AI Drafter 
TaxTMI 
TaxTMI 
2010 (7) TMI 1175
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....e had made a valid application for registration after complying with all the conditions as contemplated u/s 12AA of the IT Act, 1961. 3.a) That, without prejudice to the above, the ld. CIT grossly erred in holding that the application for grant of registration u/s 12AA filed by the appellant authority on 27.12.2007 was invalid for the only reason that such application was signed by the Chief Executive Officer (CEO) and not by the Chairman of the appellant authority. b) That, without prejudice to the above, the ld. CIT grossly erred in not considering the material fact that the application signed by Chairman of the appellant authority having been furnished subsequently would relate back to the date of the original application. 4.a) That, without prejudice to the above, the ld. CIT grossly erred in rejecting the application of the authority on various irrelevant grounds without considering the provisions of the law that at the time of grant of registration u/s 12AA, ld. CIT has to be satisfied only about the objects of the application and genuineness of its activities. b) That, the ld. CIT grossly erred in law in enquiring into application of incom....
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....alid on the ground that the CEO was not competent to sign the application for registration. and further whether the ld. CIT is also right in coming into conclusion that the fresh application duly signed by Chairman of IDA filed on 19/06/2008 does not cure the defect (if any) in the original application and such filing of fresh application would not relate back to the date of original application? (Relevant Grounds on this issue from above are ground nos. 3(a) & 3 (b)). 2. Whether the ld. CIT is justified in rejecting the application of the IDA for registration u/s 12A /12AA on the ground that the IDA is not entitled to such registration and also whether the activities of the assessee are in conformity with the objects "for advancement of the objects of the general public utility" within the meaning of section 2 (15) of the IT Act and whether the ld. CIT is correct in coming to a conclusion that the IDA is a commercial organization established with profit motive and only supposed to inquire about the genuineness of activities of objects of the assessee after placing reliance upon the decision in 283 ITR 97 (SC)? (Relevant Grounds on this issue - Ground Nos. 1, 2, 4(a), 4(b)....
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....every Town and Country Development Authority shall have a Chief Executive Officer, who shall act as the Secretary of the Authority. The CEO is appointed by the State Govt. u/s 46(2) from amongst the members of Development Authority Services belonging to State cadre or from amongst the members of the State Technical/Administrative Services. It was specifically pointed out that the CEO so appointed by State Govt. is the member Secretary of the authority (IDA) by virtue of section 40(h) of the said Act. Since, the CEO of IDA is a statutorily appointed secretary of IDA, he is the 'Principle Officer' of IDA as defined in section 2(35) of the IT Act, 1961. The question, therefore, required to be considered is whether the application for registration signed by the CEO of IDA could be held to be invalid. As already stated above, IDA is a local authority for all purposes, except for exemption u/s 10(20). A strong plea was raised that even the department has assessed IDA, as Local Authority. In the context of position of CEO qua IDA, it was submitted that a reference may be made to the provisions of section 12A/12AA according to which, the person in receipt of income of the assessee au....
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.... • CITvs. Masoneilan (I) Ltd. reported in (2000) 242 ITR page 569. • CIT Lucknow vs. Rudrabilas Kisan Sahakari Chini Mills reported in 145 Taxman page 497. • CIT vs. Hope Textiles Limited, 287 ITR page 321 (M.P.). Prime Securities Ltd. vs. Varinder Mehta, CIT(Inv.) Circle- I(1) reported in (2009) 182 Taxman page 221 (Bom). It was further submitted that even with regard to signing of return, although the courts in above decisions have held that signing of return in the manner prescribed by section 140 is mandatory but the courts are of the view that after insertion of sub-section (9) in section 139, the defect regarding non-signing of the return by proper person makes the return a defective return and the return can be treated as invalid only if the defect is not cured within specified time even after grating opportunity to cure the same. The impugned order of CIT, therefore, deserves to be set aside on this issue. 5. On the other hand, Mr. Girish Dave, the ld. CCIT, DR strongly defended the impugned order and submitted that there are two aspects for consideration of the Bench on this issue, (1) first being the argument canvassed by ld....
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....en by the department. It is further argued that it has, on being objected by the CIT, filed fresh Form No 10A after getting it signed by the Chairman of the appellant-authority and in view of the decision of this Hon'ble Tribunal, in the case of M P State Agro Industries Ltd vs. ACIT, this is a curable irregularity and once cured, the date of filing of revised Form No 10A, would relate back to the date of filing of original application. Thus, the period for the grant of registration would be reckoned from the date of filing of the original application. The respondent ld. CIT has considered this issue at pages 1 to 4 of the order. The contention that the CEO was duly authorized as per the note-sheet submitted by and on behalf of the appellant-authority has duly been considered by the ld. CIT and found the explanation incorrect. The ld. CIT has sought to distinguish the case cited by the appellantauthority with the facts of the present case and held that the appellant-authority has not adduced any evidence as regards the authority given to the CEO, or anything explained to ld. CIT in the relevant Act concerning the duties and responsibilities of the CEO. It was submitted that s....
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....an of the authority, or the authority itself. Only at page 98, reference to CEO is made. This also explains the position of CEO as not being the Principal Officer of the appellant-authority. The argument that CEO has filed returns in the past and those returns have been acted upon is no argument as one invalid action acted upon cannot validate invalidity. 8. The ld. CCIT/DR explained as to who can file the application under section 12A? Crucial aspect of the matter is that section 12A begins with the phrase "The provisions of section 11 and section 12 shall not apply in relation to the income of any trust or institution unless the following conditions are fulfilled, namely:- (a) the person in receipt of the income has made an application for registration of the trust or institution in the prescribed form and in the prescribed manner to the commissioner-------------." Therefore at the threshold stage itself there is a requirement that such a person can claim exemption only when the recipient of the income makes an application to the Commissioner. Even if the rules made there under do not provide who should sign the application, it is evident from the substantive....
