decided by Hon’ble Apex Court.
66 Reacting strongly to the said request made by the ld. counsel for the assessee, Mr. G.C. Srivastava submitted that it is completely erroneous to say that the operation of order has been stayed, albeit what has been stayed is, the further proceedings pursuant to the High Court order, i.e., direction for eviction proceedings of the building and not the entire order. Even otherwise also, if any further proceedings have been stayed that does not mean the order of Hon’ble jurisdictional High Court becomes inoperative and in so far as the findings and principles propounded therein is a binding judicial precedence to the courts/Tribunals under the same jurisdiction.
67 As a rejoinder to various submissions made by the ld. Special Counsel for the Revenue, he submitted that first of all it has been accepted by the department before this Tribunal that publication business of AJL was suspended several times in past and got revived time and again. This is evident from the chart of dates and events submitted by the Revenue prior to 2008. In so far as the effect of said order of Hon’ble Supreme Court on the judgment of Delhi High Court order, he submitted that the said order has to be treated to be non-operational because it indicates that either the order is passed on wrong facts or law has not been applied correctly. In support, he relied upon the judgment of Delhi High Court in the case of CIT vs. Bhushan Steels Pvt. Ltd., 398 ITR 216 wherein the SLP filed against the said judgment was admitted by the Supreme Court and the order was stayed and on this background, the Hon’ble High Court in the case of Sunbeam Auto Pvt. Ltd. (WP(C) 8941/2015 decided not to follow the earlier decision of Bhushan Steel Pvt. Ltd. (supra) on the ground that the same has been stayed by Hon’ble Supreme Court. Similarly, in the judgment of Calcutta High Court in the case of Exide Industries Ltd. vs. UOI(292 ITR 470)wherein it was held that the provisions of section were unconstitutional. However, the said order has been stayed by Hon’ble Supreme Court and in background of such stay order; various courts have held that the decision of Calcutta High Court cannot be followed. In support, he has referred to catena of judgments, for instance, Dhanlakshmi Bank Ltd. v. CIT (2019) 102 taxman 442 (Kerala), South Indian bank limited V CIT 45 taxmann.com 428.
68 In so far as reliance placed by the ld. Special Counsel for the Revenue on the judgment of Single Judge of Hon’ble High Court in the case of Associate Journal Ltd. which was upheld by the Division Bench in LPA No. 10/2019, wherein there is an observation that only when relevant authorities initiated inspection, the AJL decided to resume his press activities so as to save the lease of the properties from being cancelled by the Government. In this regard, he submitted that way back on 23.01.2014; AJL had filed a letter to Registrar for News Papers of India, copy of which has been placed at page 267 of the paper book-1 filed by the assessee, which clearly indicated the intention to resume the newspaper activities. Such an allegation made by the ld. Special Counsel that the decision of printing was an afterthought gets demolished for the reason that this inspection of LDO had occurred only in September 2016. He also pointed out following dates and events occurred prior to first notice of inspection by the LDO:
- On 15.10.2012, AJL applied for registration of establishment employing Contractor labour for construction of building for newspaper/press in Panchkula. See copy of the same at Page 523 to 525 of AE-PB II.
- On 31.10.2012, Registration Certificate issued by Dy. Labour Commissioner, Ambala in respect of construction of building for newspaper/press in Panchkula. See copy of the same at Page 526 to 528 of AE-PBII.
- AJL has sanctioned plans for construction of printing press at Panchkula property dated 26.11.2012 is at Page 529 to 532 of AE – PB II. The same clearly shows the area pertaining to Press is demarcated on those plans;
- AJL’s plans for construction of printing press at Mumbai property was sanctioned by the relevant Authorities in 2013 and 2016. A copy of the sanctioned plans is set out at page 533 to 538 of AE – PB II. The same clearly shows the area pertaining to Press is demarcated on those plans;
- On February 22, 2013, the Board of Directors of AJL noted in its meeting that the publication of National Herald would be considered on web-site. A copy of the said minutes is enclosed at page 539 of AE — PB II.
- On September 12, 2014, the internet / web domain name www.nationalherald.com was registered. The necessary registration proof is enclosed at page 540 of AE – PB II. (However, since the actual commencement took time, the said approval expired and a new approval of domain name was taken on 03.11.2016).
- In the February 24, 2016 Board Meeting, the rough estimates of monthly expenditure for publishing the newspapers was discussed. The extracts from the minutes of the said meeting are enclosed at pg. 541 of AE -PB II.
- On July 10, 2016, Zee News writes a report titled “Eight years after it was shut down, Congress re-launch National Herald news paper”. Please see at Pg. 542 of AE-PB II.
- In August 2016, the Editor-in-chief was appointed. In fact, the news report of Zee News (cited above) clearly cites AJL as informing in its July 10, 2016 news report, inter alia, “we are now close to finalising the editor’s name for operations to start…”
69 Ld. Counsel submitted that the first notice of inspection was only on 06.09.2016 and second notice on 26.09.2016, whereas the preparation for starting the press activities happened since the year 2010, thus, it cannot be held that it was purely an afterthought and such an activity was decided to be resumed only after LDO inspection. He also referred to further events following the first inspection by the LDO as under:
“(1) The first inspection was carried out on 26.09.2016.
(2) On that day, the company handed over sanctioned plans, occupancy certificates and also a letter of even date.
(3) On 10.10.2016, the “Breach Notice” was received. The said “Breach Notice” does not mention anywhere that AJL is not carrying out press activity in the premises. Non carrying out of the press activity was not an allegation at all. Please see the copy of the said “Breach Notice” dated 10.10.2016 at page 547 to 548 of AE – PB II
(4) In reply to the said Breach Notice, a reply was sent vide letter dated 19.11.2016.
(5) The company received another inspection notice dated 05.04.2018 for constituting a committee to again visit the premises. A letter dated 07.04.2018 was addressed by the company to inform that the breaches mentioned in 10.10.2016 breach notice were rectified. Along with that letter, the copies of news papers published between September 2017 till that date were handed over to the concerned officer. (See page 549 to 565 of AE-PB II).
(6) The second inspection took place on 09.04.2018.
(7) The company received “Show Cause Notice” dated June 18, 2018 referring to the 09.04.2018 inspection and alleging for the first time that no printing activity was being carrying out in that premises. (Please note that the said show cause notice acknowledges that the company’s news paper printing activity is being carried out elsewhere). A copy is enclosed at page 566 to 567 of AE-PBII.
(8) There was a subsequent notice from LDO dated 24 September 2018. It relies on the order passed by the Ld Assessing Officer under the Income tax Act, 1961 u/s. 148 to allege that there is a “transfer” of properties from AJL to YI on account of YI becoming almost 100% shareholder. It is then contended that such “transfer” is in contravention of the lease deed. Hence, the property is liable to be re-entered.
From the above details, he submitted that:
(a) The allegation that the newspaper printing activity was an afterthought pursuant to the inspection on 26.09.2016 gets demolished;
(b) The non printing of news paper as alleged in the LDO proceedings is merely in respect of Delhi premises. LDO itself acknowledges that the newspaper is being printed by the company elsewhere. What is relevant for this appeal is the fact that AJL is actually publishing the newspapers. Litigation qua one of its properties cannot affect the entire company as a whole. The CIT’s allegation that AJL is a “real estate company” is demolished by the LDO’s owns acceptance that the newspaper is being printed somewhere else.
(c) The LDO relies on YI’s order u/s. 148. The Hon’ble High Court approves that LDO’s order based on the Writ petition in case individual shareholders of YI. Ld. DR in this appeal is relying on the said High Court Order. Therefore, by implication, the Id. DR is relying on the order passed u/s. 148. That order is subject matter of appeal to the Hon’ble ITAT. That appeal is presently pending. Any decision in this appeal based on reliance on the Hon’ble high Court order would amount to even pre-judging the outcome of the appeal against the order u/s. 148! Can this be permitted to be done? In Appellant’s humble submissions – “NO”.”
70 Ld. Counsel submitted that in any case, Hon’ble Delhi High Court order vindicates the assessee’s submissions in so far as Allotment of property to AJL is on the condition that some specified part of it must be used for news paper business;
- If it is not so used, the property is liable to be resumed by the concerned authorities;
- Consequently, AJL is a “news paper” company and NOT a “real estate company” as alleged by the Id. CIT. On this ground itself, the foundation of the CIT’s cancellation order gets demolished.
71 As regards the allegation made by the Revenue that the assessee had not disclosed correctly the assets, liabilities, estimate of income & expenditure and, therefore, the registration has been obtained by suppressing the material facts, the ld. counsel submitted that Rule 17A, as it then stood, required submission of accounts relating to prior years in cases where the company has been in existence during any year or years, prior to the financial year in which the application for registration is made. Since the Appellant was incorporated on November 23, 2010, and the application was dated March 29, 2011, this requirement was “not applicable”. Form 10A, being the application for registration requires, at item no. 2 to provide copies of accounts for latest 1/2/3 years. Since the application dated 29.03.2011 was filed on 31.03.2011, the accounts for the first financial year were not prepared. The Appellant could have very well mentioned “Not Applicable” against item no. 2. However, out of good governance, the Appellant submitted the same documents that were submitted to the ROC on October 15, 2010 for the purposes of section 25 license. Requirement of filing “Future annual income and expenditure estimates” and “Assets and Liabilities Statement with their estimated values as on seven days before making the estimate” are the requirements under the Companies Act, 1956 for obtaining licence u/s. 25 and not under the IT Act for obtaining registration u/s. 12AA r.w.r. 17A. However, the said documents, out of good governance, were also submitted along with the application for registration u/s. u/s 12AA. This also explains why the date mentioned on Annex 5A and 5B is “October 14, 2010”. Therefore, the allegation that registration is obtained by suppression of material facts is without any basis. Besides this, the only other requirement in Rule 17A is to provide the instrument of formation of the trust / institution, which was also duly furnished. The Ld. CIT then granted registration based on the documents that are required to be submitted under the law. In such a case, the allegation that the registration is obtained by misrepresentation and suppression of facts is baseless. The ld DR has also laboured on the note on page 7 of the Revenue Paper Book to contend that on May 9, 2011, the Appellant did not disclose the activity of acquiring shareholding in AJL, which it undertook in February 2011. Thus, as per the Id DR, the Appellant supplied wrong information and hence the registration is liable to be cancelled. In this behalf, he submitted as under:
- The note on page 7 was submitted pursuant to requirement at S. No. 3 in CIT’s letter dated 18.04.2011);
- This requirement is for “plan of action for the main charitable activities to be undertaken by you during the next two years”;
- Thus, the note focused on the future activities and not on the past activities. The fact that the note is pursuant to the said requirement of item 3 is very evident from the plain reading of requirement at item 3 and the reading of the covering letter dated May 9, 2011. Thus, there was no requirement of disclosing the assets acquisition, viz. shares in AJL and therefore, there was no suppression of facts by the Appellant as alleged by the Ld. DR.
- In any case, acquisitions of shares of AJL were preparatory activity. Preparing to create a platform through which YI can reach out to Youth.
72 Besides, the crux of the allegation is that the CIT would not have granted the registration had the acquisition been disclosed. He submitted that acquisition of shares of AJL was a preparatory exercise towards its objects. Even if the disclosure was made, how is borrowing of loan and acquisition of shares of AJL a “non-genuine” activity? In support he relied upon judgment of Rajasthan High Court in Indian Medical Trust v. PCIT (414 ITR 296) wherein it was held that where the acquisition of shares is in furtherance of its objects then the same could not be regarded as a non- genuine activity. In said case, investment made by the assessee in a TV channel was held to be in a genuine activity as it was in accordance with the objects of the assessee since it furthered it objects. Thus, in view of the above, there is no substance in the contention of the Id. DR that the note did not talk about the activity of acquiring shares in AJL in February 2011. The said argument of the Ld. DR is not even alleged by the Ld. CIT in his cancellation order and it is not the basis of cancellation. How can the Id DR be permitted to say this at this stage? In support of such a contention, reliance was placed on the decision in the case of Welham Boys’ School Society v. CBDT  285 ITR 74 (Uttaranchal), wherein it is held that where in the show cause notice or in the impugned order, the Commissioner had not alleged that the assessee had obtained the registration by practicing fraud or forgery, said ground cannot survive before the Court.
