TaxTMI 
TaxTMI 
2015 (6) TMI 721
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....which was rejected by the DIT(E) vide his order dated 24/04/2007. 5. The assessee went in appeal before this Tribunal and the Tribunal vide its order dated 19/12/2008 remitted the issue back to the file of the DIT(E) with a direction to re-examine the application of the assessee for registration u/s 12A of the IT Act. 6. While examining the issue, which was set-aside by the Tribunal with a direction to decide the same on merits, the DIT(E) observed that the activity carried on by the assessee cannot be considered as charitable activity in terms of section 2(15) of the Act, as the main objective of the assessee company is to promote and execute housing schemes for the public in general with emphasis in rural areas. Such activity is not covered under 'charitable purposes' as defined in section 2(15) of the IT Act. The DIT(E) further observed that the other main objects as contained in the object clauses 2 to 4 relate to construction of building and development activities in the field of building construction and the object clause 5 pertains to rural development programme to be undertaken by the assessee corporation. Further, he observed that in addition to the above the....
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....that the basic intention of the assessee company is to earn profit out of its activities and to make payment of dividend out of the same to the concerned persons / authorities. Under these circumstances, the assessee company cannot be considered as non- profit organisation. It may be mentioned here that though the A.R has submitted that the corporation since inception has not earned profit, the same is not material. It is the primary intention of the assessee corporation which is important and has to be kept in mind while deciding such issue. The primary intention, as discussed above, is to earn profit and to declare dividend out of the same. Under these facts, the assessee corporation cannot be considered as a charitable institution and hence is not entitled for registration u/s.12AA of the Act. 9. In view of the foregoing discussions, the assessee company ie., Andhra Pradesh State Housing Corporation Ltd, thus, cannot be granted registration u/s.12AA of the Act. Hence, registration sought for u/s.12AA of the Act is refused to the assessee company in this case." 7. Aggrieved, once again, the assessee is in appeal before us. 8. Before us, the learned counsel for the assess....
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....f the development area for which it is constituted having perpetual succession and a common seal with power to acquire, hold and dispose of property, both movable, immovable and to contract; and shall by the said name sue and be sued." Section 5 of the said Act dealing with the objects and powers of an authority so constituted, reads as follows- "5. Objects and powers of the Authority - The object of Authority shall be to promote and secure the development of all or any of the areas comprised in the development area concerned according to plan and for that purpose, the Authority shall have the power to acquire, by way of purchase or otherwise, hold, manage, plan, develop and mortgage or otherwise dispose of land and other property, to carry out by or on its behalf building, engineering, mining and other operations, to execute works in connection with supply of water and electricity, disposal of sewerage and control of pollution, other services and amenities and generally to do anything necessary or expedient for purposes incidental thereof. (2) The Authority may, for the purpose of efficient performance of its functions, constitute as many committees as it thinks fit, in s....
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....includes relief to the poor, education, medical relief and advancement of any other object of general public utility. A strong contention was raised by the learned Counsel for the assessee that the assessee/PUDA is also executing the development of following works/infrastructures: (a) Development of rehri market (b) Water supply and sewerage (c) Development of sports complexes (d) Bridges (e) Bus queue shelters (f) Bus stands (g) Swimming pools (h) Community centres (i) Public toilets (j) Development of parks (k) Cremation grounds (l) Construction of schools, etc. Regarding the purpose of the Act, which is available at p. 13 of the paper book of the assessee and to which our attention was also drawn, it speaks about various amenities and utilities as has been mentioned in Section 2(b) of the said Act. The learned Counsel for the assessee during argument took a strong plea that on identical facts registration under Section 12A of the Act was accorded to Patiala Urban Planning & Development Authority, Patiala, vide order under Section 12AA of the Act, dt. 28th Sept., 2005 by the CIT, Patiala, the objects of which are ' identical to the present assess....
