TaxTMI 
TaxTMI 
2012 (7) TMI 734
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.... Income Tax Act, 1961 on the pretext of amendment in section 2 (15) of the Act by Finance Act, 2008 without appreciating that registration was originally granted to the appellant only in September, 2009 i.e. well after the amendment of 2008; (b) Ignoring the fact that this predecessor had already duly applied his mind to the amendment brought about in section 2(15) by the Finance Act, 2008 having specifically raised a query with respect to the same and the appellant having satisfactorily explained the inapplicability of the proviso to section 2 (15) to it; (c) Ignoring the specific finding recorded by his predecessor on the face of the registration certificate itself dated 30th September, 2009 u/s 12AA (1) (b) of the Act, after detailed examination of the case that the instrument does not exist for trade, commerce or business; (d) Not appreciating that the second proviso to section 2 (15) of the Act introduced by Finance Act, 2010 is a relaxation to the restriction placed vide the first proviso introduced by Finance Act, 2008 and hence, did not warrant a re-examination of the registration granted to the appellant; (e) Ignoring the fact that his p....
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....private gains whereas the appellant is a Local Authority entrusted with public funds and properties with a legal obligation to apply the same for the public purpose for which it is established viz., the development of Jammu City; (l) Not appreciating that a private developer works for private gain and distributes his earnings by way of dividend and there is no obligation on him to plough back his earnings for the development of the city whereas the appellant has no capital or owner, its funds and properties are public funds and it cannot and has not since inception ever distributed even a single penny as dividend or returns to anybody and under section 19(2) of the Jammu and Kashmir Development Act, 1970, there is a restriction on the use of the funds for any object other than as specified in the Act i.e. for any purpose other than the development of Jammu City; (m) Making observations that under the garb of charitable purpose, trade, commerce and business is being carried on and has lost sight of the fact that the appellant is a government agency and the accusation is aimed at the policies of the Government since the appellant works under the aegis of the Governm....
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.... (u) Applying some so-called 'Mischief Rule' and holding that the deletion of section 10 (20A) by the Legislature was to remedy the mischief perpetrated by development authorities wrongly claiming exemption under section 10 (20A) and that the deletion of the section by Finance Act, 2002 was to check the enjoyment of such exemption by development authorities and therefore, the appellant was not entitled to take recourse to alternate provisions contained in section 11 of the Act. (v) Not appreciating that the provisions of section 10(20A) and section 11 are mutually exclusive and the deletion of section 10 (20A) does not affect the eligibility to benefit under section 11 of the Act; and (w) Ignoring the decisions in the case of Improvement Trust of Moga [2008] ITA No. 489 of 2007 (P&H) and Gujarat Maritime Board [2007] 295 ITR 561 (SC). 4. That the appellant craves leave to add, amend, delete or modify its grounds of appeal at the time of hearing." 3. The brief facts in this case are that registration under section 12A read with section 12AA of the Act, was granted to the assessee on 30.09.2009 as per certain conditions as envisaged in the....
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....lication of retention of income from such activity. 2.2 Thus, the newly inserted 2nd proviso to section 2(15) w.e.f. 01.04.2009 (assessment year 2009-10 and onwards) provides that the provisions of the Ist proviso to section 2(15) shall not apply if the aggregate value of the receipts from the activities referred to in the Ist proviso is Rs. 10,00,000/- or less in the previous year. However, after going through the returns of income filed by Jammu Development Authority, it is observed that the aggregate value of the receipts from the activities referred to in the Ist proviso is more than the prescribed limit, as such, it shall not be entitled to the benefit of exemption u/s 11 of the Income Tax Act, 1961. It has been noticed that Jammu Development Authority is operating on commercial lines and by taking recourse to the provisions of section 11 of the Act on the ground that it is charitable institution. This is based on the argument that Jammu Development Authority is engaged in the 'advancement of an object of general public utility' as is included in the fourth limb of the current definition of "charitable purpose". Such a claim, when made in respect of an activity carried out ....
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....see reproduced the provisions and conditions in section 12AA(3) of the Act and then the proviso introduced by Finance Act, 2008 w.e.f. 01.04.2009 in section 2(15) of the Act along with 2nd proviso to section 2(15) by the Finance Act, 2010 w.e.f. I.4.2009. It was observed by the Ld. CIT that prior to insertion of these provisos certain bodies were treated 'charitable' on the ground of advancement of object of general public utility. However, after the insertion of the above provisos 'the advancement of other object of general public utility shall not be a 'charitable purpose', if it involves the carrying on of : (a) Any activity in the nature of trade, commerce or business; (b) Any activity of rendering any service in relation to any trade, commerce or business. (c) For a cess or fee or any other consideration, irrespective of the nature of use or application or retention of income from such activity. 4.1 Therefore, before insertion of the above proviso, the Institutions/Trusts/Societies which were given registration u/s 12A of the Act considering them under the head 'advancement of any other object of general public utility, were eligible for exemption....