73 Further, the Jurisdictional High Court has, in case of Maheshwari Mandal (Delhi) vs The State of Delhi &Ors (W.P. (C) 2029/2016 and CM Nos. 8748/2016, 21328/2016 and CRL. M.A. Nos. 5911/2017 & 6253/2017) held that where in the original proceedings it was not alleged that registration was obtained by fraud then said ground cannot be taken during appeal. The relevant extract of the judgment is as under:
“15. This Court is not inclined to examine the question whether the certificate for registration of the amendments in the Rules and Regulations was obtained from the Registrar by playing a fraud and thus could be revoked. This is so because no such reason has been referred to by the Registrar for passing the impugned order; the impugned order has not been passed on the basis that any fraud had been perpetuated on the Registrar. More importantly, particulars of fraud have to be pleaded and established for securing any order accepting such pleas. It is apparent that in this case the Registrar has not proceeded on the basis that it had been defrauded into granting approval/certificate. On the contrary, the Registrar has proceeded on the basis that “there were certain irregularities in approving/certifying the amendments”. Undisputedly, the same cannot be construed as a finding of fraud.”
74 As regards the reference made by the Revenue to the Deed of Assignment of loan owned by AJL to AICC amounting to Rs. 90.21 crores for a consideration of Rs. 50 lakhs, the ld. counsel submitted that this fact was duly disclosed in the audited accounts of the assessee by way of note and the said note clearly explains the second leg of the transaction, namely, acquisition of shares in lieu of loan. Besides this, there is no reference to the Assignment Deed in the impugned order of the ld. CIT (E) and neither the assessee was asked to explain it before the ld. CIT (E) before passing the cancellation order. Effectively, the Appellant has acquired shares in majority shares in AJL. Such acquisition is a preparatory activity in pursuance of its objects as has been extensively elucidated in the course of arguments of the Appellant. AJL is a newspaper company, which provides a ready platform for the Appellant to achieve its objectives. The Assignment Agreement has no reference in the CIT’s cancellation order. Indeed, the said assignment is not the basis of cancellation. The basis of cancellation is the second leg, namely, the Appellant’s investment in shares of AJL, which, according to the Id. CIT, is a real estate company. It is submitted that the Hon’ble Tribunal cannot draw any adverse inference from the Assignment Agreement since the CIT has not drawn, nor has the Id. CIT required the Appellant, before passing the cancellation order, to show cause why adverse inference should not be drawn from the said agreement.
75 Regarding the allegation of ld. representative of the department that the assignment of loan converted into shares of AJL is only activity and besides this, no activity was carried out, he clarified that acquisition of shares in AJL is a preparatory activity in pursuance of the objective of the Appellant. This fact has been disclosed in the notes to Audited Accounts of March 31, 2011 in the following manner:-
- The revival of AJL and resuming its newspaper activity was a tall task in view of huge losses and inability to raise funds due to huge debt. Ultimately, it succeeded. This helped YI achieve its objective of getting a ready platform for reaching out to the youth of the country.
It was further stated that YI directly also, in a small way, reached out to the youth in pursuance of its objective to inculcate in the mind of India’s youth the ideal of democracy by organizing an initiative in 2018 to spread the awareness about the importance of voting during the Karnataka Assembly elections. YI further, on its own have been reaching to youth through its various social media handlers operated by YI on various social media platforms like Face book, Instagram, twitter, you tube etc.
76 In so far as the reference made by the ld. Special Counsel that the loan of Rs. 90 crores was transferred by AICC to Young Indian on 16.12.2010, however, the loan was assigned through letter on 28.12.2010, he clarified that Assignment Agreement dated 28.12.2010 was the final duly stamped Assignment Agreement. The original assignment was on ledger paper, the date of journal entry was in fact 18.12.2010 and was inadvertently typed as 16.12.2010, and the same was a clerical error. Besides, the assignment of loan and conversion thereafter into equity shares of AJL followed by conversion of AJL into a non-profit organization are all different steps in the process of enabling the assessee to achieve its objectives of reaching out to the youths of India in pursuance of its charitable objectives through the platform of AJL by reviving AJL’s publication activities. In any case, this was not the basis of cancellation by the ld. CIT (E) and therefore, no adverse inference can be drawn from the alleged fact.
77 One of the points raised by the ld. DR was that loan from AICC to AJL was not disclosed in AJL’s annual report and it was argued that annual report of AJL for the year 2010 shows unsecured loan of Rs. 89.67 crores as on 31.03.2010 and the nature of which was explained in schedule-X of the report. In rejoinder, the ld. counsel submitted that such an allegation is baseless because in order to substantiate that loan given by the AICC to AJL is genuine, following material facts are relevant in this regard:
- AJL was going through financial distress and hence required funds for running the publications. National Herald and other publications of AJL, in accordance with the Objects of AJL; were being run in accordance with the policy and principles of the Indian National Congress. AICC started advancing loans to AJL to help them in their financial hardship. The said amounts over a period from the year 2002 to the year 2011 aggregated to Rs. 90,21,68,980/-.It is further pertinent to point out that Rs. 90,20,22,785/- of the amount advanced to AJL were by way of cheques. AJL utilized the amounts advanced by AICC inter olio for meeting its expenses of running the publications including paying employees’ salaries, VRS, PF, ESI, statutory dues and taxes and building and maintaining its newspaper offices.
- In the year 2012, in respect of loan given by AICC to AJL, a petition was filed before the Election Commission of India by a political rival of AICC seeking de-recognition of AICC under section 16A of Election Symbols (Reservation and Allotment Order), 1968 on the ground that the party loaned more than Rs. 90 crores to AJL in violation of the guidelines and rules for registration as well as recognition of political parties. The Election Commission of India dismissed said petition holding that there is no direction or instruction of the Election Commission regulating the manner in which the party may spend the funds raised by them and that section 29B/C of the Representation of People Act, 1951 provide for the manner in which the political parties may raise funds and that there is no provision whatsoever in the Act prescribing the manner in which the political parties may use those funds. It is humbly submitted that the said order clearly validates the authenticity of the loan provided by AICC to AJL.
- Also, it may be kindly noted that the income tax department itself has in the assessment of AJL for AY 2011-12 examined the details of loan advanced by the AICC to AJL and in the assessment order mentioned that ‘examination of details filed by the assessee reveals that in earlier years, AICC had given interest free loans in various transactions from time to time to the assessee company amounting to Rs. 90,21,68,980/-/ Further, it was held there that since the loan was discharged by conversion into equity shares and not by account paying cheque, section 269T of the Act was contravened.
78 Further, he clarified that such loan does appear in the balance sheet of AJL and following details of accounts were shown:
|Particulars||AICC||Other Advance/ Security Deposits||Total|
|As on March 31, 2010||88.86||0.81||89.67|
|Received during FY 2010-11||1.35||–||1.35|
Converted in to Equity
The reliance placed by the department on the note in schedule-X of the annual account of AJL suggests that the unsecured loan includes the amount taken earlier years for its construction activities has been clearly misread to infer that the entire loan was for construction work. The said inference was not correct. Moreover, none of the departmental authorities have made any efforts to verify the presumption that the AICC loan is not disclosed in the books of AJL. Apart from that, this fact has nowhere been stated in the impugned cancellation order.
79 As regards the reference made to STR received by the department from Young Indian’s bankers, in which it was reported that the transaction of loan taken by Young Indian from the company named Dotex Merchandise Pvt. Ltd. of Rs. 1 crore at 14% interest and utilization thereof for payment to AICC of Rs. 50 lakhs, do not appear to be in line with the stated objects of the assessee. First of all, the ld. counsel submitted that this report was never confronted to the assessee by the CIT (E) and it was for the first time, such a report has been shown in this court. Secondly, the said document itself states that the information shared therein may be used for intelligence purposes only and should not be used or disseminated for evidential or judicial purposes. Further, this document cannot be taken into account as evidence in any proceedings. In any case, the loan taken by the assessee is part of the objects (clause 18 of its MoA), hence, there is no merit that the loan does not appear to be in line with the stated objects of the entity. The payment of Rs. 50 lakhs for consideration of assigning of loan was duly disclosed in the audited accounts for the year ending 31.03.2011 by disclosing the conversion of shares of AJL and this exercise is in pursuance to the main objects of Young Indian. The STR report is dated 07.02.2011 and the assessee has disclosed the transaction in its audited account for the financial year 2010-11 filed along with the Income Tax Return on 11.10.2011 and the Assessing Officer had initiated enquiry only in July, 2015, i.e., after more than four years. Further, this action was not the basis for impugned cancellation order.
80 He further submitted that the loan was obtained from “R.P. Goenka Group Co.”, which has listed companies. Further, while the loan would have been repaid from year to year and TDS has been deducted on year-to-year basis, therefore, nothing turns to the fact that the loan was repaid in A.Y. 2015-16. The repayment was possible only after certain donations were received during the F.Y. 2015-16.
81 In so far as, the allegation of the ld. DR that AJL has not filed necessary forms with the ROC to take interest in converting into non-profit entity, reference was made to Form MGT-14 to allege that there is no SRN number mentioned on the said form and therefore, this is evidence created by the assessee. In this regard, he submitted that an extra ordinary meeting of shareholders of AJL was held on 21.01.2016 for which the notice was sent to all the shareholders on 19.12.2015. The meeting was, thereafter, convened and resolution was passed to convert the company into non-profit company. Form MGT-14 was filed with the ROC on 19.02.2016 under “SRN C79224572”. Post filing of said form, on 25.02.2016 an email was received from MCA asking for re-submission with certain remarks and in response thereto said form was resubmitted on 10.03.2016 and along with said re-submitted form, the appellant enclosed the letter dated 10.03.2016 explaining why the remarks in the MCA’s email have fallacies. Thereafter, nothing has been heard from ROC and there is still stalemate. In any case, once the amended MoA has been approved by the shareholders then the same was binding on all the shareholders, which is binding and effective on the company whether or not license is granted.
82 Further, the ld. counsel submitted that the reliance placed by the department on the judgment of Delhi High Court on the proposition that firstly all the arguments made by the assessee in the present appeal were also made before the Hon’ble High Court but the same have been rejected; and secondly, that in this case corporate veil ought to be lifted has been upheld by the Hon’ble High Court. He submitted that the whole argument of lifting the corporate veil in the case before the Hon’ble High Court is to buttress the point that by acquiring the shares of AJL, the Appellant has acquired the properties of AJL and such acquisition amounts to “transfer” of the property by AJL, though not by way of sale or mortgage or gift, but “otherwise”. This is interpretation of clause 111(13) of the lease deed. However, for the language in the said lease deed, the question of invoking the principles of lifting of corporate veil would not have arisen even before the Hon’ble High Court. The issue in the present case is under the provisions of Income tax Act, 1961 and there is no similar language in the Act as in the lease deed interpreted by the Hon’ble High Court. Accordingly, in the present appeal, reliance on the Delhi HC order for arguing lifting of corporate veil is completely misplaced.
83 Ld. Counsel submitted that what is to be considered is:
- as to who is being taxed under the provisions of the Income tax Act, 1961 on the rental income, AJL or the Appellant;
- as to who is being granted depreciation on the buildings in computation of income under the provisions of Income tax Act, 1961, AJL or the Appellant;
- As to who could be charged to tax on capital gains if the property is sold (though it is not permissible under the provisions of the lease); AJL or the Appellant?
The answer to all these questions he submitted is obvious, viz. “AJL” and not the Appellant. Under such circumstances, the proposition argued by the Ld DR that Appellant and AJL are one and the same and that by acquiring the shares of AJL, the Appellant has acquired the properties of AJL is unstateable for income tax purposes. If the arguments of the Id DR are right, then, every case of 99% or 100% subsidiary will have to be a case of lifting of corporate veil! Wherever there are common, directors or shareholders would be a case of lifting of corporate veil! Wherever the acquisition of shares by the holding company has happened at a price that is considered below market price by the tax Department would be a case of lifting of corporate veil. AJL board as on 31.3.17 has following directors who are NOT in any way connected with YI:
Mr. Deepender Singh Hooda
Mr. Dipakbhai Ratilal Babaria
Besides, AJL has a “Leadership Team” with five members who are in no way connected to YI: Mr. Neelabh Mishra;
Mr. Zafar Agha; Mr. Uttam Sengupta; Mr. Piyush Jain; and Ms. Roshni Tondon. Thus, even management of business of AJL is not the domain of YI. Except for ensuring the good amount of work is done for reaching the youth in furtherance of the object, YI has no work to play. Where is the question of piercing the corporate veil in such a case any way? He submitted that the argument as regards lifting of corporate veil borrowed from the Hon’ble Delhi High court’s decision by the Ld DR has no relevance to the facts of the present case and it deserves to be rejected. Besides, it was submitted that the basic transaction, which has been questioned here, is the acquisition of shares of AJL, which is allegedly worth Rs. 90 crores, for mere Rs. 50 lakhs. Firstly, the said shares, at the time of acquisition had no worth as AJL was into losses and had eroded net worth. Besides, in view of the conditions of the lease deed, the shares of AJL have no value as the properties have to be used for newspaper activities. Further, the company has subsequently amended its MOA to align its object with that of a not for profit company and thus, cannot given any benefit to its shareholder in form of dividend, bonus etc. due to which too, its shares do not carry any significant value. Be that as it may, even if it is assumed that the shares of AJL are worth Rs. 90 crores which was acquired by the Appellant at a discounted price of Rs. 50 lakhs, the Appellant fails to understand, how this can be a reason to lift the corporate veil of the companies and consider them as one. It is submitted that the Appellant is a charitable organization. The Appellant is a section 8 company. This is not in dispute, whether or not it has section 12AA registration. It is not uncommon for such organizations to receive donations. When receipt of donations by charitable organizations are not considered to be wrong, how receiving something at an alleged discounted value be considered to be so wrong so as to lift the corporate veil of the company or to state that the activity of Appellant is not genuine? He thus submitted that there is no logic in such allegation.
