TaxTMI 
TaxTMI 
2016 (7) TMI 1188
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....is liable to be quashed. 2. Because on the facts and in the circumstances of the case, the Ld CIT (Exemption,) grossly erre4d in law and facts in rejecting the application filed by the assessee, without lawfully appreciating that the assessee is a statutory authority constituted under section 3 of the Uttar Pradesh Industrial Development Act, 1976 (UPIDA) and is duly notified by the Hon'ble Governor of Uttar Pradesh as an Industri9al Township under Article 243Q of the Constitution of India; and is statutorily mandated by section 6 of UPIDA for rendering public utility services, satisfying the requirements of section 2(15) of the Income Tax Act and hence entitled to be g ranted registration under section 12AA of the Act. 3. Because on the facts and in the circumstances of the case, the Ld. CIT (Exemption), grossly erred in law and on facts in treating the assessee as a commercial business entity, whereas the assessee, being a statutory authority notified under Article 243Q of the Constitution of India, is obliged to perform its functions as declared under Schedule XII prescribed under Article 243W of the Constitution of India and hence cannot be treated as Commerci....
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....ons of Chapter IXA of the Constitution of India, get attracted or have been incorrectly interpreted by the Ld CIT (Exemption) and hence on such premise the order being based upon relevant considerations, deserves to be quashed. 8. Because on the facts and in the circumstances of the case, the impugned order of the Ld CIT (Exemption), is liable to be quashed as the same is made by incorrectly observing that proper details were not supplied by the assessee, whereas in contrast, all requisite details were supplied by the assessee before the Ld CIT (Exemption) and the Ld CIT (Exemptions) has rather passed he impugned order in a premeditated and biased manner, violating the principles of Natural Justice, as the order is passed on the same date on which the hearing was fixed and hence the order is liable to be quashed on this court. 9. Because on the facts and in the circumstances of the case, the LD CIT (Exemption), grossly erred in law and on facts in rejecting the application filed by the assessee seeking grant of Registration U/s 12AA of the Income Tax Act, 1961, without appreciating that the Books of Account of the Assessee are duly audited by the State Government ....
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.... of the Hon'ble Jurisdictional High Court of Allahabad, in the case of CIT(E) Vs Lucknow Development Authority, (LDA) dated 16.09.2013 passed in ITA No. 149 of 2009 and other related appeals. The Ld. Senior Counsel, further drawn our attention towards relevant operative part of the said decision and pointed out that in that case it was held that the appellant (LDA) was established under the provisions of the Uttar Pradesh Planning and Development Act, 1973 (for short UPUPDA) and thus it was "Statutory Authority" and prior to 01.04.2003 the appellant was enjoying exemption under Section 10 (20A) and Section 10 (29) of the Act, and when these provisions were amended with effect from 01.04.2003 then the necessity arose to registrar the authority under Section 12A of the Act. The Ld. Counsel further pointed out that the present appellant has been created under the provisions of (UP) Industrial Area Development Act, 1976 (for short UPIDA) and in this Act the provisions of Uttar Pradesh Urban Planning and Development Act, 1973 has been borrowed and used by the legislation and the Act of 1976 by which present appellant has been created and the provisions in both the acts are perimateria t....
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....d by the State Government for the purpose and make them available for undertakings to establish themselves is not a government company within the meaning section 617 of the Companies Act, 1956 nor the provisions of said Act, can be said to apply to the corporation because under the provisions contained in section 616 of the Companies Act, the provisions of that Act will apply to a company governed by any special Act. The Ld Counsel vehemently contended that for the purpose of evaluation of objects and activities of the present appellant the provisions of UPIDA, has to be seen and the functions and powers of the appellant are to be gathered from the said Act, which created the existence of appellant for the development of industries in the UP state. 8. The Ld Senior Counsel further pointed out that the CIT(E) rejected application of the appellant for grant of registration under Section 12A of the Act has been dismissed by drawing a conclusion which is clearly against the ratio of the relevant decisions and thus the same cannot be held as sustainable. The Ld Senior Counsel vehemently pointed out that observations in para 9 to 13 of the impugned order the CIT(E) has considered irre....