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....d self raised question, the ld. Counsel for the assessee explained that the assessee authority is in existence since May 1977. It was enjoying exemption from income tax under section 10(20A) of the I T Act, 1961 on its income. Clause (20A) of section 10 was omitted from the statute by the Finance Act, 2002 with effect from 1st April 2003 relatable to assessment year 2003- 04. From the said assessment year, that is, 2003-04 onwards, it started filing its returns of income and paid taxes on the income returned for these years. Assessments for assessment years 2003-04, 2004-05, 2005-06 and 2006-07 have already been completed which are placed in the paper book filed by the department. The appellant-authority filed appeals for these years and ld. CIT(Appeals) have after hearing the appellant-authority passed appellate orders in respect of assessment years 2003-04, 2004-05 and 2005-06. The assessment year-wise position of status claimed, income returned, status in which assessment made, nature and amount of addition made to the returned income, income assessed, date of assessment order and revised income consequent to appellate order of the ld CIT(Appeal) is given at page of (5) of th....
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.... clause 12A (1) (a), it sought to make such an application under clause (aa) of the said section though it knew that this provision would allow it an exemption only for one assessment year, that is, assessment year 2008-09. From the next assessment year 2009-10, section 2(15) has further been amended so as to exclude such entities who are engaged in trade, commerce or business from exemption under section 11of the Act. 10. At page 231 of its compilation, the appellant-authority has enclosed a copy of the letter dated 3rd June 2008 addressed to the respondent-CIT. In this letter, inter alia, it has sought to explain the reasons for the delay in filing application for registration under section 12AA and excerpts from Para 2.2 of this letter is reproduced hereunder: "It was only after a serious thought given to the issue that the applicant-authority came out of the aforesaid bonafide ignorance of the relevant legal provisions and this transformation arose after an opinion in that behalf was sought from our present representative Shri Anil Garg, FCA. He, after going through the judicial pronouncements from various benches of income-Tax Appellate Tribunals and also authorita....
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....t that it sought to object for the imposition and attempted to seek exemption by filing application for registration under section 12AA. Such an action on its part suggests that till the extent of income was up to a particular level, it never thought that it can claim exemption or should file an application under section 12AA, but when income rose to a substantially high level with the sale of big chunk of land on a purely commercial basis, it was reminded of exemption which it may like to claim. 11. We have considered the rival submissions of ld. representatives of both sides on the issue of validity of signing of application for grant of registration u/s 12A/12AA of the Act by the CEO. We have also perused the material available on the file. Brief facts are that the appellant Indore Development Authority (hereinafter referred to as "IDA") is a statutory authority established by the Government of MP in exercise of its powers conferred under section 38(1) of the Madhya Pradesh Nagar Tatha Gram Nivesh Adhiniyam, 1973( Act No. 23 of 1973) vide Notification No. 1668-XXXII-77, w.e.f. 13th May, 1977 for the area comprised within the Indore Planning Area as specified in the prior noti....
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.... area within its jurisdiction so as to show that the object of the establishment of the authority is that of advancement of the object of general public utility, which falls within the definition of the word 'charitable purpose' as scribed to in section 2(15). It was also emphasized that the authority being a statutory authority there cannot be any doubt about the genuineness of its activity. (Refer Page No. 8 to 13 and Page No. 14 to 30 of the compilation) 12. The aforesaid application along with annexures/documents was followed by letter dated 24.3.2008 (Page No. 223 of compilation) and a further letter dated 28/04/2008 requesting the ld CIT to dispose off the application at an early date in light of the latest decision of the Apex Court in the case of CIT Vs Gujrat Maritime Board reported in (2008) 214 CTR (SC) 81 (Refer Page No 224 to 226 of the compilation). 1) The appellant received notice dated 30/05/2008 from the office of ld. CIT requiring to explain certain points (Refer Page No 227 & 228 of compilation). 2) The above letter was replied by the appellant vide reply dated 03/06/2008 Point wise reply given to the query letter (Refer Page No. 230 to 240 o....
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....ation and findings on this issue from Page No. 1 to 4 of the impugned order). (ii) On merits, ld. CIT came to the conclusion that since the activities of IDA are conducted in a commercial manner with prime intention of earning profits, IDA is essentially a business organization created by notification and its activities cannot be said to be the activities towards the object of advancement of the general public utility. 14. If the totality of the facts are analysed, we have found that the ld. CIT treated the application for registration as invalid because the same was signed by CEO of the assessee. According to the ld. CIT, the CEO, not being the head of the institution and also not being the person at the helm of the affairs of the IDA is not competent to sign application on Form No.10A for getting registration u/s 12A/12AA of the Act. In this respect, the contention of the appellant is two fold. Firstly, the appellant desires to contend that in absence of any specific requirement of law regarding signing of application u/s 12A/12AA by Chairman, the CEO who is the principle officer, being statutorily appointed Secretary of IDA, is competent to sign and file an applicati....
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....of section 12A/12AA according to which, the person in receipt of income is required to make an application for registration. The mode of making an application is duly prescribed in rule 17A according to which an application for registration shall be made in form 10A. Neither the provisions of section 12A/12AA nor rule 17A lay down/prescribe any mode of signing the application. Under the circumstances, one may refer to the provisions regarding signing of the Return enjoined under section 140 of the IT Act. According to sub-clause (d) of the said section, a Return of Income in case of local authority is to be signed and verified by the principal officer thereof. Similarly, according to sub-clause (e) a return in case of any other association is required to be signed by any member of the association or the principal officer thereof. And, return in case of any other person not falling in the above clauses, is required to be signed by that person or by some person competent to act on his behalf. In the instant case, the CEO, who is the principal officer being the Secretary of the IDA, is competent to sign the Returns on behalf of the IDA and has actually filed returns on behalf of IDA w....
