TaxTMI 
TaxTMI 
2010 (7) TMI 1175
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....plying 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 income of the appellant authority for the purpose of grant of registration u/s 12AA of the....
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....t 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), 4(c), 4(d), 4(e), 4(f), 5 & 6) 3. Now, we shall take up the summarized ground no.1 regarding the validity of application which was signed by....
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....ointed 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 authority is required to make an application for registration. The mode of making an application is duly prescribed in rule 17A according to which an app....
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....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 counsel that neither the substantive nor the procedural provisions require signing of the application for the grant of registration under section 12AA, and (2) Second being that there is no prescription ....
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....'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 subsequent to the decision in the case of M P State Agro Industries Ltd (supra), Hon'ble High of Madhya Pradesh had an occasion to consider this issue in the case of Khialdas & sons vs. CIT reported in [1997] 94 Taxman 394....
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....eturns 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 provisions that the person recipient of the income alone can make such application if it has to claim exemption under section 11 and 12 of the Act. If a person other than the said person files application for registration under section 12A....
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....on 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 the 'impugned' order under section 12AA of the Act passed by the respondent. It shall be interesting to find that the appellant-authority preferred application under section 12AA of the Act only after a notice under section 210(3) was issued to it for....
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....9-10, 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 authoritative decisions from higher judiciary i.e. from the Hon High Courts and the Apex Court, apprised this applicant-authority of the correct legal position about the eligibility of exemption u/ss 11and 12, as aforesaid. It was on receipt of such an opinion that the subje....
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.... 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 notification issued by Town & Country Planning Department as referred to in the above Notification (Copy of Notification regarding establishment of the authority has already been filed in the Paper Book compilation at Page No. 4 Annexure A-1.02). The IDA applied for a regi....
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....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 of compilation). Copy of Audited Financial Statements and copy of Audit Report in prescribed Form No. 10B for last three financial years were also submitted along with the letter (Refer Page No. 100 to 210 & 211 to 222 of our compilation). 3) Thereafter, a second query vide letter dated 13.6.2008 was issued by ld. CIT asking the asses....
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....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 application for registration u/s 12A/12AA on behalf of IDA and hence such application signed by CEO cannot be treated as invalid. Chief Executive Officer, appointed under section 46 of the Madhya Pradesh Nagar Tatha Gram Nivesh Adhiniyam, 1973, being the Secretary of the IDA, is the "Principal Officer" of the IDA within the meaning of section 2(35) of the Income-Tax Act, 1961....
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....n. 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 which have duly been accepted by Department and IDA has been assessed on the basis of such returns. Under the circumstances, if an application under section 12A/12AA is signed by a person who is competent to sign the Return of such authority, cannot be treated as invalid. With this legal position, it was argued that the ld. CIT has clearly committed an error in treating the ....
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....se 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 by IDA and duly signed by the CEO were accepted without raising any objection, therefore, we are of the considered opinion that the application for grant of registration u/s 12A/12AA cannot be said to be invalid. It is pertinent to mention here that instead of granting an opportunity to cure the defect, the ld. CIT did not take on record the duly signed application by the Chairman f....
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....e 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 the Chairman. Since the CEO, being statutorily appointed secretary of the IDA, is a "Principal Officer", therefore, very much competent to sign and file an application for registration u/s 12A/12AA on behalf of the IDA, hence, such application, signed by the CEO, cannot be treated as invalid. CEO, appointed u/s 46 of Madhya Pradesh Nagar Tatha Gram Nivesh Adhiniyam, 1993, being the se....
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....0A) 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 unless the person in receipt of income has made an application for registration of the trust or institution and such trust or institution is registered u/s 12AA. Section 12AA lays down procedure for registration and requires the ld. CIT to examine the genuineness of the activities of the trust /institution and its objects. The institution is thus required to satisfy that its activities are wh....