84 During the course of hearing, the ld. DR has also relied on various proceedings in respect of notice issued u/s. 133(6) to the assessee to argue that the assessee had not submitted information called for and tried to evade the proceedings. He submitted that first of all such argument has no relevance to the issue in hand because whether the assessee had complied with the notice issued u/s. 133(6) or not in past was not the subject matter of consideration in the show cause notice issued by the ld. CIT (E) for cancellation of registration and has no relevance for determining whether the registration can be cancelled. They have no connections, whatsoever. What is relevant is that the cancellation proceedings of registration u/s. 12AA will start after a valid show cause notice and registration can be cancelled only when activities of the assessee are found to be non-genuine or are not in accordance with its objects. It cannot be cancelled merely on the ground that in some independent proceedings, the assessee allegedly did not cooperate with the Tax Department. There is no such reference even in the impugned order.
85 Without prejudice, it was submitted that most of the information called for through various notices and enquiries, were in any way available with the department as they were either already submitted by the appellant in other proceedings or were publicly available in public domain. Thus, there was no suppression of facts. One of the main reasons of the complaint against the department raised by the assessee before the higher authorities was that the details submitted in response to notices were being leaked to the political opponents, which was in violation of section 138 of the Act. All these enquiries were purely part of political witch-hunt and therefore, the assessee-appellant objected to the said enquiries.
86 Coming to the arguments regarding surrender of registration by the assessee and heavy reliance placed by the ld. DR on the judgment of Hon’ble Supreme Court in the case of Plastibends India Ltd. (supra) for the proposition that the decision of Mahindra Mills Ltd. (supra) is not applicable to the provisions of registration u/s. 12AA, the ld. counsel, referring to the judgment in the case of Plastibends (supra) submitted that the decision of Hon’ble Supreme Court was based on the fact that in the case of 80IA deduction, the assessee would claim double benefits and revenue would bear double loss. Therefore, option theory is referred to as “anathema” and a “device”. Here, on surrender of registration, there is no benefit to the assessee albeit surrender would mean additional tax revenues in case of profits. Therefore, rejection of option theory in the context of not claiming depreciation for 80IA units cannot be extended for rejecting the option of claiming an exemption u/s. 11.
87 In so far as contention raised by the Revenue that surrender is not permissible and there is no process of law, it is submitted that there is no provisions under the Act to deny the power of voluntary surrender of the registration under the Act and therefore, the argument based on ‘process of law’ is unsustainable as the law does not prohibit the voluntary surrender. In any case, the decisions on surrender of Excise registration cited by the Appellant in its earlier arguments lay down the ‘process of law’ that the surrender should be acted upon by the department in a reasonable period or else such surrender is deemed effective after such reasonable period. As submitted earlier, in the present case the reasonable period could only be six months whereas the Ld. CIT (E) initiated the process after about 17 months.
88 As regards reliance placed on the judgment of Madras High Court in the case of Prathyusha Educational Trust (supra) on retrospective cancellation of registration u/s. 12A/12AA, the ld. counsel submitted Hon’ble Allahabad High Court in the case of Agra Development Authority (supra) has clearly held that CIT (Exemption) is not empowered to cancel registration with retrospective effect, i.e., prior to the date of issuance of order/notice. To the same effect, there is another judgment of Hon’ble Rajasthan High Court in the case of Indian Medical Trust vs. PCIT, 414 ITR 296. Therefore, if there are to views, then the view favorable to assessee should be followed in line with the principle of law laid down by Hon’ble Supreme Court in the case of Vegetable Products 88 ITR 192. The ld. DR has also argued that it was for the first time that young Indian is contending that acquisition of shares of AJL is towards its objects. Such an argument is devoid of any basis because the same is evident from the following facts: –
- In FY 2010-11, i.e. the year in which the shares of AJL were acquired, in the notes to the Annual Accounts, it has been categorically mentioned that the shares of AJL were acquired towards the objects of the Appellant and in fact, it was for said reason that the expenditure incurred in respect thereof was claimed as application towards objects of the Appellant and not shown as an investment.
- Further, even in the income tax return for said year i.e. AY 2011-12, the amount spent towards the said acquisition has been claimed as application of income towards the objects that again shows that the Appellant always considered said acquisition as a part of its objects.
89 As regards the issue, whether AJL is Real Estate Company or not, the ld. DR has submitted that the foundation of CIT(E)’s order is not based on the AJL as a Real Estate Company, which is not correct because in entire order, the ld. CIT(E) has referred at various places that AJL is a Real Estate Company. Now the ld. DR wants to make out some new case and diluting his arguments, which should not be permitted.
90 One of the arguments raised by the ld. DR was that the rental income amounts to real estate business, which cannot be appreciated in view of the law under the IT Act and reference of any dictionary meaning taken by the ld. DR should not be taken into cognizance. For example, many government owned companies like Air India and another such companies who own hundreds of buildings in the country have leased out some of the premises that does not make them Real Estate Company. Even the Company Identification Number issued by the Registrar of Companies to AJL refers to Industry Code pertaining to publishing of periodicals and journals and not that of operating of real estate business.
91 Another argument taken by the DR was that AJL stopped business and all employees were discharged and what was left was properties only and therefore, by acquiring the shares of AJL the assessee has acquired the properties which is not the object of the assessee. Such proposition is not correct on the facts and material on record because AJL did not stop the business, but there was a temporary suspension. Even otherwise, also, any person who acquires the share of a company whose predominant assets are immovable properties, then such shareholder does not acquire the property himself. The assessee’s submission throughout has been that the rental income was incidental to the newspaper business and every license allowed for newspaper business require that certain portion of the properties ought to be used for printing press and balance can rented out. Every newspaper company has significant rental income.
92 Coming to the question raised by the ld. DR that how the publication furthers the objects of Young Indian, he submitted that assessee has already argued at length that the newspapers activity of AJL furthers the objects of the assessee and in support he also submitted at page 18 to 34 of the paper book the data compiled from Google Analytics till date to show that there are almost 62% of the users of online news portal of AJL. Therefore, by this platform, the assessee has achieved success to approach the youths of the country. The ld. DR has also alleged that most of the articles published in the web under the tab ‘Young India’ are picked up from PTI is not entirely correct because AJL has published certain commemorative Edition of newspapers written by well-known personalities highlighting various aspects of our constitutional values like democracy, secularism, freedom of speech etc. This is how the objects of young India were achieved through the platform of AJL. Further the assessee has also filed circulation certificate issued by Audit Bureau of Circulations for the period January to June 2018 and July to December 2018 of National Herald on Sunday.
93 Another contention harped upon by the ld. DR was that whether or not AJL has real estate business; the effect is the same, in as much as acquisition of shares of both the companies is contrary to the objects of the assessee company. In this regard, he submitted that, where the acquisitions of shares are in furtherance of its objects then the same could not be regarded as not in accordance to its objects. In this regard, reference is drawn to the decision of the Rajasthan High Court in Indian Medical Trust v. PCIT (414 ITR 296) wherein investment made by the assessee in a TV channel was held to be in accordance with the objects of the assessee since it furthered it objects. The relevant extract is as under:
“On a glance of the facts and materials available on record of the case at hand, it is evident that the said TV Channel was acquired by the petitioner Trust for educational training in ‘Journalism’ and ‘Mass Communication’, as it was offering courses for graduation and post-graduation in ‘Mass Communication’ and ‘Journalism’. … Applying the principle aforesaid, it is evident that education cannot be confined to the meaning of one subject only and keeping this precedent in mind, it is concluded that the said investment in TV Channel shall be considered to be in consonance with the objectives and in the purview of the objects of the Trust.
- Besides, acquisition of shares of a company can only trigger section 12AA(4) and cannot trigger section 12AA(3) and since section 12AA(4) was not on the statute book in AY 11-12, the year with effect from which the Id. CIT has passed the order cancelling the registration, the order passed by the CIT(E) is bad in law. In this regard, reliance is placed on the decision of the Mumbai Tribunal in Lilavati Kirtilal Mehta Medical Trust v. CIT  108 com 272 (Mumbai – Trib.) wherein it is held that violation of provisions of section 13 can be a ground for cancellation of registration only under section 12AA(4) and not 12AA (3) and that section 12AA (4) would take effect only from 1.10.2014. There cannot be retrospective cancellation u/s. 12AA (4) prior to 1.10.2014. Case law for this proposition have been cited in the initial submissions.
- News papers are considered as the “fourth estate” of the country, ranking fourth after the first three being: Legislature, Executive and the Judiciary. The role of press is, as recognized by the Supreme Court in several cases to which references were made in the initial part of Appellant’s submissions, is to further the constitutional values of democracy, secularism, freedom of speech etc. This indeed is the objective of the Appellant. Then how is acquisition of shares of AJL not in accordance with the object of the Appellant?
94 Lastly, the ld. counsel very strongly contended ld. Special Counsel for the Revenue has tried to make out new case or improved upon the order of CIT (E), cancelling registration u/s. 12AA, which is not permissible. In support, he strongly relied upon ITAT Special Bench decision in the case of Mahindra & Mahindra Ltd. v. DCIT(2009) 30 SOT 374, which has been affirmed by the Hon’ble Bombay High Court (365 ITR 560).
95 With the permission of the court, Mr. G.C. Srivastava, ld. Special Counsel for the Revenue submitted that no new case has been made out by the department and it is completely misconceived assertion. The order of ld. CIT(E) proceeds on primary satisfaction recorded by him in para 15 & 17 and the entire course of the cancellation order is that activities of the appellant/assessee are neither genuine nor they have been carried out in accordance with its stated objects. He also referred to the judgment in the case of ACIT v. Prakash L. Shah (2008) 115 ITD 167, wherein the Tribunal has clearly stated that the DR can strengthen the view taken by the Assessing Officer from any angle, he likes, but can’t bring out an altogether different case de hors the view of the Assessing Officer. The area of arguments of DR is unlimited but within the boundary limit marked by the Assessing Officer. He also distinguished the case of Mahindra & Mahindra (supra) but contended that in those cases Revenue was seeking to negate the findings already recorded by the Assessing Officer and DR argued in that case contrary to the finding of the ld AO. Thus, this case does not support the argument of the assessee.
DECISION AND REASONS :
96 We have heard the rival submissions, perused entire gamut of facts placed on record and the material referred to by the parties at the time of hearing. From the discussions made above, the core issue as it culls out is, whether the ld. CIT (E) was justified in law and on facts in cancelling the registration granted to the assessee u/s. 12A r.w.s. 12AA vide certificate dated 09.05.2011 w.e.f. assessment year 2011-12, that is, retroactively. It is indubitable that the assessee itself had written a letter to the ld. CIT (E) dated 21.03.2016 filed on 22.03.2016, wherein it has offered to surrender the registration granted u/s. 12A r.w.s. 12AA with immediate effect. Ergo, the assessee company on its own volition has ceded the registration and any benefit of being a charitable entity under the Income Tax Act from March 2016. However, the bone of contention and the assessee’s main objection is that, the registration could not have been cancelled prior to 21.03.2016 w.e.f. 2011-12. Succinctly put, the entire wrangling of the assessee company is that retroactive cancellation is not justified, that is, between the periods 09.05.2011 to 21.03.2016. Cancellation post facto is not disputed rather assessee has acquiesced to such cancellation, albeit from 21 March 2016.
97 The statute provides that if a trust or institution has been constituted to carry out the activities which are of charitable nature as defined in section 2(15) of the Act, then it can apply for registration through an application in prescribed form before the Pr. CIT or CIT u/s 12A/12AA on or before the expiry of period of one year from the date of creation of the Trust or establishment of the Institution. Upon such application, the Pr. CIT or CIT calls for such documents or information from the Trust or institution, as he thinks necessary in order to satisfy himself about the genuineness of the activities and may make such enquiry, as he deems necessary in this regard. On his being satisfied about the genuineness of the Trust or Institution and the genuineness of the activities, he can pass an order granting registration to the said Trust; and if he is not satisfied, then he can refuse to grant registration by way of speaking order. After grant of such registration, the assessee trust has to necessarily comply with the conditions prescribed in section 11 to 13 and submit its Income & Expenditure account in the prescribed form as provided in the statute and relevant rules. The Statute provides exemption of income of such Trust or Institution subject to conditions prescribed under the Act and Rules, provided, such Trust or Institution is carrying out activities for charitable purpose and not only that, such activities are carried out strictly in accordance with the objects, for which it was created and also the activities should be genuine. The onus is heavily upon the applicant Trust/Institution to disclose fully and truly all material facts and to clearly state the purpose and the nature of the activities that it is supposed to carry out in terms of the registration granted at the time of seeking registration u/s 12A/12AA.