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....relevant observation in para 8 & 13 of the order - 53 TTJ (Ind) 262: 82 Taxman 85). In the case of CIT vs. Massoneilan (I) Ltd. (supra) and CITvs. Rudra Vilas Kisan Sahakari Chini Mills (supra), the returns were signed by the agent of the society, the same was treated as valid return by placing reliance upon the definition of the word "Principal Officer" in sec. 2(35). In another case of CITvs. Hope Textiles Ltd. (287 ITR 321) (MP), wherein in the light of Rule 45 r.w.s. 140 of the Act, it was held to be directory and not mandatory, therefore, the Hon'ble jurisdictional High Court affirmed the decision of the Tribunal in remanding the case to ld. CIT for giving opportunity to the assessee to sign memo of appeal in confirmation with Rule 45 r.w.s. 140. The Hon'ble Court held that such requirement is only directory requiring grant of an opportunity to get proper signature. In view of this fact, we are not in agreement with the conclusion of the ld. CIT that signing of application only by the Chairman is mandatory especially when it was duly signed by the CEO of the assessee who is also member secretary to Indore Development Authority (in short IDA). Even otherwise, the returns filed ....
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....69 Taxman 302) held that where return of income filed by the company and is signed and verified by the person other than authorized shall be treated as defective which shall be amenable to the provisions of sec. 292B and sec. 139(9). The assessing authority in such circumstances shall provide an opportunity to the assessee to rectify the defect u/s 139(9) before treating the same to be invalid and non-est. In the present appeal, even an application duly signed by the Chairman was filed by the assessee, therefore, on this ground, it can be said that in view of the ratio laid down in the aforesaid decision, though on validity of return, the ld. CIT is not justified to reject the application. The Hon'ble Apex Court in the case of Narendra Kr. J. Modi vs. CIT(105 ITR 109) (SC) clearly held that return of HUF can be signed by junior member. The Hon'ble Calcutta High Court in Sri Sri Sridhar Jiew vs. ITO (63 ITR 192) held that the concept of a Hindu deity is such that it must be taken that the signature of the shebait is the signature of the deity itself. Even otherwise, there is no specific requirement under the Act for signing the application u/s 12A/12AA that it can only be signed by ....
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.... of proceedings itself, therefore, the defect was cured and such application should have been treated as date back to the original application, therefore, this ground of the assessee is allowed. 17. Now, we shall take up the next ground which relates to denying registration u/s 12A/12AA. The submissions made on behalf of the assessee are that since the exemption under ss. 10(20)/10(20A) of the Act stands withdrawn w.e.f. from AY 2003-04, the appellant has flied an application u/s 12A/12AA of the IT Act for registration as a charitable institution. The IDA is a successor to the Indore Improvement Trust which was established under the Town Improvement Trust Act, which has been repealed with the coming into force of the MP Nagar Tatha Gram Nivesh Adhiniyam, 1973 by virtue of section 87. Thus, there is a statutory legal obligation upon the authority constituted/established under the said provision to carry on the activities in accordance with Act. The registration, if allowed, would entitle the appellant to claim exemption under ss. 11 & 12 in respect of its income subject to the conditions of the said section. Section 12A provides that provisions of sec.11&12 will not apply unle....
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....thority has been established/created would determine the object of activities of such authority. In the instant case, since the IDA has been established by Govt. of MP in exercise of its powers under the provisions of MP Nagar Tatha Gram Nivesh Adhiniyam, 1973, the object of that Adhiniyam would determine the object of activities of IDA. Scheme of the said Act was explained as under: (1) The IDA is a statutory authority established/created by the Government of Madhya Pradesh in exercise of its powers under section 38 of the Madhya Pradesh Nagar Tatha Gram Nivesh Adhiniyam, 1973. According to the applicant, the object of establishment of the IDA is advancement of the causes of general public utility. In this respect, the appellant has already placed on record a detailed note on the various activities undertaken by it IDA (Refer Page No. 8 to 13) along with a detailed note on the admissibility of its claim regarding grant of registration under section 12A/12AA (Refer Page No. 14 to 30). For determining the object for which the institution has been established/created, a reference was made to the preamble of the statute which has been reproduced at Page No. 14 of the compilat....
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....of its legislative power available to it under Entry No.5 of List II of the Seventh Schedule to the Constitution of India. The object of the enactment is to secure planned and systematic development of the areas. From the preamble of the Statute or even from the reading of the provisions of the Act, no one can say that the intention of the State of Madhya Pradesh in legislating this law is to carry on the real estate business like a private builder. In any event surplus arising to various Authorities constituted under the legislation is necessarily required to be deployed for its objects only and no part of the surplus can be distributed to any person or agency by way of profit or dividend. The ld. Counsel for the assessee took us to the provisions of the Act of the IDA by explaining the relevant section, which will be discussed while disposing of the issue. It was further submitted that the analysis of the Act and the provisions regarding constitution of the town and country development authority would enable this Hon'ble Tribunal to appreciate the object of the legislation and the object with which the authority has been established. It would be clear that the object of the legis....
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....or exemption under section 10(20)/10(20A). Merely because the IDA is excluded from the ambit of definition of the expression "local authority" by virtue of explanation inserted under section 10(20)/10(20A), the IDA does not become a commercial organization. The statutory status of IDA for all other purposes except section 10(20) still is that of a local authority, being a successor of the improvement trust which was in existence prior to the establishment of the IDA. The ld. Counsel for the assessee submitted that in a number of judicial pronouncements the apex court has laid down the test for determining whether the object of an institution are for charitable purpose as defined in section sec.2(15) of the Act . The Courts have interpreted the expression "advancement of objects of general public utility" in the context of statutory authorities. It has also been held that where the predominant object is to carry out charitable purpose and not to earn profit, it would not loss its charitable character merely because some profit arises from the activity. The following cases were relied upon: - (i) Decision of the Supreme Court in the case of CIT vs. Gujarat Maritime Board ....
