2016 (7) TMI 1188 - AT - Income Tax

Tribunal grants charitable status to appellant despite commercial aspects

New Okhla Industrial Development Authority Versus CIT (E), Lucknow

The Tribunal allowed the appeal, directing the CIT(E) to grant registration under Section 12A of the Income Tax Act to the appellant authority. It was ... Grant of registration under Section 12A - Held that:- We are in agreement with the contention of the Ld Senior Counsel of the appellant that the activities of the appellant are under complete control of State Government having no profit motive and for the purpose of charitable activities of general public utilities therefore, the CIT(E) was not justified and correct in dismissing application of the assessee. CIT(E) dismissed application of assessee for grant of registration under section 12A of the Act, by considering the irrelevant fact and by taking a hyper technical approach and he has not followed procedure for grant of registration as prescribed under section 12AA of the Act. At the same, we observed that the appellant successfully demonstrated that it has been created by the special act of the state i.e. UPIDA 1976 for the purpose of the development of infrastructure of a specified industrial area with a predominant purpose of creating and developing facility for development of industries in the state and its legal existence is akin to a municipal corporation for development of facilities in the specified area which is a charitable activity for the welfare of public at large and thus the same is an activity of general public utility. We are satisfied that there is no prime object or aliment of earning profit as private developer or builder and activities acquiring of land and selling developed property is an incidental and profit earned therefrom has to be used towards objects of the appellant which are of charitable purposes and thus newly inserted proviso to section 2(15) of the Act, cannot be pressed into service for denial of registration under Section 12A of the Act. Finally, we are inclined to hold that the appellant is entitled for registration under section 12A (1) (a) of the Act, and thus impugned order of the CIT(E) is dismissed and he is directed to grant registration under section 12A of the Act to the appellant authority. - Decided in favour of assessee. Issues Involved:1. Rejection of application for registration under Section 12A of the Income Tax Act, 1961.2. Determination of the nature of the appellant's activities as charitable or commercial.3. Applicability of various judicial precedents and statutory provisions.Issue-wise Detailed Analysis:1. Rejection of Application for Registration under Section 12A:The appellant's application for registration under Section 12A was dismissed by the CIT (Exemptions) on several grounds, including the failure to produce books, bank statements, and vouchers, and the nature of income from various fees and charges. The CIT(E) concluded that the appellant's activities were commercial in nature, aimed at profit-making, and not charitable.2. Determination of the Nature of the Appellant's Activities:The appellant argued that it is a statutory authority constituted under the Uttar Pradesh Industrial Development Act, 1976 (UPIDA) and is mandated to perform public utility services, satisfying the requirements of Section 2(15) of the Income Tax Act. The Tribunal noted that the CIT(E) failed to consider the statutory provisions and the act which created the appellant, its objects, financial resources, and utilization of surplus. The Tribunal emphasized that the primary and dominant object of the institution should be considered, and if it is to advance general public utility activities, incidental commercial activities do not disentitle it from registration under Section 12A.3. Applicability of Judicial Precedents and Statutory Provisions:The appellant relied on several judicial precedents, including the cases of Haridwar Development Authority, Lucknow Development Authority, and Gujarat Maritime Board, to support its claim. The Tribunal found that the CIT(E) ignored relevant facts and judicial precedents. It was noted that the appellant's activities are akin to those of a municipal corporation, providing public utility services without a profit motive. The Tribunal referred to the decision in India Trade Promotion Organization vs. DGIT(E), which held that incidental commercial activities do not disqualify an institution from being considered charitable if the primary objective is public utility.Conclusion:The Tribunal concluded that the CIT(E) dismissed the application for registration under Section 12A by considering irrelevant facts and taking a hyper-technical approach. It was established that the appellant is a statutory authority created for the development of industrial areas with a predominant purpose of public utility. The Tribunal directed the CIT(E) to grant registration under Section 12A to the appellant, emphasizing that the newly inserted proviso to Section 2(15) cannot be used to deny registration if the primary object is charitable.Order:The appeal was allowed, and the CIT(E) was directed to grant registration under Section 12A of the Income Tax Act to the appellant authority.