98 We have already discussed in detail the facts and the chain of events starting from the date of incorporation of the assessee company till the grant of registration. From the facts and material as discussed above, the undisputed facts are reiterated in a succinct manner:
- The appellant, Young Indian was incorporated as a company on 23.11.2010, for which it was granted license u/s. 25 of the Companies Act, 1956 on 18.11.2010
- The application for registration was made by the appellant company on 31.03.2011 in form No. 10A along with following annexure:
ANNEXURE 1 – List of Names of Founder Members
ANNEXURE 2 – List of Names of Managing committee
ANNEXURE 3(A)- Memorandum of Association
ANNEXURE 3(B)- Articles of Association
ANNEXURE 4(A)- Certificate of Incorporation
ANNEXURE 4(B)- License u/s. 25 of the Companies Act
ANNEXURE 5(A) – Future Annual Income & Expenditure Estimates.
ANNEXURE 5(B) – Assets & Liabilities Statement before the application.
- Said annexures also included a note written to DIT (Exemption) vide letter dated 09.05.2011. The extract of the Note has already been incorporated in the foregoing para 10 of this order.
Further, from a perusal of annexures and documents filed along with application, it is seen that nowhere, the assessee had even whispered about acquisition of AJL or activities carried out by AJL or objects of the AJL or the purpose for acquisition of AJL that it was in furtherance of the objects of the assessee company, Young Indian. Since the ld. DIT(E), based on the material facts placed before him, found that the assessee’s objects are charitable in nature, he accordingly granted registration u/s. 12A r.w.s. 12AA(3) of the Act vide certificate dated 09.05.2011. As pointed out by the ld. Special Counsel, Shri G.C. Srivastava, on behalf of the Revenue, such a certificate/order granting registration was subject to various conditions and one very important condition was mentioned, which provided that,
“If later on, it is found that the registration has been obtained fraudulently by misrepresentation or suppression of any fact, the Registration so granted is liable to be cancelled as per provisions u/s 12AA (3) of the Act.”
99 From the detailed discussion, made here in this order as well as chronology of events as discussed in the foregoing paras 5 & 6, it is fairly evident that the following material fact and information were not placed before the DIT(E) at the time of seeking registration:
- Firstly, the factum of transfer of loan of Rs. 90 crores by AICC, which was given to AJL from time to time, to Young India, i.e., appellant company, for a meager consideration of Rs. 50 lakhs by way of journal entry. Such an assignment of loan by AICC of Rs. 90 crores to Young India at Rs. 50 lakhs had not been disclosed at any stage in the course of process of registration.
- The assessee in his statement for assets and liabilities, filed in Annexure 5B had simply stated that currently, the company has no assets and liability, whereas the fact of the matter was that the assessee has taken loan of Rs. 1 crore from M/s. Dotex Merchandise Pvt. Ltd., Kolkata and out of the said loan, the amount of Rs. 50 lakhs was paid to AICC.
- AJL had allotted 9,02,16,898 shares which was more than 99.99% of the holding to Young Indian in lieu of loan of Rs. 90 crores by increasing the share capital. This fact was also not disclosed to the ld. DIT (E) nor was it stated or mentioned that entire holding of AJL went to the assessee company.
- The purpose and the object for acquiring entire share holding of AJL was neither brought to the notice of ld. DIT (E) nor explained at the time of registration, which is now being canvassed.
- When the ld. DIT(E) specifically asked to give note on activities carried out since inception with supporting documents and to justify the claim of registration, the assessee should have mentioned all the events before the DIT(E), because acquisition of entire holding of a company, assigning of loan of Rs. 90 crores for a consideration of Rs. 50 lakhs only and taking of loan of Rs. 1 crore from M/s. Dotex Merchandise Pvt. Ltd., Kolkata were not some insignificant events which do not require disclosure before the ld. DIT(E).
100 Thus, from the aforesaid facts, it is palpable that Assessee Company, seeking registration as a charitable Institution, had not disclosed fully and truly all material facts with clear conscience and probity. Such facts, events and material should have been placed; and if on examination of such material facts, the ld. DIT (E) could have examined and taken decision for granting of registration. Then it could have been held that the assessee had discharged its onus with clean hands. Here not only there was misrepresentation but also the suppression of material facts before the ld. DIT (E) at the time of registration. Thus, there was a clear-cut breach on part of the assessee company. If there was concealment and suppression of material facts, then such a registration granted is always open for cancellation or revocation at any time by the ld. DIT (E)/CIT (E) when it comes to his notice. In fact, this was one of the conditions mentioned while granting registration and such condition, in our opinion, has been clearly violated.
101 From the perusal of the impugned order of cancellation of registration and the replies submitted by the assessee before the ld. CIT(E), it is seen that nowhere the assessee has even mentioned or brought on record that the purpose for acquiring AJL was in furtherance of any of its objects which has been vociferously argued before us that, since AJL was into the business of publication of newspapers and the purpose of acquiring the AJL was to use the print media and digital media to promote the objects of Young Indian. We have gone through the replies filed by the assessee company before the ld. CIT (E) in the course of cancellation proceedings and we find that the assessee has nowhere stated that either the objects of the AJL were aligned with that of the assessee company and by acquiring the entire stake in AJL, the assessee was carrying out any charitable activities, for the purpose of which it was granted registration. When the ld. CIT(E) in his show cause notice dated 21.08.2017 in para-5 clearly confronted the assessee that; firstly, only substantial activity undertaken by the appellant company was acquiring 99.99% of shares of AJL and AJL has been engaged in the Real Estate business and their source of income was rental income; secondly, asked the assessee to explain whether such activities of AJL are covered within the aims and objects of Young Indian; and lastly, whether these activities were in conformity with the terms and conditions of the registration granted u/s. 12AA to Young Indian, the assessee nowhere had clarified or sated that the purpose of acquiring AJL and its activities, except for reiterating that as a shareholder, Young Indian does not have any ownership interest, whatsoever, in the properties owned by AJL as it is a separate legal entity.
102 Now, what has been canvassed before us is entirely a new argument that the sole aim and objective of acquiring the entire stake holding in AJL was to carry out charitable activities for its objects, i.e., to spread democratic and secular values to the Youths of India through the medium of newspapers published by AJL. Now, in support of such newline plea, voluminous additional evidences have been filed before us on the ground that the ld. CIT (E) has wrongly held that AJL was into the Real Estate business and was carrying out commercial activities of construction and sale of properties. In order to controvert such a finding, assessee has filed hundreds of papers to show that how the publication of newspapers and articles in print media have been recommenced, when most of the documents pertain to post 21.03.2016 when the assessee had written a letter offering for suo moto surrender of registration u/s. 12AA; and some are even post facto cancellation order passed by the ld. CIT (E). Since we have permitted the parties to argue and put forth all their contentions to refer to all the additional evidences, therefore, we are not rejecting the additional evidences. Because, in our opinion they do not strengthen the case of the assessee because the factum of printing and publication of newspaper are post facto events when assessee itself acquiesced to cancellation of registration from March 2016. This is evident from the perusal of the additional evidence paper book; whereby following documents have been furnished:-
|Sr. No.||Description of document||Page
|1.||The masthead of National Herald Newspapers published by the AJL from 24 September 2017 to 28 July 2019||1-92|
|2.||The masthead of Sunday Navjivan Newspapers published by the AJL from 14 October 2018 to 28 July 2019||93-132|
|3.||Copies of various reports, photographs of:|
|a.||Launch of Commemorative Edition of National Herald (Publication) in Bangalore on 12 June 2017||133|
|e.||Star of Mysore||141-143|
|f.||Copy of National Herald Commemorative Edition||144-153|
|4.||Copies of various reports, photographs of:|
|a.||Launch of Commemorative Edition of National Herald (Publication) in New Delhi on 1 July 2017||154-156|
|h.||Copy of National Herald Commemorative Edition||173-185|
|5.||Copies of various reports, photographs of :|
|a.||Launch of Commemorative Edition of Navjivan newspapers (Publication) in Chandigarh on 10 December 2018||186|
|f.||Copy of Navjivan Commemorative Edition||191-203|
|6.||Launch of National Herald Website on 14 November 2016||204-205|
|a.||The Indian Express||206-207|
|b.||The Economic Times||208-209|
|d.||BW Business World||212-213|
|7.||Launch of Urdu Website on 12 August 2017||215-225|
|b.||United News of India||227|
|8.||Launch of Navjivan Website on 29 August 2017||230-236|
|a.||United News of India||237-238|
|9.||Registration Certificate of National Herald Newspaper with Registrar Office of Newspapers for Indian, Ministry of Information and Broadcasting dated 23 June 2017 and 24 Nov 2017||239-241|
|10.||Registration Certificate of Sunday Navjivan with Registrar Office of Newspapers for Indian, Ministry of Information and Broadcasting dated 20 Feb 2018, 11 Jan 2019||242-244|
|11.||Agreement of AJL with Press Trust of India for Wire News Services dated 15 November 2016||245-249|
|12.||Certificate issued by Audit Bureau of Circulations certifying the number of Newspapers sold by AJL dated 7 September 2018 and 11 March 2019||250-254|
|13.||Report of Google showing the outreach of the online news portals operated by AJL from November 2016 to till date||255-265|
|14.||Resolution passed Board of Directors of AJL to resume the publications of newspapers dated 26 September 2016||266|
|15.||Letter of AJL to the Registrar of Newspapers of India to resume newspaper business dated 23 January 2014||267|
|16.||AJL Form – 23 submitted to ROC on 29 September 2011 along with amended MOA as passed by Shareholders on 13 Sep 2011||268-280|
|17.||AJL Form – 14 submitted to ROC along with amended MOA as passed by Shareholders on 21 Jan 2016||281-295|
|18.||Copies of National Herald and Qaumi Awaz Newspapers dated 1 April 2008 publishing the temporary suspension notice of publications||296-299|
|19.||Letter to AJL to the United News of India (UNI) dated 31 March 2008 informing about temporary suspension of publications||300|
|20.||Various Presentations and Photographs showing operations of Young Indian||301-386|
103 A bare perusal of the most of the documents, it is quite evident these are post surrender letter of the assessee filed in March 2016 and some are even after the date of passing of the impugned cancellation order. All these documents merely go to show that AJL had recommenced or endeavored to re-start the publication activity from the year 2016- 2017 onwards. As opined above, these documents even if we admit, are not of much significance for the reason that all these activities of printing and publication of articles had started when the assessee itself had given up its registration in March 2016. Prior to this date, it is an admitted fact that publication of newspaper business of AJL was suspended or as stated by the ld. counsel for the assessee, there was temporary lull in the business for the period 2008 to 2016. Neither between the periods 2011 to 2016, any such publication business had started nor has it been brought on record before the ld. DIT (E) either at the time of grant of registration or at the time of its cancellation. As far as the documents, like resolution passed by the board of directors of AJL on 26.09.2016; letter written to Registrar, Newspapers of India dated 23.01.2014; Form No. 23 submitted by AJL to ROC on 29.09.2011 along with amended MoA and Form-14 etc., though indicate that AJL may had some kind of intention to start the publication business, but such an intention was never stated or canvassed before the departmental authorities in the course of cancellation proceedings. It is only when the ld. CIT (E) had made certain allegations in the impugned order that the AJL had carried out some activities of Real Estate, the assessee has taken this plea before us to justify that it intended to carry out the activities by acquiring AJL in furtherance of its main objects. Great deal of arguments have been made by the Ld. Counsel that publication business of AJL was a platform to promote the ideals and objects of YI and press being fourth estate of democracy is a powerful medium to inculcate such ideals. First of all, press will be used as medium to promote the objects of YI was never stated earlier at any stage; nor there is one instance that YI has ever used any other newspaper or media to propagate it’s so called objects or democratic secular ideals. Is it that only AJL can be such medium and no other press company or it is orchestrated defense in wake of various proceedings initiated against it or is it to camouflage the real nature of arrangements? Secondly, these pleadings and documents only go to show that from the year 2107-18 some newspaper articles have been published which assessee is trying to link and align itself to prove its genuineness. All such toll claims and publication of articles are from year 2017 onwards. Thus, these additional evidences do not impinge upon the case of the assessee or in any way strengthen the case of the assessee.