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.... by the assessee itself. To generate its funds for carrying out its objects, the assessee is acquiring lands, developing them and selling the plots to the general public who apply for the same. Even the economically weaker strata of the society is generally applying. It is not the case that the assessee is allotting houses to the poor masses free of cost. The Hon'ble apex Court in the case of Asstt. CIT v. Thanthi Trust (2001) 165 CTR (SC) 681 : (2001) 247 ITR 785 (SC) has deliberated upon the issue of charitable purposes wherein the founder of a daily newspaper created a trust in March, 1954 and the objects of the trust were originally to establish newspaper as an organ of educated public opinion for the Tamil reading public. In July, 1957, a supplementary deed making the trust irrevocable and Anr. supplementary deed for establishing and running a school/college for teaching journalism were added. The question before the Hon'ble Court was whether the income of the trust was exempt from income-tax during the relevant period, The Hon'ble apex Court while coming to a particular conclusion reversed the decision of the Hon'ble High Court of Madras and held that the trus....
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....e view that no chanty is involved and if any institution of public importance like schools, community centers 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 help it to achieve certain objects. It can be said that it is the duty of the Government to create/provide all these facilities to public at large, which is being done through his agency in a particular area. At the same time, the funds which are provided to the assessee by the Government is again a public money or generated from the public itself, so where is the charity? If the activities of the assessee and the arguments of both the learned Counsel are put in a juxtaposition, it can b....
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....ee. The Hon'ble apex Court in the case of CIT v. Bar Council of Maharashtra (supra) where the prime dominant purpose was for the advancement of object of public utility, it was held to be entitled to exemption. The learned Counsel for the assessee, during argument raised a plea that totality of circumstances has to be seen specially that all money goes with the State Government and not in private hands, the prices are fixed and the assessee is not a commercial organization and the predominant activity of the assessee is to develop infrastructure and contended that rule of consistency has to be seen for which reliance was placed upon the decisions pronounced in Union of India and Ors. v. Kaumudini Narayan Dalai and Anr. ,CTT v. Shivsagar Estate , CIT v. Federation of Indian Chambers of Commerce and Industry and also the decision in the case of Dy. CIT v. United Vanaspati Ltd. (2004) 83 TTJ (Chd)(TM) 201 : (2004) 88 ITD 313 (Chd)(TM). We are of the view that principles of res judicata do not apply to income- tax proceedings. However, we agree with the learned Counsel to the extent that equally important is the rule of consistency. We are of the view that consistency has to be see....
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....ion of the assessee. Likewise in the judicial pronouncements in New Life in Christ Evangelistic Association (NLC) v. CIT as relied by the assessee, it can be said that it is a religious trust, so not applicable to the present facts as the assessee is auctioning the plots on huge profits and even the Hon'ble Courts are intervening to enhance compensation on petitions filed by land owners. However, if the argument of the assessee is analysed on point of general public utility, still it can be said that commercial angle with profit motive is involved which has become predominant object of the assessee. Even if this issue is analysed as contended by the learned Counsel for the assessee that application of income is not the criteria in the light of the decision of Hon'ble High Court of Allahabad in the case of Fifth Generation Education Society v. CIT , still we are of the view that if the objects and real situation is analysed, the objects are not of charitable nature, Almost in every activity there is a scent of commercialization/profit motive but in the charitable institution no profit motive is involved and the service is done mainly with the intent of social/religious uplif....
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...., manage, plan, develop and mortgagee or otherwise dispose of land or other property or to carry out itself or in collaboration with any other agency or through any other agency on its behalf, building, engineering, mining and other operations to execute works in connection with supply of water, disposal of sewerage, control of pollution and other services and amenities and generally to do anything with the prior approval or on direction of the State Government, for carrying out the purposes of the Act." 13. At this juncture, it may be observed that the above objects noted by the Amritsar Bench of the Tribunal in the context of Jalandhar Development Authority, is almost identical to S.5 of the Andhra Pradesh Urban Areas (Development) Act, 1975, under which the assessee was created, and which we have already extracted hereinabove. Considering the contention of the assessee with regard to the charitable nature involved in its activities, and also taking into account the case-law cited before it in that behalf, held in conclusive portion of para 6.1 of its order as follows- "It is a well known fact that in some of the situations the provisions of law are misused in the names of ....
