2015 (12) TMI 1745
X X X X Extracts X X X X
X X X X Extracts X X X X
....were not charitable in nature negated the judgment of the jurisdictional Punjab & Haryana High Court in the case of Improvement Trust Moga wherein the Hon'ble High Court has held the objects of the Improvement Trust as Charitable and of General Public utility and approved the order of the Tribunal for granting registration u/s 12A. 4. That both CIT(A) and AO were not justified in holding that the trust was carrying on the business in view of the amended provisions of section 2(15). They failed to appreciate that development and providing of Housing was the object of the trust which was for the general welfare of the public and recognized by the CIT while granting registration and approved by the High Court. 5. That the CIT(A) has wrongly upheld the action of the AO in treating the surplus of Rs. 3,36,90,540/- as income of the trust against the nil income returned as per the provision of section 11 & 12. 6. That without prejudice to the above grounds in case business income was to be worked out all the expense should have been set off against the income. 2. At the outset it may be stated that there was a delay of 2 days in filing the appeal. An application for condoning the dela....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to claim exemption under section 11 of the Act. The AO further held that the omission of section 10(20A) showed the intention of the legislature in not granting exemption to any authority constituted in India by or under any law for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of city, towns and villages. The AO therefore denied the assessee exemption under section 11 of the Act and brought to tax income over expenditure amounting to Rs. 3,36,90,540/-. The AO also took the status of the assessee as "artificial judicial person" and not AOP as claimed, following the Judgment of Hon'ble ITAT Chandigarh Bench, in ITA No. 545/Chd/2009 dt. 29/01/2010 in the case of Improvement Trust Patiala. 4. The matter was taken-up in appeal before the Ld. CIT(A) who vide his order dated 26-08-14 upheld the order of the A.O. denying the exemption claimed u/s 11 of the Act, by holding as follows: "looking into the entirety of the facts of the case I have the opinion that the appellant is engaged in an activity in the case of Trade, commerce and business and not for the advancement of any other object of gener....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ees case. Adverting to the decision in the case of Hoshiarpur Improvement Trust(supra) we find that the Hon'ble Bench interpreted the provision of section 2 (15) in detail and held at para 17 of its order that where activities in the nature of trade/ commerce/business are incidental to the main object of Advancement of general public utility, the proviso to section 2(15) is not attracted. The relevant para 17 of the order, is reproduced hereunder: "17. as long as the object of general public utility is not merely a mask to hide true purpose or rendering of any service in relation thereto, and where such services are being rendered as purely incidental to or as subservient to the main objective of 'general public utility', the carrying on of bonafide activities in furtherance of such objectives of 'general public utility' cannot be hit by the proviso to s. 2(15) Thereafter the Hon'ble Bench applied the aforestated proposition to the facts of the case and held that the primary objective of the assessee trust was advancement of general public utility and the activities in the nature of business carried out by it were primarily to serve this purpose. The Hon'ble Bench held that the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e of 'profit making activities' a little later, but, suffice to say, that on the admitted facts of this case, so far period prior to 1st April 2009 is concerned and for the reasons set out above, the benefit of Section 11 read with Section 2(15) could not have been declined at all. 32. Turning once again to the amendments brought on the statue with effect from 1st April 2009, we have to understand that there are the two mutually exclusive situations in which business activities are carried out by the assesse trust - one, in which "the object of 'general public utility' will only be a mask or a device to hide the true purpose which is trade, commerce, or business etc" [referred to in the CBDT circular no. 11 dated 19th December 2008 issued at the point of time when first proviso to Section 2(15) was introduced]; and - second, in which any activities in the nature of trade, commerce or business etc are "undertaken in the course of actual carrying out of such advancement of any other object of general public utility", [insertion of new proviso to replace first and second proviso to section 2(15)- effective 1st April 2016 i.e. assessment year 2016- 17]. As for the first category, post....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Hon'ble Bench further held at para 33, 35 and 36, of its order that profit making was not the main object of the assessee trust. 33. We must, however, also deal with the fundamental allegation of the revenue authorities that the assessee has sold residential and commercial units and residential and commercial lands "just to earn profit" 35. While dealing with the profit motive allegation of the revenue authorities, it is essential to appreciate the difference that profit on sale does not essentially and necessarily imply profit motive in activities of the assessee trust. What i s important is the motive or predominant object of the activities. As we do so, we may only make a note of the following observations made by a coordinate bench decision in the case of Devki Devi Foundation Vs DIT [(2015) 56 taxmann.com 56 (Delhi)]: "29..............................The soul of charity is benevolence and generosity towards others and the community at large. Of course, it is important as to what are the activities of a charitable institution but what is even more important is what is the predominant motivation for such activities. No activity, by itself, could be charitable in nature when ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r the good of benefit of these entrepreneurs. As for the sale of residential units, it is an admitted position that in terms of the Punjab Town Improvement (Utilization of Land and Allotment of Plots) Rules, 1983, there is a formulae on the basis of which the price is worked out. Learned Departmental Representative does not dispute that aspect but he alleges profit motive embedded in this formula as shown by adjustments for (a) conservancy changes for 5 years @ 10% per month per acre; and (b) provision for unforeseen charges @ 15% of total reserve price. Firstly, even if this allegation about presence of the two elements only to maximize the profit be taken as correct, it is important to bear in mind the fact that this is not the presence of profit element in the activities which vitiates charitable character of the activities but it is the absence of restrictions on making profits which vitiates the charitable character of the activities. In the Indian Chamber of Commerce (supra), which has been relied upon by the Assessing Officer and referred to in CBDT Instruction no. 1024 (supra), it has been stated thus: "Ordinarily profit motive is a normal incident of business activity and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of assessment in the status of artificial juridical person. 12. Brief facts relating to the issue are that during assessment proceedings the A.O. changed the status of the assessee from AOP to Artificial Judicial Person, following the decisions of Hon'ble ITAT Chandigarh in ITA No. 544 and 545/ CHD/2009, dated 29-01-2010 in the case of Improvement Trust, Patiala. Ld. CIT(A) upheld the action of the A.O. 13. Before us the Ld. AR pleaded that since the assessee is involved in charitable activities it could not be assessed as an artificial juridical person but was in fact an Association of Persons. Ld. DR on the other hand relied upon the Order of CIT(A). 14. We have heard the rival submissions and perused the order of the authorities below. 15. In view of the fact that we have held the assessee trust to be indulging in activities which constitute advancement of general public utility and hence charitable activities as defined u/s 2(15) of the Act, the status of the assessee shall be AOP as specified in section 164(2) of the Act. Section 164(2) states that where income is derived from property held under trust wholly for charitable or religious purposes, tax shall be charged on t....