104 The ld. CIT (E) had raised various points in his impugned order for cancelling the registration, which has been summarized by him in para 17. Sequitur of his main charge/findings are that, firstly, the assessee could not furnish any details or evidences that the activities carried out by the assessee company during the A.Y. 2011-12 to 2016-17 was in accordance with its objects or whether it had actually carried out any genuine activities. In fact, he noted that the return of income and annual report reveal that the assessee had not carried out any such activities which could be said to be in accordance with its objects. Secondly, he has also taken note of the fact that the expenditure of Rs. 50 lacs which has been stated to be for fulfillment of youth commitment for ideals of democratic and secular society, in fact, was payment for repaying back the loan amount on behalf of the AJL to AICC and acquisition of shares of AJL, and interest payment on loan of Rs. 1 crores. Thirdly, publication of newspapers of AJL had ceased to exist, etc. and the activities of AJL were into the Real Estate business and by acquiring AJL, the assessee is trying to manage, control and engage in Real Estate business of AJL. Lastly, the factum of suo moto surrender of registration u/s. 12A has also been found to be incorrect, as it was sequel to investigation by Investigation Wing since 2014 and based on these findings and detailed discussion, he has held that he is not satisfied that the activities of the assessee are genuine or not carried out in accordance with its objects.
105 One of the key contentions raised and harped upon at length on behalf of the assessee, supported with catena of documents that AJL was never into Real Estate business, for which we have already discussed in detail the relevant arguments placed by the ld. counsel. Even if we agree, with the ld. counsel that AJL was not carrying out systematic commercial real estate business of construction and sale of shops or properties during the relevant period, but there is no denying fact that AJL had large number of properties worth hundreds of crores of rupees across the country and had huge rental income from such properties held from time to time. Though one of the main points harped upon by the ld. CIT (E) is that AJL is Real Estate Company may not be technically correct, but the ld. CIT (E) has not confined his finding merely that AJL is Real Estate Company and by acquiring AJL, the assessee company also acquired Real Estate business.
106 Other pivotal and underpinning reasons for cancelling the registration by the ld. CIT(E) are that the assessee company has not been able to point out any single activity carried out in furtherance of its stated objects, for which it was created during the said period, i.e., from A.Y.s 2011-12 to 2016-17; and the only activity of the assessee was borrowing of Rs. 1 crore from Kolkata based company and making the payment of Rs. 50 lakhs to AICC and applying for allotment of shares against cancellation of loan of Rs. 90 crores assigned by AICC to Young Indian. All these activities definitely cannot be held to be in furtherance of the objects of the Young Indian, because at no point of time, it was ever stated what was the purpose and objective behind acquiring the AJL and making payment of Rs. 50 Lakhs to AICC. As we have already held above, even if AJL was acquired for the purpose of stated objects, but that object was a nonstarter from day one and till the surrender of registration also, such an activity in furtherance of objects was never carried out. Rather, what is inferable is that, the entire move for acquiring the AJL, which had stopped/suspended its publication activities and was holding large number of properties worth hundreds of crores with huge rental and lease income was for acquiring control and interest in such properties for mere sum of Rs. 50 Lakhs. Can prudence justify such acquisition was for furtherance of charity or for furtherance of the objects of the Young Indian?
107 Had the intention of the assessee company being clear and bona fide from the date of its inception, that it wanted to acquire AJL only to carry out its charitable activities, then it should have been stated so and brought on record not only at the time of seeking registration u/s. 12AA, but also at the time of cancellation. The events clearly pointed out that even before incorporation of Young Indian, the registered office was shifted to Delhi and the Directors managing the affairs of the assessee company were taken on Board of AJL. Not only that, Young Indian was permitted to use the property of AJL as its registered office. Further, the manner, in which loan of Rs. 90 crores was assigned by AICC to Young Indian for paltry consideration of Rs. 50 lakhs does not reflect the real intent of the transaction. Not all these facts indicate that the assessee company had any clear conscience or intent for acquiring the AJL to carry out the charitable activities. Not a single such instance have been demonstrated that it had carried out any activity in furtherance of its objects, nor any such thing has been placed before us that it had carried any activity between the years 2011 to 2016 or up to the date of cancellation of registration. Even as noted by the ld. CIT (E) that the Income-tax returns do not indicate that any expenditure has been incurred in furtherance of the objects except for payment of interest on loan borrowed from a Kolkata based company. Once, AJL was not in publication of any kind of newspaper in print or digital form during the entire period, then it can be easily deduced that the intention was never to carry out any charitable activity by acquiring AJL. Even after takeover of AJL, no activity has been done by AJL at least for a period of 5 years. One of the main allegation of the ld. CIT (E) and ld. Special counsel was that, it was in wake of certain enquiries conducted by the Income Tax Department and proceedings of eviction initiated by the Land Development Office, steps were taken by the AJL for renewal of newspaper business; and even the so called resuming the newspaper business post September 2016, is much after the assessee had written to the department surrendering its registration. Thus, the entire contention as raised by the ld. counsel that the newspaper business was started later on, which indicates that AJL was acquired only to promote the ideals enshrined in the objects of Young Indian, belies all such intents and in fact the allegations that some printing work had started post inquiries by the Governmental authorities is convincing and probable.
108 Much emphasis has been laid by the ld. counsel that AJL has converted itself into a Section 8 company under the Companies Act 2013 in January, 2016, i.e., as a non-profit company, to carry out the objects of Young Indian and the objects of AJL were aligned with that of Young Indian. Such a contention is of no consequence for the reason that, firstly, it is an admitted fact that till date, the assessee had not been granted license by ROC as Section 8 Company; and secondly, all these events have neither been stated by the assessee before the ld. CIT (E) and are post 2016. The amendment in MoA of AJL in the year 2011 is again of no consequence because till the year 2016, no such activity has been carried out by Young Indian through AJL. In any case, we are in tandem with the contention of the ld. Special counsel that merely adopting the changes in MoA does not make the company a Section 8 Company or a non-profitable company, because it is always open for the Board of Directors to amend its MoA and become a profitable company at any time and sweet will. Thus, acquisition of AJL to further the objects of the assessee company as purported by the ld. counsel, is not acceptable.
109 Before us, the ld. counsel had also submitted that way back on 23.01.2014, AJL had filed letter to Registrar for Newspapers of India, which indicates the assessee’s intention to resume the publication activities. However, as we have held earlier, such an intention was never brought on record before the departmental authorities or even before the ld. CIT (E) during cancellation proceedings. Even filing of letter to Registrar for Newspaper of India to start the publication business, does not carry much weight, because admittedly, such an intention remained on paper and nothing had started prior to the year 2016-17 by that time the assessee had already forgone its claim for registration u/s. 12AA. Acquiring and construction of various buildings of AJL at Panchkula, Mumbai etc. does not prove that the publication activities were carried out and even if there was some kind of future intent to do so, then also, it does not make AJL a newspaper publication company between 2008 to 2016, because not a single activity was carried out through which it can be inferred that AJL was acquired by YI to use the platform of newspaper publication, albeit entire conduct of the assessee company shows that AJL has been acquired for such nominal amount of Rs. 50 lakhs, to control and have interest in huge immovable assets of AJL throughout the country which were earning huge rental income, which was never the object of YI for which it was granted registration.
110 At the stage of hearing of this appeal, one very important material fact, which has been brought on record by the Revenue before us, are the judgments of Hon’ble Delhi High Court. This judgment of the Hon’ble Jurisdictional High Court clearly clinches the entire issue and supports our findings as given above. In the first judgment dated 21.12.2018 passed by Hon. Single Judge in writ petition filed by the AJL, against notice sent by Land Development Office for eviction of the property known as ‘Herald House, 5A, Bahadur Shah Zafar Marg, the Hon’ble High Court had categorically noted that at the time of inspection by LDO, no press activity was being carried out by AJL in the said property and in fact, it was rented out to various commercial establishments. After taking note of the inspection committee report, the Hon’ble court gave a categorical finding that no printing press was functioning and only National Herald weekly newspaper was stated to be published on 24.09.2017, which too was outsourced elsewhere. The Hon’ble Court has noted that press activity of editorial team was not discernible when the inspection of the premises was undertaken in the presence of the Chairman of AJL. The Court has also noted that the dominant purpose of leasing out the premises to AJL for publication has now practically lost and there is hardly any press activity. It has also been noted that AJL has been taken over by YI for all practical purpose.
111 The said judgment passed by the Hon’ble Single Judge was challenged by way of appeal before the Division Bench of Hon. Delhi High Court in LPA 10/2019 and CM No. 566 & 649/2019. The Hon’ble Delhi High Court speaking through the Hon. Chief Justice, after considering the entire gamut of facts and arguments placed on record have not only upheld the judgment passed by the Writ Court earlier, but also gave very important observations based on material on record. The relevant observations and findings, which are completely germane to the issue in hand before us, are extracted as under:
“46. ……………………… As far as the assertion made with regard to the transfer of shares of AJL to Young India and the share holdings of Young India and various other issues connected thereto are concerned, they are based on certain facts stated in the show cause notice issued by the Income Tax authorities on 15th June, 2018 and even if show cause notice is ignored, they do form part of the facts stated by co-ordinate Bench of this Court while deciding three writ petitions decided on 10th September, 2019, that is, W.P.(C) No.8482/2018 and other connected matters which were filed by the shareholders of Young India while challenging the action taken by the Income Tax authorities. There is no whisper or serious challenge to these factual aspects by the appellant. They do not say, even orally, that these facts stated and relied upon by the respondents are false, incorrect, fabricated, untrue etc. They only say that certain facts have been stated without filing a counter affidavit. If the facts so stated, cognizance of which have been taken by the writ Court, are based on materials available in proceedings held before the L&DO and by a coordinate Bench of this Court in a writ petition, we see no reason as to why we cannot take cognizance or judicial notice of these facts and proceed to consider them for deciding the lis in question, particularly, when there is no specific or categorical denial of them even orally before us at the time of hearing.
- The first objection of the appellants were to the finding recorded by the learned writ Court in the impugned order passed on 22nd December, 2018 pertaining to there being no press activity in the premises in question, that is, finding in para-17 of the impugned order. The facts that have come on record clearly shows and it is an admitted position if we analyse the show cause notices issued to the appellants on 10th October, 2016 replied to the same on 19th November, 2016, the second show cause notice dated 5th April, 2018, the third show cause notice dated 18th June, 2018 and the fourth show cause notice dated 24th September, 2018 and the series of replies filed by the appellants on 19th November, 2016, 7th April, 2018, 16th July, 2018 and 9th October, 2018 along with the communication made by Sh. Motilal Vora on 26th September, 2018 available at page-406 of the paperbook that between the period from the year 2008 to 2016, the appellant themselves admitted that there was no publication of the newspaper from the premises in question or from any other place and it was only after the inspection of the premises was conducted for the first time on 26th September, 2016 that indication was made about commencement of newspaper publication for 2016 – 2017.
- In this regard, we may take note of the communication made by Sh. Motilal Vohra on 26th September, 2016 at page-406 of the paper book. In this communication reference is made to an inspection noticed dated 15th September, 2016 and it indicates that one Sh. Ravi Dayal is authorized to be present as a representative of AJL at the time of inspection at 11 A.M. on 26th September, 2016. That apart, as requested in the notice issued, certified copies of the sanctioned plan and occupation certificates were also submitted with this letter. The letter further states that the basement and the fourth floor of the building are being used for press and offices of the lessee and surprisingly the letter further says “I am pleased to inform you that the Associated Journals Ltd. has taken steps to resume newspaper publication. Towards this objection an Editor-in-Chief was appointed in August, 2016” and the letter further says that preparations are in full swing to resume publication of the newspaper in the current financial year 2016-17. Referring to this letter, the learned Solicitor General had argued that this letter was written only for pre-empting the authorities so that they are not surprised if no printing activities are found in the premises. In fact, Sh.Tushar Mehta is right in contending that this was an attempt by the appellants and, in fact, an admission by them that no printing activity was being carried out in the premises at that point of time. That apart, when we go through the four show cause notices available on record issued on 10th October, 2016, 5th April, 2018, 18th June, 2018 and 24th September, 2018 and the reply filed thereto, we find that various breaches were pointed out in all these show cause notices and they were replied to by the appellant company and the cumulative admitted position that can be made out from the reading of these documents are as under.
- When the premises was inspected on 26th September, 2016, no press activity was being carried out in the area. Press activity and publication of the newspaper was suspended right from the year 2008 and all the employees were granted VRS. After the communication dated 26th September, 2016 was made by Sh. Motilal Vohra digital publication of the English Versions of the newspaper, National Herald commenced from 4th November, 2016.