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....land on very higher rates and is earning as profit therefrom. A new trend has also 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 center, school 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....
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....a particular area. At the same time, the funds which are provided to the assessee by the Government is again a public money or generated form the public itself, so where is the charity? If the activities of the assessee and the arguments of both the learned counsel are put in a juxtaposition, it can be said that the objects of the assessee, though claimed to be charitable; but actually are of purely commercial nature where profit motive is involved. It is a known fact that the assessee is acquiring the land at very low prices and selling the same land on very high rates and is earning a profit therefrom. A new trend has also emerged that JDA, i.e. 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, we are of the view that 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." For the above reasons, among others, discussed at length and also observing that the....
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....of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use of application, or retention, of the income from such activity." 7.1. Further, as per Finance Act, 2010, after first proviso, second proviso has been added w.e.f. 01.04.2009, which is read as under: "Provided further that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is ten lakh rupees or less in the previous year". 7.2 As a matter of fact from the perusal of the order of the Ld. CIT, it appears that first proviso so inserted by the Finance Act, 2008 w.e.f. 01.04.2009 was not taken into consideration while granting registration vide order dated 30.09.2009. Therefore, in the facts and circumstances of the case, we concur with the views of the Ld. CIT, who had placed reliance on the decision of five Member Bench of Hon'ble Supreme Court in the case of A Distributors (Baroda) P. Ltd. vs. Union of India & Ors. reported in 155 ITR120 (SC), wherein it has been held to perpetuate an error is no heroism. To rectify....
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..... Ltd. vs. Union of India and Ors. 155 ITR 120 (SC). Therefore, in the facts and circumstances of the present case and following our order in the case of M/s. Jalandhar Development Authority (supra) being on identical facts, the registration u/s 12AA cannot be granted to the assessee and the Ld. CIT has rightly cancelled the registration so granted. 7.4. Also, we concur with the views of the Ld. CIT(A) vide para 3.2 to 6.2 of his order that prior to insertion of these provisos i.e. first and second proviso to section 2(15) of the Act, certain bodies were treated as 'charitable' on the ground of advancement of object of general public utility. However, after the insertion of the above proviso, the advancement of any other object of general public utility shall not be a 'charitable purposes' 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. d) For a cess or fee or any other consideration, irrespective of the nature of use or application or retention of income from such activity. 7.4.1. Therefore, the Institutions/Trus....
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..... It is at this juncture that the first proviso and second proviso were added by the Finance Act, 2008 w.e.f. 01.04.2009, as mentioned hereinabove. Therefore, after insertion of the said proviso, any institution carrying on of any activity in the nature of trade, commerce or business etc. as mentioned hereinabove, shall not be a charitable purpose. As per objects of the assessee, it is observed that the main object of the assessee is to promote and secure the development of local area and there is no charitable purpose or any activity for general public utility. 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 assessee. There is no real object of the assessee and there is no spending of the income exclusively for the purpose of charitable activities and profits of the assessee are not used for charitable purpose under the terms of the object and there is no obligation on the part of the assessee to spend on 'charitable purpose' only. Also as per clause 53 of the Jammu & Kashmir Development Act, on dissolution....
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....ion is identical to that of the said case decided by the coordinate bench in the case of Tirupathi Urban Development Authroity (supra). Further, as seen from the Memorandum of Association and Articles of Association filed by the assessee before us, the object of the assessee cannot be said that it is in the nature of general public utility and the objects stated therein make the assessee a commercial orginsation and there is no stipulation on utilization of income only for the purpose of charitable activities. The assessee being a commercial organisation just like any business entity engaged in the real estate business. The surplus funds generated by the assessee throughout various activities could be distributed as dividend and there is no restriction for declaration of dividend to the members of the assessee company as is evident from the Clause No. 99 of the Articles of Association. As the dominant object of the assessee was not charity, either its commercial activity carried on with profit motive and also there is no clause for application of income for charitable activities including relief to poor, education or medical relief and advancement of any other object of general pub....