2015 (6) TMI 458 - AT - Income Tax

Assessee's Commercial Activities Deemed Non-Charitable. Appeal Dismissed.

A.P. Housing Board, Hyderabad Versus Director of Income Tax (Exemption), Hyderabad

A.P. Housing Board, Hyderabad Versus Director of Income Tax (Exemption), Hyderabad - TMI Issues Involved:1. Eligibility for registration under section 12A of the Income Tax Act.2. Nature of activities conducted by the assessee and whether they qualify as charitable.3. Comparison with private real estate developers/builders.4. Impact of previous exemption under section 10(20) on the current claim under section 12A.5. Analysis of relevant case laws and precedents.Detailed Analysis:1. Eligibility for Registration under Section 12A:The primary issue was whether the assessee, a statutory body constituted under the A.P. Housing Board Act, 1956, was eligible for registration under section 12A of the Income Tax Act. The assessee argued that it was engaged in charitable activities by providing housing facilities at concessional rates to different income groups, thus mitigating the housing problem of the general public. However, the DIT(E) rejected the application, stating that the activities of the assessee were commercial in nature and not charitable.2. Nature of Activities Conducted by the Assessee:The assessee was involved in constructing housing projects and selling them to prospective buyers, including Lower Income Group (LIG), Middle Income Group (MIG), and Higher Income Group (HIG). The DIT(E) noted that the assessee did not sell housing units at cost-to-cost basis but at a profit, although the profit margin was lower compared to private builders due to concessions from the government. The tribunal held that the activities were primarily commercial, with the predominant object being profit-making, which disqualified the assessee from being considered as engaged in charitable activities.3. Comparison with Private Real Estate Developers/Builders:The tribunal compared the activities of the assessee with those of private real estate developers/builders. It was observed that the assessee's activities were similar to those of private builders, except for the lower profit margin due to governmental concessions. The tribunal concluded that the activities of the assessee were commercial in nature and did not involve charity, as the housing units were not provided free of cost or on a cost-to-cost basis.4. Impact of Previous Exemption under Section 10(20) on the Current Claim under Section 12A:The DIT(E) initially held that since the assessee had earlier claimed exemption as a local authority under section 10(20), it could not now claim exemption under section 11 as a charitable institution. However, the tribunal disagreed with this reasoning, stating that there was no statutory bar preventing the assessee from seeking registration under section 12A, provided it fulfilled the conditions mentioned therein, including being created for charitable purposes.5. Analysis of Relevant Case Laws and Precedents:The tribunal considered various case laws cited by both parties. The DIT(E) relied on cases like Jalandhar Development Authority Vs. CIT and Punjab Urban Planning and Development Authority Vs. CIT, where similar authorities were denied registration under section 12A due to their commercial activities. The assessee cited cases where similar authorities were granted registration, such as Rajasthan Housing Board Vs. CIT and Maharashtra Housing and Area Development Authority Vs. ADIT(E). However, the tribunal found these cases factually distinguishable and upheld the DIT(E)'s decision, emphasizing that the assessee's activities were commercial with a profit motive.Conclusion:The tribunal concluded that the assessee's activities were commercial in nature and did not qualify as charitable. Therefore, the assessee was not eligible for registration under section 12A of the Income Tax Act. The appeal was dismissed, and the order of the DIT(E) was upheld.