2005 (7) TMI 668 - AT - Income Tax

ITAT Rules Assessees Qualify as Charitable Institutions, Orders Registration Under Income-tax Act Section 12AA.

U.P. AWAS EVAM VIKAS PARISHAD Versus INCOME-TAX OFFICER (TECH.), LUCKNOW

The ITAT determined that the assessees' activities were genuine and aligned with public utility objectives, thus qualifying as charitable institutions ... Denial of application filled for registration u/s 12AA - charitable institution - object of executing housing and improvement schemes - activities of the authority are not charitable in nature within the meaning of section 2(15) of the Act - HELD THAT:- From the perusal of the objects of the Parishad, we find that the objects of the Parishad were to frame and execute the housing and improvement schemes and other projects: to plan and coordinate various housing activities in the State and to ensure expeditious and efficient implementation of housing and improvement schemes in the State. As regards the other Authorities before us. We have perused the UPUPD Act, 1973. Section 4 of the said Act provides that State Government may by notification in the Gazette constitute for the purposes of this Act, an Authority to be called the Development Authority for any development area. The Authorities before us have been constituted by the Government under this section. Section 7 of the said Act has also provided for the objects of these Authorities as mentioned. Needless to say that as per clause 4 of Land Acquisition Act. the land could be acquired only for public purposes. Section 57 of the said Act also provides that Authorities could make its bye-laws with the approval of the State Government. Section 58 provides that in case of dissolution of the Authority, all the properties, funds and dues which are vested in or realizable by the Authority, shall vest in or to be realizable by the State Government. Various sections of the said Act make it abundantly clear that the activities of the Authorities were aimed at public purposes and not personal one. We, therefore, have no hesitation in holding that the activities of the assessees before us are for enhancement of general public utility and the ld. CIT was not justified in relating registration u/s 12AA of the Act. From the perusal of various documents on record, there is no dispute that the activities of the assessees before us were genuine and object of the assessees was in consonance with its creation. Even on these two grounds, the ld. CIT was not justified in refusing registration u/s 12A of the Act. The ld. CIT could not take shelter of any other outer source for refusing registration u/s 12A of the Act. In the present appeals. CIT has not brought any material nor recorded any finding to hold that activities of assessees were not genuine. In our opinion, it is not easy, in case of statutory body, like, market board or market committee controlled by Governments to hold, that activities of such bodies are not genuine. We are, therefore, unable to agree that these cases were not fit cases for recording satisfaction as required u/s 12AA of the by Income-tax Act. About object of the institutions, we have already held that those are genuine and are of charitable nature. Some other objections have been raised by the Revenue in the impugned orders and during the course of arguments before us like the committees and boards being managed by public servants, collection of fines by committees, no voluntary contribution by outsiders etc. We do not find any substance in these objections. At the stage of registration, the learned Commissioner has only to record his satisfaction about the genuineness of activities of the institution and its charitable purposes. The above conditions are not shown to be not satisfied in these cases. We, therefore, do not see any hurdle in their claim relating to Registration u/s 12AA. Thus, we are of the view that the assessees are entitled to registration under section 12AA of the Act. We therefore, direct, the ld. CIT to register all the authorities in appeal before us u/s 12AA of the Act. In the result, all the appeals directed by the assessees are allowed. Issues Involved:1. Refusal to register the assessees under section 12AA of the Income-tax Act.2. Examination of the genuineness of activities and objects of the assessees.3. Interpretation of 'charitable purposes' under section 2(15) of the Act.4. Impact of the deletion of section 10(20A) from the Income-tax Act.5. Applicability of section 36(1)(xii) of the Income-tax Act.Detailed Analysis:1. Refusal to Register the Assessees under Section 12AA of the Income-tax Act:The assessees, including various development authorities, filed appeals against the orders of the CIT refusing to register them under section 12AA of the Act. The CIT rejected the applications on technical grounds, such as incomplete filing of accounts and non-compliance with prescribed formats. Additionally, the CIT examined the merits and concluded that the activities of the authorities were predominantly commercial and not charitable.2. Examination of the Genuineness of Activities and Objects of the Assessees:The CIT scrutinized the activities and objects of the assessees, highlighting that they were created by legislative acts for housing and urban development. Despite the authorities' claims of public utility, the CIT observed discrepancies in accounting practices and questioned the genuineness of their charitable nature. The CIT emphasized that the authorities operated on commercial lines, similar to private developers, and did not satisfy the conditions for charitable institutions under section 2(15) of the Act.3. Interpretation of 'Charitable Purposes' under Section 2(15) of the Act:The assessees argued that their activities fell under 'advancement of any other object of general public utility,' a component of 'charitable purposes' as defined in section 2(15). They claimed that their development projects served public purposes, such as providing housing and urban amenities. The Tribunal referred to Supreme Court rulings, which stated that an object beneficial to a section of the public qualifies as an object of general public utility, and the primary purpose must be charitable, even if incidental profits arise.4. Impact of the Deletion of Section 10(20A) from the Income-tax Act:Section 10(20A), which exempted the income of housing and development authorities, was deleted effective from 1-4-2003. The assessees sought registration under section 12AA to claim exemption under sections 11 and 12. The Tribunal noted that the Finance Minister had advised that such authorities could claim benefits under section 11, and the deletion of section 10(20A) did not preclude them from seeking exemption under other provisions.5. Applicability of Section 36(1)(xii) of the Income-tax Act:The CIT argued that section 36(1)(xii), introduced to allow deductions for revenue expenditure by government corporations, was intended to address the deletion of section 10(20A). However, the Tribunal found that section 36(1)(xii) applied to business or professional income, which was not relevant to the assessees' activities. The Tribunal held that the authorities' activities aimed at public utility and were not commercial enterprises.Conclusion:The Tribunal concluded that the assessees' activities were genuine and aimed at public utility, qualifying them as charitable institutions under section 2(15) of the Act. The CIT's refusal to register the authorities under section 12AA was deemed unjustified. Consequently, the Tribunal directed the CIT to register all the authorities under section 12AA, allowing their appeals.