TaxTMI 
TaxTMI 
TaxTMI 
2016 (5) TMI 168
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.... The order passed by the Deputy Director of Income tax (Exemptions), Circle 17(1), Bangalore under section 143(3) after withdrawal of the registration under 12A, is without jurisdiction, bad in law and liable to be quashed. 3. The learned Commissioner of Income tax (Appeals), Mysore has erred in concluding that the appellant is assessable in the status of 'Association of Persons'. The assessment made and the order passed on a wrong person i.e., under a different status, is bad in law and liable to be quashed. 4. The learned Commissioner of Income tax (Appeals), Mysore has erred in concluding that the appellant is not eligible for exemption under section 11 of the Income tax Act, 1961. 4.1 The learned Commissioner of Income tax (Appeals), Mysore has erred in concluding that (a) The activities carried on by the appellant are commercial in nature with an intention to make profits; (b) The appellant is hit by the proviso to section 2(15) read with section 13(8) of the Act. 4.2 On facts and in the circumstances of the case and law applicable, proviso to section 2(15) and section 13(8) are inapplicable and consequently exemption under section 11 is to be allowed as clai....
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....of the authorities for cancellation of registration and held that the registration cannot be cancelled without satisfaction of the conditions stipulated under Section 12AA(3) of the Act. The revenue challenged the order of this Tribunal before the Hon'ble jurisdictional High Court but could not succeed as the Hon'ble High Court vide its decision dt.7.11.2014 dismissed the appeal filed by the revenue and upheld the view taken by the Tribunal. Despite the restoration of the registration under Section 12A, the Assessing Officer denied the exemption under Section 11 of the Act on the ground that the assessee fall within the purview of proviso to Section 2(15) of the Act. The assessee challenged the action of the Assessing Officer before the CIT (Appeals). The CIT (Appeals) concurred with the finding of the Assessing Officer and held that the cancellation of Registration under Section 12A is not very crucial factor in deciding the taxability of the income of the assessee which is held to have been attracted by amended provisions of proviso to Section 2(15) rws 13(8) of the Act as applicable to the year under consideration. 4. Before us, the learned Authorised Representative of ....
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....this Tribunal in assessee's own case for the Assessment Year 2009-10. 5. On the other hand, the learned Departmental Representative has submitted that even if the proviso to Section 2(15) is held to be not applicable in the case of the assessee, the exemption under Section 11 is required to be examined as per the terms and conditions stipulated under the said provision and application of income by the assessee as required under the said provision. The learned D.R. has relied upon the orders of the authorities below. 6. We have heard the rival submissions as well as considered the relevant material on record. The assessee is a charitable institution and was granted Registration under Section 12A on 20.6.1988. The said registration is still subsists in view of the decision of this Tribunal as well as the Hon'ble jurisdictional High Court. As far as the issue regarding applicability of proviso to Section 2(15) of the Act is concerned, we note that this issue came up before this Tribunal for the Assessment Year 2009-10. The Tribunal after considering the objections and definitions of the assessee as per the KIADB Industrial Area Development Act has vide order dt.4.9.2015 in p....
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....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 on "No Profit - No Loss" basis. Functions: (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. Application of Appellant's funds & property 24. The funds of the assessee can only be used as per the pro....
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....rcumvented. 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 and economic development. It boosts the production and manufacturing segments. Employment would scale up; efficiencies stand enhanced and standardization becomes achievable. All these transformations translate into overall amelioration of the society and country as a whole. An institution with such a far sighted and development oriented objective is certainly one which benefits the public at large. T....
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....ngaged 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 promotion. The surplus, if any, arising from the activities are solely utilized for the achievement of its objects and no portion is utilized for distribution of any income or profits. In substance, the assessee neither earns any profits nor is it involved in the activities of trade, commerce or business. The activities of assessee are therefore charitable in nature. 34. As already mentioned,....
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....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 considered as existing for a charitable purpose. The decisions in Krupanidhi Educational Trust v DIT(E), ITA No. 86/2012 dt. 14.9.2012 - Bangalore ITAT; Loka Shikshana Trust v ClT [1975] 101 ITR 234 (SC), Cricket Association of Bengal v CIT [1959] 37 ITR 277 (Cal), CIT v. Breach Candy Swimming Bath Trust (1955) 27 ITR 279 (Born), The Trustees of the Tribune, In re (1939) 7 ITR 423 (PC) and para N....
