TaxTMI 
TaxTMI 
2017 (8) TMI 164
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....has been created with the object of general public utility which is a charitable object within the meaning of Section 2(15) of the Income Tax Act 1961. Ground No. 3: On the facts and circumstances of the case and in law, the learned CIT has grossly ignored to take into account the directions contained in order dated 14.07.2011 passed by the Hon'ble Income Tax-Appellate tribunal wherein the CIT was directed to take into account various case law before deciding the application u/s 12A(a) of the appellant. In the impugned order, the Ld. CIT has failed to take into account the case Law as directed by the Hon'ble Tribunal. Ground No. 4: On the facts and circumstances of the case and in law, the learned CIT has grossly erred in concluding that the activities of advancement of the object of general public utility by the Appellant Authority are undertaken/carried on in a totally commercial nature and hence the Authority is not entitled to registration u/s 12A (a) of the Income Tax Act, 1961. Ground No.5: On the facts and circumstances of the case and in law, the learned CIT has grossly erred in ignoring the fact that in the case....
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....s application was rejected by CIT Dehradun vide order dated 26.11.2010. This order was challenged before the coordinate bench in Appeal No. 271/Del/2011. This appeal was heard by the coordinate bench and set aside the order of the ld CIT with a direction to decide the issue de novo and in accordance with various decisions of coordinate benches of ITAT on this issue. Consequent to that ld CIT, Dehradun rejected the registration application of assessee made u/s 12A (a) of the Income Tax Act by order dated 05.11.2012. The main reasons for rejection were as under:- a. That the decisions mentioned in the order of coordinate bench were related to the period before the amendment in Finance Act 2008 w.e.f 01.04.2009 where the definition of 'charitable purposes' was amended. b. On enquiry into the objects of the assessee whether they are charitable or not for the purpose of granting registration it was noted by ld CIT that merely because the organization is set up by the Govt. it cannot be said to be set for „charitable purposes‟. c. It was further noted that the objects of the assessee are similar to the objects of Punjab Urban Planning Development Au....
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.... nor has she been able to comprehend the definition of "Charitable Purpose" as enshrined in Section 2(15) of the Act. 3. It is respectfully submitted that the appellant is entitled to registration u/s 12A of the Income Tax Act as its case is covered by the judgment of the Hon'ble Allahabad High Court in the case of "CIT Vs. Lucknow Development Authority" (ITA No. 149/2009) and "CIT Vs. UP Housing & Development Board" (ITA No. 114/2010) decided vide common order dated 16th September 2013 reported as (2013) 219 Taxman 162 (ANNEXURE A; Page 6-22). The aforesaid judgment of the Allahabad High Court has been followed by co-ordinate bench of this Hon'ble Tribunal in the case of "Khurja Development Authority Vs. CIT" (ITA No. 905/DEL/2011) (ANNEXURE B; Page 23-35). 4. The appellant, Mussoorie Dehradun Development Authority is a "Statutory Authority" established in the State of Uttaranchal. The Authority has been established under the provisions of the Uttar Pradesh Planning & Development Act, 1973 {hereinafter referred to as "the Act"} (ANNEXURE C; Page 36-48). Please note that the Uttar Pradesh Urban Planning & Development Act has been adopted by the State of Uttaranchal....
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....IT has failed to comprehend the definition of "Charitable Purpose" as enshrined in sub-section 15 of Section 2 of the Income Tax Act, 1961. The definition includes the Advancement of any other object of general Public Utility [Emphasis Supplied]. He has failed to appreciate that the definition is wide and all pervasive and further miserably failed to appreciate that development of the District by providing housing i.e. shelter to the homeless people, roads, development and maintenance of parks (boost to environment), providing sewage system (clean and healthy environment) are all objects for the welfare of the people of the District, as also these are objects of general public utility. SUBMISSIONS: 10. The impugned order passed by the Ld. CIT is erroneous both on facts and in Law and against the basic principal of justice and equity. There are many similar Authorities functioning in the States of Uttar Pradesh, Uttaranchal and other states of India which have been granted exemption u/s 12Aof the Act. 11. The Allahabad High Court in the case of CIT Vs. Lucknow Development Authority (ITA No. 149/2009) and CIT Vs. UP Housing & Development Board (ITA No. 114/....