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....tutory 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 compilation (Also given at top of the Page No. 31 of the Compilation). The Act namely, the Madhya Pradesh Nagar tatha Gram Nivesh Adhiniyam has been enacted by the State of Madhya Pradesh for making a provision for planning and development and use of land; to make better provisions for preparation of development plans and zoning plans with a view to ensuring that town planning schemes are made in proper manner and their ....
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....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 legislation is only advancement of general public utility. The act aims at welfare of the public as a whole by planned development of cities, towns etc, by allocating land for various purposes. 19. It was submitted that the aim of the assessee is to determine the land use for overall development in the interest of general public. The object of legislation is not to carry on any activity in the nature of real estate business as all....
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....rior 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 reported in 295 ITR page 561 = (2008) 214 CTR (SC) page 81 = (2008) 166 Taxman page 58 (Refer Page No. 1 to 5 of Judgment Compilation Book, in short JCB). It was pleaded that their Lordships, while considering the similar case of Gujarat Maritime Board established under the provisions of Gujarat Maritime Board Act, 1981, have held that the Board has been established for predominant purpose of development of minor ports within the State of ....
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....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 and control of board is essential with the Government and there is no profit motive. The income of the board is deployed for the development of the ports in India and hence according to Their Lordships, the board was entitled to registration as a charitable institution. 21. It was submitted by the ld. Counsel for the assessee that the decision of the Supreme Court squarely applies to the case on hand. An analysis of the preamble and other pro....
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....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 JURISDICTIONAL ITAT. (i) CIT vs. Krishi Upaj Mandi Samiti 170 Taxman page 515 (MP-Indore Bench of the High Court of Madhya Pradesh), (Refer Page No. 107 to 110 of JCB) after analyzing the preamble of the statute under which the krishi upaj Mandi samitis are established, held - that the object of Mandi samiti is benevolent and as such it is entitled to registration under section 12A/12AA. Their Lordships have in para 4 observed, that merely because Mandi Samiti is charging fees it does not militate against the altruistic purpose for which the mandi....
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....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 laid unnecessary stress upon the fact that the IDA sells developed plots of land at prevailing market value as if sell of real estate is the only activity carried on by IDA. The CIT has completely lost sight of the fact that apart from development & sell of developed land etc IDA as a part of its of development of the planning area within its jurisdiction, carries on many other projects for the overall development of the entire area. The details of such activities have already been placed on record by the appellant. 25. A query was raised by the Bench regarding the activities of the assessee....
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....agupta 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 proprietorship firm, partnership firm, AOP or a company A statutory authority constituted under an enactment of the State 2 Pre-dominant object Is to make maximum profit by selling its properties Is to implement proposal for planning and development of notified area. It is instrumental to achieve the objects of the State to make better provision for planning and development and use of land with no profit motive. In three years, earlier to the year of application for registration i.e. F.Y. 2004- 05 to F.Y. 2006-07, it has utilized its entire funds for its activities and a very meager surplus was generated [Refer Page No. 235 of Compilation]. Even, the surplus accruing duri....
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....hority. 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 then it has been to be returned to previous owner. 9 Price for purchase/ acquisition of land A private colonizer can buy land for any price as is negotiated between him and the seller. Under s. 56, IDA can acquire the land only at the rates prescribed as per the rules of Land Acquisition Act, 1894. Such price is determined by the Collector and it is subject to upward revision by the Courts from time to time. 10 Sale of property A private colonizer would always attempt to sale his property for maximum price. There is no restriction for a private colonizer to sale a plot to a person who is already owning more than one plot. IDA can dispose of its property only in accordance with the rules framed by State Government as per se....
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....en 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 purposes. Income of the IDA was exempted under s. 10(20)/ 10(20A) up till A.Y. 2002-03. 18 Recovery of dues A private colonizer cannot recover his dues as arrear of land revenue. IDA can recover its arrear as land revenue under s. 63-A. Such a right is conferred to it only because it is carrying on objects of the State. 19 Distribution of funds on dissolution On dissolution of the entity, the owners take away entire funds generated by them from the activities In case of dissolution, the entire funds of IDA would vest with the local Municipal Corporation only 27. The assessee was directed to produce the relevant record of rates of acquisition of lands from the landowners/farmers and the rates at which these lands were sold/allotted to various persons, the assessee deliberately and reasons best known ....
