TaxTMI 
TaxTMI 
2021 (1) TMI 680
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....oner of Income Tax (Appeals)-I, Agra, hereinafter referred to as 'CIT(A)' erred, both in law and on facts, in holding that the Assessing Officer was justified in adopting status of the appellant as AOP/BOI. The findings of Ld. CIT(A) are self contradictory. 2. Because the Ld. CIT(A) erred, both in law and on facts, in dismissing ground nos. 4,5,7,8,9,10 and 11 taken before him and holding that the appellant is engaged in commercial activities by virtue of section 2(15) of the I. T. Act, as amended from 01.04.2009. Ld. CIT(A) failed to appreciate that the appellant is carrying on non commercial activities and enjoying registration u/s 12A. The provisions of section 2(15) cannot, legally, be invoked during the subsistence of registration u/s 12A. Ld. CIT(A) has arbitrarily differentiated the authoritative judicial pronouncement in the case of Hira Lal Bhagwati vs. CIT [(2000) 246 ITR 188 (Guj)] and ACIT VS Surat City Gymkhana (2008) 170 Taxmann 612 (SC). The order of Ld. CIT(A) is erroneous and perverse. 3. Because the Ld. CIT(A) erred, both in law and on facts, in holding the activities of the appellant as commercial in utter disregard to the authoritative pronounc....
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....e excess shown in the 'income and expenditure' account. The authorities below have erroneously disallowed the benefit of exemption u/s 11 claimed by the appellant. The authorities below further failed to appreciate that various receipts forming the above excess included interest from bank amounting to Rs. 3,51,83,751/- which is not at all the receipt from the alleged commercial activities. The authorities below failed to appreciate various authoritative judicial pronouncements in this regard. 8. Because the Ld. CIT(A) erred, both in law and on facts, in holding the revenue expenditure of Rs. 4,84,000/- as capital expenditure. The authorities below failed to appreciate the nature and expectancy of life of the equipments purchased including the expenditure made in cabling of the generator. 9. Because the Ld. CIT(A) erred, both in law and on facts, in sustaining the addition of Rs. 1,44,000/-, being the expenses made during the year by holding them of prior period. The authorities below failed to appreciate the accounting system consistently maintained by the appellant in respect of expenses made to the professionals. 10. Because th....
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.... 49/Agra/2017 The grounds of the assessee's are as under:- "1. Because the Ld. Commissioner of Income Tax (Appeals)-II, Agra, hereinafter referred to as 'CIT(A)' erred, both in law and on facts, in holding that the Assessing Officer was justified in adopting status of the appellant as AOP/BOI. . 2. Because the Ld. CIT(A) erred, both in law and on facts, in confirming the action of Assessing Officer in completing the assessment under Chapter IV of the Income tax Act and invoking provisions of section 145(3) in the absence of any income under the head " Profit and Gains of business or Profession" or " Income from other sources". The completion of assessment under Chapter IV and invoking provisions of section 145(3) is wholly illegal in the case of the appellant which is enjoying registration u/s 12A. 3. Because the Ld. CIT(A) erred, both in law and on facts, holding that the appellant is engaged in commercial activities by virtue of section 2(15) of the I. T. Act, as amended from 01.04.2009. Ld. CIT(A) failed to appreciate that the appellant is carrying on non commercial activities for which registration u/s 12A had been granted. The authorities below co....
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....bsence of any margin of profit kept by the appellant at the time of allotment of house / plot, holding entire allotment money as income is arbitrary and whimsical. The addition may kindly be directed to be deleted. 8. Because the Ld. CIT(A) erred, both in law and on facts, in sustaining the addition of Rs. 23,65,000/- being the surplus appearing in the 'ManyawarKashiramAwasYojna' account. The authorities below failed to appreciate that the appellant merely functioned as nodal agency for completion of the work assigned by the State Government. The surplus appearing is in respect of undergoing work and further the unutilized amount was to be refunded to the State government in terms of Govt. Notification. The addition is contrary to the facts available on record and is wholly illegal. 9. Because the Ld. CIT(A) erred, both in law and on facts, in holding the revenue expenditure of Rs. 65,200/- as capital expenditure. The authorities below failed to appreciate that the equipments purchased had expectancy of life of less than a year and as such holding the expenditure of capital nature is wholly illegal. 10. Because the Ld. CIT(A) erred, both in law an....
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....e exemption u/s 11 of the I.T. Act, being in accordance with report in 10B, may kindly be directed to be granted. 5. Because the Ld. CIT(A) erred, both in law and on facts, in sustaining the addition of Rs. 5,12,62,249/- being the receipts shown in 'infrastructure development fund' account. Ld. CIT(A) failed to appreciate that the above receipts are in terms of notification issued by Uttar Pradesh Government and has no correlation with the regular activities of the appellant. The same is again in utter disregard to various judicial pronouncement including authoritative judicial pronouncement of Hon'ble Allahabad High Court in the case of Lucknow Development Authority [(2013) 38 taxmann.com 246 (All.)]. 6. Because the Ld. CIT(A) erred, both in law and on facts, in sustaining the addition of Rs. 4,40,01,735/- out of addition of Rs. 4,91,33,396/- made by the Assessing Officer against the receipts shown in 'project development fund'account. The receipts are in respect of installments received against allotment of house / plot by the appellant. In the absence of any margin of profit kept by the appellant at the time of allotment of house / plot, holding....
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....tion of Rs. 5,47,56,721/- being the receipts shown in 'infrastructure development fund' account. Ld. CIT(A) failed to appreciate that the above receipts are in terms of notification issued by Uttar Pradesh Government and has no correlation with the regular activities of the appellant. The same is again in utter disregard to various judicial pronouncement including authoritative judicial pronouncement of Hon'ble Allahabad High Court in the case of Lucknow Development Authority [(2013) 38 taxmann.com 246 (All.)]. 6. Because the Ld. CIT(A) erred, both in law and on facts, in sustaining the addition of Rs. 8,03,08,852/- out of addition of Rs. 8,81,47,163/- made by the Assessing Officer against the receipts shown in 'project development fund'account. The receipts are in respect of installments received against allotment of house / plot by the appellant. In the absence of any margin of profit kept by the appellant at the time of allotment of house / plot, holding entire allotment money as income is arbitrary and whimsical. The addition may kindly be directed to be deleted. 7. Because the appellant craves leave to alter/ modify grounds before or at the ti....
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....are not charitable as per the section 2(15) amended by Finance Act, 2008. 9. This order of withdrawal of registration u/s 12A was challenged by the assessee before the Hon'ble ITAT, Agra, which was allowed by the tribunal by order dated 30.3.2012. 10. For the assessment year under consideration, the assessee filed the return of income showing nil income. The case of the assessee was selected for scrutiny and the proceeding for assessment were initiated. During the course of the assessment proceedings, the assessee has brought to the notice of the assessing officer the order passed by the tribunal on 30.3.2012 however the assessing officer sadly mentioned in the order at page 2 that the tribunal had allowed the appeal on technical ground without going into the merits of the case. 11. Despite passing of the order by the tribunal, cancelling the withdrawal of 12AA order of the CIT, the assessing officer had examined the activities of the assessee in detail, and had that the activities of the assessee was the nature of trade, commerce or business and has the assessee is not entitled to the exemption under the Act. For the ready purposes we are reproducing herein below the find....