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....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 was only consequent to the introduction of the proviso to Sec.2(15) of the Act by the Finance Act, 2008. Therefore the question that we need to be answered is as to whether the proviso to Sec.2(15) of the Act would be applicable to the case of the Assessee. 45. We shall now understand the approach to be adopted in coming to the conclusion as to whether the proviso to Sec.2(15) of ....
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....f 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 not. Similarly, while considering whether any activity is one of rendering any service in relation to any trade, commerce or business, the element of profit making is also very important. (iii) The meaning of the expression "charitable purposes" has to be examined in the context of "income", because, it is only when there is income the question of not includi....
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....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, then it would not be entitled to claim its object to be a 'charitable purpose'. On the flip side, where an institution is not driven primarily by a desire or motive to earn profits, but to do charity through the advancement of an object of general public utility, it cannot but be regarded as an institution established for charitable purposes.....
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....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 connected therewith. This makes it clear that any income generated by the Assessee does not find its way into the pockets of any individuals or entities. It is to be utilized fully for the purposes of the objects of the petitioner. 49. Keeping in mind the above factual aspects and the provisions of the KIDA Act, and principle laid down in the afor....
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....ns have not been accounted as they were not sale transactions and only lease transactions. The Assessing Officer did not accept the explanation and contention of the assessee and after giving the benefit of cost and development of the land, the Assessing Officer arrived at figure of Rs. 1.75 Crores being excess amount collected by the assessee in respect of lease transactions. The Assessing Officer made the addition of the same as understated income. On appeal, the CIT (Appeals) has confirmed the action of the Assessing Officer. 7.3 Before us, the learned Authorised Representative of the assessee has submitted that the assessee has already disclosed this amount of lease rentals in the accounts. He referred to the Schedule R to the balance sheet and submitted that the assessee has already shown the rent receipt to the extent of Rs. 2,26,47,745. Therefore the said rent receipt has already been included and part of the total receipts. The assessee has been recognizing the rent receipt proportionate to the lease period. Thus the learned Authorised Representative has submitted that the Assessing Officer has made the addition by considering the total lump-sum amount received by the asse....
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....e resulted avoidance of tax. Accordingly, we set aside the orders of the authorities below qua this issue and delete the additions made by the Assessing Officer. 8. Ground No.6 is regarding interest under Sections 234A & 234D which is consequential and mandatory. 9.1 The revenue has raised the following grounds : "1. The CIT (Appeals) has erred in ignoring the fact that the assessee has claimed depreciation on the assets the cost of acquisition of which was already claimed by the assessee and allowed by the Department as application of income under Section 11(1) in the respective year(supra)) of acquisition/purchase of such assets. 2. The CIT (Appeals) failed to appreciate the fact that allowance of depreciation on the assets tantamount to double deduction firstly in the form of allowing appreciation of income in the year(supra)) of acquisition/purchase of assets and secondly in the form of depreciation allowance over a period of usage of assets/several assessment years. 3. The CIT (Appeals) has erred in not appreciating the well settled legal position that the tenets of taxation would not allow double deduction in respect of the same amount/expenditure except in a case w....
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....s of the Hon'ble jurisdictional High Court as well as other High Courts. The learned Authorised Representative has pointed out that an identical issue has been considered by co-ordinate bench of this Tribunal in the case of DCIT Vs. Jyothi Charitable Trust vide order dt.11.6.2015 in ITA No.522/Bang/2014. Thus this issue is covered in favour of the assessee by various decisions of Hon'ble High Courts as well as by order of the co-ordinate bench. 9.4 On the other hand, learned Authorised Representative has relied upon the orders of authorities below. 9.5 Having considered the rival submissions and material on record, at the outset we note that this issue has been covered by the decision of co-ordinate Bench in the case of Jyothi Charitable Trust (supra) wherein it has been held in paras 7 to 9 as under : "7. We have heard the submissions of the ld. DR, who relied on the order of AO. We have considered the order of the AO. Identical issue came up for consideration before ITAT Bangalore Bench in the case of DDIT(E) v. Cutchi Memon Union (2013) 60 SOT 260 Bangalore ITAT, wherein similar issue has been dealt with by this Tribunal. In the aforesaid case, the assessee claimed d....