TaxTMI 
TaxTMI 
TaxTMI 
2011 (10) TMI 155
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....lly erred in holding that income of the assessee is exempt as it is registered u/s 12AA whereas the registration u/s 12AA does not confer blanket exemption of income. (4) Under the circumstances of the case, The CIT(A) has erred in holding that the AO did not gather any material on record which could establish that the assessee was engaged in profit making activity and did not apply receipts for meeting the predominant objects of general public utility, whereas the comparative perusal of objects of the assessee and trading and profit and loss account clearly reveals that the assessee is involved in business activity like other private builders and developers. (5) The CIT(A), Bareilly erred in holding the income of the assessee as exempt whereas the assessee is an institution and not a trust as per definition of Trust provided in the Indian Trust Act and hence the income of the assessee does not fall under any category of section 11(1)(a), (b), (c) or (d) or u/s 12(1) of the Income-tax Act, 1961. (6) Any other ground which may be taken during the course of the appellate proceedings." 2. The facts of the case are that the assessee filed its return declaring total income of Rs. 60....
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....came to the conclusion that the assessee is entitled to deduction u/s 11. For this purpose, he mainly relied on the fact that deduction u/s 11 was allowed in past. For the sake of completeness, his findings are reproduced below:- "I have carefully considered the facts of the case and the submission of the AR of the appellant. The facts of the decision (supra) relied by the assessing officer were also gone through. The decision relied by the A.O. was having entirely different facts and it was delivered in a different contest. Therefore, the citation of the AO does not have any bearing to the facts of the case under consideration. Admittedly, the status of the appellant in the earlier year was accepted as a charitable trust having income eligible for exemption u/s 11 of the Act. As a mater of fact, there was no change in the facts and circumstances of the case during the year under consideration. The AO did not gather any material on record which could establish that the appellant was engaged in profit making activity and did not apply receipts for meeting the predominant objects of general public utility. His decision was based on two points, i.e., the assessee was constructing an....
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....e us, the contention of Assessing Officer is that the activities of assessee in so far as they relate to purchase, development and sale of plots/shops, houses could not be treated for charitable purposes and, therefore, assessee was not entitled for exemption u/s 11 of the Act as provisions of section 11 were applicable in the case of charitable institutions. In the case before us, the activities of assessee are charitable in nature. The properties of the trust are held under trust for charitable purposes. The Moradabad Development Authority has been constituted for the development of roads, town planning, providing cheaper residential and commercial properties to the public. The management of the Development Authority is by officers and employees appointed by the State Government. In case of dissolution, the surplus after meeting the liabilities will go to the State Government. Therefore, the charitable activities are not in doubt. In fact, the assessee has been granted registration u/s 12A. Therefore, in our considered view, Assessing Officer was not justified to deny the exemption under section 11 of the Act on the basis of activities by holding that the purchase, development an....
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....he assessee before the AO, in which it is inter alia mentioned that the receipts have been applied for charitable purpose: "Purchases, administrative and other expenditure, capital expenditure and repayment of loan of the outstanding of receipts. Advance of Rs. 250,00,000/- given to irrigation for construction of bridge is covered under rule 17C(iii) of the I.T. Rule. Deposited in bank and investment in bank FDR are in accordance with the provision of section 11(5)(iii) of I.T. Act, 1961. The cash in hand of Rs. 13,975/- is a negligible amount, which is .004%, which is much less than 15% allowable is as a surplus." 4.3 Our attention has also been drawn to page no. 74, being the income and expenditure drawn for this year. The credit side contains sale proceeds of about Rs. 108.48 crore and the other receipts of about Rs. 21.45 crore. The debit side contains purchases of about Rs. 28.07 crore, administrative and other expenditure of about Rs. 6.42 crore. For the sake of ready reference, the account is reproduced hereunder:- Expenditure/Investment Amount(Rs.) Gross receipts Amount (Rs.) Purchase 280743870.04 Sale 1084794330.86 Administrative & Other expenditure 64151794.04....
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....before the Assessing Officer that all the receipts have been utilized for the objects of the assessee-authority. However, the AO denied exemption by relying on the case of Safdarjung Enclave Educational Society v. Municipal Corporation of Delhi [1992] 3 SCC 390. The matter has been decided by the ld. CIT(A) in the favour of the assessee by following the earlier decision of the Tribunal. 5.1 It is argued that the case of the assessee is distinguishable from the case of a private builder on grounds- (i) the funds of the assessee can be applied only for the administration of the Act and for no other purpose, and (ii) it is not entitled to earn profit or distribute surplus to members, and (iii) in case of dissolution, all its properties stand vested in the State Government. Therefore, it has been argued that since the objects are charitable in nature and monies have been applied towards the administration of the Act, the ld. CIT(Appeals) has rightly allowed the appeal of the assessee. 6. We have considered the facts of the case and submissions made before us. The facts are that the assessee has been constituted under U.P. Urban Planning and Development Act, 1973. As per section 4(....