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.... whole class" therefore, the advancement of the object of benefit to the public or a section of public as distinguished from the benefit to an individual or group of individuals would be a charitable purpose. Their Lordships have further held that the said expression would prima facie include all objects which promote welfare of the public and it cannot be said that a purpose would cease to be charitable even if the public welfare is intended to be served. If the primary purpose and dominant objects are to promote welfare of the general public, the purpose would be charitable purpose. It has further been held when an object is to promote or protect the interest of a particular trade or industry, that object becomes an object of public utility but not so if it seeks to promote the interest of those who promote or conduct the said trade or industry. Their Lordships after applying the ratio of the earlier decisions and in particular the ratio of decision in the case of Andhra Pradesh State Road Transport Corpn (supra) came to the conclusion that the Gujarat Maritime Board was established for the dominant purpose of development of minor ports within the State of Gujarat, the management....
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....ITvs. Andhra Chamber of Commerce 55 ITR page 722 (SC) (vii) M.P. Madhyam vs. CIT(2004) 89 TTJ (Ind) 770 In the above decision, the Hon'ble Jurisdictional ITAT, Indore Bench following the decision of the Apex Court in the case of CIT vs. Surat Art and Silk Association (1980) 121 ITR 1 (SC) held that when the predominant object is to carry out charitable purpose and not to earn profit, it would not lose its charitable character merely because some profit arises from the activity. 50 (viii) Himachal Pradesh Environment Protection and Pollution Control Board vs. CIT(2009) TTJ (Chd) 98 The ld. Advocate explained that the following cases are also in favour of the assessee: - (i) CITvs. Improvement Trust, Moga (2008) 15 DTR (P & H) 217 (ii) Lucknow Development Authority vs. ITO (Tech.) (Luck) - unreported judgment copy. (iii) Improvement trust vs. CIT(2007) 12 SOT Page 307 (Del.) (iv) Mormugao Port Trust vs. CIT(2007) 112 TTJ (Panaji) 681. KRISHI UPAJ MANDI SAMITIS CONSTITUTED UNDER THE STATUTORY PROVISIONS HAVE BEEN HELD TO BE ENTITLED TO REGISTRATION UNDER SECTION 12A BY THE JURISDICTIONAL HIGH COURT AND THE JURISD....
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....ntilla of doubt that it is established for charitable purpose. (iii) CITvs. Krishi Upaj Mandi Samiti, Morena and others (2008) 215 CTR (MP) page 54, (Gwalior Bench of the MP High Court) (Refer Page No. 125 to 134 of JCB) (iv) CIT vs. Agricultural and Market Committee Hinganghat (291) ITR page 419 (Refer Page No. 135 to 144 of JCB) (v) Krishi Upaj Mandi Samiti, Sehore vs CIT(2007) 9 ITJ page 325 ITAT, Indore Bench. ITAT, Indore Bench, Indore has also followed the above decisions and held that Krishi Upaj Mandi Samities are entitled to registration under section 12A/12AA. (vi) CIT vs. Krishi Upaj Mandi Samiti, Khargone (2009) 13 ITJ page 504 (MP), Indore Bench of M.P. High Court. 24. The ld. Counsel for the assessee submitted that if the impugned order passed by ld. CIT is examined in the light of these principles laid down by the judicial pronouncement , it would be clear that the order suffers from the vice being affected by irrelevant considerations rather than deciding the applications according to ratio of these decisions. The ld. CIT has not at all applied its mind to the object of legislation under which IDA has been established but la....
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....e city of Indore and it is not restricted only to the schemes of the IDA. More than 43,000 Trees have been planted so far. The project of development of regional park on 150 Acres Land having cost of more than 50 Crores is under progress. In any case, such development of park will not improve price of the properties held by the IDA. vii) Activities of preservation of heritage and culture - granting aid for 'Anant Chaturdarshi Jhanki' to workers of closed textile mills of Indore, It has also established statues of national heroes and divine historical personalities such as Shahid Chandrashekhar Azad, Rani Avantibai, Chandragupta Mourya etc. viii) A project of old age homes for old aged persons is also under progress. It was pointed out that the sale proceeds of commercial plot sold to Reliance Industries for substantial amount have also been mainly deployed for above activities. 26. The Bench directed the ld. Counsel for the assessee to differentiate the activities of the assessee as from a private colonizer, these were explained as under: Sno. Particulars Qua a private colonizer Qua IDA 1 Constitution May be a sole propr....
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....ctor, Municipal Commissioner, heads of various public amenity departments etc.. All the decisions are taken by such Board only. The term of office of the members of the Board is at pleasure of State Government under s. 42(2) 7 Control of the State A private colonizer is not accountable to State Government. IDA under s. 52 is bound by the directions given by the State Government from time to time. Under s. 24 the overall control of development and use of land in the State shall vest in the State Government only. Thus the land owned by the IDA is under the control of State Government only under s. 76BB, the State Government can enquire into the constitution, working and financial conditions of a development authority. 8 Acquisition of Land A private colonizer is not authorized to compulsorily acquire any land for carrying on its activities. It is for the reason that land is not used by him for public cause but for serving his own interest of making profit. IDA under s. 55 is entitled to acquire land for public purposes. If the object is not to serve the public than IDA cannot acquire any land. Further, if the land is not used for the purpose it was acquired th....
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....roved maps. 13 Audit by local fund Auditors Not Applicable Each and every in flow and out flow of funds of IDA is pre-vouched by local fund auditors of the Government. 14 Appointment and termination of staff No binding It has to be strictly in accordance with the rules and regulations of the State Government under s. 80. Every member and officer of the authority is deemed to be a public servant within the meaning of section 21 of the Indian Penal Code, 1860 15 Utilization of the Funds A private colonizer can utilize the funds in any manner of his choice. IDA can utilize its fund only for the objects for which it has been established. 16 Investment of the funds A private colonizer can invest his surplus fund in any manner he likes. He can invest funds even in shares of private companies. IDA has to make investment of its surplus funds, if any, only in the Government Securities and Fixed Deposit with Scheduled Banks. 17 Status of Income- Tax Exemptions Income of a private colonizer was not exempted even up till A.Y. 2002-03. Such exemption was not granted as the activities of colonizers were not considered to be for public purp....