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....d 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 respond to the query made by the Bench for the transactions of sale of plot to Reliance Industries and emphatically asserted that the cases relied upon by the ld. Counsel for the assessee are not applicable to the facts of the present appeal. Placing of reliance in the case of Aditypur Industrial Area Development Authority vs. UOI (supra) by ld. CIT was strongly defended. It was further pointed out that the facts in the case of Punjab Urban Development Authority and Jalandhar Development Authority are directly applicable to the facts of the present appeal. 30. We have considered the rival submissions of ld. representatives of both sides and perused the material available on the file. Before coming to any conclusion, we are reproducing hereunder the provisions of sec. 12A of the Act which prescribes certain conditions for applicability of sec. 11 & 12 which are to be fulfilled: 91 12A. 92[(1)] 93 The provisions of section 11 and section 12 shall not apply in relation to the income of any trus....
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....provisions of sections 11 and 12 shall apply in relation to the income of such trust or institution from the assessment year immediately following the financial year in which such application is made.] Sec. 12AA is a procedural sec. which prescribes about procedure for registration which is also reproduced hereunder: 12AA. (1) The 9 [***] Commissioner, on receipt of an application for registration of a trust or institution made under clause (a) 7[or clause (aa) of sub-section (1)] of section 12A, shall- (a) call for such documents or information from the trust or institution as he thinks necessary in order to satisfy himself about the genuineness of activities of the trust or institution and may also make such inquiries as he may deem necessary in this behalf; and (b) after satisfying himself about the objects of the trust or institution and the genuineness of its activities, he- (i) shall pass an order in writing registering the trust or institution; (ii) shall, if he is not so satisfied, pass an order in writing refusing to register the trust or institution, and a copy of such order shall be sent to the applicant : Provided that no order under sub-clause (ii) shall....
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....e 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 the 'impugned' order under section 12AA of the Act passed by the respondent. It is interesting to note that the appellant-authority preferred application under section 12AA of the Act only after a notice under section 210(3) was issued to it for deposit of advance tax on 11th December 2007 on the basis of calculation of its liability towards advance tax indicated in the said notice and on the basis of information whereby the department came to know that the assessee had had sold a commercial plot in a prime location adjacent to Sayaji Hotel for a consideration of about Rs. 270 Crores. A notice was issued to the assessee which was replied by the IDA on 14th December 2007 objecting to the notice and filed Form No 28B on the same date estimating its income at Rs. 2, 78, 00, 000/- and tax payable thereon at Rs. 93, 92, 570/-. In this estimate, it indicated its liability towards tax at Rs. 63, 92, 570/- after deducting Rs. 30, 00, 000/- towards pr....
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.... 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 authoritative decisions from higher judiciary i.e. from the Hon High Courts and the Apex Court, apprised this applicant-authority of the correct legal position about the eligibility of exemption u/ss 11and 12, as aforesaid. It was on receipt of such an opinion that the subject application was submitted on 27- 12-2007." 33. There is no evidence led for such a situation existing nor has it been affirmed by any responsible /authorized person. It is a fact that after withdrawal of exemption in Clause (20) and (20A) by the amendments brought out by the Finance Act, 2002, a number of such entities made application for the grant of registration under section 12AA on the basis of some statement made by the then Finance Minister but were denied registration by the department, Appeals filed by such entities before various benches of the Hon'ble Tribunal decided such appeals on the merits of the matter. Therefore to argue that the appellantauthority was ignorant of the effect of changes by the Finance Act,....