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....me land is being sold at a premium at high price to the perspective buyers, therefore it is clear that the activities of the appellant are profit motive which cannot be said to a activity of charitable purpose of general public utility. The Ld DR further pointed out that however, on dissolution of the authority all assets shall be transferred to the government and there is no restriction on the further use of these assets by the government and there is no restriction regarding utilization of the left property only for charitable purposes therefore the appellant cannot be term as a charitable organization. 11. The LD DR also drawn our attention towards second part of para 7 of the impugned order and submitted that although objects of the appellant claimed to be charitable, but in fact same are purely of commercial nature with a profit motive because the assessee has been acquiring land at a very low price selling developed properties at a very high rate by adding the premium, therefore motive of profit earning is clear from such activity. The Ld DR strenuously pointed out that after analyzing all facts and circumstances of the case in the light of relevant provisions the CIT(E) r....
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....etails, it is submitted that the details put on record have been thoroughly considered by the Ld. Commissioner. The Ld DR also contended that a speaking order has been passed refusing the registration and giving the details of business activity carried on by the appellant and reasons as to why the activity of the appellant cannot be considered to be a charitable activity. 14. During the last round of hearing the LD DR pointed out that as per decision of Hon'ble Jurisdictional High Court dated 28.02.2011 (supra) the appellant is not a local authority under section 10(20) of the Act, and the assessee is filing Income Tax Return by claiming exemption under Section 10 (20) of the Act, which shows the falsity on the part of the assessee. The Ld DR also pointed out that the assessee filed application seeking registration under section 12A of the Act on 15.05.2015 before CIT(E) Lucknow and it should have been filed with Principle Commissioner of Income Tax (PCIT) Noida as the assessing officer of the appellant is DCIT Circle 6, Noida which falls within the administrative control of PCIT Noida and thus application has been filed by the appellant before CIT(E) Lucknow, who has no valid j....
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.... of general public utility, it cannot but be regarded as an institution established for charitable purposes. 18. The Ld Senior Counsel also pointed out that as per decision of Hon'ble Supreme Court in the case of CIT(E) Vs Gujarat Maritime Board reported as (2008) 166 Taxman 58 (SC) and contended that in this case it was held that when assessee was statutory authority established under Special Act of State of Gujarat and management and control of the assessee was essentially with the state government having no profit motive then the assessee cannot be precluded from claming exemption under Section 11(1) of the Act, in the light of definition of words "charitable purposes" as defined under Section 12 (15) of the Act, even if it has ceased to be a local authorities under Section 10(20) of the Act, and in the similar facts and circumstances of the present case the appellant is ceased to be exist as a local authority under Section 10(20) of the Act, by the order of Hon'ble High Court dated 28.02.2011 but it is entitled for exemption under Section 11(1) of the Act, by establishing that the predominant purpose of the appellant is development of industrial areas and industrials zones i....
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....ellant has been rejected mainly on the following grounds: (i) that the applicant authority could not produce, book, bank statement and vouchers in respect of expenses claimed by the applicant for verification of the activities of the trust and in absence of same it could not be ascertained if the applicant is involved in any charitable activities as claimed by it. (ii) The CIT(E) also observed that the applicant authority is not carrying any charitable activity as the applicant has got income from lease rent, processing fee, time extension charges, transfer charges, rent permission charges, building plan fee, parking, toll bridge, forfeiture charges, water, swear charges, forms and penalty etc. like other private builders/colonizers. (iii) The assessee could not produce details of activity undertaken during FY 2014-15 in spite of many opportunities provided to it to submit basis of costing of various plots/flats along with its sale price in order to ascertain claim of the applicant regarding charitable activities but the assessee failed to reply in this regard. (iv) It was also observed by the CIT(E) that in the return of income the assessee/appl....
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.... (a) Call for such documents or information from the trust or institution as he thinks necessary in order to satisfy himself about the genuineness of activities of the trust or institution and may also make such inquiries as he may deem necessary in this behalf and (b) After satisfying himself about the objects of the trust or institution and the genuineness of its activities he- (i) shall pass an order in writing registering the trust or institution; (ii) shall if he is not so satisfied, pass an order in writing refusing to register the trust or institution. And a copy of such order shall be sent to the applicant: 22. In view of above provision, in our humble understanding for adjudication of application seeking registration under section 12A of the Act, the granting authority has to satisfy himself about the genuineness of the activities of the applicant and he may also make such inquiries as he may deem necessary in this behalf and after satisfying himself about the objects of the applicant and genuineness of its activities, he shall pass an order in writing registering the applicant under section 12A of the Act. Thus, in the light of above man....
