TaxTMI 
TaxTMI 
2009 (6) TMI 651
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....er of the CIT is against the law and facts of the case." 3. The brief facts of the case are that the assessee filed an application in Form No. 10A on 28th March, 2008 for seeking registration under s. 12A(a) of the IT Act, 1961. The Jalandhar Development Authority is an authority brought into existence by the order of the Government of Punjab, Department of Housing and Urban Development vide its Notification No. 13/31/2004-1HG2/5370, dt. 16th July, 2007. As per notification that all the powers and functions of the PUDA relating to development and redevelopment of the area shall be exercised by the JDA as constituted. The JDA was constituted under s. 28(1) of the Punjab Regional and Town Planning and Development Act, 1995. The object of the authority is as follows: "The objects of the authority shall be to promote and secure better planning and development of any area of the State and for that purpose the authority shall have the powers to acquire by way of purchase transfer, exchange or gift or to hold, manage, plan, develop and mortgage of otherwise dispose of land or other property or to carry out itself or in collaboration with any other agency or through any other agency ....
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.... again been reproduced by the CIT in para 4 of his order. Further the CIT in para 6 of his order has admitted that the applicant assessee is a local authority. 4.2 He further submitted that the CIT refused to grant registration as per paras 7 and 8 of his order by holding that the JDA will develop the land and sell the same with definite motive of profit and it shall mean that there shall be no charitable activity. While holding this, he relied upon the judgment of Hon'ble Supreme Court in the case of Indian Chamber of Commerce and thus in para 9, he has held that as per the judgment of Supreme Court the assessee is not eligible for registration under s. 12A. 4.3 Further, in paras 10 and 11 of the order, the learned CIT has held that the assessee is not a trust or institution but a local authority and also there are no voluntary contributions and the income be generated by sale of land with motive of profit, therefore, he refused the registration. 4.4 He further submitted that the judgment of Supreme Court relied upon by the CIT and his action of refusal of registration cannot be sustained since the judgment relied upon by him has been overruled by the Larger Bench of the ....
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....tution. 4.10 He submitted that even running road transport is entitled to exemption as was held in the case of CIT vs. Andhra Pradesh State Road Transport Corporation (1986) 52 CTR (SC) 75 : (1986) 159 ITR 1 (SC) where in a significant decision, it was pointed out that in the context of the income being exclusively applied for road development, the fact that it was done on commercial lines need not stand in the way of exemption because charity can also be run on business lines. He further submitted that the proposition laid down in this case will have to be tested in the light of s. 11 (4A) so that it has to be proved that the business was incidental to the primary object of the institution. Therefore, it may have to be proved that the primary object was road development which was an object of general public utility and the business of the corporation was incidental to the same. The Supreme Court recognizes the exemption of State Road Transport Corporations, State Government undertakings especially with the object of use of surplus funds in the road development in the State in the following words: "No activity can be carried on efficiently, properly adequately or economically....
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....e sub-sections the words used are "income derived from property held under trust wholly for charitable purposes". Under s. 11(4) the expression "property held under trust" includes a business undertaking so held. In other words, income from business undertaking held for charitable purposes can fall under s. 11 subject to such income fulfilling the requisite conditions of that section. 4.14 He further observed that one of the objections raised on behalf of the Department in that case was that Gujarat Maritime Board is not entitled to the benefit of s. 11 of the Act as the said Board was not a trust under Public Trust Act and. therefore, it was not entitled to claim registration under s. 12A of the 1961 Act. The Department's case was that the Maritime Board was a statutory authority. It was not a trust. Its business was not held under a trust. Its property was not held under trust. Therefore, the Board was not entitled to be registered as a charitable institution. It was the case, of the Department that the Board was performing statutory functions. Development of minor ports in the state of Gujarat cannot be termed as the work undertaking for charitable purposes and in the circums....
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....essentially with the State Government and there is no profit motive. The income earned by the Board is deployed for the development of minor ports in India. He further submitted that the judgment of the Court in Andhra Pradesh State Road Transport Corporation squarely applies to the facts of the present case. 4.20 He submitted that in the case of CIT vs. Agricultural Produce & Market Committee, Hinganghat & Ors. (2007) 210 CTR (Bom) 386 : (2007) 291 ITR 419 (Bom), Hon'ble Bombay High Court, has held that activities of the agriculture produce and market committee are charitable in nature being the objects of "general public utility" as occurring in s. 2(15) and "property" as occurring in s. 11 of IT Act, 1961. 4.21 He further submitted that in the above case, the dominant object was to regulate procurement and supply of agricultural and some other produce and to meet the expenses required to be met with in achieving the said object, the legislature had empowered the assessee to levy cess/fees. Moreover, surplus remaining in the market fund was ploughed back for carrying out the object of the 1963 Act. Thus, the surplus remaining in the market fund was neither distributed nor a....
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....aritable objects then it can be said that the activity earned on by the trust is not guided solely by a profit motive. In the instant case, though it was not the assessee's case that the business of Mahila Shilp Kala Kendra itself was held under trust, that would not make any difference to the ultimate result, because the surplus from the Mahila Shilp Kala Kendra had been consistently applied for the charitable activities carried on by the assessee." He further reiterated that even before the amendment w.e.f. 1st April, 1992, the trust was allowed to carry on business if profit of business carried on by trust are used for charitable objects of the trust. 4.26 He objected to the observation of the CIT that the assessee is neither a trust nor an institution but is a local authority therefore registration cannot be granted under s. 12A. He further argued that it has been settled by the Hon'ble Punjab & Haryana High Court in the case of CIT vs. Market Committee Dhariwal & Ors. (2007) 294 ITR 563 (P&H) and CIT vs. Haryana C.M. Relief Fund (2009) 17 DTR (P&H) 288 : (2009) 309 ITR 275 (P&H) that legal obligations have to be treated as trust and registration is to be granted under s.....