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....roducing the amendment in section 10(20), in Para 177 explained: "Sir, some of the exemptions and deductions currently provided in the Income tax Act have become redundant and are not in harmony with the moderate tax regime that we have in India. The advisory group on tax policy and tax administration for 10th Plan has recommended deletion of a number of such exemptions. I have carefully examined each recommendation of the Group and I have come to the conclusion that some of these exemptions are indeed unnecessary. I, therefore, propose to withdraw or discontinue the exemptions which are not required any longer." In the memorandum explaining the provisions in the Finance Bill. 2002, in Clause 4(1), 4(m), 4(y), clauses 150, 152, and 153, we find that a number of such exemptions have been withdrawn and many more such organizations have been brought under the tax net. All these clauses have been incorporated under the Chapter "WIDENING OF TAX BASE". Thus the legislative intent is very clear that such authorities are to be brought in to the tax net. CBDT consequently issued a Circular No 8 of 2002, dated 28th August, 2002 explaining it further in Para No 12 under the heading "Income....
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.... 2) of section 80G to provide that the sums referred to in sub-section(1) of section 80G would also include as under: "(vi) 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." Prior to its substitution, sub-clause (vi) read as under: "(vi) any authority referred to in clause (20A) of section 10." 36. It may be seen that some of the authorities like Panchayats, Municipality, Municipal Committee and District Boards, Cantonment Board were included in clause (20) of section 10 which were otherwise claiming exemption under clause (20A) of section 10 and those engaged in developmental work for cities, towns and villages were brought in section 80G. Circular No 8 of 2002 dated 27th August 2002: (2002) 258 ITR (St.) 13 explains the object of this omission as under: "13. Income of certain Housing Boards, etc., to become taxable- 13.1 Under the existing provisions contained in clause (20A) of section 10, income of the Housing Boards or other statutory authorities set up for the purpos....
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....l such exemption, the entity is required to make an application for registration under section 12A in Form No 10A to the commissioner of Income-tax. Prior to 1st June 2007, the application had to be made by the entity within one year from the date of its creation/establishment and the commissioner had discretion to condone the delay if the application was filed belatedly. However, the Finance Act, 2007 has removed the requirement of filing the application for registration by the entity within one year and has also removed the power vested with the commissioner for condonation of delay in respect of any application made on or after 1st day of June 2007. A new clause (aa) to sub-section (1) of section 12A of the income-tax Act, 1961 has been inserted in this regard. Consequent to this, in order to harmonize existing Rule 17A and the Form No 10A Appendix II to the said Rule with the new provision, notification has been issued on 30th May 2007 amending this rule and Form to enable filing of application for registration by charitable and religious entities on or after the 1st day of June, 2007." 38. From the above, it would be seen that these changes were necessitated to redress the ....
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....ther it had any effect on the decision by the respondent in the refusal to grant the registration and the activities the relevant legislation permits to the appellant-authority that the scope, power and level of authority it enjoys under the relevant statute. 40. Assessment proceedings and its effect on decision: (i) Claim under Clause (20) of section 10: The appellant-authority claimed exemption under clause (20) of section 10 of the Act, as can be seen from the order of ld. CIT(A) for the assessment years 2003-04 2004-05 and not under clause (20A) of section 10 of the Act. The learned CIT(A) has confirmed additions made by the assessing officer on a number of issues on the ground that proper records and basis of accounting are found to be lacking. Similarly, additions made to the total income in relation to the assessment year 2005-06 have been confirmed by the learned CIT(A) on similar basis. (ii) Filing of audit reports under section 44AB: The appellant-authority has filed copies of its accounts for the year ending on 31st March, 2005, 31st March, 2006 and 31st March, 2007 along with its application in Form 10A for the grant of registration under section12AA of the Act.....