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....when we proceed to analyze facts and circumstances of the present case then we find that the main contention of Ld CIT DR is that as per order of Hon'ble High Court of Allahabad dated 28.02.2011 (Supra) after 01.03.2003 applicant authority is not a "local authority" within the meaning of section 10(20) of the Act. On this legal contention it has been submitted by the Ld Senior counsel appearing on behalf of the appellant, that in the case of CIT VS Gujarat Maritime Board (Supra) the Hon'ble Supreme Court has held that section 10(20) and section 11 of the Act operate in totally different spares and even if the board (applicant of that case) has seized to be a local authority, then also it is not precluded from claiming exemption under section 11(1) of the Act, and therefore, we have to read section 11(1) of the Act, in the light of definition of the words "charitable purposes" as defined under section 2(15) of the Act. In this decision Hon'ble Supreme Court held that the assessee was establish for the predominant purpose of development of minor ports in the state of Gujarat, the management of control which was essentially with the state government and there was no profit motive, as ....
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....proposed to be provided by an industrial establishment in that area and such other factors as he may deem fit, specify to be an industrial township. 40. The State Government has issued a notification dated 24 December 2001 in exercise of the powers conferred under the proviso to clause (1) of the Article 243-Q of the Constitution. The said notification provides that having regard to the size of NOIDA which has been declared to be an Industrial Development Area by a notification dated 17 April 1976 and the municipal services being provided by NOIDA, the Governor is pleased to specify that NOIDA would be an "Industrial Township" with effect from the date of publication of the notification. This clearly means that instead of Municipal Corporation providing services, NOIDA would provide the said services and if that be so, then as observed by the Supreme court in S.S. Dhanoa (supra), NOIDA will owe its existence to an Act of the State. 25. In the light of above observations of Hon'ble Jurisdictional High Court, the creation and existence of present applicant is under the act of UP State i.e. UPIDA 1976, which is providing services of public utilities as a corporation akin t....
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....t, 1973, the assessee's object is "an act to provide for the development of certain areas of Uttar Pradesh according to plan and for matter ancillary thereto". The objects of the development authority were referred as per section 7 of the said 1973 Act. The objects shall be to promote and secure the development of the area according to plan and for that purpose the authority shall have the power to acquire, hold manage and disposed off land and other property to carry out building, engineering, mining and other operations to execute works in connection with the supply of water and electricity, to dispose of sewage and to provide and maintain other services and amenities and generally to do anything necessary or expedient for purposes of such development and for purposes incidental thereto. 27. In that case of Lucknow Development Authority, (Supra) it was also pointed out that as per section 58 of the said Act of 1973, in case of dissolution of the authority the entire assets will be vested in the state government so no profit of interest is involve. It was also noticed that upto AY 2002-03 the authority was enjoying exemption under section 10 (20A) of the Act, and in consequent ....
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....e or conclusive. It is subject to control of Sections 60 to 63. If it is found by keeping in view the provisions of Sections 60 to 63 that it is not so includible then such income does not qualify for any relief. The contention that the assessee are earning profit has no merit as per the ratio laid down in the case Sarafa Association vs. CIT, [2007] 294 ITR 19 262 (MP), where it was observed that "the promotion of commercial trade is a charitable purpose under Section 2(15) of the Act". In the case of Director, ITO vs. Govinda, 315 ITR 237 (Mad), it was observed that the construction of commercial complex by charitable trust is eligible. If the objects of the "Authority" is charitable as public utility then the benefit being a charitable trust is eligible as per the ratio laid down in the case of CIT vs. Gujarat Maritime Board, [2007] 295 ITR 561 (SC), where it was observed that: "... in Section 2(15), namely, "any other object of general public utility". From the said decisions it emerges that the said expression is of the widest connotation. The word "general" in the said expression means pertaining to a whole class. Therefore, advancement of any object of benefit to the public o....
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....lated therein are fulfilled. Thus, granting of registration under Section 12AA denotes that the conditions laid down in Section 12A stand fulfilled. The effect of such a certificate of registration under Section 12AAA, therefore, cannot be ignored or wished away by the Assessing Officer by adopting a stand that the trust or institution is not fulfilling the conditions for applicability of Sections 11 & 12. In the case of Gestetner Duplicators P. Ltd. vs. CIT [1979] 117 ITR 1 (SC), the Apex Court was called upon to determine as to whether the contribution made by the employer should be treated as a business expenditure, the requirement being contribution should be made to a recognized provident fund. Needless to mention that this Hon'ble Court in the case of CIT vs. M/s. U.P. Forest Corporation Ltd., in Income Tax Appeal No. 70 of 2009 observed that the Forest Corporation being an statutory entity is entitled 21 for the registration under Section 12A of the Act. The said observations was upheld by the Hon'ble Apex Court vide its order dated 12.05.2011 in Special Leave Petition No. (Civil) No. 2590/2011. We may also like to refer a C.B.D.T. Circular No. 11/2008 dated 19.12.20....
