TaxTMI 
TaxTMI 
TaxTMI 
2021 (1) TMI 680
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....rred 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 pronouncement of Hon'ble Allahabad High Court in the case of Lucknow Develop....
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....y 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 the Ld. CIT(A) erred, both in law and on facts, in sustaining the addition of Rs. 29,63,000/- being the surplus appearing in the 'Manyaw....
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....d 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 could not legally hold the charitable objects as of commercial nature during the subsistence of registration u/s 12A in view of authoritative judicial pronouncements and as such, the order of Ld. CIT(A) is erron....
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....oth 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 and on facts, in sustaining the addition of Rs. 38,586/-, 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 pr....
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....preciate 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 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 time of hearing of the appeal." ITA No. 151/Agra/2017 The grounds of the assessee's are as under:- "1. Because the Ld. Commissioner of Incom....
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....ronouncement 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 time of hearing of the appeal." 3. At the outset both the parties have mentioned, that the appeal for the assessment year 2010-2011, be decided as a lead appeal and the decision in the said appeal be applied for the remaining assessment years pending before this tribunal. APPEAL NO 256/ AGRA/ 2014 4. The Ld.AR for the assessee has submitted that appellant has raised 11 grounds in the present appeal out of whi....
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....g 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 finding recorded by the assessing officer at page 6 and 7 of the assessment orders to the following effect: "2. In order to consider the issue, I have carefully perused the provisions of Uttar Pradesh Urban Planning and Development Act, 1973 (UPUPD Act, 1973) along with various sources of income of the assessee, as given in income and expenditure statement, from which following facts emerge out, each indicating that the activities ....
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.... 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 land in the development area. j. Section 15 of UPUPD Act, 1973 provides for imposition of stacking fees from the general public who use authorities land for keeping buildingmaterial. This activity is in the nature of trade as Authority gives the right to use of its land in consideration of a fee thereby attracting provisions of proviso to section 15. k. The assessee invests the surplus money in FDRs and other deposits like any regular businessman and earned Rs. 3,51,83,751/- as inte....
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....e 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 was completed after allowing benefit u/s 11. The proceedings for A.Y. 2008-09 are still pending. 4. That the proceedings for A.Y. 2010 the where you play -1I were started from 2".09.2011. During the course of proceedings, the Assessing Officer issued various notices on the predetermined presumptions that the assessee is involved in commercial activities by virtue of amendment in section 2(15) w.e.f. 01.04.2009. A proposal for cancellation of registration ws 12A was also sent to Ld. Commissioner of Income Tax-II, Agra who, after considering the proposal ca....
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....ing 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'ble ITAT. Indore in the case of Jammu Development Authority and Indore Development Authority (cited supra) are directly applicable in the case of the assessee. 14. Feeling aggrieved by the order passed by the assessing officer, the assessee filed the appeal before the Commissioner. The CIT appeal had also dismissed the appeal filed by the assessee. We're reproducing hereinbelow the relevant portion of the finding recorded by the learned CIT appeal which were to the following effect: "7.5.1 After considering the discussion made by the AO in the assessment order and the written submission of the L....
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....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 11. As per the AO, the sufficient condition is satisfied when the assessee fulfills the condition as laid down in section 11 and section 13. The examination of applicability of section 11 has to be done by the AO separately before allowing the assessee the benefit of exemption, even if the assessee has got registration u/s 12A. As per the finding of the AO, discussed in the assessment order, since the assessee does not fulfill the criteria for charitable purpose, it has been held by him that the assessee cannot be allowed exemption u/s 11 after invoking the newly inserted provision of section 13(8) w.r.e.f. 01.04.2009 as....
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....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 Area Development Authority constituted under "Bihar Industrial Areas Development Authority Act, 1974" for development of industries in Bihar by the State Govt, is taxable under the Income-tax Act, why the assessee(appellant) being similar type of Development Authority constituted under "Uttar Pradesh Urban Planning & Development Act, 1973" for development of city of Agra should not be taxable , if it is found that it is engaged in the activities of trade & business and for this purpose , profit to go in private hand is not an important criterion as in the case of Adityapur Industrial Area Development Authority also, the pr....
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...., 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 trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity:] [Provided further that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is [twenty-five lakh rupees] or less in the previous year;] "Sec. 13(8)Nothing contained in section 11 or section 12 shall operate so as to exclude any income from the total income of the previous year of the person in receipt thereof if the provisions of the first proviso to clause (15) of section 2 become applicable in the case of such person in the said previ....