- Digital version of Urdu edition Qaumi Awaz commenced on 12th August, 2017. Digital version of Navjivan, that is, Hindi version commenced on 28th August, 2017 and the print weekly newspaper, National Herald Sunday resumed publication from 24th September, 2017 and it is the case of the appellants that these newspapers were printed in a press at Noida. Finally the printing of Hindi weekly newspaper Navjivan commenced publication on 14th November, 2018 and the necessary license and authorization for the purpose of publication indicated hereinabove was granted by the Registrar of Newspapers for India on 21st November, 2017 available at page-581 is a certificate of registration issued by Sh. K. Ganeshan, Registrar of Newspaper for India giving registration certificate for a newspaper titled “National Herald Sunday”. Accordingly it is clear that publication of the newspapers commenced after a gap of eight years as is indicated hereinabove. If this is the factual position, it can very well be concluded that on 26th September, 2016 when the first inspection took place, admittedly, there was no printing of press or publication activity and the digital versions in English commenced publication only on 14th November, 2016, that is, about one and half month after the inspection took place on 26th September, 2016. Even though in the breach notice dated 10th October, 2016, there is no mention of there being no press activity but the admitted position is that when this notice was issued on 10th October, 2016 after inspection on 26th September, 2016 and the admission of Sh.Vohra on 26th September, 2016 that there is no printing activity, three other show cause notices were issued as have been detailed hereinabove and in the final show cause notice issued, that is, 24th September, 2018 before taking the impugned action there is a mention about no press activity being carried out in the premises when the first inspection was ordered on 26th September, 2016.
- The next issue which was vehemently canvassed before us on behalf of the appellant was with regard to the transfer of shareholding from AJL to Young India. It is the case of the appellant that mere transfer of shareholding cannot be a ground for holding that to be change of ownership or transfer of the lease. Placing reliance on the judgment of Bacha F. Guzdar (supra) detailed submissions were made by Dr. Singhvi to emphasize that a shareholder only acquires a right to participate in the profit of the company. He gets no interest in the property of the company and even if the shareholders of the company do have some voice in administering the affairs of the company, but their interest is limited to sharing the profits of the company and the company, a juristic person, which is distinct from the shareholders still owns the property. It is argued that in the backdrop of this legal position even if some of the shares of the company have been transferred that would not mean that the ownership of the leased premises also get transferred to Young India Ltd. It was emphasized that the ownership still remains even on such transfer with AJL and the said transfer would not have any effect on the ownership or transfer of the leased premises. To consider this aspect of the matter, we are required to take note of the shareholding pattern of both the companies and the manner in which the transactions have taken place and further in case the lifting of the veil theory is applied, what would be its effect with regard to the issue in question.
- Indian National Congress sometimes referred to as AICC had advanced a loan of Rs.90 crores to AJL. The loan was advanced on the condition that the amount shall be utilized by AJL to write off their accumulated debts and to recommence publication of its newspaper. As per the facts recorded by the co-ordinate Bench of this Court in its decision rendered on 10th September, 2018 in W.P.(C) 8482/2018, the books of account of AJL from 1st April, 2010 to 31st March, 2011 showed an outstanding debt of Rs.88,86,68,976/- and it ultimately became Rs.90,21,68,980/- as on 15th December, 2010. On 13th August, 2010, an application was made for incorporation of a charitable non-profit company (a company under Section 25 of the Companies Act named Young India). The application was in Form 1A with the competent statutory authority and on 18th November, 2010 Young India was incorporated and on 18.11.2010 license was granted and ultimately on 23rd November, 2010 Young India was incorporated with Sh.Suman Dubey and Sh.Sam Pitroda as its founder Directors. This company had an authorized share capital of 5,000 shares of Rs.100/- each valued at Rs.5,00,000/- and the paid up share capital was 1100 shares of Rs.100/- each valued at Rs.1,10,000/- and the company at that point of time had two shareholders, (a) Shri Sam Pitroda – 550 shares valued at Rs.100/- each and (b) Shri Suman Dubey – 5,000 shares valued at Rs.100/- each. On 13th December, 2010, the first Managing Committee Meeting of Young India took place and Shri Rahul Gandhi was appointed as its Director, namely, a non-shareholder and Shri Motilal Vora and Shri Oscar Fernandes as ordinary members. Within five days thereafter, that is, on 18th December, 2010, by a deed of assignment the loan of Rs.90 crores and odd outstanding in the books of Indian National Congress as recoverable from Associated Law Journals for the period 2002 to 2011 was transferred to Young India. Three days thereafter, on 21st December, 2010, a Board Meeting of AJL called for an EGM which was subsequently held on 24th December, 2010 and on the said date a loan of Rs.1 crore was received by Young India from another company M/s Dotex and thereafter on 28th December, 2010 i.e. within a week a formal deed of assignment was executed by AICC assigning the loan of Rs.90 crores in favour of Young India. Immediately thereafter on 21st January, 2011, an EGM of Associated Law Journal was held approving fresh issue of 9.021 crores shares to Young India and on 22nd January, 2011 i.e. on the next day the second Managing Committee of Young India was held in which Smt. Sonia Gandhi, Mr. Motilal Vohra and Mr. Oscar Fernandes were appointed as Directors and the 550 shares of the existing shareholders of Young India – Suman Dubey and Sam Pitroda were transferred to Smt.Sonia Gandhi and Mr.Oscar Fernandes and on the same day fresh allotment of Young India shares were made in the following manner: (a) 1,900 shares having paid up value of Rs.1,90,000/- to Shri Rahul Gandhi, (b) 1,350 shares with a paid up amount of Rs.1,35,000/- in the name of Smt. Sonia Gandhi, (c) 600 shares with a paid up value of Rs.60,000 in the name of Sh. Motilal Vohra and (d) 50 shares with a paid up value of Rs.5,000 in the name of Sh.Oscar Fernandes and after issuance of PAN by the Income Tax Department a bank account was opened by Young India with Citibank on 14th February, 2011 and the cheque issued by M/s Dotex for Rs.1 crore was deposited in the Young India Bank account on the said day and on 26th February, 2011 Young India issued a cheque of Rs.50 lakhs to AICC as consideration for assignment of Rs.90 crore debt payable by ALJ to AICC. On the same day, i.e., 26th February, 2011, ALJ allotted 9,02,16,899 equity shares to Young India in pursuance to the AGM Meeting decision held on 21st January, 2011 and the ALJ Board Meeting on 26th February, 2011 and thereafter Young India applied for exemption under Section 12-Aon 29th March, 2011 and on 9th May, 2011 the Income Tax Authorities granted the exemption with effect from the F.Y. 2010-11.
- Be that as it may, by the aforesaid transaction that had taken place Young India acquired beneficial interest on AJL’s property which on the said date was valued at more than Rs.400 crores on payment of a sum of Rs.50 lakhs to AICC. This, according to the respondent, if viewed in the backdrop of the purpose of transfer lease and the modus operandi adopted is nothing but a devise to transfer the property held on lease from the Government by AJL, Young India which became 99% or rather 100% shareholder of AJL. With these facts, we now propose to examine the judgments relied upon by both the parties to evaluate the legal implication and the principles culled out from these judgments and examine their applicability in the present factual matrix to decide the issue of breach of conditions of the lease on this count.
- In the case of Bacha F. Guzdar (supra) relied upon by Dr. Singhvi, a Constitution Bench of the Supreme Court has taken note of certain judgments with regard to corporate identity and a legal position with regard to the rights to property of a company, a juristic person, and the relationship of a shareholder with the company and its property, as canvassed by Dr. Singhvi and as observed by the Hon’ble Supreme Court the principle indicates that a shareholder acquires a right to participate in the profit of the company but he does not acquire any right or interest in the assets of the company. It has been held that by investing money in the purchase of shares the shareholder does not get any right to property of the company though he acquires a right in the profits if and when the company decides to divide it. Even though the shareholder of the company have the sole determining voice in administering the affairs of the company and are entitled to as provided in the Articles of Association to declare the dividends and distribute the profits of the company but their right individually or collectively is nothing more than participating in the profits of the company, it is held that the company is a juristic person and is distinct from the shareholders. In fact, it is the company which owns the property and not the shareholder. The judgment further goes to say that there is nothing in the Indian Law to warrant the assumption that the shareholder who by his share buys any interest in the property of the company which is a juristic person entirely different from the shareholder. This in fact is the law laid down by the Constitution Bench of the Supreme Court in the aforesaid case.
- It was vehemently argued by Dr. Singhvi that once this is the accepted legal position that is culled out on a perusal of the law laid down by the Constitution Bench, then by no stretch of imagination can it be argued that on transfer of shares of AJL to Young India Ltd., there is transfer of ownership or lease or property as contemplated in clause 13(3) of the lease in question. By referring to the judgment in the case of Monsanto Manufacturers (supra) and the terms and conditions of the lease deed which prohibited transfer in the said case and by comparing it to clause XIII(3) of the lease deed in question, we were told that in the absence of there being any specific prohibition permitting transfer of ownership of shares or change in the Article of Memorandum, the finding recorded with regard to transfer of ownership of the property recorded by the learned writ Court and the competent authority is unsustainable. The principles laid down in judgment of the Supreme Court in M/s K.G. Electronics (supra) and by this Court in DDA v. Human Care Medical Charitable Trustwere also relied upon to canvass this contention.
- On a consideration of the argument as canvassed by Dr. Singhvi, at the first instance, the same looks very attractive and the findings recorded may look to be unsustainable and perverse, however, it is an equally settled principle of law that in public interest and for assessing the actual nature of a transaction or the modus operandi employed in carrying out a particular transaction, the theory of lifting of the corporate veil is permissible and a Court can always apply this doctrine to see as to what is the actual nature of transaction that has taken place, its purpose and then determine the question before it after evaluating the transaction or the modus operandi employed in the backdrop of public interest or interest of revenue to the State etc. The theory and doctrine of lifting of corporate veil had been considered by the Supreme Court in the case of Gotan Lime Stone (Supra) and in the said case, judgments in the case of Vodafone (supra) and Skipper Construction (supra) etc. have been taken note of and in para 30, specific reference has been made to the Constitution Bench judgment in the case of Bacha F. Guzdar (supra). After referring to most of the judgments including the judgment in the case of Bacha F. Guzdar (supra) relied upon by Dr.Singhvi is referred to and finally the consideration to be made is culled out in para 19 of the judgment in the following manner:
“19. As already stated, the question for consideration is whether in the given fact situation the transfer of entire shareholding and change of all the Directors of a newly formed company to which lease rights were transferred by a declaration that it was mere change of form of partnership business without any transfer for consideration being involved can be taken as unauthorised transfer of lease which could be declared void.”
- Thereafter, the learned Court proceeds to discuss various issues and takes note of the fact that the transaction in fact technically does not sell the lease right but only shares are transferred and in para 24, it has been held that the principle of lifting of corporate veil as an exception to the distinct corporate personality of a company and its member is recognized not only to unravel tax evasion but also to protect public interest which is of paramount importance and to prevent a corporate entity in attempting to evade legal obligation. It has been held by the Hon’ble Supreme Court after relying upon an earlier judgment in the case of Workmen vs. Associated Rubber Industries, (1985) 4 SCC 114 that this doctrine is employed to prevent device and to avoid welfare legislation. After observing so, various judgments of this Court including Skipper Construction (supra) and the judgment of the House of Lords in the case of Salomon v. Salomon, 1897 AC 22 is taken note of and the cardinal principle laid down in the case of Salmon v. Salmon (supra) with regard to the company being a different person altogether from its subscribers is taken note of and it is observed that since after the judgment of Salmon (supra) the Courts have recognized several exceptions to the rule laid down in Salmon (supra) and one of the relevant exception is that when a corporate personality is being blatantly used as a cloak for fraud or improper conduct or where the protection of public interest is of paramount importance or where the company has been formed to evade obligation imposed under the law, the theory which has been described by certain jurists as peeping behind the corporate veil is employed and in para 27 and 29, the Hon’ble Supreme Court goes to determine the doctrine in the following manner:
“27. It is thus clear that the doctrine of lifting the veil can be invoked if the public interest so requires or if there is allegation of violation of law by using the device of a corporate entity. In the present case, the corporate entity has been used to conceal the real transaction of transfer of mining lease to a third party for consideration without statutory consent by terming it as two separate transactions–the first of transforming a partnership into a company and the second of sale of entire shareholding to another company. The real transaction is sale of mining lease which is not legally permitted. Thus, the doctrine of lifting the veil has to be applied to give effect to law which is sought to be circumvented.
