2016 (6) TMI 1403 - AT - Income Tax

Tribunal Upholds Charitable Status for Assessee, Dismisses Appeal; Activities Qualify Under Income Tax Act for Exemption.

The DCIT, Circle-1 Versus Patiala Improvement Trust

The ITAT Chandigarh Bench dismissed the departmental appeal, affirming the CIT(A)'s decision that the assessee's activities qualified as charitable under ... Exemption u/s 11 - charitable activity u/s 2(15) - HELD THAT:- We hold that the assessee trust is carrying out charitable activity of advancement of public utility and the business activity carried out by it are incidental to the attainment of its main object and thus the proviso to section 2(15) is not attracted in the assessee case. Assessee is entitled to claim exemption u/s. 11 and the surplus earned by the assessee cannot be subjected to tax as income of the assessee. Following the decision in the case of Hoshiarpur Improvement Trust [2015 (9) TMI 902 - ITAT AMRITSAR] has allowed the appeal of the assessee and directed that assessee will be eligible to get exemption under section 11 of the Income Tax Act. - Decided against revenue. Issues Involved:1. Legality of the CIT(A)'s order.2. Applicability of the amendment in Section 2(15) of the Income Tax Act.3. Comparison with cases of PUDA and JDA regarding land development activities.Issue-wise Detailed Analysis:1. Legality of the CIT(A)'s Order:The revenue contested that the order of the CIT(A) was defective both in law and facts. The assessee, an artificial judicial person engaged in city planning and development, claimed exemption under Section 11 of the Income Tax Act, having been granted registration under Section 12AA. The Assessing Officer (AO) argued that the assessee's activities, which included the sale and purchase of residential houses, construction, and auctioning of plots, were in the nature of trade, commerce, and business, and did not qualify as 'advancement of any other object of general public utility' under Section 2(15) of the Income Tax Act. The CIT(A) allowed the appeal of the assessee, relying on the ITAT Amritsar Bench's decision in the case of Hoshiarpur Improvement Trust vs. ITO.2. Applicability of the Amendment in Section 2(15):The AO observed that the assessee's contention was incorrect in light of the omission of Section 10(20A) by the Finance Act, 2002, and the amendments to Section 2(15) by the Finance Acts of 2008 and 2010, effective from 01.04.2009. The AO concluded that the assessee was not entitled to benefits under Sections 11 and 12 due to the amended provisions of Section 2(15). However, the CIT(A) and ITAT referred to the case of Hoshiarpur Improvement Trust, where it was held that activities incidental to the main objective of public utility did not attract the proviso to Section 2(15). The ITAT Chandigarh Bench upheld this view, stating that the primary objective of the assessee was the advancement of general public utility, and any incidental business activities did not negate this purpose.3. Comparison with PUDA and JDA Cases:The revenue argued that the CIT(A)'s order ignored the ratio laid in the cases of PUDA and JDA, where similar activities by improvement trusts were considered akin to those of development authorities. However, the ITAT Chandigarh Bench found that the facts of the present case were identical to those in the Hoshiarpur Improvement Trust case. It was concluded that the activities of the assessee trust were charitable, aimed at public utility, and any business activities were incidental to this objective. Thus, the assessee was entitled to claim exemption under Section 11.Conclusion:The ITAT Chandigarh Bench dismissed the departmental appeal, affirming the CIT(A)'s decision. It was held that the assessee's activities qualified as charitable under Section 2(15) and were entitled to exemption under Section 11. The tribunal found no infirmity in the CIT(A)'s order, which was consistent with the precedent set by the Hoshiarpur Improvement Trust case. The appeal was decided in favor of the assessee, and the departmental appeal was dismissed.