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....t the Authority shall levy and collect city development charge from a private developer who has been given a license to develop land in a development area. This charge is collected from a private developer who in turns develops and profits from such business. This activity clearly attracts the new proviso as it is an activity of rendering service in relation to a trade or business. h. Section 38A of UPUPD Act, 1973 provides for land use conversion charge for the change of land use in the MASTER PLAN. This section enables the authority to charge money when non-agricultural land is converted to residential or commercial land or Residential land is converted to commercial land thereby increasing its valuation. This charge is paid by general public including the colonizers and builders who acquire agriculture land and later on use it for developing residential or commercial property for sale. This activity clearly attracts the new proviso as it is an activity of rendering service in relation to a trade or business. i. Section 39B of UPUPD Act, 1973 provides for imposition of license fee, on a private developer who has been authorized for assembly and development of la....
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....onstituted by Uttar Pradesh Urban Planning and Development Act 1973 for the purposes of carrying out activities contained in section 7 of the Act. Section 5 of the Act is reproduced as under.- " Objects of the Authority : - The objects of the Authority shall be to promote and secure the development of the development area according to plan and for that pm pose the Authority shall have the power to acquire . hold, manage and dispose of land and other property, to carry out building, engineering, mining and other operations, to execute works in connection with the supply of water and electricity ,to dispose of sewage and to provide and maintain other services and amenities and generally to do anything necessary or expedient for purposes of such development and for purpose incidental thereto : 2. That after the amendment in section 10(20) of the I.T Act. the assessee applied for registration u/s 12A. The registration was granted w.e. f 01.04.2003 by the Ld. Commissioner of Income Tax-II, Agra vide order dated 24 09.2003. 3. That the returns were filed from A. Y. 2003-04 and declared results were accepted upto A.Y. 2007-08. The assessment for A. Y. 2007-08 wa....
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.... In view of the above, it is requested that the assessment be. fairly, completed on the identical lines of A.Y.2007-08 keeping in view authoritative judicial pronouncements referred to above. " (Page 11 and 12 of AO order) 13. The assessing officer had examined the reply and after examining the reply had passed the impugned assessment order. In the concluding para internal page 19 of the assessment order it was mentioned as under: 6. During the course of assessment proceedings assessee has quoted recent decision of the Hon'ble ITAT, Agra Bench. Agra in his case for withdrawing exemption U/s 12AA(3) of the Act. In this regard assessee's submission is considered. After perusal of order of the Hon'ble ITAT, Agra Bench. Agra dated 30.03.2012 , it is found that Hon'ble ITAT has limited itself about power of the CIT u/s 12AA(3) in withdrawing exemption and has not given any finding in respect of the proviso of section 2(15) and section 13(8) of the I.T.Act, 1961. The Hon'ble Bench has also not given any finding whether assessee is a charitable entity as per section 2(15) of the Act or not. In such a scenario judgment of Hon'ble ITAT, Amritsar and Hon'....
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....AR has also cited a recent judgment of Hon'ble Allahabad High Court, Lucknow Bench in the case of Commissioner of IncomeITA tax-1, Lucknow vs. Lucknow Development Authority, Gomti Nagar reported in [2013] 219 Taxman 162 (Allahabad). With regard to proviso to section 2(15), the Id. AR has again explained that this proviso clearly specifies that the activities must be for cess, fee or other consideration. In business, as is commonly known, the sale consideration includes cost, the profit and user of the profit. As long as the profit does not reaches to private hands, the provision to charge income tax does not apply. As per the Id. AR, the appellant being a publically owned institution and statutory body, no parts of its receipt, of whatever nature, goes to the public during its subsistence and after its dissolution. 7.5.2 Against the above contention of the Ld. AR of non applicability of proviso to section 2(15) for computation of income of the assessee, if the registration u/s 12A is in force, the view of the AO as discussed in the assessment order, is that the registration u/s 12A / 12AA is only a necessary but not sufficient condition for claiming exemption u/s ....
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....ellant/Authority manages its own funds. It has its own assets and liabilities. It can sue or be sued in its own name. Even though, it does not carry on any trade or business within the contemplation of cl. (2) of Art. 289, it still is an Authority constituted under an Act of the legislature of the State having a distinct legal personality, being a body corporate, as distinct from the State. Sec. 17 of the Act further clarifies that only upon its dissolution its assets, funds and liabilities devolve upon the State Government. Necessarily therefore, before its dissolution, its assets, funds and liabilities are its own. It is, therefore, futile to contend that the income of the appellant/Authority is the income of State Government, even though the Authority is constituted under an Act enacted by the State legislature by issuance of a Notification by the Government there under. The High Court was therefore right in concluding that the appellant/Authority could not claim exemption from Union taxation under Art. 289(1) of the Constitution of India." In view of the above decision of the Hon'ble Supreme Court, the question arises that if a Development Authority like Adityapur Industrial Ar....
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....n Grounds 4, 5, 7, 8, 9 & 10. (i) Effect of amendment in section 2(15) of the Income Tax Act, w.e.f. 01.04.2009. (ii) Effect of insertion of section 13(8) of the Income Tax Act, w.r.e.f. 01.04.2009. 8.1 In order to resolve the issue before me as raised in ground nos. 4,5,7,8,9 & 10, I have decided to examine both the provisions in the light of the Memorandum of Finance Bill, 2012 explaining these provisions and also certain recent judgments on these new provisions. In this regard, first both the provisions i.e. section 2(15) and section 13(8) are reproduced as under: - "Sec. 2(15)"charitable purpose"includes relief of the poor, education, medical relief, [preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest,] and the advancement of any other object of general public utility: Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any t....
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....ggregate value of receipts from commercial activities. There is, therefore, need to expressly provide in law that no exemption would be available for a previous year, to a trust or institution to which first proviso of sub-section 2(15) become applicable for that particular previous year. However, this temporary excess in one year may not be treated as altering the very nature of the trust or institution so as to lead to cancellation of registration or withdrawal of approval or rescinding of notification issued in respect of trust or institution. Therefore, there is need to ensure that if the purpose of a trust or institution does not remain charitable due to application of first proviso on account of commercial receipt threshold provided in second proviso in a previous year. Then, such trust or institution would not be entitled to get benefit of exemption in respect of its income for that previous year for which such proviso is applicable. Such denial of exemption shall be mandatory by operation of law and would not be dependent on any withdrawal of approval or cancellation of registration or a notification being rescinded. It is, therefore, pro....
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....er:- "CIRCULAR NO. 11/2008. DATED 19-12-2008 1. Section 2(15) of the Income-tax Act, 1961 ('Act') defines "charitable purpose" to include the following:- (i) Relief of the poor (ii) Education (Hi) Medical relief, and (iv) The advancement of any other object of general public utility. An entity with a charitable object of the above nature was eligible for exemption from tax under section 11 or alternatively under section 10(23C) of the Act. However, it was seen that a number of entities who were engaged in commercial activities were also claiming exemption on the ground that such activities were for the advancement of objects of general public utility in terms of the fourth limb of the definition of'charitable purpose'. Therefore, section 2(15) was amended vide Finance Act, 2008 by adding a proviso which states that the 'advancement of any other object of general public utility' shall not be a charitable purpose if it involves the carrying on of- (a) any activity in the nature of trade, commerce or business; or (b) any activity of rendering any service in relation to any trade, commerce or business; for....