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....t. 41. Scope of authority and competence of the appellant-authority in the relevant legislation: In this regard, it would be preferable to peruse the scheme of the Act, that is, "Madhya Pradesh Nagar Tatha Gram Nivesh Adhiniyam, 1973". In fact, a brief summary of the Act is discussed by Hon'ble Supreme Court in its decision in the case of CHAIRMAN, INDORE VIKAS PRADHIKARAN, PETITIONER v. M/S. PURE INDUSTRIAL COCK & CHEM. LTD. & ORS., RESPONDENT, reported in 2007-(094)-AIR -2458 -SC. In the object of this law, it is stated to be, "An Act for planning and development and use of land; to make better provision for the preparation of development plans and Zoning plans with a view to ensuring town planning schemes are made in a proper manner and their execution is made effective, to constitute Town and Country Planning Authority for proper implementation of town and country development plan, to provide for the development and administration of special areas through Special Area Development authority, to make provision for the compulsory acquisition of land required for the purpose of the development plans and for purposes connected with the matters aforesaid. " With the promulgatio....
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.... section 38 of the Adhiniyam, the State Government, by Notification No 1688-XXXXII dated 9th May 1977 established Indore Nagar Tatha Vikas Pradhikari for the comprised area within the Indore Planning Area as specified in the former Town and Country Planning Departments Notification No 515-F. 1-20-XXXII-74, dated the 13th February, 1974 and this Pradhikari was to be known as "Indore Vikas Pradhikari". Section 85 of the 1973 Act provides for rule making power. The State of Madhya Pradesh in exercise of its power conferred upon it under Sections 58 and 85 of the 1973 Act made rules known as "Madhya Pradesh Nagar Tatha Gram Nivesh Vikasit Bhoomiyo, Griho, Bhavano tatha Anya Sanrachnaon Ka Vyayan Niyam, 1975". Rules 3, 4, 5, 19 and 20 of the 1975 Rules which are material for our purpose read as under: "3. No Government land vested in or managed by the Authority shall be transferred except with the general or special sanction of the State Government given in that behalf. 4. All other land (hereinafter called the "Authority land") shall be transferred in accordance with the following rules. 5. Transfer of the Authority land shall be as under: (a) By direct negotiation with th....
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....rom State Government or open market. 5. It is the Director who is overall empowered to administer the Act and control the various authorities set up by virtue of enabling power conferred under section 38 of the Act 6. The decision of the authority is subject to moderation, review and substitution by the decision of the State Government. 7. It is subject to superintendence and control of the State Government. 8. It can grant permission to others to develop its own land. 9. The authority can incur pecuniary loss on account of acts of omission or commission by its officers, servants or other persons including chairman and State Government can order such person to make good such of the loss as well in addition to recovery, it may initiate any other action against such person as it may deem fit. 10. Authority land can be transferred by way of direct negotiations with the party, public auction, inviting tenders or under concessional terms. 44. In this scenario, the issue arises whether the appellant-authority being a mere implementing authority can be treated as an institution though it is a body corporate with a perpetual succession, common seal and with power to acqu....
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....ity. It is not accumulating or setting apart any specific fund for its objectives and the reason ascertainable from Form No 10B is that surplus is less than 15%. Since it is carrying on business, the surplus may always be less than 15%. Further, there is no year-wise segregation available in respect of reserve and surplus. It is indeed surprising that the appellant failed to satisfy the query made by Hon'ble Bench in connection with certain facts relating to the particular transaction of the sale of plot of land to Reliance Industries Limited which Hon'ble required it to place before them. Some institutions including a funeral house or an animal welfare organization or a superbazar charges large sums and makes huge profits. It is true that they render services of general public utility. Take another example of a blood bank which collects blood on payment and supplies blood for a higher price thereby making profit. Undoubtedly, the blood bank may be said to be a general public utility but if it advances its public utility by sale of blood as an activity for (making) profit, it is difficult to call its purpose charitable. It is just blood business. So is the situation in the case o....