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....yapur Industrial Area Development Authority vs. UOI & others (2006) 283 ITR 97 (SC) is not a binding precedent in the present matter rather the decision in CIT vs. Gujarat Maritime Board (295 ITR 561) (SC) is applicable. 64 29. On the other hand, the ld. CCIT, DR Shri Girish Dave strongly defended the impugned order and explained the facts of the case, the provisions of the Adhiniyam, Rules framed thereunder as well as various forms prescribed under the Adhiniyam. Mr. Dave took us to various paras of the impugned order along with sec. 10 clause (20A) of the Act. Circular no.8 of 2002 dated 27.8.2002 reported in 258 ITR (Statute) 13 and the provisions of sec. 80G was also explained along with sec. 11 and 12 of the I.T. Act. Our attention was specifically invited to from no.3CB wherein it was pointed out that the assessee authority has admitted that it is engaged in carrying in business along with observation made by the learned CIT in the impugned order for sec. 12AA. It was duly explained by Mr. Dave that at the time of granting of registration u/s 12AA, the ld. CIT is very much empowered to make necessary enquiries. It was specifically pointed out that the assessee did not resp....
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...., 2007;] 2[(aa) the person in receipt of the income has made an application for registration of the trust or institution on or after the 1st day of June, 2007 in the prescribed form 3 and manner to the Commissioner and such trust or institution is registered under section 12AA;] (b) where the total income of the trust or institution as computed under this Act without giving effect to 4[the provisions of section 11 and section 12 exceeds the maximum amount which is not chargeable to income-tax in any previous year], the accounts of the trust or institution for that year have been audited by an accountant as defined in the Explanation below sub-section (2) of section 288 and the person in receipt of the income furnishes along with the return of income for the relevant assessment year the report of such audit in the prescribed form 5 duly signed and verified by such accountant and setting forth such particulars as may be prescribed.] (c) 6[***] 7 [(2) Where an application has been made on or after the 1st day of June, 2007, the provisions of sections 11 and 12 shall apply in relation to the income of such trust or institution from the assessment yea....
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....nable opportunity of being heard.] In the light of the aforesaid provisions of the Act, we are framing certain questions and deliberate upon them: 31. Whether the quantum of income be permitted to be the determinative factor for the status of the appellant-authority? The assessee authority is in existence since May 1977. It was enjoying exemption from income tax under section 10(20A) of the I T Act, 1961 on its income. Clause (20A) of section 10 was omitted from the statute by the Finance Act, 2002 with effect from 1st April 2003 relatable to assessment year 2003-04. From the said assessment year, that is, 2003-04 onwards, it started filing its returns of income and paid taxes on the income returned for those years. Assessments for assessment years 2003-04, 2004-05, 2005-06 and 2006-07 have already been completed which are placed in the paper book filed by the department. The appellant-authority filed appeals for these years and ld. CIT(Appeals) have after hearing the appellant-authority passed appellate orders in respect of assessment years 2003-04, 2004-05 and 2005-06. The assessment year-wise position of status claimed, income returned, status in which assessment made, ....
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....e Act with effect from 1st April 2003. Knowing fully well that with the amendment in law by the Finance Act, 2007, it was not open for it to make an application under clause 12A (1) (a), it sought to make such an application under clause (aa) of the said section though it knew that this provision would allow it an exemption only for one assessment year, that is, assessment year 2008-09. From the next assessment year 2009-10, section 2(15) has further been amended so as to exclude such entities who are engaged in trade, commerce or business from exemption under section 11of the Act. At page 231 of its compilation, the appellant-authority has enclosed a copy of the letter dated 3rd June 2008 addressed to the respondent-CIT. In this letter, inter alia, it has sought to explain the reasons for the delay in filing application for registration under section 12AA. The excerpts from Para 2.2 of this letter are reproduced hereunder: "It was only after a serious thought given to the issue that the applicant-authority came out of the aforesaid bonafide ignorance of the relevant legal provisions and this transformation arose after an opinion in that behalf was sought from our pr....
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....nt, the appellantauthority started filing returns of income for succeeding years and paid taxes thereon. It was only when the liability increased to a substantial extent that it sought to object for the imposition and attempted to seek exemption by filing application for registration under section 12AA. Such an action on its part suggests that till the extent of income was up to a particular level, it never thought that it can claim exemption or should file an application under section 12AA, but when income rose to a substantially high level with the sale of big chunk of land on a purely commercial basis, it was reminded of exemption which it may like to claim. 34. Whether the relevant law should be construed as a whole or in piecemeal as is being sought to be canvassed on the part of the appellantauthority and the law as amended by the Finance Act, 2002 with effect from 01 April 2003 makes the issue clear as to disentitling the appellantauthority from claiming exemption under the Income tax Act, 1961? It is essential to know the background for the amendments introduced in the relevant law. In his budget speech, the Hon'ble Finance Minister while introducing the amendment in ....
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....uthorities like urban improvement trusts, development authorities, agricultural marketing societies and agricultural market boards etc., under clause (20A) of section 10 which was omitted from the statute by the Finance Act, 2002 with effect from 1st April 2003. Para 12.3 states that "exemption under clause 20 of section would, therefore , not to be available to agricultural marketing societies and agricultural market boards, etc., despite the fact that they may be deemed to be treated as Local Authorities under any other Central or State Legislation. Exemption under this clause would not be available to port trusts also. 35. Clause (20A) of section 10 as it stood prior to its omission by the finance Act 2002 is reproduced as under: "Any income of an authority constituted in India by or under any law enacted either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages or for both." In order to secure the benefit that these authorities were enjoying and to ensure that these entities get funds, amendment was inserted in sub-clause (vi) of subsection( ....