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....und that their objects are for charitablepurpose as these are covered under 'any other object of general public utility'. Under the principle of mutuality, if trading takes place between persons who are associated together and contribute to a common fund for the financing of some venture or object and in this respect have no dealings or relations with any outside body, then any surplus returned to the persons forming such association is not chargeable to tax. In such cases, there must be complete identity between the contributors and the participants. Therefore, where industry or trade associations claim both to be charitable institutions as well as mutual organizations and their activities are restricted to contributions from and participation of only their members, these would not fall under the purview of the proviso to section 2(15) owing to the principle of mutuality. However, if such organizations have dealings with non-members, their claim to be charitable organizations would now be governed by the additional conditions stipulated in the proviso to section 2(15). 3.1 In the final analysis, however, whether the assessee has for its object 'the advancement of any othe....
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....nue however the order of the tribunal was upheld by the Hon'ble High Court. 16. It was submitted that ,If the tribunal comes to the conclusion that second proviso to section 2 (15) is applicable then assessee would be entitled to the exemption under section 11 of the Act . 17. During the course of argument we have directed both the parties to file the list of the activities , which had resulted in receipt of revenue by the assessee ,both the parties have filed their respective synopsis which were taken on record . Submission of parties on the aspect of applicability of second proviso to section 2 (15)( Ground no 3) 18. It was submitted that appellant is constituted by legislation to carry out the work independently, on the basis of authorization provided by the statute. The appellant is bound to execute certain works on the basis of directions issued by the State Government from time to time. In fact, only permission is taken from the State Government to acquire particular piece of land for which funds are given by the appellant itself. All the transactions in respect of every activity have been recorded in the books of accounts of the appellant since its incorporati....
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.... The application of fourth limb of section 2(15) as a whole is denied. The appellant does not carry on any business, trade or commerce and as such the limitation of threshold receipts as provided in section 2(15) is not relevant. Further there is no profit motive. In order to explain the nature of receipts, the appellant is only required to prove that the receipts are not from business activities. It is not disputed that exemption under section 11 may be evaluated each year.The application of funds is strictly in accordance with the provisions contained in I.T. Act. 24. Lastly it was submitted that Provisions of section 10(46) and 2(15) read with section 11 and 12 are independent provisions comprised in the I.T. Act. Infact, Central government notifies certain institutions u/s 10(46), whose income from all sources shall remain exempt. While in case of provisions of section 2(15), 11 and 12, the income / receipts are exempt only if they relates to charitable objects and or to any activity incidental in the nature of objects of the trust. It was submitted that the applicant had applied for its notification under section 10(46) of the Act, on 11.2.2019. Further Greater NOIDA Ind....
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.... 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 appli-cation, or retention, of the income from such activity: Provided further that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is twenty-five lakh rupees or less in the previous year. The relevant pages of findings of authorities below are as under: 1. Findings of AO are at Page no.6-19 & 47-48 2. Findings of Ld. CIT(A) are at Page No's 11-139 The main challenge is on allowability of exemption u/s 11 amounting to Rs. 3,58,61,640/-, being the surplus shown in the receipt and expenditure account. In this connection, it is respectfully submitted that appellant has never been engaged in commercial activities. The appellant came into existence on 15.10.1984 by virtue of U.P.Urban Planning & Development Act, hereinafter referred to as 'the Act'. Copy of bare act is on the record.....
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..... It also provides that no development shall be undertaken, or carried out or continued in that area unless the same is also in accordance with such plan. 9 Section 15 of the UPUPD Act deals with the application for permission referred to in section 14 of the UPUPD Act. It contemplates making of the requisite enquiry of any land or building in contravention of the plans. 10 Section 16 of the UPUPD Act prohibits use of any land or building in contravention of the plans. 11 Chapter VII deals in finance, accounts and audit of the authority as per the norms issued by the State Government. I may be allowed to read the whole chapter:- 12 Section 29 provides conferment of other powers on the authority after a master plan or zonal development plan has come into operation u/s 12 of the UPUPD Act. 13 Section 41 deals with control of State Government on the authority. 14 Section 55, 56 and 57 deals with the power of the State Government to make rules, regulation and bye laws. 15 And finally, the dissolution clause, where the State Government is satisfied that the purpose for which the authority was established under the UPUPD Act ....
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....rders. In respect of trade, commerce or business, there should be a seller and buyer which is absent in all the receipts observed by the special auditor. Thus these receipts cannot be out of any trade, commerce or business. Likewise, the observation of the special auditor that the assessee is engaged in the business of construction or real estate development projects is again beyond his authority. While giving his observation the auditor failed to appreciate that these constructions were in accordance with the objects for which the authority is constituted. The development activities carried out by the appellant under the statutory powers conferred by state government are not business activities. The activities are part of charitable activities for which the appellant has been granted registration u/s 12AA. In these circumstances, section 2(15) or section 13(8) are not at all applicable in the nature of receipts shown by the appellant. Ld. CIT(A) at page 83 of the appellate order has summarized various sources of fund of the authority in clause (a) to (e) and has found that the receipts under clause (c),(d) and (e) are directly related to the trade, comme....
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....ndering of services in relation to trade, commerce or business. It has further been observed that apart from these activities, the appellant is earning profit on construction of sale of flat like other builder. Ld. CIT(A) failed to appreciate that all the above activities are part of the objects and are in accordance with statutory objectives. Further the observation of Ld CIT(A) that the appellant is earning profit on construction of sale of flat just like other builder is contrary to the facts of the case as the appellant has repeatedly intimated, duly supported by documents, that no margin of profit is kept while constructing and sale of flats. Ld. CIT(A) further failed to appreciate that the appellant is mainly providing services to the common man who are homeless. The flats / commercial complex are sometime allotted at below the cost as is evident from the costing sheet placed at Page 85 of the Paper book. It is therefore again submitted that the receipts are out of statutory obligations and not from any trade, commerce or business. On the basis of findings in the audit report, the Assessing Officer too has held the activities of the appella....
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....Ahmedabad Urban Development Authority Vs ACIT (E) [(2017) 83 Taxmann.com 78 ( High Court of Gujarat) (ix) Bangalore Development Authority ITAT Bang. ITA no. 1104 / Bang / 2017 & 1087 / Bang / 2017 (Relevant page 23 onwards) (x) Greater Noida Industrial Development Authority Vs CIT (Delhi High Court ) . (placed in PB XIII-B filed by revenue) (xi) Gujarat Housing Board (GHB) Vs DCIT (Ahemedabad ITAT, ITA No. 3297/Ahd/2016 dt. 16.11.2018) (JOPB No. VI) All the development authorities in Uttar Pradesh are constituted by 'The Act' and are functioning for the development of their respective cities. A list of all the development authorities functioning in Uttar Pradesh has been placed at (Page No. 33 of JOPB No. IV ). Gujarat Housing Board (GHB) is also an authority functioning in Gujarat on the same pettern of the assessee. Hon'ble ITAT Ahmedabad bench passed in the case of Gujarat Housing Board (GHB) wherein Hon'ble Tribunal has held that the activities of the above authority are not hit by proviso to section 2(15) and as such the authorities below were in error in invoking proviso to Section 2(15) and declining the benefit of Section 11 to t....