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....se, there was no finding of the ld. CIT that the assessee did not comply with any of the procedural requirements for registration and the assessee was imparting education for charitable purposes and there is a finding that it was not the case that the activities were not of charitable nature, therefore, this judicial pronouncement may not help the assessee. The ld. Counsel for the assessee further placed reliance upon the decision in Himachal Pradesh Environment Protection and Pollution Control Board vs. CIT(2009) 125 TTJ (Chd) 98 by further pointing out that one of us (Judicial Member) is signatory to the order. We are making it clear that while rendering this decision, it has been observed as under: "where an object of general public utility is not a mere mask to hide true purpose or rendering of any service in relation thereto, and where such services are rendered as purely incidental to or as sub subservient to be main object of general public utility, the carrying on of bona fide activities in furtherance of such object is not hit by the proviso to sec. 2 (15)." Further, there is a finding that the activities of the assessee were genuine and preservation of environment ha....
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....354-361 Contractor M/s. Parshwa Builders, Indore 9. Suspension Bridge*** Photographs Sr. No. 175 - Page no. 362 Page no. 363 A.Yr. 2009-10 0.30 Crores A.Yr. 2010-11 0.25 Crores 0.55 Crores 362-368 M/s. Ramdin Ultratech Pvt. Ltd., Indore 10. Bhagirathpura to Sukhliya Road Bridge*** No Photographs Page no. 369 A.Yr. 2010-11 1.09 Crores 369-373 Contractor: Sunil Chaudhary, Indore 11. Kesharbagh ROB Work*** Photographs Sr. No. 180, 182 of American Color Lab - Page No. 374-376 Page no. 377 A.Yr. 2008-09 2.40 Crores A.Yr. 2009-10 7.06 Crores 9.46 Crores 374-382 Contractor M/s. Arvind Techno-Engineers Pvt. Ltd. Delhi. 12. BRTS 14.05 km. Corridor*** Photographs Sr. Nos. - 7,22,25,28,31,34,10,13,16,19 Page No. 383-394 - American Color Lab Page no. 395 Under JNNURM Plan A.Yr. 2007-08 0.32 Crores A.Yr. 2008-09 18.82 Crores A.Yr. 2009-10 10.49 Crores A.Yr. 2010-11 16.97 Crores 46.60 Crores 383-409 M/s. Niraj Pratibha JV, Mumbai 13. BRTS 06.50 km. Corridor*** Photographs Page No. 410-414 Page no. 415 410-423 M/s. Niraj Cement Strictures Pvt. Ltd., Mumbai 14. BRTS 04.75 km. Corridor*** Photographs Page No. 424-427 Page no. 428 Under JNNRUM Plan....
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....nt with narration in Hindi which when translated in English would mean that from this work, no income would generate to the Authority. All the 20 documents forming part of the compilation itself are 'interestingly' marked with the title "unproductive work" and thus convey the "real" intention of the appellant that it is primarily engaged in business activities with profit motive. * For some of these works Grant-in-Aid is received either from the Central or the State Government. All these works are executed by the contractors and not by the Authority. * These facts go against any avowed object of charity. * The appellant has sought to furnish this bulky information in support of its claim that it is engaged in activities which may fall within the ambit of the term 'Object of general public utility', but has failed to furnish any information required by Hon'ble Bench in respect of the 'impugned' plot sold to the Reliance industries Ltd. It is pertinent to mention here that on earlier occasion also the Bench directed the assessee to furnish the details of cost of acquisition of the said plot paid by the Authority to the 'original' owner(s), the purpose for which it was earmarked....
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....egistration has been granted to Patiala authority, then no two yard sticks should be adopted. At the outset, we are of the view that we are not agree with the contention of the ld counsel because if the intention of creating Patiala authority was the same then there was no need of its creation as the same objects would have been fulfilled by the bigger unit i.e. the assessee. At the same time, resjudicata is not applicable in income tax proceedings. We do not want to comment as why and how the registration was granted to Patiala authority as the same is not pending before us for adjudication. Reliance can be placed upon the decision pronounced by the Hon'ble Apex Court in the case of Distributors (Baroda) Private. Ltd. Vs. UOI & Others wherein the Hon'ble Apex Court held that "It is almost as important that the law should be settled permanently as that it should be settled correctly but there may be circumstances where public interest demands that the previous decision be reviewed and re-considered. The doctrine of stare decises should not deter the court from overruling an earlier decision, if it is satisfied that such decision is manifestly wrong or precedes upon a mistak....