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....pursuance of the main object. Since there is no motive to make profit, the activity cannot be said to be a business activity. 9. In order to support the rival contentions as aforesaid and others, a number of cases have been cited which also include the cases decided under the 1922 Act. In order to avoid duplication, we are of the view that it will be sufficient to briefly discuss the cases hereunder: (i) In the case of CIT v. Andhra Pradesh State Road Transport Corpn. [1986] 159 ITR 1 (SC), decided on 07.03.1986 under the 1922 Act, it has been held that the Corporation was under obligation to provide secure and promote provision of an efficient, adequate economical and properly coordinated system of road transport services in the State. Such activities cannot be carried out efficiently, adequately and economically unless it is carried on business principles, as held by the Court in Addl. CIT v. Surat Art Silk Cloth Mfrs. Association [1979] (SC). If the activities carried on business principles it would result into profit. However, what is to be seen is whether what is the predominant object of the activity-whether it is to carry out a charitable purpose or to earn profit. If the ....
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....ature, however, the Tribunal is competent to examine the correctness of claim u/s 11 of the Act. (vi) In the case of Punjab Urban Planning & Development Authority v. CIT, it has been mentioned that the assessee acquired land at nominal rate and after developing the same, sold the land at high profit. This activity could not be said to be a charitable activity. If registration is granted in such a case, then every private colonizer would claim charity. The facilities which were provided to the plot holder were incidental to the commercial activity. Certain facilities like parks, community centre, and school were provided which was not only basic requirement but also a tool for attracting the investors. The hidden cost of these facilities was included in the sale price of plot. Since the assessee was generating income, so no charity was involved. Therefore, it was held that the Commissioner rightly concluded that since no charitable activity was carried out for public at large, the assessee was not entitled to get registration u/s 12A. (vii) In the case of Cane Development Council v. CIT [2010] 35 SOT 308 (Delhi), the assessee had been granted registration u/s 12AA on 15.11.2007. I....
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....(All.), it was mentioned that the assessee was providing coaching and guidelines to the students for getting admission in professional institutions. The word "education", used in section 2(15), means the systematic instruction, schooling or training given to young persons for preparing them for the work of life. Similarly, extending financial assistance, scholarship etc. to students for educational purposes would fall within the meaning of the term "education". Thus, the assessee had been engaged in educational activity. Accordingly, it has been held that the Commissioner was not within his right to cancel the registration already granted. (xi) In the case of CIT v. Haryana Urban Development Authority [2010] 322 ITR 61 (Punj. & Har.), the assessee had been engaged in the activities of improvement, development and planning of cities and towns. It was deriving rental income which was sought to be assessed as business income. The Hon'ble Court held that as per finding of the Tribunal, the main business of the assessee is not renting of property but development and sale of property. Therefore, the assessee could claim rental income as income from property instead of income from busine....
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....iness is incidental to attainment of objective of the trust, or, as the case may be, institution, and separate books of account are maintained by such trust or institution in respect of such business. This provision was discussed in the course of proceedings before us and we have summarized the rival submissions. The submission of the revenue is that the activities carried out by the assessee are in no way different from the activities carried out by a builder developing a large colony. The submission of the ld. counsel is that there is no profit motive and the activities have been carried out in pursuance of the object clause. In this very connection, the definition of the term "business" furnished in section 2(13) was also discussed. The word "business" has been defined in an inclusive manner to include any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture. The case of the ld. counsel is that this provision is not applicable. However, he has not elaborated it any further in this matter. Therefore, it will be appropriate for us to examine this definition in a greater detail. The definition has been examined by the Orissa Hig....
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....ause there you have that from which you would infer continuity. The word "business" has a more extensive meaning than the word "trade". In Narasingha Kar and Co. v. CIT [1978] 113 ITR 712, this court had occasion to deal with almost a similar controversy. It was held that the income of the assessee in that case from the shops was assessable under section 28 of the Act as income from business, and since the assessee was carrying on a business, it was entitled to registration. The decisions on which reliance has been placed by learned counsel for the Revenue were also considered by this court in Narasingha Kar's case [1978] 113 ITR 712 (Orissa). The tests indicated in those two cases were applied and conclusions were arrived at. In Karnani Properties Ltd. v. CIT [1971] 82 ITR 547, the apex court has observed that, an activity carried on continuously in an organised manner with a set purpose and with a view to earn profits is "business". Similarly, when the assessee took a plot of land on lease, constructed some structures thereon and let them out to shopkeepers and stall-holders, the apex court construed the activity to be business. (See S. G. Mercantile Corporation P. Ltd. v. CIT [1....
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....not be said to be income of the assessee available for charitable purpose because expenditure has to be incurred and has been incurred in acquiring land and construction thereon. Therefore, only the surplus from this activity can be said to be the income derived from property held under trust. There is yet another angle, namely, that some meaning has to be placed on the content of sub-section (4A) of section 11 and especially on the words "unless the business is incidental to attainment of the objective of the trust". The legislature postulates that a charitable institution may have to carry on incidental business for attainment of objective. If the argument of the ld. counsel that there is no profit motive in so far as the development authority is concerned and, therefore, there is no question of carrying on any business, then no meaning can be placed on the contents of this provision. It has been mentioned earlier that the assessee has carried on systematic activities in a regular manner for construction of immovable properties as per plan, which have led to profit, and such activity is incidental to the main object of town planning, therefore, it is clear that the assessee has c....