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....t limb of the definition " for advancement of any other purpose beneficial for to the public in general " where in it was held as under : "35.However vide Finance Act, 2008 w.e.f. 1.4.2009, a new proviso (i.e. fist proviso) was added to this provision, carving out an exception in the cases of 'advancement of any other object of general utility: '2 (15) "charitable purpose" includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility: Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity;' (Emphasis supplied by us) 36. There are two limbs of the above proviso to section 2(15) of the Act, introduced w.e.f. 1.4.2009, i.e. the advancement of any other object of general public utility" shall n....
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....ty in the nature of trade, commerce or business is a question of fact which will be decided based on the nature, scope, extent and frequency of activity. 3.1 There are industry and trade associations who claim exemption from tax under s. 11 or on the ground that their objects are for charitable purposes as these are covered under the 'any other object of public utility'. Under the principle of mutuality, if trading takes place between the persons who are associated together and contribute to a common fund for the financing of some venture or object, and in this respect have no dealings or relations with any outside body, then the surplus returned to such persons is not chargeable to tax. Therefore, where industry or trade associations claim both to be charitable institutions as well as mutual members, these would not fall under the purview of s. 2(15) owing to the principle of mutuality. However, if such organizations have dealings with the non-members, their claim for charitable institution would now be governed by the additional conditions stipulated in proviso to s. 2(15). 3.2 In the final analysis, whether the assessee has for its object '....
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....at while the legislature in the 1984 amendment which continued up to the year 2009 altered the position by deleting the words "not involving the carrying on of any activity for profit", it reintroduced an exclusionary clause albeit in different and wider terms in the 2009 amendment. The exclusionary clause related to the object of general public utility and not the advancement thereof. The Hon'ble High Court thereafter referring to the words "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" as mentioned in the proviso to section 2(15), as amended in 2009, observed that such activities are carried for profit only. The Hon'ble High Court rejected the contention of the revenue that the meaning of the above words "nature of trade, commerce or business" was of wider import and that even if the advancement of object of general public utility involves 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, it will be out of the definition of the word "charitable purposes". The Hon'ble high ....
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....regarded as a business even when profit motive cannot be established/proved. In such cases, there should be evidence and material to show that the activity has continued on sound and recognized business principles and pursued with reasonable continuity. There should be facts and other circumstances which justify and show that the activity undertaken is in fact in the nature of business. 58. In conclusion, we may say that the expression "charitable purpose", as defined in Section 2(15) cannot be construed literally and in absolute terms. It has to take colour and be considered in the context of Section 10(23C)(iv) of the said Act. It is also clear that if the literal interpretation is given to the proviso to Section 2(15) of the said Act, then the proviso would be at risk of running foul of the principle of equality enshrined in Article 14 of the Constitution of India. In order to save the Constitutional validity of the proviso, the same would have to be read down and interpreted in the context of Section 10(23C)(iv) because, in our view, the context requires such an interpretation. The correct interpretation of the proviso to Section 2(15) of the said Act would be that it ....
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....had been done having regard to the objects of the institution and its importance throughout India. The Hon'ble High Court further observed that if a meaning is given to the expression 'charitable purpose' so as to suggest that in case an institution, having an objective of advancement of general public utility, derives an income, it would be falling within the exception carved out in the first proviso to Section 2(15) of the said Act, then there would be no institution whatsoever which would qualify for the exemption under Section 10(23C)(iv) of the said Act and the said provision would be rendered redundant. 42. The Hon'ble Punjab & Haryana High court in the case of 'The Tribune Trust' (supra) following the decision of the Hon'ble Supreme Court in 'Surat Art Silk Cloth Mfgr. Assn' (supra) and in the light of the several decisions of the Hon'ble Delhi Court has held that the predominant object of the trust or institution is the deciding factor , if the profit is the pre-dominant motive, purpose and object of the assessee Trust then its activities cannot be considered for charitable purposes as per the definition of charitable purpose....
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....y as included in the definition provided u/s 2(15) of the Act. We may further add here that the prohibition put by the above proviso is not applicable in respect of non-business income of the institution or the trusts carrying on the advancement of other objects of general public utility but only in respect of income earned from the activity in the nature of trade, commerce or business. In other words, this exclusionary provision will not exclude the institutions having income other than the business income. 44. It is pertinent to mention here that Parliament also realized that the absolute restriction on any receipt of commercial nature imposed by the proviso inserted w.e.f. 1.4.2009 to section 2(15) may create hardship to the organizations which receive sundry or incidental considerations from such activities. Therefore by the Finance Act 2010, there was yet another proviso (i.e. second proviso) inserted with retrospective effect from 1.4.2009; now the section read as under: '2 (15) "charitable purpose" includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility: Provided that th....
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....f. 1-4-2009 which deals with the assessment, adding third proviso thereto: "Assessment : 143. (1)** ** ** (3) On the day specified in the notice,- ** ** ** Provided also that notwithstanding anything contained in the first and the second proviso, no effect shall be given by the Assessing Officer to the provisions of clause (23C) of section 10 in the case of a trust or institution for a previous year, if the provisions of the first proviso to clause (15) of section 2 become applicable in the case of such person in such previous year, whether or not the approval granted to such trust or institution or notification issued in respect of such trust or institution has been withdrawn or rescinded." 54. Therefore, with the introduction of second proviso to section 2(15) there is a paradigm shift from the earlier position. Though, some of the decisions of the Delhi High Court as referred to above and that of the Pb. &Hry. High Court in the case of The Tribune Trust (supra) have been delivered subsequent to the introduction of the second proviso to section 2(15) of the Act, however in none of the above referred to decisions there is any d....
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....o to the institutions genuinely carrying on the activity of general public utility. Since the interpretation adopted by the courts was not the literal interpretation of the proviso, but there was departure from the literal meaning because of the hardships which may be faced by the trusts carrying genuine charitable activities in giving literal and plain meaning to first proviso, hence under the circumstances, when the Parliament itself has introduced the second proviso to remove the rigour of the first proviso and to mitigate the hardships created by the first proviso, hence the interpretation of the section 2(15) in the changed scenario is to be given by taking into consideration the section in its entirety and also in the light of consequential amendments carried out in sections 10(23C), 13, and 143 of the Act and thereby making the newly inserted second proviso and amendments thereto and other amended section meaningful and workable so as to achieve and serve the intended purposes for which they have been introduced by the legislature in the statute. 55. It is to be noted that the section 2(15) as it stood post insertion of the first proviso w.e.f.1.4.2009, the charitab....
