2018 (11) TMI 1121 - AT - Income Tax

Tribunal rules trust activities charitable, grants tax exemptions

Gujarat Housing Board (GHB) Versus DCIT (Exemption) Circle-1, Ahmedabad

The Tribunal ruled in favor of the appellant, holding that the trust's activities were charitable and not commercial. It found that the construction and ... Charitable activity - Exemption u/s 11(2) - valid objects of general public utility through lawful statutory schemes - objects of the Trust are covered by the objects of general public utility and the registration granted to the assessee trust is still valid - Held that:- There is no dispute that the objects of the Trust are covered by the objects of general public utility and the registration granted to the assessee trust is still valid. Clearly, therefore, pursing these valid objects of general public utility through lawful statutory schemes cannot be considered as business activity, and, as a corollary thereto, exemption under section 11(2) cannot be declined by invoking proviso to Section 2(15) which can only come into play in the event of the assessee pursuing the activities in the nature of trade, commerce or business or services thereto. We deem it fit and proper to hold that the authorities below were in error in invoking proviso to Section 2(15) and declining the benefit of Section 11 to the assessee. We see no point in remitting the matter to the file of the Assessing Officer for examination de novo, in the light of the above legal position-as was the decision of the coordinate bench in immediately preceding assessment year, since all the related facts are on record and, unlike in the immediately preceding assessment year, it is not a case of ex parte best judgment assessment order. Such an exercise will unnecessarily delay the matter reaching finality. In any case, no specific points, on which further examination is required, were pointed out to us. The grievances of the assessee are thus upheld and the Assessing Officer is directed to allow the benefits of exemption under section 11 to the assessee. The assessee gets the relief accordingly. Issues Involved:1. Validity of the assessment order under section 143(3) of the Income Tax Act, 1961.2. Denial of exemption under sections 11 and 12 of the Income Tax Act, 1961.3. Denial of the benefit of deduction under section 11(1)(a) of the Income Tax Act, 1961.4. Denial of the benefit of deduction under section 11(2) of the Income Tax Act, 1961.Issue-wise Detailed Analysis:1. Validity of the Assessment Order:The appellant contended that the assessment order passed under section 143(3) of the Income Tax Act, 1961, was bad in law and liable to be quashed. However, the judgment did not specifically address this contention in detail, focusing instead on the substantive issues regarding exemptions and deductions.2. Denial of Exemption under Sections 11 and 12:The core issue was whether the activities of the assessee, a trust constituted under the Gujarat Housing Board Act, 1961, could be considered as charitable under section 2(15) of the Income Tax Act, 1961. The Assessing Officer (AO) and the CIT(A) denied the exemption, arguing that the trust's activities were in the nature of trade, commerce, or business, thus attracting the first proviso to section 2(15). The AO noted that the trust had constructed and sold dwelling units to various income groups, including high-income groups, and charged fees for services, which he viewed as profit-earning activities. The CIT(A) upheld this view, emphasizing that the trust's activities were commercial and not charitable.3. Denial of Deduction under Section 11(1)(a):The AO disallowed the deduction of Rs. 4,93,37,661 under section 11(1)(a), arguing that the trust's activities were not charitable but commercial. The CIT(A) supported this disallowance, citing various sections of the Gujarat Housing Board Act that indicated the trust's activities were in the nature of trade, commerce, or business.4. Denial of Deduction under Section 11(2):The AO also disallowed the deduction of Rs. 6,30,00,000 under section 11(2), maintaining that the trust's activities were commercial. The CIT(A) upheld this disallowance as well, reiterating that the trust's activities were not charitable.Judgment Analysis:The Tribunal focused on whether the construction and sale of dwelling units by the trust constituted an activity in the nature of trade, commerce, or business. It noted that the trust had constructed a significant number of units for economically weaker sections and lower-income groups, with only a small portion allocated to high-income groups. The Tribunal referred to the Punjab & Haryana High Court's judgment in the case of CIT Vs Moga Improvement Trust, which held that such activities did not constitute business activities taking them out of the ambit of section 2(15).The Tribunal emphasized that the predominant object of the trust was to provide affordable housing, which aligned with the objects of general public utility. It also cited the Gujarat High Court's judgment in Ahmedabad Urban Development Authority Vs PCIT, which held that activities aimed at urban development and providing infrastructure did not constitute trade, commerce, or business.The Tribunal concluded that the trust's activities were charitable and not commercial. It held that the authorities below erred in invoking the proviso to section 2(15) and denying the benefits of sections 11 and 12. The Tribunal directed the AO to allow the benefits of exemption under section 11 to the assessee.Conclusion:The Tribunal allowed the appeal, holding that the trust's activities were charitable and not in the nature of trade, commerce, or business. It directed the AO to grant the exemptions and deductions under sections 11 and 12 of the Income Tax Act, 1961.