2012 (11) TMI 1286 - AT - Income Tax

Local authority retains charitable status despite selling Government lands as agent, Tribunal directs re-examination of sales proceeds.

The Tribunal found that the assessee, a local authority registered as a charitable institution, did not lose its charitable character by engaging in the ... - Issues Involved:1. Validity of the assessment of sale proceeds received on sale of lands.2. Determination of the correct amount of sales proceeds pertaining to the relevant years.Summary:Issue 1: Validity of the assessment of sale proceeds received on sale of landsThe assessee, a local authority established under the Andhra Pradesh Urban Areas (Development) Act 1975 and registered as a charitable institution u/s 12AA of the Income Tax Act, filed returns declaring NIL income after claiming exemption u/s 11. The AO rejected the exemption claimed by the assessee u/s 11, invoking the proviso to sec. 2(15) of the Act, which states that the 'advancement of any other object of general public utility' shall not be a charitable purpose if it involves trade, commerce, or business activities. The AO concluded that the assessee was indulging in commercial activities, including the sale of Government lands through public auction, and thus lost its charitable character. The AO assessed the net sale proceeds as the income of the assessee after deducting related expenses, amounting to Rs. 1002.11 crores for AY 2008-09 and Rs. 49.07 crores for AY 2009-10.The assessee contended that it acted as an agent of the Government of Andhra Pradesh for the sale of lands and remitted the funds to the Government Account, arguing that the sale proceeds should not be considered its income. The AO, however, concluded that the Government had alienated the lands in favor of the assessee, making it the absolute owner, and thus the sale proceeds should be considered its own receipts.The Tribunal noted the categorization of lands into two categories as per GOMS No.1401 dated 02-11-2007: (i) Government lands to be sold by auction by the District Collector through VUDA, with proceeds remitted to the Government Account, and (ii) Government lands alienated in favor of VUDA for development of townships for resource mobilization. The Tribunal held that the sale proceeds from lands in Category (i) cannot be treated as the income of the assessee, as it acted as an agent. However, there was confusion regarding lands in Category (ii), as both parties presented plausible interpretations of the term 'resource mobilization.'The Tribunal emphasized the need to ascertain the intention of the Government in categorizing the lands and directed the AO to re-examine the issue, considering additional documents and explanations from the assessee. The AO was instructed to decide the issue in accordance with the law.Issue 2: Determination of the correct amount of sales proceeds pertaining to the relevant yearsThe Ld D.R admitted that the gross amount of sales proceeds assessed by the AO for the two years under consideration included mistakes, such as the inclusion of sales proceeds pertaining to other years. The Tribunal set aside the issue of determining the correct amount of sales proceeds to the file of the AO for fresh examination.In conclusion, the Tribunal set aside the common order passed by Ld CIT(A) and restored the issues to the file of the AO for fresh examination, directing the AO to provide the assessee with an opportunity to present necessary documents and explanations. Both appeals of the assessee were treated as partly allowed.Pronounced accordingly on 09.11.2012.