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....ation or for the purpose of planning, development or improvement of cities, towns and villages, or for both, shall be deducted from the total income of such assessee. 13.4 These amendments will take effect from 1st April 2003 and will, accordingly, apply to the assessment year 2003-04 and subsequent assessment years." 37. The issue is whether the appellant-authority is permitted to seek registration only for one year and to draw advantage of its own gross negligence and ignore the scheme of the Act. The legislature's intention is clear that these entities are not entitled to exemption from tax on their total income for and from assessment year 2003-04 onwards and the comprehensive legislation brought out by changes in clauses (20) and (20A) of sections 10 and corresponding insertion of sub-clause (vi) in sub-section (2) of section 80G reflects that intention. A press note was also released by the Central Government on 13 June 2007 under the title "Tax Rules providing tax exemption to charitable and religious entities modified", and the same is reproduced as under: "Sections 11 and 12 of the Income-tax Act, 1961 provide for exemption of income of charitable a....
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....08 with effect from 1st April 2009 providing 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. On a conjoint reading of all these provisions, it becomes clear that because of dominant purpose being carrying on of business, the development authorities are not considered to be persons involved in charitable activities. 39. Whether the activities of the appellant-authority fits in to the over-all scheme of the provisions relating to charitable institutions contained in the Income-tax Act, 1961? Here we are not concerned with the assessments in relation to those years when it enjoyed exemption under clause (20A) of section 10 of the Act. We are concerned with the activities noticed during course of assessment proceedings for assessment years 2003-04, 2004-05 and 2005-06 after it lost the exemption with the....
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....ect of the years ending on 31st March 2005, 31st March 2006, and 31st March 2007 in Form No's 10B under Rule 17B read with section 12A (b) of the Act. It can be seen from the information available in these Forms that except information in Columns (1) and (3), in every other column, the remarks are "Not required", "Not Applicable", "No" or "Not Noticed". Information in column (1) is the figure of total expenditure incurred during the year and column (3) provides the net profit earned after the payment of tax which has been carried over to the balance sheet of that year. (iv) Observations in the order under section12AA: The factual aspects noticed from the above documents have been gone through by the respondent and certain conclusions have been drawn there from. From this, it becomes evident that appellant-authority is more a business organization than a charitable institution. This inference can also be drawn from a study of the annual accounts of various years produced before the respondent and the respondent cannot put blinkers when these facts and circumstances are existent in the case of the appellant-authority. In fact, the respondent cannot ignore these facts while maki....
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....tion, review and modifications of the zonal plan wherewith we are not concerned much in these appeals. Chapter VI of the Act provides for control of development and use of land. In terms of Section 24 of the Act, the Director is to control land use. Preparation of development plan, prohibition of development without permission and matters connected therewith and incidentals thereto are also dealt with in Chapter VI. Chapter VII of the Act, however, provides for shift of control in respect of land use and development for the hands of the Director and, consequently of the State to the Town and Country Development Authority. Section 38(1) of the said Act provides that the State Government may, by notification, establish a Town and Country Development Authority by such name and for such area as may be specified in the notification and sub-section (2) thereof envisages that the duty of implementing the proposal in the development plan, preparing one or more town development schemes and acquisition and development of land for the purpose of expansion or improvement of the area specified in the notification under sub-section (1) shall, subject to the provisions of this Act vest i....
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.... Section 19. The said procedure envisages compliance of principles of natural justice. (c) Section 38 provides for establishment of a Town and Country Development Authority, by notification "for such areas as may be specified in the notification". Under sub-section (2) thereof, duties of implementation of the development plan and preparation of the town development scheme have been cast on the Town and Country Development Authority. (d) The town development scheme is to be prepared upon following the procedure set out under Section 50. The said scheme can be prepared only when there exists a development plan, prepared in accordance with the procedure prescribed under the Act as envisaged under Sections 14 to 19 and after notification under Section 38(1). In this regard, reference may be also be made to Section 2(u) of the Act, which describes a town development scheme to mean a scheme prepared for implementation of the provisions of the development plan. 43. Some significant facts which emerge from a scanning of these provisions of the relevant Act are: 1. The authority is constituted as a body corporate with a perpetual succession, common seal and with power to a....
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....t of its enactment, with the glasses of the statute-maker, provided by such context, its scheme, the sections, clauses, phrases and words may take color and appear different than when the statute is looked at without the glasses provided by the context. With these glasses we must look at the Act as a whole and discover what each section, each clause, each phrase and each word is meant and designed to say as to fit into the scheme of the entire Act. ..." 45. Whether ld. CIT can make enquiry at the time of grant of registration under section 12AA: It has been held by Hon'ble High Court of Madhya Pradesh in the case of Shri Sarafa Association v CIT reported in (2007) 163 Taxman 228 (MP) that enquiries can be made by the CIT. Similar view is expressed by Hon'ble High Court of Delhi as well by the Delhi Bench of ITAT in the case of Kirtichand Tarawati Charitable Trust and in the case of Aryan Educational Society v CIT reported in (1999) 105 Taxman 686 9Del) and (2006) 281 ITR (AT) 72 (Del) respectively. 46. Whether the contention that the profits earned by the appellantauthority is ploughed back shall alone be the decisive factor in holding that the law of charities is applicab....
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.... earlier available to Agriculture Produce Market Committees has been restored by the Finance Act, 2008 with effect from 1/04/2009. In so far as decisions in the cases of UP Awas & Vikas Parishad and others (2007) 162 Taxman 173 (Lucknow) is concerned, the issue was decided in favour of the appellants by holding that the land was being acquired by the State Government only for public purposes and that in case of dissolution of the authority, all the properties, funds and dues which were vested in or realizable by the authority, shall vest in or to be realizable by the State Government. There was no consideration of the issue as to what would be a public purpose. It is not necessary that every acquisition can be held to be a public purpose. The affected person can always challenge such a decision in any court of law and therefore such a consideration, in humble submission could not be a relevant consideration for holding that the entity is a charitable institution involved in the advancement of an object of general utility. The decision in the case of Improvement Trust (2007) 12 SOT 307 (Del), is also distinguishable as the decision is in the context of an altogether different ....