- It is also well settled that mining rights are vested in the State and the lessee is strictly bound by the terms of the lease. [Orissa Mining Corpn. Ltd. v. Ministry of Environment and Forests(2013) 6 SCC 476, para 58;State of T.N. v. Hind Stone, (1981) 2 SCC 205, para 1;Monnet Ispat& Energy Ltd. v. Union of India, (2012) 11 SCC 1, para 41; AmritlalNathubhai Shah v. Union of India, (1976) 4 SCC 108; Geomin Minerals & Mktg. (P) Ltd. v. State of Orissa, (2013) 7 SCC
- Ed.: See also Thressiamma Jacob v. Deptt. of Mining & Geology, (2013) 9 SCC 725 : (2013) 4 SCC (Civ) 559.]Cases of Arun Kumar Agrawal v. Union of India [Arun Kumar Agrawalv. Union of India, (2013) 7 SCC 1] (Vedanta case), Balco Employees’ Union v. Union of India [Balco Employees’ Union v. Union of India, (2002) 2 SCC 333] (Balco case) and Vodafone International Holdings BV v. Union of India[Vodafone International Holdings BV v. Union of India, (2012) 6 SCC 613 : (2012) 3 SCC (Civ) 867] cited by the learned counsel for the respondent have no application to the present case once real transaction is found to be different from the apparent transactions. In fact, the principle of law laid down in Vodafone case [Vodafone International Holdings BV v. Union of India, (2012) 6 SCC 613 : (2012) 3 SCC (Civ) 867] that the court can look to the real transaction goes against the respondent.”
- Finally in para 31, it is held by the Hon’ble Supreme Court that while discerning the true nature of the entire transaction, the Court is not to merely see the form of the transaction which is of sale of shares but also the substance which is the private sale of a mining right avoiding legal bar against transfer of sale rights. In fact, the learned Court deals with the issue in para 31 in the following manner:
“31. ….Thus, while discerning the true nature of the entire transaction, the court has not to merely see the form of the transaction which is of sale of shares but also the substance which is the private sale of mining rights avoiding legal bar against transfer of sale rights circumventing the mandatory consent of the competent authority. Consent of competent authority is not a formality and transfer without consent is void. The minerals vest in the State and mining lease can be operated strictly within the statutory framework. There is nothing to rebut the allegation that receipt of Rs 160 crores styled as investment in shares is nothing but sale price of the lease. No precedent has been shown permitting such a private sale of a mining lease for consideration without any corresponding benefit to the public.”
- If we consider the transaction in the present case in the backdrop of the aforesaid principles laid down by the Hon’ble Supreme Court, we have no hesitation in holding that the purpose for which the doctrine of lifting of the veil is applied is nothing but a principle followed to ensure that a corporate character or personality is not misused as a device to conduct something which is improper and not permissible in law, fraudulent in nature and goes against public interest and is employed to evade obligations imposed in law. If that is the purpose for which the doctrine of lifting of the veil is to be employed and if we see the transaction that has taken place in the present case with regard to how the transfer of shares between AJL and Young India took place, we find that within a period of about three months, that is, between 23rd November, 2010 to 26th February, 2011, Young India was constituted. It took over the right to recover a loan of more than 90 Crores from All India Congress Committee for a consideration of Rs.50 Lakhs, thereafter replaced the original shareholders of Young India by four new entities including Sh. MotiLal Vohra, Chairman of AJL and Young India after acquiring 99% of shares in AJL, became the main shareholder with four of its shareholders acquiring the administrative right to administer property of more than 400 Crores. Even though Dr. Singhvi had argued that there is nothing wrong in such a transaction and it is legally permissible, but if we take note of the principles and the doctrine for which the theory of lifting of the corporate veil has received legal recognition, we have no hesitation in holding that the entire transaction of transferring the shares of AJL to Young India was nothing but, as held by the learned writ Court, a clandestine and surreptitious transfer of the lucrative interest in the premises to Young India. In fact, the contention of Dr. Singhvi has to be rejected and rightly so was rejected by the Single Judge even though without applying the principle of lifting of the corporate veil. In case the theory of lifting of the corporate veil, as discussed hereinabove, is applied and the transaction viewed by analyzing as to what was the purpose for such a transaction, the so called innocent or legal and permissible transaction as canvassed before us, in our considered view, is not so simple or straight forward as put before us, but it only indicates the dishonest and fraudulent design behind such a transaction as laid down in various judgments referred to not only in the case of Gotan Lime Stone Khanij Udyog (P) Ltd. (supra) but also in the case of Union Territory of Estate Officer, UT, Chandigarh vs. S.C. Information Technologies, (2016) 12 SCC 582, Skipper Construction (supra), wherein also the theory has been applied after considering the principle laid down in Salomon (supra) and in para 28, in the case of Skipper Construction (supra), the law has been crystallized in the following manner:
“28. The concept of corporate entity was evolved to encourage and promote trade and commerce but not to commit illegalities or to defraud people. Where, therefore, the corporate character is employed for the purpose of committing illegality or for defrauding others, the court would ignore the corporate character and will look at the reality behind the corporate veil so as to enable it to pass appropriate orders to do justice between the parties concerned. The fact that Tejwant Singh and members of his family have created several corporate bodies does not prevent this Court from treating all of them as one entity belonging to and controlled by Tejwant Singh and family if it is found that these corporate bodies are merely cloaks behind which lurks Tejwant Singh and/or members of his family and that the device of incorporation was really a ploy adopted for committing illegalities and/or to defraud people.”
- Apart from the aforesaid judgments, there are various other judgments which have been brought to our notice wherein the said theory of lifting of the corporate veil has been approved and we have no hesitation in holding that the transfer in question, if analyzed in the backdrop of the principles as discussed hereinabove, we see no error in the findings recorded by the learned writ Court to hold that the transfer in question comes within the prohibited category under clause XIII (3) of the lease agreement.”
[Emphasis in bold is ours]
112 The Hon’ble High Court have further held that the breach was continuing right from the year 2008 till commencement of digital publication on 14.11.2016 and went on to hold that the court has no hesitation in holding that the breach of there being no publication activity or paper publication for a long period stands established. This would come within the purview of the breach of terms and conditions of the license. Their Lordships have held that admittedly printing activities and publication of newspapers was not carried out in the premises when the inspection took place initially on 26.09.2016 and not even when second inspection took place on 09.10.2018. Regarding transfer of shares/property from AJL to YI and the manner in which entire transaction was done has been frowned upon by the Hon’ble Court as a clandestine and surreptitious transfer of the lucrative interest in the premises to Young India. After applying the principle of lifting of the corporate veil, their Lordships have held that “the transaction viewed by analyzing as to what was the purpose for such a transaction, the so called innocent or legal and permissible transaction as canvassed before us, in our considered view, is not so simple or straight forward as put before us, but it only indicates the dishonest and fraudulent design behind such a transaction…… ”.
113 The sequitur of the findings and observations of Hon’ble High Court in the case of AJL clearly clinches the issue in hand wherein the court has taken note of identical facts as discussed here in this order and have categorically held that;
> The share holding pattern of both the companies, i.e., AJL & YI and the manner in which the transaction has taken place, principle of lifting of corporate veil is clearly applicable;
> Their Lordships have narrated the entire factum of advancing of loan of Rs. 90 crores by AICC to AJL and the manner in which it has been assigned to YI for a meager sum of Rs. 50 lakhs, brings the entire transaction within the ambit of some kind of colourable device because YI had acquired beneficial interest on AJL’s properties which have been valued for more that 400 crores on a meager payment of Rs. 50 lakhs to AICC. It has been further observed that modus operandi is nothing but a device to transfer the property held on lease from the Government to AJL to YI, which became almost 100% shareholder of AJL.
> Their Lordships have also considered the judgment of Hon’ble Supreme Court in the case of Bacha F. Guzdar (supra) which has been strongly relied by the assessee before us and held that though the principle laid down by the constitutional Bench of Hon’ble Supreme Court cannot be in dispute and it is an accepted principle of law, however, in the public interest and for assessing the actual nature of transaction or modus operandi employed in carrying out a particular transaction, the theory of lifting of the corporate veil is permissible and the court can always apply this doctrine to see as to what is the actual nature of transaction that has taken place, its purpose and then determine the question before it after evaluating the transaction or the modus operandi employed in the backdrop of public interest or interest of revenue to the State. The principle of lifting of corporate veil is an exception to the corporate personality of a company, but can be resorted to unravel tax evasion to public interest, which is of paramount interest to prevent a corporate entity in attempting to evade legal obligation. If a corporate personality is being blatantly used as a cloak for fraud or improper conduct or where the protection of public interest is undermined and the company has been formed to evade imposition of revenue under law, the principle of lifting of corporate veil is justified to be applied.
> In para 65 of the judgment, it has been clearly held that the transaction which has taken place and the manner there has been transfer of shares between the AJL and YI between the period of three months starting from 23.11.2010 to 26.02.2011 itself shows that the entire transaction of transferring the shares to YI was nothing but a clandestine and surreptitious transfer of lucrative interest to the premise of YI. The Hon. court has come down very heavily in stating that the entire transaction is not only dishonest, but also fraudulent design.
114 The aforesaid observations and findings of the Hon’ble jurisdictional High Court clearly have a binding precedence because not only it proves that the conduct of the assessee company right from the incorporation of YI till the application for registration u/s. 12AA before the DIT (E), was not to carry out any charitable activity, but to acquire huge assets of hundreds crores of Rs for a negligible amount. Seeking a status of charitable institution and to get registered under welfare legislation like section 12A/12AA, with such kind of conduct clearly indicates that it is a misuse of law and some kind of colourable device. This is perpetuated by the fact that all these transactions were completely hidden from the Income-tax Department and DIT (E) while seeking the registration u/s. 12AA. If all these things are put in perspective, then the contention of the ld. Special Counsel and ld. CIT (E) is to be believed that it is only when the Investigation Wing and Income-tax Department started making certain investigation and enquiries and also looking to the fact that no genuine activity was carried out for the period of five years, the assessee may have been prompted to surrender its registration u/s. 12AA.
115 There is another angle which ponders us is that, if no activities were carried out by YI towards charitable activity between the period 2011 to 2016, then why so much of clamour that assessee should be recognized as charitable institution qua that period only should have the benefit of registration u/s. 12AA for this period of five years, i.e., from the assessment year 2011-12 to A.Y. 2016-17 and post 21st March 2016, the assessee itself chose to surrender its registration and willingly give up its charity status under the Income Tax Act. If both YI and AJL are non-profitable company, then why such a dispute on cancellation from retrospective date.
116 Before us, the ld. counsel had very strongly objected to refer and rely upon the judgments of Hon’ble Delhi High Court as cited (supra) on the ground that, Hon’ble Supreme Court in SLP No.7345/2019 had stayed the further proceedings pursuant to the High Court order vide order dated 05.04.2019. The relevant directions of the Hon’ble Supreme Court read as under:
“There shall be stay of the further proceedings pursuant to High Court’s order.”
Not only that, it has been strongly contended that once the operation of the order has been stayed then either the said judgment should not be taken into cognizance or the matter should be adjourned sine dine till the matter stands decided by the Hon’ble Apex Court. We are unable to accept such a plea raised by the ld. counsel for the assessee for the reason that firstly, the Hon’ble Supreme Court had stayed further proceedings pursuant to High Court’s order, which was Eviction of the property situated at 5A, Bahadur Shah Zafar Marg leased to AJL. Thus, in our opinion, what have been stayed are any further proceedings pursuant to the order of Hon’ble High Court and not the entire finding arrived at by the Hon’ble Court. It is a settled principle of law reiterated by Hon’ble Supreme Court in the case of Shree Chamundi Mopeds Ltd. vs. Church of South India Trust Association CSI Cinod Secretariat, Madras (1992) 3 SCC 1, that distinction has to be made between quashing of order and stay of operation of order because quashing of order results in restoration of position as it stood on the date of passing of the order whereas the stay of operation only means that it would not be operative on the date of passing of the stay order, but it does not mean that the said order has been wiped out from existence. The relevant observations read as under:
“10. In the instant case, the proceedings before the Board under ss. 15 and 16 of the Act had been terminated by order of the Board dated April 26, 1990 whereby the Board, upon consideration of the facts and material before it, found that the appellant-company had become economically and commercially non-viable due to its huge accumulated losses and liabilities and should be wound up. The appeal filed by the appellant-company under Section 25 of the Act against said order dated January 7, 1991. As a result of these orders, no proceedings under the Act was pending either before the Board or before the Appellate Authority on February 21, 1991 when the Delhi High Court passed the interim order staying the operation of the Appellate Authority dated January 7, 1991. The said stay order of the High Court cannot have the effect of reviving the proceedings which had been disposed of by the Appellate Authority by its order dated January 7, 1991. While considering the effect of an interim order staying the operation of the order under challenge, a distinction has to be made between quashing of an order and stay of operation of an order Quashing of an order results in the restoration of the position as it stood on the date of the passing of the order which has been quashed. The stay of operation of an order does not, however, lead to such a result. It only means that the order which has been stayed would not be operative from the date of the passing of the stay order and it does not mean that the said order has been wiped out from existence. This means that if an order passed by the Appellate Authority is quashed and the matter is remanded, the result would be that the appeal which had been disposed of by the said order of the Appellate Authority would be restored and it can be said to be pending before the Appellate Authority after the quashing of the order of the Appellate Authority. The same cannot be said with regard to an order staying the operation of the order of the Appellate Authority because in spite of the said order, the order of the Appellate Authority continues to exist in law so long as it exists, it cannot be said that the appeal which has been disposed of by the said order has not been disposed of and is still pending. We are, therefore, of the opinion that the passing of the interim order dated February 21, 1991 by the Delhi High Court staying the operation of the order of the Appellate Authority dated January 7, 1991 does not have the effect of reviving the appeal which had been dismissed by the Appellate Authority by its order dated January 7, 1991 and it cannot be said that after February 21, 1991, the said appeal stood revived and was pending before the Appellate Authority. In that view of the matter, it cannot be said that any proceedings under the Act were pending before the Board or the Appellate Authority on the date of the passing of the order dated August 14, 1991 by the learned Single Judge of the Karnataka High Court for winding up of the company or on November 6, 1991 when the Division Bench passed the order dismissing O.S.A. No. 16 of 1991 filed by the appellant-company against the order of the learned Single Judge dated August 14, 1991. Section 22(1) of the Act could not, therefore, be invoked and there was no impediment in the High Court dealing with the winding up petition filed by the respondents. This is the only question that has been canvassed in Civil Appeal No. 126 to 1992, directed against the order for winding up of the appellant-company. The said appeal, therefore, fails and is liable to be dismissed.”