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....section (4A) restricts the benefit under section 11 so that it is not available for income derived from business unless the business is carried on by a trust only for public religious purposes and it is of printing and publishing books or any other notified kind. The court held that the newspaper business that was carried on by the trust did not fall within sub-section (4A). This finding of the Hon'ble Supreme Court is in departure from the earlier interpretation made by it in the case of "Surat Art silk Cloth Manufactures Association"(supra) wherein it was held that the literal and plain meaning of the provisions of section 2(15) in context of the words "not for making profit" would render the provisions of section 11 (4) wholly superfluous and meaningless, despite the fact that these words barring the activity of the making of profit were applicable only in respect of institutions carrying on the activity in respect of advancement of other objects of public utility, whereas, the provisions of section 11(4) still holding good for the institutions carrying in the activity in respect of first three limbs i.e. relief to poor, education and medical relief. However in the subsequen....
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....lves carrying on the activity of business trade or commerce or the services in relation to business trade or commerce for a cess or fee and even it was also clarified that application or the retention of such income from such activity will be immaterial. The High Courts of Delhi and Pb. &Hry. in the cases as referred to above , however, held that the above provision was a harsh provision and the consequences of the same could be like as it were that the introduction of words "not for making profits" in section which operated from 1961 to 1983. Even the Courts of law also following the proposition laid down by the Hon'ble Supreme Court in the case of 'Surat Art Silk Cloth Mfgr. Assn' (supra) held that the literal and plain meaning cannot be given to the said first proviso to section 2(15) of the Act and therefore, propounded the 'pre-dominant object theory' or 'the ultimate fulfilment of object theory' on the same lines as was given in the case of 'Surat Art Silk Cloth Mfgr. Assn' (supra) by the Hon'ble Supreme Court. The Hon'ble Supreme Court in the case of 'Surat Art Silk Cloth Mfgr. Assn' (supra) in para 11 of the decis....
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....(15), then it will not only make the second proviso to section 2(15) but also section 13(8) and corresponding amendments to section 10(23C) and section 143(3) redundant, meaningless and inoperative and the situation will be as if the second proviso was never inserted or existed in the Act, what to say its subsequent amendment by way of increasing the limit of Rs. 25 lacs and then to the 20% of the total receipts and other corresponding amendments to section 10, section 13, and section 143. In our view, sticking to the interpretation which was given by the Courts before introduction or bereft of second proviso to section 2(15) of the Act, would lead to unintended construction, which will be against the spirit of statutory provisions. The subsequent amendments, as discussed above, in our view, definitely have a bearing on the interpretation which was done by the Courts of law taking into consideration the harshness of the first proviso to section 2(15) alone. However, the leverage provided to the institution by way of insertion of second proviso would prompt us rethink and re appraise about the literal interpretation of the section. The subsequent amendments brought in section 10(23C....
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....ot exceed the prescribed limit. As held by the Hon'ble Supreme Court in the case of 'CIT v. Gujarat Maritime Board' [2007] 295 ITR 561/[2008] 166 Taxman 58, that he expression 'any other object of general public utility' is of the widest connotation. The expression would prima facie include all objects which promote the welfare of the general public. 61. A company or trust involved in the insurance business for profit will claim that the object, purpose and activity of the insurance activity is towards the advancement of object of general public utility as it provides security against unforeseen events to the insured . An industrialist will also claim exemption on the ground that by way of establishing industry, it has contributed towards the advancement of object of general public utility as with the establishment of industry, it generated employment and that it has also contributed towards infrastructure development and boosting the economy of the country. A manufacturer of medicine will also so claim that medicines are made by him with the object of providing people of country the essential and useful drugs for fighting dreaded disease and sickness a....
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....trade, commerce or business for cess or fee and the receipts therefrom crosses the prescribed limit then they are not eligible to continue with registration u/s 12A and the same is required to be withdrawn. However, subsequently the impact of these provisions was also considered by the Coordinate Mumbai Benches of the Tribunal in the cases of "Ghatkopar Jolly Gymkhana v. DIT [2013] 40 taxmann.com 207/[2014] 147 ITD 112 (Mum. - Trib.) and "Cotton Textiles Exports Promotion Council v. DIT (Exemption), Mumbai [2014] 44 taxmann.com 168/64 SOT 167 (URO) (Mum. - Trib.) [Judicial Member of this Bench being party to the said decisions also) wherein it has been held that the first proviso to section 2(15) is a very rigorous provision which excludes the institution or trust from the definition of charitable trust, if such trust carries activities in the nature of trade, commerce or business....irrespective of the nature of use or application or retention of the income from such activity. That, however, by the insertion of the second proviso w.e.f. 01.04.2009 the rigour of the first proviso has been diluted and that the first proviso will not apply even if the trust carrying on business activ....
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....ble to such trust or institution. It is, therefore, to be noted that not only second proviso to section 2(15) of the Income Tax Act but also insertion of corresponding provisions of section 13(8) of the Act have been duly noted and their effect discussed. What we want to convey is that existence and effect of the amended provisions of sections 2(15), section 13, section 23 and section 143 of the Act cannot be just ignored or negated rather the same are to be read along with other relating provisions of the Act such as sections 11(4) and 11 (4A) of the Act and a harmonious construction is to be arrived at. 64. to 68 .......................................................... 68. The provisions of different sections as enumerated above, in our view, are to be read to be in harmony with each other so that each and every section should aid and supplement to the meaning and construction of other, so as to arrive at the correct interpretation rather than to read any or each of them in contradiction of each other making the other provision/s redundant and inoperative leading to confusion, anomaly and absurdity. Therefore, these provisions are to be read as each provision ....
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....te or a trust will not be engaged in the commercial activity, it will not have any income and where is the question of claiming exemption is cornered, we may point out here that the income of a charitable institution cannot be only from commercial activity, but there are other modes of income also as per the provisions of section 2(24)(iia) of the Act. Voluntary contributions received by the trust created wholly or partly for charitable or religious purposes and included in the definition of income apart from voluntary contribution, such charitable trust or institution may receive grants from other modes or activity which may not in strict term to be said to be the activities in the nature of trade, commerce or business. Suppose, a trust or institutions engaged in the activity of imparting training in sports receives a nominal registration fee from the trainees. Can it be said to be an activity in the nature of trade, commerce or business? The answer will be in negative. Whether a particular activity is in the nature of trade, commerce or business is to be examined taking into consideration the nature of activity, the object and purpose of such activity, the volume of such activity....
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.... 69(6). Then there is sub-section (8) to section 13 of the Income Tax Act which states that nothing contained in sections 11 or 12 shall operate so as to exclude any income from total income of the previous years if the provisions of first proviso to clause (15) of section 2 becomes applicable. So the construction that any type of receipt which is incidental or ancillary to the carrying out of the advancement of objects of general public utility will be considered as income from charitable purposes if applied, such construction would not only render the first and second proviso to section 2(15) as amended from time to time and but also section 13(8) of the statute redundant and inoperative defeating the purpose for which they were brought into statute by Parliament will be defeated. At the same time, when we read the provisions of section 13(8) in isolation, it will make the provisions of sections 11 (4) and 11 (4A) of the Act inoperative for the institution carrying of object of advancement of general public utility, which also involves the activity of carrying of business, trade or commerce generating ancillary or incidental income. However, by the insertion of second proviso....
