TaxTMI 
TaxTMI 
TaxTMI 
2015 (10) TMI 481
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....es relief to the poor, education, medical relief and the advancement of any other object of general public utility" 4. The definition after the amendment reads as follows; "Charitable purpose" includes relief of the poor, education, medical relief, (preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest and the advancement of any other object of general public utility; Provided 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, commerce or business for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention of the income from such activity". 5. It can be seen from the proviso to Sec.2(15) which came into effect from 01-04-2009 that advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of a....
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....Tribunal. 10. We have heard the submissions of the learned counsel for the Assessee and the learned DR. 11. The learned counsel for the Assessee submitted that the AO had no jurisdiction to assess the Assessee after cancellation of the registration by the DIT (Exemptions). Notification No.880(E) dated 14.9.2001 granted jurisdiction to the Director of Income-tax (E) in case of assessees claiming exemption under section11 (being headquartered in Bangalore). A Deputy Director of' Income-tax (Exemptions) cannot assume jurisdiction unless so authorised. The assessment made and the order passed under section 143(3) by the learned Additional Director of Income tax (Exemptions) - Range 17, Bangalore in the case of' a non-charitable organization [as per the order passed under section I2AA(3)], is therefore bad in law and liable to be quashed. 12. The learned counsel for the Assessee further submitted that the order passed in the status of AOP (Trust) is bad in law. It was submitted by him that section 2(31) of the Act defines "person in an inclusive manner. Being inclusive in nature. It has to be given a broad meaning. Seven categories of persons are mentioned in section 2(31). These are....
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....R 183 (All) * CIT v. Suresh Chandra Gupta [1988] 173 ITR 407 (Raj) * Sri Nath Suresh Chand Ram Naresh v. CIT [2006] 280 ITR 396 (All) * CIT v. Ram Das Deokinandan Prasad (HUF) [2005] 277 ITR 197 (All)) * Karamshibhai M Thumar (HUF) v ITO, 12 DTR 534 (Ahd Tri) * Suraj Mal (HUF) v ITO (2007) 110 TTJ 834 (Del TM) 15. It was submitted that in view of the above, the order passed u/s. 143(3) is bad in law and liable to be quashed. 16. The next submission of the learned counsel for the Assessee was on the applicability of the proviso to Sec.2(15) of the Act to the Assessee. It was submitted that the development of industries is the duty of the State Government. Industries, trade and commerce, production and supply of goods, land and matters connected thereto are the domain of the State Government under List II - State list - Seventh schedule of the Constitution of India. The constitution of corporations, trusts, boards, etc for the purposes of local government is also within the powers of a state legislature under entry no. 5 of the State list. It is a bounden duty of the State Government to contribute towards the growth and development of' industries. 17. The development of indus....
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....lished through a State Government notification. The assessee is a creation of law. The law was enacted with certain specific objectives. Thus, the objectives for which the assessee is constituted was laid out even prior to its incorporation. The assessee and its activities are therefore ring fenced to this special Act, namely KIAD Act. 21. The State Government can give directions to the assessee, as in its opinion, are necessary or expedient for carrying out the purposes of the Act and it is the duty of the assessee to comply with such directions [section 17 of KIAD Act]. 22. It was next highlighted that the assessee carries on its activities in accordance with the provisions of KIAD Act. It does not have the unfettered power to carry on its activities. It functions within the broad framework of the objectives laid down h the KIAD Act. 23. The website of the assessee which outlines its Aims and objectives and 'Functions. It states: "Aims & Objectives: (a) Promote rapid and orderly development of industries in the stale. (b) Assist in implementation of policies of Government within the purview of KIAD Act. (c) Facilitate in establishing infrastructure projects. (d) Function....
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....at in the present case, the assessee is primarily engaged in 'promotion of industrial growth in Karnataka'. It is not covered within any of the specific categories enlisted in section 2(15). The question therefore is whether the assessee's objective is covered within the phrase 'advancement of any other object of general public utility'? 28. The objectives of the assessee are explicit and cannot he circumvented. The assessee is a creation of law, It is not formed or set-up by any person(s) for any pecuniary benefit or commercial motive. The assessee owes its genesis to KIAD Act, a State Government legislation. The assessee's incorporation. Functioning, powers and scope are set out in the KIAD Act. Being a creation of a special law, compliance with the provisions therein is mandatory. The statute repeatedly emphasizes the need to carry on activities having regard to the objects of the Act. The object is promotion of Industries. It assists in implementation of polices of Government within the purview of KIAD Act. There is establishment of Infrastructure projects. Above all, it is under direct surveillance of State Government. 29. Industrialization is an initiation of social reform ....