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....ing infrastructure, development and reserve fund IDRF as per the notification dated 15.01.1998, the money transferred to this funds is to be utilized for the purpose of project as specified by the committed having constituted by the State Government under the said notification and the same could not be treated to be belonging to the "Authority" or the receipt is taxable nature in its hands. For this reason also, it appears that the funds are utilized for general utility. Moreover, in the instant case, the Assessing Officer has not given any defective in computation of income as per Section 11 as submitted in Form-XB, but observed that the activities of the assessee are not charitable. The activities of the assessees are genuine. So, then it is so, then we find no reason to interfere with impugned orders passed by the Tribunal. The same are hereby sustained along with reasons mentioned therein. The answer to the substantial questions of law are in favour of the assessee and against the department. 23 In view of above, all the appeals filed by the department are dismissed, as stated above. OrderDate:16/09/2013." 29. In the case of CIT VS Andhra Pradesh State Road Transpor....
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....lant development of the industrial development area which would be undertaken by the authority working as a municipal corporation in the specified area given for the purpose of industrial area development in the state. 32. As per section 20 of the UPIDA 1976, the financial activities of the authority regarding its funds would be conducted and operated in following manner: 20. Fund of the Authority- (1) The authority shall have and maintain its own fund to which shall be credited- (a) all moneys received by the Authority from the State Government by way to grants, loans advances or otherwise; (b) all moneys borrowed by the Authority from sources other than the State Government by way of loans or debentures; (c) all fee, tolls and charges received by the Authority under this Act; (d) all moneys received by the Authority from the disposal of lands, buildings and other properties movable and immovable; and (e) all moneys received by the Authority by way of rents and profits or in any other manner or from any other sources (2) The fund shall be applied towards meeting the expenses incurred by the Authority in the....
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....ate government. It has been further provided that all liabilities which are enforceable against the authority shall be enforceable against the state government and for the purpose of carrying out any development which has not been duly carried out by the authority and for the purpose of realizing properties, funds and dues referred in clause (a), the functions of the authority shall be discharged by the state government. 34. We may point out that under Article 243-P clause (e) of the Constitution of India "Municipality" has been defined as "means an institution of self-government constituted under Article 243-Q" and under Article 243-W the legislator of the state may by passing laws bestow and empower the municipalities with such powers and authority as may be necessary to enable them to functions as a entity of self-government and such law may also contends provisions for the devolution of the powers and responsibilities imposed upon the municipalities, subject to such conditions as may be prescribed their with respect to the preparation of plans for the economic development and social justice for the public at large. It has been also provided that the performance of functions ....
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.... land and it selling after development is not a predomient object of the authority akin to the private developers and we have no hesitation to hold that such activity as alleged by the CIT(E) is not a main activity with the profit motive but the same an incidental activity to sub-serve and to achieve the charitable objects of general public utility as per mandate of the UPIDA Act, 1976. 37. At this juncture, the ratio of the decision of Hon'ble high Court of Delhi in the case of India Trade Promotion Organization VS DGIT(E) (supra), as relied by the appellant, supports the contentions of the assessee wherein it has been held that the amendment of section 2(15) of the Act, inserted by the finance Act, 2008 has been read down by the High Court by observing that when primary and dominant object of the institution is to advance general public utility activities then income generated by incidental commercial activities does not disentitle the applicant/appellant for registration 12A of the Act, as charitable institution is entitled to exemption. In the present case the dominant and prime objects of the applicant was to be seen by the CIT(E) but he has dismissed application of the aut....
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....cilities of general public utility without any profit motive therefore it was held that the predominant object of the authority created under UPUPDA Act, 1973, is not profit earning therefore it was held that it is entitled for registration of under section 12A of the Act. We further observed that the Ld CIT DR has not disputed this factum that the provisions of UPUPDA, Act 1973 are paremateria to the provisions of UPIDA Act, 1976 and thus ratio of the decision of Hon'ble Jurisdictional High Court in the case of Lucknow Development Authority (Supra) and order of the tribunal in the case of Haridwar Development Authority (Supra) are applicable in favour of the assessee. 40. On the basis of forgoing discussion, we reach to a logical conclusion that the CIT(E) dismissed application of assessee for grant of registration under section 12A of the Act, by considering the irrelevant fact and by taking a hyper technical approach and he has not followed procedure for grant of registration as prescribed under section 12AA of the Act. At the same, we observed that the appellant successfully demonstrated that it has been created by the special act of the state i.e. UPIDA 1976 for the purpose....