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....elopment Authority as well as CBDT Circular No. 11/2008 were also relied upon by the revenue in the case of "Khurja Development Authority Vs. CIT", but were rejected by this Hon'ble Tribunal and reliance was placed on the order and judgment dated 16.09.2013 of the Allahabad High Court since the said judgment pertains to authorities situated in the State of UP and established under the provisions of the Uttar Pradesh Urban Planning and Development Act. PRAYER: In view of the aforesaid facts and submissions, it is most respectfully prayed that the present appeal be allowed and registration u/s 12AA of the Income Tax Act be granted to the appellant Authority." 6. He further filed a paper book wherein he submitted the audited accounts of the assessee for AY 2009-10 along with copy of notification as well as the show cause notice issued by ld CIT and reply of the assessee. Over and above, he also filed copy of decisions of various courts and Tribunals as under- 1. CIT Vs. Improvement Trust (2009) 308 ITR 361 (P&H) 2. CIT Vs. Gujarat maritime Board (2007) 295 ITR 561 (SC) 3. CIT, Lucknow Vs. Krishi Utpadan Mandi Samiti (2010) 1 All LJ 8....
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....ed to purposes other than religious or charitable purposes or ceases to be accumulated or set apart for application thereto in which case it shall be deemed to be the income of the year in which it is so applied or ceases to be so accumulated or set apart. In this sub-section "charitable purpose" includes relief of the poor, education, medical relief and the advancement of any other object of general public utility, (B) Section 2(15) of the Income Tax Act 1961 "Charitable purpose includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility not involving the carrying on of any activity for profit." (C } Clause 13{bb) inserted w.e.f. 1-4-1977 provided as under; "Nothing contained in section 11 or section 12 shall operate so as to exclude from the total income of the previous year of the person in receipt thereto (bb) in the case of a charitable trust or institution for the relief of the poor, education or medical relief, which carries on any business, any income derived from such business, unlessjhe business is carried on in the course of the actual carrying out of a primary purpose of th....
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....ncome of a trust or an institution, being profits and gains of business, unless the business is incidental to the attainment of the objectives of the trust or, as the case may be institution, and separate books of account are maintained by such trust or institution in respect of such business." (H) With effect from A.Y. 2009-10, section 2(15) provided as under "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: Provided further that the first proviso shall not apply if the aggregate va....
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.... aid. Entities who have these objects will continue to be eligible for exemption even if they incidentally carry on a commercial activity, subject, however, to the conditions stipulated under section 11(4A) or the seventh proviso to section 10(23) which are that : (i) the business should be incidental to the attainment of the objectives of the entity, and (ii) separate books of account should be maintained in respect of such business. Similarly, entities whose object is 'education' or 'medical relief would also continue to be eligible for exemption as charitable institutions even if they incidentally carry on a commercial activity subject to the conditions mentioned above. 3. The newly inserted proviso to section 2(15) will apply only to entities whose purpose is 'advancement of any other object of general public utility' i.e. the fourth limb of the definition of 'charitable purpose' contained in section 2(15). Hence, such entities will not be eligible for exemption under section 11 or under section 10(23C) of the Act if they carry on commercial activities. Whether such an entity is carrying on an activity in the natur....
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.... II. There was nothing vague about the company objects of general public utility such as promotion, protection, aiding and stimulation of trade and commerce, specify the modus or the steps by which the objects may be achieved or secured. III. The argument that it was only for the benefit stand scrutiny of the trading classes only did not. It cannot be said that a purpose would cease to be charitable even if public welfare is intended to be secured thereby if it includes the taking to steps to urge or oppose legislation affecting commerce, trade or manufacture. : If the primary purpose is advancement of objects of general public utility, it would remain charitable even if an incidental entry into the political domain for achieving that purpose e.g. promotion of or opposition to legislation concerning that purpose is contemplated. The object mentioned in the Memorandum of Association' was that the assessee may take steps to urge or oppose legislative pr other measures affecting trade, commerce, or manufacture. Such an ; object must be regarded as purely ancillary or subsidiary and not the primary object. 3.1.1 Analysis. This decision will not apply in AY 2009-....
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....f the value of licenses for import of foreign yarn and quotas for the purchase of indigenous yam. The assessee constructed a building out of the amounts received and the rent received from the tenants was an additional source of its income. It was contended on behalf of the revenue that it the means to achieve or carry out the object of general public utility involve the carrying on of any activity for profit, the purpose of the trust, though falling within the description "any other object of general public utility", would not be a charitable purpose and the income from business would not be exempt from tax. The Hon'ble Court (Per Majority 4: 1) ) held that: (From the Head 1. The contention that the objects of the assessee did not fall within the category of "advancement of any other object of general public utility" and were not charitable within the meaning of section 2(15) in that its members wore merely specified individuals who did not constitute a section of the public cannot be allowed to be raised in this reference. In a reference under s. 257 of the income Tax, Act, 1961 the Tribunal is not competent to refer to this Court a question in respect of wh....
