TaxTMI 
TaxTMI 
2017 (8) TMI 164
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....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 of nearby Hardwar Development Authority, on an application for exemption u/s I2A (a) of the Income Tax ....
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....ench 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 Authority whose issue is decided by coordinate bench in 103 TTJ 988 wherein the order of rejection of application for registration u/s 12AA was ....
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....'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 vide notification dated November 2002 (ANNEXURE D; Page 49-50). 5. The objects of the Authority are contained in Section 7 of the Act. Section 7 is reproduced as under: "7. Objects of the Authority - The objects of the Authority shall be to promote and secure the development....
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....ervasive 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. 114/2010) decided vide common order dated 16th September 2013, reported as (2013) 219 Taxman 162 (ANNEXURE A; Page 6-22) has been pleased to hold the activities of the assessee authorities as charitable in nature. The authorities in question before the Allahabad High Court were established in the State of UP under the provisions of ....
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....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 817 4. Sabarmati Ashram Gaushala Trust Vs. ADIT (Exemption) ITA No. 671/Ahd/2013 order dated 01.02.2010 5. Pubjab Urban Planning & Development Authority Vs. CIT (2006) 103 TTJ (Chd) 988. 6. Jalandhar Development Authority Vs. CIT (2009) 124 TTJ (Asr) 598 7. Haridwar Development Authority Vs. CIT ITA NO. 3056 & 3013/Del/2004 for AY 2006-07. 8. Kurja Development Authority ....
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....rpose 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 the trust or institution" (D) The section 11(4) inserted w.e.f. 1-4-1979 provided as under "For the purposes of this section "property held under trust" includes a business undertaking so_ held, and where a claim is made that income of any such undertaking shall not be included in the total income of the persons in receipt thereof, the Income-tax Officer shall have power to determine the income of such undertaking in accordance with the provisions of this Act relating to assessment; and where any inc....
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....storic 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 value of the receipts from the activities referred to therein is ten lakh rupees or less in the previous year.". (I) Circular No. 11/2008, F. No.134/34//2008-TPL, dated 19-12-2008 explained the above amendment w.e.f. 1-4-2009 as under :- i "Section 2(15) of the Income Tax Act, 1961 ('Act') defines "charitable purpose includes the following: - (i) Relief of the poor (ii) Education (iii) Medical relief, and (iv) the advancement of any other object of general public utility. An entity with a charitable object of the above nature was eligible for exemption from tax unde....
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....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 nature of trade, commerce or business is a question of fact which will be decided based on the nature, scope, extent and frequency of the activity. 3.1. In the final analysis, however, whether the assessee has for its object 'the advancement of any other object of general public utility' is a question of fact. If such assessee is engaged in any activity in the nature of trade, commerce or business or renders any service in relation to trade, commerce or business, it would, not be entitled to claim that its object is charitable purpose. In such a case, the object of 'general public utility' will be only a mask or a device to hide the true purpose which is trade, commerce or....
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....hieving 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 2009-10 and after. The "charitable purpose" as per the Indian Income Tax Act, 1922 included "the advancement of any other object of general public utility". The restriction "not involving the carrying on of any activity for profit" was introduced in the Act of 1961. This restriction was omitted w.e.f. 1-4-1984 but section 11 (4A) introduced certain restrictions. With effect from 1-4-92, the section 11 (4A) was amended and income of any business undertaking was exempt if its income was applied for the objects of the trust. Thanthi Trust ETC ( 247 ITR 785 ( SC)} The Hon'ble Supreme Court in the case of Thanthi Trust did not allow exemption from 1979 -80 to 1991-92, but allowed the same for assessment year 1992-93 onwards due to amendment in s....
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....in 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 which there is no conflict of decisions amongst different High Courts nor can this Court travel beyond the particular question of law referred to it by the Tribunal on account of conflict in the decisions of the High Courts. 2. (a) It is well settled that where the main or primary objects are distributive, each and every one of the objects must be charitable in order that the trust of institution may be upheld as a valid charity. But if the primary or dominant purpose of a trust is charitable another object which by itself may not be charitable but which is merely ancillary or incidental to the primary or dominant purpose would not prevent it from being valid charity. 2 (b) The test which has to be applied is whether the object which is said to be non-charita....
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....d 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 involve the carrying on of any activity for profit. 7. If the argument of the Revenue that if the means to achieve 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 it right it would not be possible for a charitable trust whose purpose is promotion of an object of general public utility to carry on any activity for profit at all. 8. The consequence would be that even if a business is carried on by a trust or institution for the purpose of accomplishing or carrying out an object of general public utility and the income from such business is applicable only for achieving tha....
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....ruction 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 constructions that construction must be adopted which will give meaning and effect to the other Provisions of the enactment rather than that which will none. 13. If a business is held under trust or legal obligation to apply its income for promotion of an object of genera! public utility or it is carried on for the purpose of earning profit to be utilised exclusively for carrying out such charitable purpose, the last concluding words in section 2(15) would have no application and they would not deprive the trust or institution of its charitable character. What these last concluding words require is not that the trust or institution whose purpose is advancement of an object of general public utility should not carry on- any activity for profit at all but that the purpose of the trust or institution should not involve the carrying on of any activity f....
