2010 (7) TMI 1175 - AT - Income Tax

Tribunal Affirms Denial of Registration; Activities Found Commercial, Not Charitable; CEO's Signature Issue Deemed Curable.

The Tribunal upheld the CIT's decision to reject the application for registration under section 12AA, concluding that the assessee's activities were ... Seeking grant of registration u/s 12AA - Validity of signing of application for grant of registration u/s 12A/12AA of the Act by the CEO - Qualify as charitable activities u/s 2(15) - Objects “for advancement of the objects of the general public utility Or Commercial Profit - Appellant Indore Development Authority (“IDA”) is a statutory authority established by the Government of MP in exercise of its powers conferred u/s 38(1) of the Madhya Pradesh Nagar Tatha Gram Nivesh Adhiniyam, 1973. HELD THAT:- In the present appeal, since the department accepted the returns/other documents, signed by the CEO, therefore, the department is not permitted to take a reverse stand on the application filed for getting registration u/s 12A/12AA. If the scheme of the Act of the IDA is analysed, the first part of the Act relates to appointment of Planning Authorities. Chapter two containing sec. 3 contemplates appointment of an officer to be a Director, Town & Country Development Planning and sec. 46 provides that every Town & Country Development Authority shall have a CEO who shall act as secretary of such authority. Since CEO is statutorily appointed secretary of IDA, he is a “Principal Officer”, the requirement of sec. 2(35) of the I.T. Act is fulfilled. Even otherwise, the department has assessed IDA as local authority except for exemption u/s 10(20) of the Act. The mode of making an application is prescribed in Rule 17A, according to which, an application for registration shall be made in Form 10A. Section 12A/12AA does not prescribe any mode of signing the application. Under these circumstances, one may refer to the provisions for signing of return enjoined u/s 140 of the Act. As mentioned earlier, the returns signed by the CEO were duly assessed and accepted by the department, therefore, for signing application u/s 12A/12AA by a person/authority who is competent to sign a return of such authority cannot be said to be invalid. Moreover, the Chairman of IDA has specifically authorized the CEO to take necessary/appropriate steps towards application for registration u/s 12A/12AA which would naturally include signing of prescribed form, therefore, the order of the ld. CIT dismissing the application as invalid, on this ground, is not justified. During hearing, an alternative plea was raised by the ld. Counsel for the assessee that for curable defect, if any, a duly signed application by the Chairman was filed by the assessee during the course of proceedings itself, therefore, the defect was cured and such application should have been treated as date back to the original application, therefore, this ground of the assessee is allowed. In our humble opinion , the assessee is not engaged in activities of relief to poor, education, medical relief and/or advancement of any other objects of general public utility as defined in sec. 2(15) of the Act. Rather the assessee is actually not carrying out any activity of advancement of objects of general public utility which can be considered to be “charitable” rather the primary object of the assessee is to earn profit only. In other words, the purpose of the assessee is not an advancement of object of general public utility rather the activities involve activity of profit, therefore, these cannot fall within the purview of sec. 2(15) rather the assessee is engaged in active business and there is no restriction in its objects of making profit. There is a possibility that at the time of creation of these authorities like the present assessee i.e. Indore Development Authority, Punjab Urban Development Authority, Jalandhar Urban Development Authority or like any other may be pious but ultimately, these authorities turned into a commercial organization with the sole intention to earn maximum profit even at the cost of poor farmers whose lands are acquired, for namesake considered to be backbone of this great country, are paid negligible amount as compensation and after incurring development cost, the same land is sold at commercial rates. Further, the profit motive of the assessee is not incidental to the objects of the assessee authority rather there is a systematic commercial activity with the intention to earn maximum profit. It is not the case that the assessee, after earning huge profit from such commercial activities, is spending such profit on charitable activities rather there is no obligation on the assessee to spend its earnings for charitable purposes. These authorities have become a great source of earning income in itself and the assessee authority is no exception to it. It is common knowledge/fact that the assessee authority is selling the developed plots on auction to the highest bidder and one such example is sale to Reliance near Sayaji Hotel as asserted by the learned CCIT DR which was not controverted by the assessee. Now a days because of this trend of auction, it has become very difficult for a common man to purchase a plot for shelter from the assessee authority. It is pertinent to mention here that the legislature in their wisdom amended sec. 2(15) through the Finance Act, 2008 in the case of Trade Association claiming both to be charitable institution and mutual organization by adding a proviso which states that “advancement of any other object of general public utility” shall not be a charitable purposes if it involves the carrying on of (a) any activity in the nature of trade, commerce or business or (b) any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of huge or application or retention or the income from such activity. By circular no.11 of 2008 dated 19.12.2008, it has been further clarified whether the assessee has for its object, “the advancement of any other objects of general public utility” is a question of fact. If such assessee engages in any activity in the nature of trade, commerce or business or render any service in relation to trade, commerce or business, it would not be entitled to claim that its objects are of charitable purposes. In such a case, the objects of “general public utility” will only be a “mask” or a device to hide the true purpose which is trade, commerce or business or the rendering of any service in relation to such trade, commerce or business. Each case would, therefore, be decided on its own facts and no generalization is possible, therefore, any misuse was intended to be removed by this circular. The very concept of “charity” denotes altruistic thought and action. It objects must necessarily be to benefit others rather than one’s self. The action which follows from charitable thinking is always directed as benefit to others. It is this direction of thought and efforts and not the result what is done in term of financially measurable gain which determines that it is charitable [quoted from Sole Trustee Lok Shikshan Trust vs. CIT [ 1975 (8) TMI 1 - SUPREME COURT]]. Since the main predominant object of the assessee is profit making, therefore, we find no infirmity in the impugned order in denying registration u/s 12A/12AA of the Act to the assessee. Thus, on this issue, we affirm the stand taken by the ld. first appellate authority. Finally, the appeal of the assessee is partly allowed. Issues Involved:1. Validity of application signed by CEO.2. Rejection of application for registration u/s 12AA.Issue 1: Validity of Application Signed by CEOThe main contention was whether the application for registration u/s 12A/12AA signed by the CEO of the assessee authority was valid. The assessee argued that the CEO, being the Principal Officer and Secretary of the IDA as per section 46 of the Madhya Pradesh Nagar Tatha Gram Nivesh Adhiniyam, 1973, was competent to sign the application. The CIT treated the application as invalid because it was not signed by the Chairman. The Tribunal concluded that the CEO, being the Principal Officer, was competent to sign the application, and any defect in signing was procedural and curable. The Tribunal cited various cases to support the view that procedural defects could be cured and related back to the original application date.Issue 2: Rejection of Application for Registration u/s 12AAThe Tribunal examined whether the activities of the IDA were in conformity with the objects 'for advancement of the objects of the general public utility' within the meaning of section 2(15) of the IT Act. The CIT rejected the application on the grounds that the IDA was a commercial organization with a profit motive. The assessee argued that its activities were for charitable purposes, including infrastructure development, rehabilitation of slums, and environmental preservation. The Tribunal analyzed the provisions of the Madhya Pradesh Nagar Tatha Gram Nivesh Adhiniyam, 1973, and concluded that the IDA's activities were predominantly commercial with a profit motive, and therefore, did not qualify for registration u/s 12AA. The Tribunal cited various judicial pronouncements to support its decision, emphasizing that the primary object of the assessee was profit-making, not charitable activities.Conclusion:The Tribunal upheld the CIT's decision to reject the application for registration u/s 12AA, stating that the IDA's activities were commercial and profit-oriented, not charitable. The appeal was partly allowed, affirming the denial of registration.