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....ivity for profit is carried on in the course of the actual carrying out of the primary purpose of the trust or institution. But if the purpose of the trust or institution is such That it cannot be regarded as covered by the heads of "relief of the poor, education and medical relief but its claim to be a charitable purpose rests only on the last head "advancement of any other object of general public utility" then it requires, for its applicability, fulfillment of two conditions, namely, (i) the purpose of the trust or institution must be advancement of an object of general public utility; and (ii) the purpose must not involve the carrying on of any activity for profit' 5. The words not involving the carrying on of any activity for profit" qualify OF govern only the last head of charitable purpose and not the earlier three heads. 6. The meaning of the words "not involving the carrying on of any activity for profit" added in s. 2(15) of the 1961 Act is that when the purpose of a trust or institution is the advancement of an object of general public utility it is that object of general public utility and not its accomplishment which must not inv....
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....he business is carried on in the course of the actual carrying out of a primary purpose of the trust or institution Where, therefore, a charitable trust falling within any of the first three categories of charitable purpose set out in section 2(15) carries on business which is held in trust for the charitable purpose, income from such business would not be exempt by reason of section 13(1 )(bb) and section 11(4) would, therefore, have no application in the case of a charitable trust falling within any of the first three-heads of charitable purpose Similarly, on the construction contended for by the Revenue it would have no applicability in the case of a charitable trust falling under the last head of charitable purpose, because in such a case income from business would not be exempt since the purpose would cease to be charitable. The construction contended for by Revenue would have the effect of rendering Section 11(4) totally redundant after the enactment of section 13(1) (bb). A construction which renders a provision of the Act superfluous and reduces it to silence cannot be accepted. 12. If the language of a statutory provision is ambiguous and is capable of two constru....
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....e, it would not be collect to describe it as an activity for profit. But where an activity is carried on with the predominant object of earning profit, it would be an activity for profit, though it may be carried on in advancement of the charitable purpose of the trust or institution. Where an activity is earned on as a matter of advancement of the charitable purpose, it would not be incorrect to say as a matter of plain English grammar that the charitable purpose involves the carrying on such activity, but the predominant object of such activity must be to sub serve the charitable purpose and not to earn profit. 18. The test to be applied is whether the predominant object of the activity involved in carrying out the object of general public utility is to sub serve the charitable purpose or to earn profit. Where the predominant object of the activity is to carry out the charitable purpose and not to earn profit, it would not lose its character of a charitable purpose m-rely because some profit arises from the activity The exclusionary clause does not require that the activity must be carried on in such manner that it does not result in any profit. The restrictive condition....
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.... holds that the theory of the dominant or primary object of the trust u/s 31 (1) bb cc not be projected into the fourth head of charity, namely advancement of any other object of general public utility' so as to prohibit the carrying on of any business activity merely ancillary or incidental to the main object. The ' Apex Court held that section 13(l)bb prohibits business only in respect of relief of the poor, education or medical relief and therefore, section 11(4) has no application in such cases. If business is not allowed in respect of " any other object of general public utility " as well, section 11(4) will become redundant and an interpretation, which makes a provision redundant cannot be The decision interpreted the scope of words ' not involving / carrying on of any activity for profit v read with section 13(l)(bb) and section 11(4). These words were omitted w.e.f. 01.041984. In the present appeal we are concerned with the first proviso to section 2(15) which was introduced w.e.f. 1-4-2009 and explained by the circular dated 19-12-2008. The use of words 'Irrespective of the nature of use or application, or retention, of the income from such activity' me....
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...., the said decision has already been discussed and distinguished above. 5. The nature of receipts mentioned on page 11 of the order "under appeal establish that the activities of the appellant are in the nature of Trade, Commerce or Business. In the case of Jalandhar Development Authority (supra), the Hon'ble ITAT observed that the activities of development authority are similar to that, performed by big colonizers and developers is in this context that the CIT in the order under appeal on 12, observed that if exemption/registration is granted in respect of the activities of the authority, similar registration/exemption would have to be granted to every builder or colonizer establishing large townships. 8. The ld DR further relying on the decision of Hon‟ble Jammu and Kashmir High Court dated 12.11.2013 in Jammu Development Authority Vs. CIT and Punjab Urban Planning & Development Authority Vs. CIT of coordinate bench submitted that now the issue is squarely covered against the assessee in view of decision of honourable Jammu and Kashmir High court. 9. We have carefully considered the rival contentions and perused the relevant submissions put before us and ....