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...., advances or otherwise, all fees, rents, charges, levies and fines received by the authority under the Act, all moneys received by the Authority from disposal of its movable and immovable assets and all moneys received by the Authority by way of loan from financial and other institutions and debentures floated for the execution of a scheme or schemes of the Authority duly approved by the State Government. Unless the State Government otherwise, directs all moneys received by the Authority shall be credited to its funds which shall be kept with the Jammu& Kashmir Bank or any other bank approved by the State Government. 4.3 The Ld. CIT in para 4.2 of his order observed that till the financial year 2002-03, the income of such Authorities were exempt u/s 10(20A) of the Act. However, in view of omission of section 10(20A) of the Act an Explanation was added to section 10(20), which is reproduced as under: "Explanation: For the purpose of this clause, the expression 'Local Authority' means - (i) Panchayat as referred to in clause (d) of article 243 of the Constitution; or (ii) Municipality as referred to in clause (3) of article 243P of the Constitution; or ....
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....advancement of any other object of general public utility. 4.4 Referring to insertion of the Ist and 2nd proviso to section 2(15) of the Act, the Ld. CIT after going through the objects of the Authority as envisaged u/s 6, it was observed that the object of the Authority is to promote and secure the development of the local area. The assessee has generated income by way of disposing off the developed lands and the lands are sold with definite motive of profit and there is no charitable purpose or any activity for public utility, which is the primary requirement of section 2(15) of the Act. The activities of the assessee are aimed at earning profit as it is carrying on activity in the nature of trade, commerce or business. Further profit making by the assessee is not mere incidental or by product of the activity of the assessee. The main pre-dominant purpose of assessee is making profit, it is real object of the assessee and also there is no spending of the income exclusively for the purpose of charitable activities and profits of the assessee not used for charitable purpose under the terms of the object and there is no obligation on the part of the assessee to spent on 'charitab....
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.... restriction as regards the utilization of the left over properties for charitable purposes. Thus, the authority failed the test laid down by the Hon'ble Supreme Court in the above case and therefore, cannot be termed as a charitable organization within the meaning of section 2(15) of the Act. Similarly, in the case of Andhra Pradesh State Road Transport Corpn. (supra), it was held by the Hon'ble Supreme Court as under: "The activity of assessee was not carried on with the object of making profit... and the amount left over after utilization for the purpose set out in section 13 of the R.T.C. Act as amended was to be made over the State Government for the purpose of Road Development and the amounts handed over to the State Government did not become part of the general revenue of the State but was impressed with an obligation that it should be utilized only for the purpose for which it was entrusted, namely Road Development, which was an object of public utility." 4.6 The assessee does not qualify by the test laid down by the Hon'ble Supreme Court in view of the fact that properties left over to the Government as per the provisions of section 53 of the J & K Development Act, 1....
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....he provisions of law are misused in the names of charities. If an expanded/broader latitude is extended to the word charity, then there are so many institutions/departments who will try to come under the umbrella of this provision to misuse the provision. Therefore, for the broad development of the nation/society, a strict and positive vigil is required so that the provision can be saved from its misuse in any manner. No activity can be carried on efficiently, properly unless and until it is carried out on business principle but it does not mean that the provision is misused in any manner under the grab of charity and any institution be allowed to become richer and richer under the grab of charity by making it a non-tax payable organization. A charitable institution provides services for charitable purposes free of cost and not for a gain. In the present scenario, similar activities are performed by big colonizers/developers who are earning a huge profit. If this registration is granted, then anybody will claim the exemption from tax. If the accounts of the assessee are analysed, it has turned into a huge profit-making agency for which it is taking money from the general public. If....
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....01], 165 CTR (SC) 681: [2001] 247 ITR 785 (SC) and Bihar State Forest Development Corporation v. CIT [1997] 224 ITR 757 (Pat.) reline on : Addl. CIT v. Surat Silk Cloth Manufacturers Association [1979] 13 CTR (SC) 378: [1980] 121 ITR 1 (SC), CIT v. Andhra Pradesh State Road Transport Corporation [1986] 52 CTR (SC) 75: [1986] 159 ITR 1 (SC) and New Life in Christ Evangelistic Association (NLC) v. CIT [2001] 165 CTR (Mad.) 446: [2000] 246 ITR 532 (Mad.) distinguished ." 4.9 The Ld. CIT, vide para 5.1 of his order observed that there is no evidence to suggest that the assessee is not engaged in the activity of the profits and as such the assessee is not engaged in the activity of the profits and the registration granted u/s 12A of the Act is required to be cancelled within the meaning of section 12AA(3) of the Act, as the findings show that the activities of the assessee are aimed at earning profit as it is carrying on activity in the nature of trade, commerce and business. Further, for profit making by the assessee is not mere incidental or by product of the activity of the assessee. The main pre-dominant purpose of assessee's is making profit and it is the real object of the asse....