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....ld be met and it is immaterial how the monies for achieving or implementing such purpose are found, whether by carrying on an activity for profit or not." In view of judgment of the Hon'ble Supreme Court in the case of Addl. CIT vs. Surat Art Silk Cloth Manufacturers Association, business income of the assessee/institution became entitled to exemption. Such business was carried on to advance an object of general public utility notwithstanding the words "not involving the carrying on of any activity for profit". In s. 2(15) the said decision resulted in the amendment to ss. 2(15) and 11 by Finance Act, 1983 w.e.f. 1st April, 1984 and the words "not involving the carrying on of any activity for profit" omitted by Finance Act, 1983 w.e.f. 1st April, 1984 in s. 2(15) and profits and gains from business or profession were made expressly taxable through insertion of sub-s. (4A) in s. 11. Hence, the argument of the learned counsel for the assessee having no force because of the amendment. Further, in the case of Addl. CIT vs. Surat Art Silk Cloth Manufacturers Association it has been held: "The income and property of the assessee were liable to be applied solely and exclusively for ....
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....le to income-tax. Sec. 2(15) must be interpreted according to the language used therein and against the background of Indian life. By definition in s. 2(15) the benefit of exclusion from total income is taken away when in accomplishing a charitable purpose the institution engages itself in activities for profit." This order of the Tribunal, Chandigarh Bench, relied upon by the learned Departmental Representative in the case of Punjab Urban Planning & Development Authority vs. CIT, wherein it has been held: "Plea that on identical facts registration under s. 12A was accorded to Patiala Urban Planning and Development Authority by the CIT has no substance. If the intention of creating Patiala Authority was the same then there was no need of its creation as the same objects would have been fulfilled by the bigger unit, i.e., the assessee. At the same time, res judicata is not applicable in income-tax proceedings. Further, the order passed by a lower authority is not binding on the Tribunal. It is a well-known fact that in some of the situations the provisions of law are misused in the names of charities. If an expanded/broader latitude is extended to the word charity, th....
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....emerged that the assessee, has started auctioning the plots by way of bidding at the market rate and sometimes more than that and charging interest on belated payments. In such a situation, no charity is involved. Rather the assessee has converted itself into a big businessman. Similar development/infrastructure/facilities are also provided by private developers these days, then they will also claim the status of a charitable institution. The facilities which are provided to the plot holders are incidental to the commercial activity carried out by the assessee and if certain facilities like parks, community centres, schools are provided, it is not only basic requirement, rather a tool attracting the investors wherein the hidden cost of these facilities is already included. In the absence of these facilities, normally the purchaser may not invest and the prices may be less. In view of these facts, the assessee's activities not being of charitable nature, the application of registration under s. 12A has been rightly rejected by CIT-Asstt. CIT vs. Thanthi Trust (2001) 165 CTR (SC) 681 : (2001) 247 ITR 785 (SC) and Bihar State Forest Development Corporation vs. CIT (1997) 224 ITR 757 (....
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....eld as under: "The assessee, the Gujarat Maritime Board, which was constituted under the Gujarat Maritime Board Act, 1981, for the purpose of development and maintenance of minor ports in the State of Gujarat, applied for registration under s. 12A of the IT Act, 1961, as a charitable institution. The CIT rejected the assessee's application. On appeal, the Tribunal held that the object of the assessee was to develop and maintain minor ports in the State of Gujarat which was an object of general public utility and directed the CIT to register the assessee under s. 12A; and the High Court affirmed the decision of the Tribunal. On appeal to the Supreme Court: Held, affirming the decision of the High Court, that the assessee was under a legal obligation to apply its income which was directly and substantially from the business held under trust for the development of minor ports in the State of Gujarat. The assessee was established for the predominant purpose of development of minor ports within the State of Gujarat, the management and control of the Board was essentially with the State Government and there was no profit motive. The assessee was, therefore, entitled to registration....
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....n provides services for charitable purposes free of cost and not for a gain. In the present scenario, the similar activities are performed, by big colonizers/developers who are earning a huge profit. If this registration is granted, then we will open a pandora box and anybody will claim the exemption from tax. If the objects of the assessee are analysed, it has turned into a huge profit making agency for which it is taking money from the general public. In such a situation, we are of the view that no charity is involved and if any institution of public importance like schools, community centres are created/developed, the assessee is charging the cost of it from the public at large and the money is coming from the coffer of the Government. It can be said that objects/activities of the assessee are more of commercialized nature and we do not, find any charity in it. At the same time, if these facilities are not provided, then nobody will purchase a plot. It can be said that it is a means of attracting the people so that maximum people may apply for the same and the hidden cost is already added, so no charity is involved. At best, the assessee can be said to be an authority created to....
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.... the ratio of the above order cannot be applied to the facts of the present case. In our opinion, the assessee is not engaged in the activities of relief to the poor, education of medical relief, and advancement of any other object of general public utility as defined in s. 2(15) of the Act and the condition is not fulfilled and the activity of the profit is not carried on in the course of actually carrying out of the primary purpose of the assessee's activity of advancement of any other object of general public utility considered to be "charitable purpose" only when the above purpose does not involve the carrying on of any activity of profit. But in the present case, the primary object of assessee's profit motive and it cannot be said that the assessee is engaged for the purpose of carrying out the activities of the general public utility. In other words, the purpose of the trust is not an advancement of any object of general public utility and the activity of the assessee involve carrying on activity for profit and the activities of the assessee cannot be said to fall within the purview of s. 2(15) of the Act. The activities of the assessee is to carry on business and there is no....