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....haritable 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 that the purpose should not involve the carrying on of any activity for profit would be satisfied if profit making is not the real object. 19. (a) The observations in Lok Shikshana Trust and Indian Chamber of Commerce that activity involved in carrying out the charitable purpose must not be motivated by a profit objective but it must be undertaken for the purpose of advancement or carrying out of the charitable purpose are correct. But the further observation that whenever an activity is carried on which yields profit, the inference must necessarily be drawn, in the absence of some indication to the contrary, that the activity is for profit and the charitable purpose involves the carrying on of an activity for profit is not correct. (b) It is not necessary that there must be a provision in the constitution of the trust or institution that the activity shall be carried on....
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....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' means the application of such receipts for charitable purpose and the theory of dominant purpose no longer applies if the object involves the prohibited activities. The decision in the case of Thanthi Trust ( supra ) confirms the view that applicability of decisions is to be seen with respect to provisions for which, a decision was rendered. The decision upon was based on the redundancy of section 11 (4), if the prohibition u/s 13(1 )(bb) is extended to the fourth category of Charitable Objects i.e. any other object of general public; utility " Moreover, the facts in the case of Surat Art Silk Cloth Manufacturers Association were different from facts in the case of appellant. The nature; and range of activities and objects are also different. In the case of Surat Art Silk Cloth (supra) receipts pertained to rental income, annual subscription from members and commission from members In the case of appellant....
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....at 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 judicial precedents relied upon. 10. Firstly we refer to the changes in law w.e.f. 01/04/2009 in provisions of section 2 (15) of the income tax act. It is now as under :- (15) "charitable purpose" includes relief of the poor, education, medical relief, 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 ; (underline supplied by us) 11. In the present case claim of the assessee is that it is an urban development authority engaged in the object of „advancement of any other object of general public ut....
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....erefore, 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 the Income-tax Act defines the term 'business' as under : '2. Definitions.-(13) "business"' includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture.' The word 'business' is a word of large and indefinite import. Section 2(13) defines business to include any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture. The intention of the Legislature is to make the definition extensive as the term 'inclusive' has been used. The Legislature has deliberately departed from giving a definite import to the term 'business' but made reference to several other general terms like 'trade', 'commerce', 'manufacture' and 'adventure or concern in the nature of trade, commerce and manufacture'. In Black's Law Dictionary, sixth edition, the word 'business' has been defined as under : 'Employment, occu....
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....e 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 "economic activity" involved. Even if a person/ organization is carrying on trading/business on "no loss no profit" principle, it may be liable to pay taxes or comply with the statute when the charge, or incident of tax, is on the "economic activity". The words "trade, commerce and business" are etymological chameleon and suit their meanings to the context in which they are found. Five tests propounded in Customs and Excise Commissioners v. Lord Fisher [1981] STC 238 and the decision in CST v. Sai Publication Fund [2002] 258 ITR 70 (SC) ; [2002] 4 SCC 57 was quoted. 19. The final and determining factors, it was observed was consequential profit motive or purpose behind the activity and when an activity is trade, commerce or business was elucidated in Institute of Chartered Accountants of India v. Director-General of Income-tax (Exemptions) [2012] 347 ITR 99 (Delhi) in the following words (page 123) : "Section 2(15) defines the term 'charitable purpose'. Therefore, while construing the term 'business' for the said s....
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....of the circular reads as under (see [2009] 308 ITR (St.) 5 ) : "Section 2(15) of the Income-tax Act, 1961 ('Act') defines 'charitable purpose' to include the following : (i) relief of the poor (ii) education (iii) medical relief, and (iv) the advancement of any other object of general public utility. 2. An entity with a charitable object of the above nature was eligible for exemption from tax under section 11 or alternatively under section 10(23C) of the Act. However, it was seen that a number of entities who were engaged in commercial activities were also claiming exemption on the ground that such activities were for the advancement of objects of general public utility in terms of the fourth limb of the definition of 'charitable purpose'. Therefore, section 2(15) was amended vide Finance Act, 2008, by adding a proviso 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 s....
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.... 60 lakhs. According to the rules framed it received money for the land at the market rates from the customers for sale of properties. b. Its assets are mainly purchases of land being 11 properties amounting to in all to Rs. 122905629/-. It has also capital projects under higher purchase schemes amounting to Rs. 452352101/-. It has also fixed deposit receipts with the bank amounting to Rs. 282894604/-. this facts shows that lands is also purchased at Market rates and it also finance the projects on commercial basis under hire purchase scheme as any other ordinary business entity. c. On analysis of the income and expenditure account it has earned compounding fees, development fees, land conversion charges income from housing schemes, supervisions fees totaling in all to Rs. 119163186/-. It has also incurred an expenditure of Rs. 61913661/- resulting into profit of Rs. 57249524/- titled as excess of income over expenditure. This shows that its income is from sale of projects predominantly which is at market rates to the bidders who succeeds in auction proceedings. It is apparent that it has earned used huge profits therefore it is working for profit. d. While filing the retu....