2014 (10) TMI 219 - AT - Income Tax

Appeal granted for Jaipur Development Authority's charitable status under Income Tax Act

Jaipur Development Authority Versus The CIT. -II, Jaipur

The Tribunal allowed the appeal and directed the Commissioner of Income Tax to grant registration to the Jaipur Development Authority, holding that its ... Withdrawal of registration of Trust – Activities charitable or not - scope of section 2(15) – The JDA was established in October, 1982 by JDA Act - Purpose of JDA is for planning, coordinating and supervising for proper, orderly and rapid development of the areas in Jaipur region, in which several government departments, local authorities and other organization are at present engaged within their own jurisdictions to provide also that such authority be enabled either itself or through other authority to formulate and execute plans, projects and schemes for the development of Jaipur region - housing, community facilities, civic amenities and other infrastructure are properly created for the population of Jaipur region in the prospective of 2001 AD or thereafter including the intermediate stage and to provide for matters connected with the purpose - The intention of the institution is not to earn profit but recover the cost of the establishment as well as other expenditure to implement the object of the JDA - The State Government also give the grant to it - The intention and manner of the assessee was not to earn profit. Held that:- the amendment made in Section 2(15) is effective from 2011-12 as clarified by the CBDT in its circular - in case where the predominant object of the activity is to carry out charitable purpose and not to earn profit, it does not lose its character of charitable purpose merely because some profit arises from such activities - money earned from business held under trust or otherwise, to feed the charity would not disentitle or negate the claim of engagement in charitable purpose defined u/s 2(15) of the Act - CBDT circular No. 11/2008 emphasized that 2008 amendment is only applicable to residual category, charitable entity when it carries on any activity in the nature of trade, commerce or business, on any activity and to determine whether such activity is commercial will be decided on its own facts and no generalization is possible. Keeping in view of the charitable activity test, it was held that business activity of the assessee is integral to its charitable purpose and question of requirement of separate books of account for the business activity seems redundant – Following the decision in M/s GS1 India Versus Director General of Income Tax (Exemption) And Another [2013 (10) TMI 19 - DELHI HIGH COURT] - proviso to Section 2(15) of the IT Act is to cover those, which under the garb of general public utility carry on business on commercial activities to escape the liability under the Act gaining exemption U/s 11 of the Act, the section applied on such type of trust or institution who get registration U/s 12A of the Act for claiming the exemption U/s 11 of the Act - assessee is a government agency and engaged in the coordinate and planned development of Jaipur region and which is predominant object of it - CIT also erred in applying the provisions of Section 293(c) of the Act, which applied withdrawal of approval granted under any provision of this Act, notwithstanding that a provision to withdraw such approval has not been specifically provided for in such provision - For cancellation of registration, the specific provision U/s 12AA is provided - CIT was no right to withdraw the registration of the appellant from AY 2009-10 – thus, the order of the CIT(A) is to be set aside and the Registration is granted to JDA – Decided in favour of assessee. Issues Involved:1. Withdrawal of registration of the Trust under Section 12AA of the Income Tax Act, 1961.2. Interpretation and application of Section 2(15) of the Income Tax Act, 1961, particularly the proviso regarding activities in the nature of trade, commerce, or business.3. Determination of whether the activities of the assessee are charitable or commercial in nature.Issue-wise Detailed Analysis:1. Withdrawal of Registration of the Trust under Section 12AA:The primary issue is the withdrawal of the Trust's registration under Section 12AA by the learned Commissioner of Income Tax (CIT). The CIT withdrew the registration on the grounds that the assessee's activities were in the nature of trade, commerce, or business and not charitable. The CIT argued that the activities of the Jaipur Development Authority (JDA) were not genuine and were not carried out in accordance with the objects of the institution. The CIT concluded that the JDA's main source of income was from the sale of plots and built-up properties, which were sold through open auctions to the highest bidder, indicating a commercial nature of activities.2. Interpretation and Application of Section 2(15):Section 2(15) defines 'charitable purpose' and includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility. However, the proviso to Section 2(15) states that the advancement of any other object of general public utility shall not be considered charitable if it involves carrying on any activity in the nature of trade, commerce, or business for a fee or any other consideration. The CIT argued that the JDA's activities fell under this proviso, as the JDA was engaged in activities similar to those of a builder or real estate developer, aiming to derive maximum price from the sale of properties through auctions.3. Determination of Charitable or Commercial Nature of Activities:The assessee argued that the JDA is a government authority established for the planned development of the Jaipur region, providing housing, community facilities, civil amenities, and other infrastructure. The assessee contended that the activities were carried out for the benefit of the public and not for profit. The revenue generated was utilized for public benefit, and the intention was not to earn profit but to recover costs. The assessee cited various case laws to support the argument that the activities were charitable and not commercial.Judgment and Analysis:The Tribunal considered the arguments and the material on record. It noted that the JDA was established for the planned development of the Jaipur region, providing essential services and infrastructure for public benefit. The Tribunal observed that the activities of the JDA were not carried out with a profit motive but to recover costs and provide public amenities. The Tribunal referred to various case laws, including the Hon'ble Allahabad High Court's decision in the case of Lucknow Development Authority, which held that mere selling of some products at a profit does not ipso facto hit the assessee by applying the proviso to Section 2(15) and deny exemption under Section 11.The Tribunal concluded that the CIT's application of Section 2(15) was not justified, as the activities of the JDA were predominantly charitable and aimed at public good. The Tribunal also noted that the CIT erred in applying Section 293(c) for withdrawing registration, as specific provisions for cancellation of registration are provided under Section 12AA. The Tribunal set aside the order of the CIT and directed to grant the registration to the JDA.Conclusion:The appeal of the assessee was allowed, and the Tribunal directed the CIT to grant the registration to the JDA, concluding that the activities of the JDA were charitable and not in the nature of trade, commerce, or business. The Tribunal emphasized the importance of the predominant object of the activity being charitable and not profit-oriented.