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....e second proviso to section 2(15) of the Act, income from incidental business activity should not cross the limit as prescribed from time to time as per the amendments carried out in second proviso of the Income tax act and the provisions of sections 11(4) & (4A) and section 10(23C)(iv) can be applied accordingly and such a construction will not make any provision contrary or in contradiction to the other, rather will supplement each other. Even the section 13(8) of the Act can also be meaningfully applied which will be required to read in the light of the second proviso to section 2(15) of the Act and thus harmonious construction of the related provisions will give a meaningful and workable interpretation as intended by the Parliament. Hence, in the light of discussion made above of the relevant provisions of the Act, the interpretation that may be arrived is that for the trusts or the institutions carrying on the activity included in the first part of definition of 'charitable purposes' as defined u/s 2(15) of the Act viz. for the objects of relief to the poor, education yoga, medical relief, preservation of environment and preservation of monuments or places or ....
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....activity should be in the course of actual carrying out of the main object and the receipts therefrom should not cross the limit or cap (as applicable from time to time) and further that it will be immaterial that the funds or the profits from business activity are ploughed back to sub serve the main or the predominant object of the trust. In this respect the words "irrespective of the nature of use or application, or retention, of the income from such activity" finding place in the first proviso to section 2(15) of the Act would come into play. However, the other restrictions as provided under section 11(4A), 13(8) and 143(3) as discussed above, would accordingly apply for claiming exemption u/s 11 of the Act; However, the restriction inter alia put under the provisos to section 10(23C)(iv) and section 143(3) along with restrictions put by the provisos to section 2(15), as discussed above, will apply for claiming exemption u/s10(23) (iv). These restriction put under the provisos to section 2(15) are applicable only to the activity of advancement of any other object of general public utility. 72. However, even after holding that the harmonious reading of the relat....
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....as the case may be, will come into play. It will mean that the entire income of an institution carrying on the object of general public utility on a small scale involving incidental commercial activity will be treated as exempt as it will not cross the prescribed limit of Rs. 10 lacs or Rs. 25 lacs or 20% of the total receipt as applicable for the different assessment years, however, the income of an institution carrying on the activity of general public utility on large scale will become taxable if the receipts from the incidental commercial activity crosses the limits as prescribed for different assessment years as noted above. Though by way of amendment to second proviso vide Finance Act 2015 w.e.f. 1.4.2016, the government has tried to remove the anomaly by substituting fixed limit of receipts of Rs. 25 lacs with the 20% of the total receipts, however, the question is that the receipts from the incidental or ancillary commercial activity cannot, in our view, be controlled or restricted by way of measuring or controlling the activities with golden scale or to say to check the same on day to day basis and the stop carrying out the incidental activity, which otherwise may be neces....
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....ty (falling under the first proviso to Section 2(15) of the Act), exceeded the limit of Rs. 10 lacs in the relevant previous year, such receipts would not be eligible for exclusion from the total income of that assessee under Section 11 or 12 of the Act. 67.1 The scheme of the Act has to be understood that the benefit of exemption otherwise available under sections 11 and 12 of the Act has to be denied to the assessee in question if his receipts arising from activities falling under the first proviso to Section 2(15) exceed Rs. 10 lacs, but not otherwise. 68. Determination or quantification of receipts is therefore a sine qua non for application of the first proviso to Section 2 (15) of the Act. Such determination or quantification, by very nature, is an intrinsic part of the assessment procedure. That exercise is to be done by the assessing authority of the assessee (and not by the Commissioner), in accordance with Chapter XIV of the Act, within limitation prescribed thereunder. Those powers and procedure are clearly inapplicable to proceedings conducted by the Commissioner under Chapter III of the Act. 69. Thus Section 13(8) of the Act creates ....
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....ons mentioned hereinabove and also the decision mentioned in the order of the lower authorities . Rebuttal by AR for the assessee 30. Ar for the assessee had filled the following written submissions to the submissions foDR "The assessee is a development authority constituted under Uttar Pradesh Urban & Planning Development Act for achieving the objects contained in section 7 of the above Act. The revenue has referred the order of Hon'ble ITAT, Chandigarh bench, passed in the case of Chandigarh Lawn Tennis Association whereby the activities of the above assessee has been held as hit by Proviso to Section 2(15) of the I.T. Act. The revelvent provisions are reproduced as under:- 2(15) "charitable purpose" includes relief of the poor, education, medical relief, preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest, and the advancement of any other object of general public utility: Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade....
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....ssessee authority as per section 7 of the U.P.Urban Planning & Development Act are as under : "The objects of the Authority shall be to promote and secure the development of the development area according to plan and for that purpose and Authority shall have the power to acquire, hold, manage and dispose of land and other property, to carry out building, engineering, mining and other operations, to execute works in connection with the supply of water and electricity, to dispose of sewage and to provide and maintain other services and amenities and generally to do anything necessary or expedient for purposes of such development and for purposes incidental thereto;" 33. The objects and activities of the assessee, were earlier considered by the ITAT as well as Hon'ble High Court at the time of considering the validation of the Commissioner action for cancelling the registration. The first decision rendered by the tribunal was in the appeal No. 459/Agra/2007 wherein the tribunal vide decision dated 5thDecember 2008 had directed the Commissioner to grant registration to the present appellant forthwith .Inparagraph 4.2 the said judgement had held as under : 4.2 The l....
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....ether amount transferred to Mandi Parishad would constitute application of income for 'charitable purpose' under Section 11(1)(a) of Act, 1961 has been decided against Revenue by Supreme Court in Commissioner of Income Tax Vs. Krishi Utpadan Mandi Samiti 2012 (12) SCC 267 wherein Court has also confirmed this Court's judgment dated 04.12.2009 passed by this Court at Lucknow in I.T.A. No. 102 of 2009. 35. Thereafter the tribunal while considering the orderdated 15 September 2014 of the CIT rejecting the registration in appeal no 316/Agra/2014 had once again directed the Commissioner to grant registration forthwith. The observation of the Hon'ble tribunal were mentioned paragraph 13 and 14 to the following effect : 13. The case laws relied upon by the Ld. DR have no relevance since they are distinguishable on facts. In the case of Jammu Development Authority [2012] 23 taxmann.com 343 (Amritsar), and Jammu Development Vs. UOI &anr. (ITA No. 164 of 2012 dated 07.11.2013) (HC of J&K) relied upon by the Ld. DR the facts were that registration u/s 12AA was granted without taking into consideration the proviso to section 2(15) which was very much there on the statut....
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....High Court, it is abundantly clear that development of land and building , acquisition of land by the authority had consistently been considered to be falling within advancement of the general public purpose. The advancement of public purpose has been considered by the statute to be charitable purpose and is as provided in the last limb of the definition given in section 2 (15) of the Act . 37. Having held undisputedly that the activities of the assessee are for the advancement of public purpose. It is now , necessary to deal with Provision to section 2(15), which provide as under ^2[Provided that the advancement of any other object of general public utility^69 shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business^73, or any activity of rendering any service in relation to any trade, commerce or business^73, for a cess or fee or any other consi-deration, irrespective of the nature of use or application, or retention, of the income from such activity, unless- (i) such activity is undertaken in the course of actual carrying out of such advancement of any other object of general publ....