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....in public trust were filed. The details are very lengthy which are summarized as under :- [Details of unproductive work in public trust] Sr. No. Particulars Page No. Remarks 1. Audited A/cs. for F.Y. 2008-09 270-287 Not relevant since for & fromA.Y.2009-10, the definition of the term "Charitable Purpose" in Section Sec.2 (15) is amended. Since, IDA is engaged in business activities, it is not entitled for exemption under the amended law for & from the said assessment year. 2. Allocation of Tatal Exp. F.Y. 2008-09 288-290 3. Details of Exp. F.Y. 2008-09 291-293 4. Ledger A/cs. of city Environment & Development F.Y. 2008-09 294-312 5. Juni Indore ROB work*** Photographs Nos. 188, 190, 193 of American Color Lab - Page No. 313-315 Important Note -- Page No. 316. 313-323 Contractor M/s. Arvind Techno-Engineers Pvt. Ltd. Delhi. 6. M.Y.Hospital OPD Building*** (Hospital belongs to the State Govt.) Photographs Nos. 123-126 by American Color Lab - Page No. 324-325 Page No. 326 A.Yr. 2009-10 3.96 Crores - A.Yr. 2010-11 4.19 Crores - A.Yr. 2008-09 1.90 Crores 10.05 Crores 324-3....
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.... Crores A.Yr. 2007-08 4.07 Crores A.Yr. 2008-09 1.19 Crores 6.60 Crores 451-456 No work order issued to M/s.Dharam Das Tirath Das Construction Pvt.Ltd., Indore. 18. Building for Slums Inhabitants***-JNNRUM Plan Photographs Sr. No. 43 - American Color Lab - Page No. 457 Page no. 458 JNNRUM Plan A.Yr. 2007-08 0.09 Crores A.Yr. 2008-09 2.00 Crores 2.09 Crores 457-470 M/s.Dharam Das Tirath Das Construction Pvt.Ltd., Indore. M/s. Tirath Das Shukab Das Construction Pvt.Ltd., Indore Ashutosh Sharma 11, Menon Colony, Indore 19. Pipliyapala Regional Park Development Work*** Photographs - Page No. 480-487 Page 488 A.Yr. 2008-09 2.81 Crores A.Yr. 2009-10 25.12 Crores A.Yr. 2010-11 16.49 Crores 44.42 Crores 480-533 20. Constituency wise details of Non-plan exp.(Unproductive work) A.Yr. 2009-10 A.Yr. 2010-11 534 NOTE:- In respect of all the works included above and marked with (***), it is noticed that there are remarks by the appellant in Hindi which when translated in English would mean "that there will be no income to the Authority from this work". If....
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....sessee. 49. The Chandigarh Bench of the Tribunal in the case of Punjab Urban Planning and Development Authority (2006) 156 Taxman 37 (Chd) wherein one of us (Judicial Member) is signatory to the order, identically, deliberated upon the issue. The relevant portion of the order is reproduced hereunder: "5. Before coming to any conclusion, we are supposed to see the meaning of the word 'charitable purpose' which has been defined in Section 2(15) of the act which includes relief of the poor, education, medical relief and advancement of any other object of general public utility. A strong contention was raised by the ld. counsel for the assessee that the assessee/PUDA is also executing the development of following works/infrastructures : a) Development of rehri market. b) Water supply & sewerage. c) Development of Sports Complexes. d) Bridges. e) Bus queue shelters. f) Bus Stands. g) Swimming Polls h) Community Centres i) Public Toilets j) Development of Parks. k) Cremation Grounds. l) Construction of schools etc. If the purpose of the Act, which is available ....
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....the Tribunal. However, it may be a good arguable point by the parties, This issue requires deliberation from a different angle whether the assessee was constituted to provide any charity to the public at large or to satisfy the needs for housing accommodation for the people of Punjab and also planning and development of the cities, towns and villages or whether the development in such a way is of charitable nature. A plea was raised by the ld. counsel for the assessee that funds are provided by the Punjab Govt. or generated by the assessee itself. To generate its funds for carrying out its objects, the assessee is acquiring lands, developing them and selling the plots to the general public who applies for the same. Even the economically weaker strata of the society is generally applying. It is not the case that the assessee is allotting houses to the poor masses free of cost. The Hon'ble Apex Court in the case of CITVs. Thanthi Trust (247 ITR 785) has deliberated upon the issue of charitable purposes wherein the founder of a daily newspaper created a Trust in March, 1954 and the objects of the trust were originally to establish newspaper as an organ of educated public ....
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....e a charitable institution provides services for charitable purposes free of cost and not for a gain. In the present scenario, the similar activities are performed by big colonizers/developers who are earning a huge profit. If this registration is granted, then we will open a Pandora Box and anybody will claim the exemption from tax. If the accounts of the assessee are analysed, it has turned into a huge profit making agency for which it is taking money from the general public. In such a situation, we are of the view that no charity is involved and if any institution of public importance like schools, community centers are created/developed, the assessee is charging the cost of it from the public at large or the money is coming from the coffer of the Govt. It can be said that objects/activities of the assessee are more of commercialized nature and we do not find any charity in it. At the same time, if these facilities are not provided, then nobody will purchase a plot. It can be said that it is a means of attracting the people so that maximum people may apply for the same and the hidden cost is already added, so no charity is involved. At best, the assessee can be said to ....
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....elopment of roads, improving facilities for road transport and providing efficient and economical system of road transport service, the entire capital was provided by the State Govt. and the profits were utilized for providing amenities to the passengers and welfare of labour and approved expansion program and the remainder to be made over to the state govt. for road development, it was held to be of charitable purposes and thus income was exempted but it is not so in the case of the present assessee. The Hon'ble Apex Court in the case of CIT Vs. Bar Council of Maharashtra (130 ITR 28) (SC) where the primary/dominant purpose was for the advancement of object of public utility, it was held to be entitled to exemption. The ld. counsel for the assessee, during argument raised a plea that totality of circumstances has to be seen specially that all money goes with the state govt. and not in private hands, the prices are fixed and the assessee is not a commercial organization and the predominant activity of the assessee is to develop infrastructure and contended that rule of consistency has to be seen for which reliance was placed upon the decisions pronounced in 249 ITR 219....