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....To summarize, the ld. counsel submitted that the assessee plays a vital role in supplementing the governmental efforts in boosting industrialization. The assessee is a creation of law constituted for the purpose of development of industries and exists for public good. Its control and management is vested with the State Government. The benefit arising from its activities may be shared by persons engaged in the industrial sector. This however does not detract from its charitable character. The object of the assessee is clear; the functions are ring fenced and powers are frame all with a view to achieve industrial development in Karnataka. Development of industries has been construed to be 'advancement of general public utility' by the Apex Court. Activities of the assessee are therefore to be regarded as covered within the operative provisions of section 2(15). 33. It was also submitted that assessee has continuously devoted itself to the promotion of industries in the State of Karnataka. It has not been formed and is not carrying on activities with a motive to distribute its surplus. There is no intention to make profits. The objects are to carry out Industrial and infrastructure p....
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....s of income over expenditure or the surplus remaining in the financial statements of the Board primarily arises on account of bank interests. These are excess funds available with the Board which are housed with the banks to generate passive interest income. Thus, the core activity of industrialization of lands (the alleged business activity) does not fetch profits; the source of income which generates surplus is from bank interests and thereby not generated on account of Board's normal course of activities. 37. In view of all the above, it was submitted by the ld. counsel for the assessee that the action of the AO affirmed by CIT(A) that the activities of the assessee are commercial in nature thereby attracting the proviso to section 2(15) is incorrect, contrary to facts, bad in law and liable to be quashed. 38. Without prejudice, the assessee submits that eleemosynary element is not essential element of charity. It is also not a necessary element in a charitable purpose that it should provide something for nothing or for less than it costs or for less than the ordinary price. The surplus generated. if it is held and applied for charitable purpose, the assessee has to be conside....
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..... The assessee undertakes development of industries and infrastructure in the state of Karnataka. It is not carrying on business; but executing the tasks assigned by the State Government under the KIAD legislation. There is no occasion for the office bearers to take the 'profit making' route as the funds and their deployment is under the surveillance of the State Government (through its office bearers/public servants). To conclude, the activities of the assessee do not constitute business. 42. The learned counsel for the Assessee referred to several judicial pronouncements. We will make a reference to those decisions at the appropriate place, to the extent it is necessary to dispose this appeal. 43. The learned DR placed strong reliance on the findings of the AO in the order of assessment and the order of the CIT(A). 44. We have given a very careful consideration to the rival submissions. The purpose for which the Assessee exists is for the 'advancement of any other object of general public utility". The fact that the Assessee enjoyed registration u/s.12AA of the Act in the past is itself sufficient to come to this conclusion. The withdrawn of registration u/s.12AA of the Act wa....
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....siness. Both these parts are further subject to the condition that the activities so carried out are for a cess or fee or any other consideration, irrespective of the nature or use or application or retention of the income from such activities. In other words, if, by virtue of a cess' or fee' or any other consideration, income is generated by any of the two sets of activities referred to above, the nature of use of such income or application or retention of such income is irrelevant for the purposes of construing the activities as charitable or not. (ii) If an activity in the nature of trade, commerce or business is carried on and it generates income, the fact that such income is applied for charitable purposes, would not make any difference and the activity would nonetheless not be regarded as being carried on for a charitable purpose. If a literal interpretation is to be given to the proviso, then it may be concluded that this fact would have no bearing on determining the nature of the activity carried on by the petitioner. But, in deciding whether any activity is in the nature of trade, commerce or business, it has to be examined whether there is an element of profit making or ....
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....give up the strict and literal interpretation sought to be given to the expression "charitable purpose" by the revenue. (viii) The expression "charitable purpose", as defined in Section 2(15) cannot be construed literally and in absolute terms. The correct interpretation of the proviso to Section 2(15) of the said Act would be that it carves out an exception from the charitable purpose of advancement of any other object of general public utility and that exception is limited to activities in the nature 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. In both the activities, in the nature of trade, commerce or business or the activity of rendering any service in relation to any trade, commerce or business, the dominant and the prime objective has to be seen. If the dominant and prime objective of the institution, which claims to have been established for charitable purposes, is profit making, whether its activities are directly in the nature of trade, commerce or business or indirectly in the rendering of any service in relation to any trade, commerce or business, the....
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....t for profit. 47. The main aim and object for which the Assessee was established is to (a) Promote rapid and orderly development of industries in the stale. (b)Assist in implementation of policies of Government within the purview of KIAD Act. (c) Facilitate in establishing infrastructure projects.(d)Function on "No Profit - No Loss" basis. For the above purpose, the Assessee (a)Acquire land and form industrial areas in the state.(b)Provide basic infrastructure in the industrial areas.(ç) Acquire land for Single Unit Complexes.(d)Acquire land for Government agencies for their schemes and infrastructure projects. The dominant and main object of the Assessee is charitable and not for making profits. 48. A look at the income stream of the Assessee clearly reveals that all the activities from which the Assessee derives income are an inherent part of the main object of the Assessee. It is clear from the facts of the case that profit making is not the driving force or objective of the Assessee. Rather the purpose for which the Assessee was created is to regulate and develop drinking water and drainage facilities in the urban areas of the State of Karnataka and for matters connect....