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....of Income-tax (Exemptions) [2012] 347 ITR 99 (Delhi) as under (page 113) : "Trade, as per the Webster's New Twentieth Century Dictionary (2nd edition), means, amongst others, 'a means of earning one's living, occupation or work'. In Black's Law Dictionary, 'trade' means a business which a person has learnt or he carries on for procuring subsistence or profit ; occupation or employment, etc. The meaning of 'commerce' as given by the Concise Oxford Dictionary is 'exchange of merchandise, specially on large scale'. In ordinary parlance, trade, and commerce carry with them the idea of purchase and sale with a view to make profit. If a person buys goods with a view to sell them for profit, it is an ordinary case of trade. If the transactions are on a large scale it is called commerce. Nobody can define the volume, which would convert a trade into commerce. For the purpose of the first proviso to section 2(15), trade is sufficient, therefore, this aspect is not required to be examined in detail. The word 'business' is the broadest term and is encompasses trade, commerce and other activities. Section 2(13) of t....
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....ct. It is brought about by a transaction between two or more persons. and, lastly, the business activity usually involves a twin activity. There is usually an element of reciprocity involved in a business transaction.' 17. In the said case, reliance and reference was made to State of Punjab v. Bajaj Electricals Ltd. [1968] 70 ITR 730 (SC) ; [1968] 2 SCR 536, Khoday Distilleries Ltd. v. State of Karnataka [1995] 1 SCC 574, Bharat Development P. Ltd. v. CIT [1982] 133 ITR 470 (Delhi), Barendra Prasad Ray v. ITO [1981] 129 ITR 295 (SC), State of Andhra Pradesh v. H. Abdul Bakshi and Bros. 15 STC 664 (SC), State of Gujarat v. Raipur Manufacturing Co. Ltd. 19 STC 1 (SC), Director of Supplies and Disposal v. Member, Board of Revenue 20 STC 398 (SC) and Mrs. Sarojini Rajah v. CIT [1969] 71 ITR 504 (Mad) to explain the terms "trade, commerce or business". 18. Referring to the concept and principle of "economic activity" that has gained some acceptability in European Union and England it was explained that the said principle is applicable to sales tax, value added tax, excise duty, etc., because these are not taxes on income but the taxable event occurs because of the ....
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....i) dated September 27, 2012, it was held that Bureau of Indian Standards (BIS) was carrying on charitable activities as described within the ambit of section 2(15) and was entitled to registration/notification under section 10(23C)(iv). We, however, note that there is one distinction between the present petitioner and BIS. BIS is a statutory authority created by the legislation and, therefore, their case and claim stands on a better footing but this does not imply that only statutory bodies can be treated as established for charitable purpose under section 2(15) of the Act. Such contention has not been raised and cannot be sustained/accepted." 12. The Hon‟ble high court further referred to circular No. 11 of 2008 issued by the Central board of direct taxes as under :- "Circular No. 11 of 2008 by the Central Board of Direct Taxes 21. It may be relevant to reproduce extract from Circular No. 11 of 2008, dated December 19, 2008, issued by the Central Board of Direct Taxes explaining the amendments to section 2(15) of the Act. The relevant portion of the circular reads as under (see [2009] 308 ITR (St.) 5 ) : "Section 2(15) of the Income-tax Act, 1961 ('A....
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....ss or the rendering of any service in relation to any trade, commerce or business." (emphasis supplied) 22. It is, evident from Circular No. 11 of 2008 that the new proviso of section 2(15) of the Act is applicable to the assesses who are engaged in commercial activities, i. e., carrying on business, trade or commerce, in the garb of "public utility" to avoid tax liability as it was noticed that the object of "general public utility" was sometimes only a mask or device to hide the true purpose which was "trade, commerce or business." 13. Now in the above context we analyze the objects of the assessee and the actual affairs of the assessee demonstrated in its annual account submitted before us. a. Firstly we analyze the accounts of the appellant placed before us for the year ended 31.03.2009. On perusal of the balance sheet it is noted that it has obtained seed capital or loan from UP Govt. Rs. 175073,000/- and has a infrastructure fund amounting to Rs. 268365207/-. It has also received advanced from customers of Rs. 637464659/-. It has also advanced against sale of land received from Doordarshan of Rs. 60 lakhs. According to the rules framed it received money f....
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.... details of various area development and guidelines. At page 79 of the paper book it is submitted certain basic principles of charging price of the property which is based on market rate. It has also specified at page No. 80 of its paper book regarding acquisition of land which is also at prevailing circle rate. Therefore it shows that it acquires the land for development at market rate and also sales the same after development at market rate. In fact it is doing similar objects which an infrastructure company does by acquiring the land in similar fashion. Therefore, there is no difference between the activity carried out by the assessee compared to activity carried out by any other private organization for profit. Therefore on reading the financials presented before us and the various projects demonstrated it is apparent that the activities of the assessee has „ profit motive‟ and therefore it is carrying on the business. 15. Coming to the decision cited by the ld Authorised Representative of the Hon‟ble Allahabad High Court in case of Lucknow Development Authority does not come to the rescue of the assessee as it does deal with the amendment to section 2(15) ....