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....an maycontain a site-plan and use-plan for the development of the zone and show the approximate locations and extents of land uses proposed in the zone for such things as public buildings and other public works and utilities, roads, housing, recreation, industry, business, markets, schools, hospitals and public and private open spaces and other categories of public and private uses; specify the standards of population density and building density; show every area in the zone which may, in the opinion of the Authority, be required or declared for development or re-development; and 9.A In particular, contain, provisions regarding all or any of the following matters, namely- (i) the division of any site Into plots for the erection of buildings; (ii) the allotment or reservation of land for roads, open spaces, gardens, recreation-grounds, schools, markets and other public purposes: (iii)the development of any area Into a township or colony and the restrictions and conditions subject to which such development may be undertaken or carried out, (iv) the erection of buildings on any site and the restrictions and conditions in regard to the open spaces to be maintained in ....
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....cement and welfare of general public. 43. We are of the opinion that assessee cannot be equated by with the private entrepreneur or coloniser or club or Association, as it is a state under Article 12 of the Constitution of India and has duties, towards all the citizens and resident of the area irrespective of caste, creed, religion, sex etc . The charging of cess or fees by the assessee is only an incidental activities to the main and primary activities of the assessee ,continues to be development etc for the benefit of general public . Moreover charging of fees ,cessetc by the assessee for its activities were duly authorised by the act, regulation and rules framed under the law. In our considered opinion the discharge of duties by the state or by the state functioning cannot be termed as an activity which is trade, commercial or business. The said activities were essentially done by the assessee for the discharge of the statutory duties and therefore the same cannot be termed as eithertrade commerce or business. 44. There is a distinction between an assessee registered charitable institution doing activities for profit to achieve charitable object And assessee doing activiti....
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.... When profits are earned by such a Corporation they are distributed to shareholders by way of dividends or kept in reserve funds. In the present case, these attributes of a trading Corporation are absent. The Corporation is established by the Act for carrying out the purposes of the Act. The purposes of the Act are development of industries in the State. The Corporation consists of nominees of the State Government, State Electricity Board and the Housing Board. The functions and powers of the Corporation indicate that the Corporation is acting as a wing of the State Government in establishing industrial estates and developing industrial areas, acquiring property for those purposes, constructing buildings, allotting buildings, factory sheds to industrialists or industrial undertakings. It is obvious that the Corporation will receive moneys for disposal of land, buildings and other properties and also that the Corporation would receive rents and profits in appropriate cases. Receipts of these moneys arise not out of any business or trade but out of sole purpose of establishment, growth and development of industries. ** ** ** 19. There are two provisions ....
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....'. Therefore, while construing the term 'business' for the said Section, the object and purpose of the Section has to be kept in mind. We do not think that a very broad and extended definition of the term 'business' is intended for the purpose of interpreting and applying the first proviso to Section 2(15) of the Act to include any transaction for a fee or money. An activity would be considered "business" if it is undertaken with a profit motive, but in some cases this may not be determinative. Normally the profit motive test should be satisfied but in a given case activity may be regarded as business even when profit motive cannot be established/proved. In such cases, there should be evidence and material to show that the activity has continued on sound and recognized business principles, and pursued with reasonable continuity. There should be facts and other circumstances which justify and show that the activity undertaken is infactin the nature of business. The test as prescribe (sic) in Raipur Manufacturing Company (supra) and Sai Publications Fund (supra) can be applied. The six indicia stipulated in Lord Fisher (supra) are also relevant. Each case....
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....utility" rather "creative interpretation" is required to be adopted, while interpreting this proviso to section 2(15). The Hon'ble Supreme Court had laid down the broad guidelines for adopting Principle of creative interpretation in the matter of Eera through Manjula vs Govy of Delhi Criminal appeal no 1217/2016 (2017) 15 SCC 133 wherein it was held as under: 21. Instances of creative interpretation are when the Court looks at both the literal language as well as the purpose or object of the statute in order to better determine what the words used by the draftsman of legislation mean. In D.R. Venkatachalam v. Deputy Transport Commissioner, (1977) 2 SCC 273, an early instance of this is found in the concurring judgment of Beg, J. The learned Judge put it rather well when he said: "It is, however, becoming increasingly fashionable to start with some theory of what is basic to a provision or a chapter or in a statute or even to our Constitution in order to interpret and determine the meaning of a particular provision or rule made to subserve an assumed "basic" requirement. I think that this novel method of construction puts, if I may say so, the cart before the horse....
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....ourt construed the expression "Prize Chit" in Srinivasa [(1980) 4 SCC 507 : (1981) 1 SCR 801 : 51 Com Cas 464] and we find no reason to depart from the Court's construction." [para 33] 23. Indeed, the modern trend in other Commonwealth countries, including the U.K. and Australia, is to examine text as well as context, and object or purpose as well as literal meaning. Thus, in Oliver Ashworth Ltd. V. Ballard Ltd., [1999] 2 All ER 791, Laws L.J. stated the modern rule as follows: "By way of introduction to the issue of statutory construction I should say that in my judgment it is nowadays misleading - and perhaps it always was - to seek to draw a rigid distinction between literal and purposive approaches to the interpretation of Acts of Parliament. The difference between purposive and literal construction is in truth one of degree only. On received doctrine we spend our professional lives construing legislation purposively, inasmuch as we are enjoined at every turn to ascertain the intention of Parliament. The real distinction lies in the balance to be struck, in the particular case, between the literal meaning of the words on the one hand and the context and pu....
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.... towards purposive interpretation is not in doubt. The qualification is that the degree of liberality permitted is influenced by the context, e.g. social welfare legislation and tax statutes may have to be approached somewhat differently. For these slightly different reasons I agree with the conclusion of the Court of Appeal that s 1(1) of the 1990 Act must be construed in a purposive way." (at 122, 123)66 We find the same modern view of the law in CIC Insurance Limited v. Bankstown Football Club Limited, F.C. (1997) 187 CLR 384, where the High Court of Australia put it thus: In a recent judgment by a 7 Judge Bench of this Court , the majority, speaking through Lokur, J., referred to the aforesaid judgment with approval. See Abhiram Singh v. C.D. Commachen - 2017 (2) SCC 629 at Para 37. "It is well settled that at common law, apart from any reliance upon 15AB of the Acts Interpretation Act 1901 (Cth), the court may have regard to reports of law reform bodies to ascertain the mischief which a statute is intended to cure. [Black-Clawson International Ltd v PapierwerkeWaldhof- Aschaffenburg [1975] UKHL 2; [1975] AC 591 at 614, 629, 638; Wacando v The Commonw....