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....specially at Page 787. However, there is a major shift in the law with regard to institutions who are claiming charities. This is a well known fact that in some of the situations the provisions of law is misused in the names of charities. If an expanded/broader latitude is extended to the word charity, then there are so many institutions/departments who will try to come under the umbrella of this provisions to misuse the provision. Therefore, for the broad development of the nation/society, a strict and positive vigil is required so that the provision can be saved from its misuse in any manner. We are aware that no activity can be carried on efficiently, properly unless and until it is carried out on business principle but it does not mean that the provision is misused in any manner under the garb of charity and any institution is allowed to become richer and richer under the garb of charity by making it a non-tax payable organization. In the case of Surat Art Silk Cloth Manufactures Association and Bar Council of Maharashtra cases, it was held that what is predominant object of the activity - whether r it is to carry out a charitable purpose and not to earn profit - the purpose sh....
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....fit therefrom. A new trend has also emerged that PUDA, i.e. the assessee has started auctioning the plots by way of bidding at the market rate and sometimes more than that and charging interest on belated payments. In such a situation, we are of the view that no charity is involved. Rather the assessee has converted itself into a big businessman. Similar development/infrastructure/facilities are provided by big developers these days, then they will also claim the status of a charitable institution. During argument the ld counsel relied upon the decision of the Hon'ble Apex Court pronounced in the case of Adldl. CIT Vs. Surat Art Silk Cloth Manufactures Association (121 ITR 1) (SC) where the assessee was incorporated under the Companies Act wherein the dominant or the primary purpose of the assessee was to promote commerce and trade in art silk yarn, raw silk, cotton yarn, art silk cloth, silk cloth and cotton cloth as set out in Clause (a) and the object specified in Clauses (b) to (e) and the object was found to be public utility not involving the carrying on of any activity for profit within the meaning of Section 2(15), the assessee was held to be entitled for exemption un....
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....to which the said objects would serve as ancillary objects and which were meant to feed the dominant purpose. Clause 21 of the Trust Deed empowered the Chairman of the trust to spend the funds of the Trust for the purchase of immovable property and since no part of the income of the Trust was applied on any specific charitable purposes, the exemption under section 11 of the Act was denied. The Hon'ble court relied upon various judicial pronouncements which are available at Page 515 of the said order and then came to a particular conclusion. In view of these facts and judicial pronouncements, we are supposed to see the predominant object of the assessee. If all the objects and activities actually carried out by the assessee are analysed and kept in juxta position with the aforesaid judicial pronouncements, we are of the view that activities of the assessee are more of commercial nature with profit oriented intent, so no leniency should be shown to the assessee. The department may also get support from the decision of the Hon'ble Patna High Court as pronounced in the case of Bihar State Forest Development Corporation Vs. (224 ITR 757) where the govt. company was formed for pr....
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....enefit of public at large. As we have discussed in the preceding para, the assessee acquires land at nominal rates and after developing the same, the same land on high profit which cannot be said to be a charitable activity. Even just for argument sake, under the present facts, if registration is granted then every private colonizer will claim charity. The facilities which are provided to the plot holders are incidental to the commercial activity carried out by the PUDA and if certain facilities like parks, community center school are provided is not only basic requirement, rather a tool of attracting the investors wherein the hidden cost of these facilities is already included. In the absence of these facilities, normally the purchaser may not invest and the prices may be less. In view of these facts and judicial pronouncements, we are of the view that the application of the assessee has been rightly rejected by ld CIT. The stand of the ld CIT is upheld. Appeal of the assessee is therefore dismissed." 50. In the aforesaid case, the Chandigarh Bench of the Tribunal on identical facts has considered various judicial pronouncements and ultimately decided the issue in favour of the....