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.... counsel for the assessee invited our attention to the case of Maharshtra Housing & Area Development Authority wherein registration was granted. The ld CIT DR contended that in the case of Market Committee, the ownership remains with the Committee but in the case of the assessee it goes to individual and the ld CIT was not satisfied with the explanation of the assessee. Likewise, in the judicial pronouncements in 165 CTR 446 as relied by the assessee, it can be said that it is a religious Trust, so not applicable to the present facts as the assessee is auctioning the plots on huge profits and even the Hon'ble courts are intervening to enhance compensation on petitions filed by land owners. However, if the argument of the assessee is analysed on point of general public utility, still it can be said that commercial angle with profit motive is involved which has become predominant object of the assessee. Even if this issue is analysed as contended by the ld. counsel for the assessee that application of income is not the criteria in the light of the decision of Hon'ble High Court of Allahabad in the case of Fifth Generation Education Society Vs. CIT(1990) 185 ITR 634 (All.), st....
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....Improvement Trust (308 ITR 361 (P & H) and CIT vs. Market Committee (294 ITR 563) and ultimately, decided the issue in favour of the revenue. The Hon'ble P & H High Court in the case of Market Committee (supra) held: "The sources of income of a market committee are statutorily defined under sections 10 and 23 of the Markets Act. The manner of utilization of the funds of the market committees, namely, the market committee fund, has been statutorily expressed in section 28 of the Markets Act. The obligations discharged by a market committee include the regulation of purchase, sale, storage and processing of agricultural produced, with the intention of benefitting the producers, as well as the consumers of agricultural products. A market committee is obliged to provide conveniences for persons visiting a market area, like providing for shelter, shade and parking facilities. A market committee is also obliged to look after the safety, health and convenience of persons visiting the market area. A market committee is also obliged to construct and repair link roads, approach roads, culvert and bridges etc. One of the many specified activities of a market committee is to extend lo....
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....rely covered by the judgment of this Court in the case of CIT v. Andhra Pradesh State Road Transport Corpn. (1986) 159 ITR 1 in which it has been held that since the Corporation was established for the puirpose of providing efficient transport system, having no profit motive, though it earns income in the process, it is not liable to incometax. 16. Applying the ratio of the said judgment in the case of Andhra Pradesh State Road Transport Corpn. (supra), we find that, in the present casae, Gujarat Maritime Board is established for the predominant purpose of development of minor ports within the State of Gujqaarat, the management and control of the Board is essentially with the State Government and there is no profit motive, as indicated by the provisions of sections 73, 74 and 75 of the 1981 Act. The income earned by the Board is deployed for the development of minor ports in India. In the circumstances, in our view, the judgment of this Court in Andhra Pradesh State Road Transport Corpn's case (supra) squarely applies to the facts of the present case. 17. Before concluding we may mention that under the scheme of section 11(1) of the 1961 Act, the source of income ....
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....vely for the promotion of the objects set out in the memorandum and no part of such income or property could be distributed amongst the members in any form or utilised for their benefit either during its operation existence or on its winding up or dissolution. The assessee's income was derived primarily from two sources; (i) an annual subscription collected from its members at the rate of 3 per powerloom, in regard to which it was conceded by the Department that it was exempt from tax; and (ii) commission of a certain percentage of the value of licenses for import for foreign yarn and quotas for purchase or indigenous yarn obtained by the assessee for its members. This commission was credited separately in a building account and out of this amount the assessee constructed a building. The Tribunal held that the primary purpose for which the assessee was established was to promote commerce and trade in art silk, silk yarn and cloth as set out in clause (a) and the other objects in clauses (b) to (e) were merely subsidiary objects; that the primary purpose was plainly advancement of an object of general public utility and did not involve the carrying on of any activity for profit with....
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....nners Association vs. CIT- (1994) 12 ITR 482) (PC)]. The ratio laid down in following cases further fortifies the case of the revenue: a. CITvs. Indian Sugar Mills Association (97 ITR 486) (SC), the income of a trade union, however, exempt u/s 10(24). b. Madras Hotel Association vs. CIT(111 ITR 241) (Mad), an association of hotel proprietors formed for procuring articles on permit and supply them to its members and protecting the interest of its members. c. Bangalore Race Club vs. CIT(77 ITR 435) (Mys). d. Cricket Association of Bangal vs. CIT(37 ITR 277) (Cal). e. South Indian Athletic Association vs. CIT( 107 ITR 108) (Mad). f. CITvs. Andhra Pradesh Riding Club (168 ITR 393) (AP). g. Delhi Stock Association vs. CIT(91 Taxman 273) (SC). h. CITvs. Ernakulam District Cement Association (253 ITR 198) (Ker). i. Hyderabad Race Club vs. CIT(153 ITR 521) (AP) (FB). j. CIT vs. Kamla Town Trust (84 Taxman 248) (SC). 52. To sum up, if the totality of facts/case-laws as narrated above and the arguments advanced by the ld. respective counsel are kept in juxta-position and analysed, in our humble opini....
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.... of the ld. Counsel for the assessee that the IDA is providing roads, schools, parks, clubs, etc., these facilities are provided by private builders rather these have become a source of attraction for getting maximum application that too on a high premium. Even when applications are invited by the assessee authority, lacs of people are applying and the cost of the application form which may be in thousand/thousands, is never returned to the applicants who do not get the plots. Even the security/advance money taken with the application forms is returned after a long time without interest to the persons not getting plots, resulting into huge profit to the assessee authority and loss the public at large. In such a situation, what charity the assessee is doing is not known/beyond imagination. If registration is granted to the assessee, it will open a pandora box wherein every colonizer/builder will ask for registration under section 12AA of the Act, which would be very much indifference to the intention of the legislature. In fact, the assessee authority is working on commercial pattern like a big businessman. Even otherwise, if some plots are reserved for economically weaker sections ....