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....TR 481/158 Taxman 465. Therefore, the ld. CIT observed that it is to be appreciated that an error in law cannot be allowed to be perpetuated on the ground of principle of consistency. The Ld. counsel for the assessee also relied upon the decision of Hon'ble Supreme Court in the case of Radhasoami Satsang v. CIT [1992] 193 ITR 321/60 Taxman 248. With regard to the said decision, the Hon'ble Supreme Court observed that the facts of this case being very special, nothing should be said in a manner which would have general application and would like to state in clear terms that the decision is confined to the facts of the case and may not be treated as an authority on aspects which have been decided for general application. Similarly, the Ld. CIT distinguished the other case relied upon in the case of H.A. Shah & Co. v. CIT [1956] 30 ITR 618 (Bom.). 4.12 Referring to various courts of law, the Ld. CIT finally while canceling the registration observed as under: "Thus from the above discussion it is clear that if a decision or order is contrary to law or not warranted in the facts and circumstances of the case or runs contrary to the reasoning and result reached, or a mistaken view ....
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....egislature that their income becomes taxable. It has been deleted so as to withdraw exemption available to the Development Authorities so as to clarify the intention of the Legislature that their income becomes taxable. It has been noticed that entities operating on commercial lines are now claiming exemption on their income by taking recourse to the provisions of section 11 of the Act on the ground that they are charitable institutions. This is based on the argument that they are engaged in the 'advancement of an object of general public utility" as is included in the fourth limb of the current definition of 'charitable purpose. Such a claim, when made in respect of an activity carried out on commercial lines is contrary to the intention of the provisions. With a view to limiting the scope of the phrase "advancement of any other object of general public utility, sub section (15) of section 2 has been amended to provide that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, comme....
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....ounsel for the assessee relied upon the submissions made before the ld. CIT(A) in this regard. 6. The Ld. DR, on the other hand, relied upon the decision of the ld. CIT and decision of ITAT Amritsar Bench in the case of Jalandhar Development Authority (supra). 7. We have heard the rival contentions and perused the facts of the case, including section 12AA(3) of the Act, where Trust or Institution has been granted registration and subsequently the Commissioner is satisfied that the activities of such trust or institution are not genuine or are not being carried out in accordance with the objects of the trust or institution of such trust or institution, as the case may be , he shall, pass an order in writing canceling the registration of such trust or institution. Section 2(15) of the Act defines "charitable purpose" to include the advancement of any other object of general public utility. It is also not disputed that the Ld. CIT while granting registration u/s 12AA(3) of the act to the assessee had observed that he is satisfied that instrument does not exist in any trade, commerce or business. The order is dated 30.09.2009 whereas the amendment by Finance Act, 2008 is w.e.f. 0....
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.... the present case are different from the facts in the case of Jalandhar Development Authority (supra). The ld. counsel for the assessee argued and replied that the difference in the facts and circumstances of the present case with Jalandhar Development Authority (supra) is not there except that the registration had been granted in the case of Jalandhar Development Authority (supra) whereas in the present case, registration having been granted cannot be cancelled. Since the order of the CIT dated 30.09.2009 in the present case is after amendment to section 2(15) i.e. introduction of the first proviso was well before the Ld. CIT. 7.3 Considering the arguments of the ld. counsel for the assessee and on perusal of the facts of the present case with the facts in Jalandhar Development Authority's case (supra), we are of the view that facts in the present case are identical to the facts as in the case of Jalandhar Development Authority (supra). As regards the first proviso inserted in section 2(15) of the Act, we have given our views hereinabove that the Ld. CIT had not considered the first proviso to section 2(15) as well as the second proviso to section 2(15) while making the order f....
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....income of the Authority of a previous year. However, in view of the amendment, with effect from 01.04.2003, the Explanation "Local Authority" was defined to include only the Authorities enumerated in the Explanation to include Panchayat, Municipal Committee and District Board and Cantonment Board as referred in the said Explanation. 7.6 Also, at the same time, section 10(20A) which related to income of and Authority constituted in India by or under any law enacted for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages which before the amendment was not included in computing the total income, was omitted. Consequently, the benefit conferred by clause (20A) on such an Authority was taken away. Thus, in view of the fact that section 10(20A) was omitted and an Explanation was added to section 10(20) of the Act, enumerating the "Local Authorities" contemplated by section 10(20), the assessee could not claim any benefit under those provisions after April 1, 2003. The assessee subsequently claimed that its objects falls under the provisions of section 2(15) of the Act and....