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....s of this Court which have interpreted the words, in section 2(15), namely, 'any other object of generally public utility'. From the said decisions it emerges that the said expression is of the widest connotation. The word 'general' in the said expression means pertaining to a whole class. Therefore advancement of any object of benefit to the public or a section of the public as distinguished from benefit to an individual or a group of individuals would be a charitable purpose - CITv. Ahmedabad Rana Caste Association (1983) 140 ITR 1 (SC). The said expression would prima facie include all objects which prom ote the welfare of the general public. It cannot be said that a purpose would cease to be charitable even if public welfare is intended to be served. If the primary purpose and the predominant object are to promote the welfare of the general public the purpose would be charitable purpose. When an object is to promote 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 conduct the said trade or industry -CIT v. Andhra Chamber of Commerce (1965) 55 ITR 722 (SC). If the primary ....
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....or institution is the advancement of an object of general public utility, it is that object of general public utility and not its accomplishment or carrying out which must not involve the carrying on of any activity for profit. So long as the purpose does not involve the carrying on of any activity for profit, the requirement of the definition would be met and it is immaterial how the monies for achieving or implementing such purpose are found, whether by carrying on an activity for profit or not." 51. If the aforesaid observation of the Hon'ble Apex Court is analysed then business income of the assessee institution became entitled to exemption because such business was carried on to advance an object of general public utility notwithstanding the words "not involving the carrying on of any activity for profit". In section 2(15) the said decision resulted in the amendment to section 2(15) & 11 by Finance Act, 1983 w.e.f. 1st April a1984 and the words "not involving the carrying on of any activity for profit" omitted by Finance Act, 1983 w.e.f. 1.4.1984 in section 2(15) and profits and gains from business or profession were made expressly taxable through insertion of sub-section (4A....
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....gaged in any real estate business. Further, in the case of Indian Chamber of Commerce vs. CIT(101 ITR 796) (SC), the Hon'ble Apex Court held as under: "that the activities of the chamber being activities carried on for profit, in the absence of any restriction in its memorandum and articles of association against the making of profit from those activities, the income of chamber from those activities was liable to income-tax. Section 2(15) must be interpreted according to the language used therein and against the background of Indian Life. By definition in section 2(15) the benefit of exclusion from total income is taken away when in accomplishing a charitable purpose the institution engages itself in activities for profit." Commercial education activity and private coaching institutes are therefore not covered within the provisions of sec. 2 (15) for which reliance can be placed in CIT vs. National Institute of Aeronautical Engg. Education Society (2009) 184 Taxman 264 (Uttarakhand) and Bihar Institute of Mining and Mining Surveying vs. CIT(1994) 208 ITR 608 (Pat). Even otherwise, the onus on the assessee to prove that the objects are of charitable nature as was held by Hon'....
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....ely, these authorities turned into a commercial organization with the sole intention to earn maximum profit even at the cost of poor farmers whose lands are acquired, for namesake considered to be backbone of this great country, are paid negligible amount as compensation and after incurring development cost, the same land is sold at commercial rates. The helpless farmers sometimes have no means of even livelihood. Further, the profit motive of the assessee is not incidental to the objects of the assessee authority rather there is a systematic commercial activity with the intention to earn maximum profit. It is not the case that the assessee, after earning huge profit from such commercial activities, is spending such profit on charitable activities rather there is no obligation on the assessee to spend its earnings for charitable purposes. These authorities have become a great source of earning income in itself and the assessee authority is no exception to it. It is common knowledge/fact that the assessee authority is selling the developed plots on auction to the highest bidder and one such example is sale to Reliance near Sayaji Hotel as asserted by the learned CCIT DR which was no....