[Emphasis in bold is ours]
117 Thus, it has been clearly held that staying the operation of the order of the Court does not mean that the said order does not exist in law. Hon’ble Bombay High Court in Nilkamal Limited vs. Union Territory of Dadar & Nagar Haveli, in criminal writ petition No. 3794 of 2014, after referring to various judgments including that of Shree Chamundi Mopeds Ltd. (supra) held that even if a decision of the High Court is stayed by the Apex Court, the subordinate courts are bound by the same unless the decision is set aside by the Apex Court. Accordingly, the High Court directed the Magistrate to follow the judgment of High Court unless and until it is set aside by the Hon’ble Apex Court.
118 In view of the aforesaid law, the contention raised by the ld. counsel is hereby rejected. Even otherwise, also here it is not the case that the order of the Hon’ble High Court has become non-operative, albeit the consequences of eviction pursuant to the directions of Hon’ble High Court, has been stayed and not the order. The ld. counsel has also relied upon the judgment of Delhi High Court in the case of Bhushan Steel (supra) and of Calcutta High Court in the case Exide Industries Ltd. (supra) where the order has been stayed by Hon’ble Supreme Court, and in Subsequent judgment, Hon’ble Delhi High Court has not followed the said order. Such a plea and reference does not come to aid for the reason that in the judgment of Delhi High Court (Bhushan Steel) it has been held that the Sales Tax Subsidy is the Revenue receipt and the Hon’ble Supreme Court had admitted the SLP and the entire order was stayed. Here situation and direction are not similar. Further the judgment of Hon’ble Calcutta High Court in Exide Industries Ltd.(supra), wherein the provisions of section 43B(f) was declared unconstitutional where also SLP was filed before the Hon’ble Supreme Court the entire operation of the order was stayed. In any case, once the jurisdictional High Court has passed the judgment which has not been set aside or reversed by Hon’ble Supreme Court, then for lower courts within its jurisdiction constitutes a binding precedence specifically when the judgment has been rendered on similar facts and transaction as held by the Hon’ble Supreme Court in the case of Shree Chamundi Mopeds Ltd. (supra), wherein Hon’ble Supreme Court has clearly held that the order of the Appellate Authority where the operation has been stayed continue to exist in law. We are clearly bound by the observations and findings of the Hon’ble jurisdictional High court.
119 Lastly, in so far as filing of second set of additional evidences at the time of rejoinder made by the ld. counsel for the assessee, the assessee has filed various documents which are listed hereunder:
ADDITIONAL EVIDENCE PAPER BOOK – II
|Description of document||Page Nos.|
|1.||Application filed with the Registrar of Companies for license u/s. 25 of the||387-436|
|2.||Companies Act, 1956 Printed Booklet containing copy of the printed MoA and AoA along with the incorporation certificate and other||437-467|
|3.||relevant documents Assignment Agreement dated 28.12.2010||468-474|
|4.||Assessment Order of AJL for AY 2011- 12||475-481|
|5.||Order of the Election Commission of Income dated 06.11.2012 in relation to loan given AICC to AJL and its||482-485|
|6.||assignment Relevant Extract of Annual accounts of RPG Life science Ltd. for Financial Year 2010 11||486-489|
|7.||Relevant Extract of Annual accounts of CEAT Ltd. for Financial Year 2010-11||490-493|
|8.||Relevant Extract of Annual accounts of CESC Limited for Financial Year 2010 11||494-497|
|9.||AJL Form – 23 submitted to ROC on 29 September 2011 along with acknowledgement and SRN issued by||498-502|
|10.||MCA for amending MOA in 2011 Notice of EGM published in English and Hindi Newspaper for changing MOA for incorporating not for profit||503-504|
|11.||c auses in MOA in 2016
AJL Form – MGT 14 submitted to ROC
along with amended MOA along with acknowledgement and SRN issued by MCA for amending MOA as passed by
|12.||Shareholders in 2016 Email dated 25.02.2016 received from MCA after filing the AJL Form – MGT 14 in 2016||511|
|13.||Form – MGT 14 was resubmitted along with esponse of AJL dated 10.03.2016 to Email dated 25.02.2016 received from MCA||512-519|
|14.||Proof that said response of AJL dated 10.03.2016 also send through courier, registered post and speed post to MCA||520-522|
|15.||Application dated 15.10.2012 for Registration for establishment Employing Contractor Labour for||523-525|
|16.||Construction of Panchkula B
Regisration Certificate dated31.10.2012 issued by Dy. Labour Commissioner, Ambala in respect of Employing Contractor Labour for
|17.||Construction of Panchkula Building Relevant Extract of Approved Building plan for Panchkula Building dated 26.11.2012||529-532|
|18.||Relevant Extract of Approved Building plan for Mumbai Building dated 3.11.2016||533-538|
|19.||Relevant extract of minutes of the Board of Directors of AJL held on February 22, 2013 wherein it was noted that the publication of National Herald would be considered on web-site.||539|
|20.||Invoice of purchase of internet / web domain name “www.nationalherald.com” by AJL on September 12, 2014||540|
|21.||Relevant extract of minutes of the Board of Directors of AJL held on February 24, 2016 wherein it was noted that the rough estimates of monthly expenditure||541|
|22.||for publishing the news papers Relevant extract of minutes of the Board of Directors of AJL held on June 28, 2016 discussing that the newspaper||542|
|23.||business shall be resumed at the On July 10, 2016, Zee Nws writes a report titled “Eight years after it was shut down, Congress re launch National||543-544|
|24.||Herald news paper”
Resoution passed in the meeting of Board of Directors of AJL held on September 26, 2016 to the newspaper
|25.||business shall be resumed Breach Notice dated 10.10.2016 issued by LDO||547-548|
|26.||Letter dated 07.04.2018 AJL letter to LDO stating that the breaches mentioned in 10.10.2016 breach notice||549-565|
|27.||were rectified Show Cause Notice dated June 18, 2018 issued by LDO alleging for the first time that no printing activity was being carrying out in that premises.||566-567|
|28.||List of Articles publishd under Young India Tab on www.NationalHeraldlndia.com alongwith breakup of Articles written by NH||568|
|29.||Reporters, Editors and Other Authors
Report of Google Analytics showing
outreach to Youth by Online News
portals operated by AJL up to 21.09.2019
|30.||Ranking of AJL’s online News portals as per Alexa, an amazon.com company||570|
|31.||Letter dated 21.07.2014 written to DDIT, Unit 4(3), New Delhi complaining about leakage of the information to media and carrying a witch hunt||571-576|
|32.||Letter dated 05.08.2014 written to DDIT, Unit 4(3), New Delhi stating that all the documents sought are already available in the public domain||577-579|
|33.||Letters written to Chairman, CBDT in December 2017, January 2018 and July 2018 pointing out various violations u/s. 138 of the Act in the Appellant’s case and requesting to take necessary actions||580-592|
|34.||Classification of AJL as a Newspaper Company by ROC as per its CIN Numbers_______________||593-600|
120 Most of these documents, though submitted at the rejoinder stage, are in nature of clarifications to the submissions made by the ld. DR and the letters written to DDIT in 2014 and certain notices issued by LDO, but none of the documents filed impinge upon our finding in any manner as given above, because none of these documents prove that acquisition of AJL by the assessee company was for carrying out any charitable activities in pursuance of its objects nor any such activity was carried during the relevant period. Accordingly, these additional evidences, as filed by the assessee, though are taken on record, but we do not deem fit to adjudicate on each and every document for the reasons given in the foregoing paragraphs.
121 One of the key contentions raised by the ld. counsel before us is that the ld. CIT(E) does not have the power to cancel the registration from retrospective date and any such cancellation can only be prospective, i.e., from the date of passing of the order and in support of which certain decisions have also been relied upon. From a bare reading of Section 12AA (3) it is seen that, section provides that where a trust or an institution has been granted registration and if subsequently, Pr. CIT or CIT is satisfied that the activities of the trust are not genuine or are not carried out in accordance with the objects of the trust, he may cancel the registration by way of an order in writing. Consequently, if there is violation of any such conditions, then the registration so granted can be cancelled by the CIT. Nowhere, the Statute envisages that the cancellation cannot be retrospective or it has to be necessarily prospective. What it provides that the Commissioner has statutory powers to cancel the registration u/s. 12A/12AA if he finds reason to believe that the activities of the assessee are not in line with its objects or the activities carried out by the assessee are not genuine in nature. If from the date when registration has been granted, the assessee has not carried out any activity in line with its objects or the activities carried out are not genuine, then from that date itself, the registration can be cancelled because it is only when the knowledge of such breach come to the notice of the Commissioner, then he has the power to cancel the registration from the date he notices the infringement. The cancellation of registration, whether with retrospective effect or prospective, depends upon the facts and circumstances of the case and the Commissioner has power to cancel the registration from the time when such breach has occurred. Suppose, if the assessee after grant of registration carries out its activities in accordance with its objects and the activities are also genuine then the assessee is entitled for benefits of section 12AA; and if from a particular period or year, the activities are found to be either non-genuine or not carried out in accordance with its stated objects, then the Commissioner can cancel the registration from the date or period when such non genuineness is found. Hon’ble Madras High Court in the case of Prathyusha Educational Trust (supra) have clearly reiterated this proposition, relevant text of which has been already incorporated above, wherein their Lordships have held that it a misnomer to sate that the order is retrospective or retroactive and the order of the cancellation of registration even passed on subsequent date would take effect from the year when cause of action arose.
122 Here, in this case, as we have gathered from the material facts on record and discussed in detail, the assessee at the time of seeking registration itself has concealed the material facts and not disclosed the entire events of transactions which had undergone from the date of inception of assessee company till the grant of registration and one of the conditions on which the registration has been granted stood violated from the day one and therefore, under these circumstances, the ld. CIT(E) was fully justified in law and on facts in cancelling the registration from the date of granting of registration itself, i.e., from the assessment year 2011-12. Secondly, here in this case it has been found that even after grant of registration u/s. 12AA, no genuine activities have been carried out by the assessee either in furtherance of its objects or otherwise, which can be held to be for charitable purpose because one of the so called purpose of acquiring AJL was not carried out at all. Otherwise, also, we have already discussed and given our categorical findings that till the grant of registration and surrender made by the assessee, no worthwhile activities were carried out by AJL. In fact, what it turns out to be is that, the assessee has acquired AJL, a company that owns property worth hundreds of crores from which the AJL had been enjoying only rental income. Clearly, AJL, which had been earning rental income, cannot be held that its activities were aligned with the objects of the assessee company or through AJL; it was carrying out activities in pursuance of its objects qua that period. Hence, in that sense, the assessee’s activities cannot be held to be genuine. Thus, the cancellation of registration u/s 12AA by the Ld. CIT (E) from A.Y. 2011-12 is upheld.
123 Though we have tried to note down various arguments placed by the parties and the judgments relied upon and have also dealt with all the core arguments, but some of the contentions and submissions made are not being dealt with, as we do not find them to be relevant on the facts and circumstances and also in view of our detail discussion and findings given above.
124 Accordingly, in view of our findings given above, we hold that the ld. CIT (E) was justified in cancelling the registration from the assessment year 2011-12, because none of the activities of the assessee was carried out in accordance with its objects nor its activities can be held to be genuine. Consequently, the appeal of the assessee is dismissed.
125 In the result, the appeal is dismissed.