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.... 23. Equally, Dr. Singhvi's argument that the Code leads to very drastic action being taken once an application for insolvency is filed and admitted and that, therefore, all conditions precedent must be strictly construed is also not in sync with the recent trend of authorities as has been noticed by a concurring judgment in Ms. Eera through Dr. Manjula Krippendorf v. State (Govt. of NCT of Delhi) &Anr, Criminal Appeal Nos. 1217-1219 of 2017 decided on July 21, 2017. In this judgment, the correct interpretation of Section 2(1)(d) of the Protection of Children from Sexual Offences Act, 2012 arose. After referring to the celebrated Heydon's case, 76 E.R. 637 [1584] and to the judgments in which the golden rule of interpretation of statutes was set out, the concurring judgment of R.F. Nariman, J., after an exhaustive survey of the relevant case law, came to the conclusion that the modern trend of case law is that creative interpretation is within the Lakshman Rekha of the Judiciary. Creative interpretation is when the Court looks at both the literal language as well as the purpose or object of the statute, in order to better determine what the words used by the draftsman of th....
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....t these bodies loses their character of the charitable on account of the receipt, in our view would be contrary to the spirit and purpose of providing exemption to the charitable institution and creation of these bodies. 49. In this context, if look into the activities of appellant then we would come to the conclusion that the activities of the assessee are not having the texture or colour of trade, commerce of business, but were in discharge of public duty and service with no motive of profit earning or economic activities yield, which require taxation by the respondent . 50. At this stage we may mention that the judgements relied upon by the revenue Chandigarh Lawn Tennis Association [2018] 95 taxmann.com 308 (Chandigarh - Trib.) is not applicable to the present case,asan authority created by the statute, cannot be equated with the private club or institution fulfilling its object. The objects of the state authority ( appellant ) are ofdevelopment of landetc( section 7) whereas that of Tennis association etc are to organize tournaments on commercial lines and earn revenue . Both are having different set of responsibilities,obligation, regulatory regime and purpose of discha....
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....as doing commercial activities. If the activities of the assessee per se were commercial, than High court or Tribunal would not have granted the registration . Quite contrary high court after examining the same clause 7 came to the conclusion that the activities of the assessee are charitable in nature. Therefore the finding of the assessing officer that the assessee was carrying out the commercial activities was without any basis. 54. We may also draw strength from the decision of the in the case of Surat Urban Development Authority (SUDA) by the Gujrat High Court. The High court vide Judgment dated 21.9.2020 had dismissed the appeal of revenue with the following finding : "2. By this appeal under section 260-A of the Income-tax Act, 1961 (hereinafter referred to as the "Act" for the sake of brevity) the appellant - Revenue has challenged the order dated 16-1-2020 passed by the Income-tax Appellate Tribunal, D Bench, Ahmedabad in ITA No. 2431/AHD/2017 for AY 2011-12. 6.1 The Division Bench after considering the catena of decisions on the subject, has further observed thus: 14. Considering the aforesaid facts and circumstances and more particularly,....
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....nd sale and therefore, considering the proviso to section 2(15) of the Act, the said Trust assessee was denied the exemption under section 11 of the Act. While holding that the activities of the assessee trust still can be said to be for charitable purpose within the meaning of section 2(15) of the Act and same cannot be said to be in the nature of trade, commerce or business for which proviso to section 2(15) of the Act is required to be applied. In para 6, 7, 8 and 12, it is observed and held as under: 6. The legal controversy in the present Tax Appeal centers around the first proviso. In the plain terms, the proviso provides for exclusion from the main object of the definition of the term Charitable purposes and applies only to cases of advancement of any other of general general public utility. If the conditions provided under the proviso are satisfied, any entity, even if involved in advancement of any other object of general public utility by virtue to proviso, would be excluded from the definition of charitable trust. However, for the application of the proviso, what is necessary is that the entity should be involved in carrying on activities in the nature of trade,....
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....t their objects are for charitable purpose as these are covered under any other object of general public utility. Under the principle of mutuality, if trading takes place between persons who are associated together and contribute to a common fund for the financing of some venture or object and in this respect have no dealings or relations with any outside body, then any surplus returned to the persons forming such association is not chargeable to tax. In such cases, there must be complete identity between the contributors and the participants. Therefore, where industry or trade associations claim both to be charitable institutions as well as mutual organizations and their activities are restricted to contributions from and participation of only their members, these would not fall under the purview of the proviso to section 2(15) owing to the principle of mutuality. However, if such organizations have dealings with non-members, their claim to be chargeable organizations would now be governed by the additional conditions stipulated in the proviso to section 2(15). 3.2 In the final analysis, however, whether the assessee has for its object the advancement of any othe....
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....rat Town Planning Act and collection of fees and cess is incidental to the object and purpose of the Act, even the case would not fall under second part of proviso to section 2(15) of the Act. 15.2 Considering the aforesaid facts and circumstances of the case, we are of opinion that the learned Tribunal has committed a grave error in holding the activities of the assessee in the nature of trade, commerce or business and consequently holding that the proviso to section 2(15) of the Act shall be applicable and therefore, the assessee is not entitled to exemption under section 11 of the Act. For the reasons stated above, it is held that the proviso to section 2(15) of the Act shall not be applicable so far as assessee AUDA is concerned and as the activities of the assessee can be said to be providing general public utility services, the assessee is entitled to exemption under section 11 of the Act. Both the questions are therefore, answered in favour of the assessee and against the revenue. After considering the aforesaid decision, the Division Bench was pleased to allow the appeal filed by the respondent-assessee. 7. Thus, the functions of the respondent as....
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.... also been noticed that the Assessing officer has not disputed that the assessee fulfills the conditions, which is necessary for allowing the exemption of the deductions applicable under the Act except Proviso to Section 2(15) of the Act. Thus, the Tribunal has held that the Proviso to section 2(15) of the Act is not applicable to the case of the assessee. 9. The order passed by the Tribunal, in our considered opinion, is based on the meticulous appreciation of materials on record and by no stretch of imagination can be said to be perverse. The issue with regard to the perversity is not raised on behalf of the revenue. Besides that, in case of various statutory bodies, the different High Courts have taken a similar view, namely, in the cases (a) to (f) stated (supra)that which we respectfully agree. In view of the said enunciation of law, substantial question of law, which has been framed by this Court, is answered in the negative and against the revenue." 56. It is the settled proposition of law that the when two views are possible, the view favorable to assessee should be followed . Hence respectfully Following the decision of the Gujrat High Court in the matter of. S....
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....l is lost sight of. One way of reading it is that the clause excludes any undertaking formed by transfer to it of any building, plant or machinery used previously in any other business. No objection could have been taken to such reading but when the result of reading in such plain and simple manner is analysed then it appears that literal construction would not be proper. ..." [II] In R.K. Garg v. Union of India [1982] 133 ITR 239/[1981] 7 Taxman 53, the Hon'ble Apex Court has held as under:- '8. Another rule of equal importance is that laws relating to economic activities should be viewed with greater latitude than laws touching civil rights such as freedom of speech, religion etc. It has been said by no less a person than Holmes, J., that the legislature should be allowed some play in the joints, because it has to deal with complex problems which do not admit of solution through any doctrinaire or strait-jacket formula and this is particularly true in case of legislation dealing with economic matters, where, having regard to the nature of the problems required to be dealt with, greater play in the joints has to be allowed to the legislature. The....