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....rovided 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, proposed to amend section 10(23C), section 13 and section 143 of the Act to ensure that such organization does not get benefit of tax exemption in the year in which it's receipts from commercial activities exceed the threshold whether or not the registration or approval granted or notification issued is cancelled, withdrawn or rescinded. This amendment will take effect retrospectively from 1st April, 2009 and will, accordingly, apply in relation to the assessment year 2009-10 and subsequent assessment years. [Clauses 5, 6, 58]." 8.3 In the above Explanatory Note, it has been clarified that if the purpose of a trust or institution does not remain charitable due to application of first proviso on account of exceeding commercial receipts threshold provided in secon....
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...., 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 a cess or fee or any other consideration, irrespective of the nature of use or application, or retention of the income from such activity. 2. The following implications arise from this amendment. 2.1 The newly inserted proviso to section 2(15) will not apply in respect of the first three limbs of section 2(15), i.e., relief of the poor, education or medical relief. Consequently, where the purpose of a trust or institution is relief of the poor, education or medical relief, it will constitute 'charitable purpose' even if it incidentally involves the carrying on of commercial activities. 2.2 'Relief of the poor' encompasses a wide range of objects for the welfare of the economically and socially disadvantaged or needy. It will, therefore, include within its ambit purposes such as relief to destitute, orphans or the handicapped, disadvantaged ....
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....s 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 other object of general public utility' is a question of fact. If such assessee is engaged in any activity in the nature of trade, commerce or business or renders any service in relation to trade, commerce or business, it would not be entitled to claim that its object is charitable purpose. In such a case, the object of 'general public utility' will be only a mask or a device to hide the true purpose which is trade, commerce or business or the rendering of any service in relation to trade, commerce or business. Each case would, therefore, be decided on its own facts and no generalization is possible. Assessees, who claim that their object is 'charitable purpose' within the meaning of section 2(15), would be well advised to eschew any activity which is in the nature of trade, commerce or business or the rendering of any service in relation to any trade, commerce or business." 8.3 In the above circular, it has ....
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.... 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 incorporation. All the assets are the property held under the Trust within the meaning of Section 11 of the I.T. Act. 19. It was submitted that the development fee was levied on the constructions going on in the city by virtue of statute. It is not correct that the development fee is in lieu of services rendered to a person by the appellant who choose to deal with the appellant, as noted by the AO in the order. The acquisition of land, development of infrastructure facilities in planned manner is a part of the object as well as the provisions contained in Uttar Pradesh Urban Planning and Development Act. 20. The appellant is neither carrying out any business on behalf of Government nor on the orders of Government. The buildings or the land developed by the appellant are sold without keeping any margin of profit. There is no motive a profit earning in either developing the land or selling the land or building developed by the assessee and there....
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....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 Industrial Development authority had beennotified10(46) of the Central Government act for the activities which are similar in nature that of assessee vide notification dated 23.6. 2020. The ld AR prayed that suitable direction be issued by the tribunal for issuance of notification under section 10 (46) of the act to the central board of direct taxes, in the case of Assessee as well. 25. The assessee had also filled the written submissions to the following effect " SUBMISSIONS IN ITA NOS. 256/Agr/2014 & 356/Agr/2014(Deptt. Appeal) The appellant is in appeal against the order of Ld. CIT(A). The appellant has submitted number of synopsis during the course of hearing on different dates. The assessee begs to file summarized synopsis which is as under:- The appellant is a development authority and enjoying registration u/s 12A in terms of order of Hon'ble ITAT placed at (Page 144-156 of the PB No. 1). The return declaring NIL income was filed alongwi....
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....P.Urban Planning & Development Act, hereinafter referred to as 'the Act'. Copy of bare act is on the record. Copy of the same is again enclosed. The appellant is established for carrying out planned development of the City as per objects contained in section 7 of 'the Act'. Relevent provisions of U.P. Urban Planning and Development Act 1973 are as under: 1 the U.P. Urban Planning and Development Act 1973 empowers the State Government to declare any area within the state as development area by issuing a notification under section 3 of the UPUPD Act in Gazette. Section 3 of the UPUPD Act reads as under:- 3. Declaration of development, areas.- If in the opinion of the State Government any-area within the State requires to be developed according to plan it may, by notification in the Gazette. declare the area to be a development area. 2 After declaration u/s 3 of the UPUPD Act, the State Government under section 4 of the UPUPD Act, may constitute Development Authority for the purposes of the Act to promote and secure the development of the development area according to the Plan. Copy of notification with regard to the area for the development of Jhansi City is on record. 3 ....
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....ally achieved, than the State Government, may by notification in the Gazette declare that authority to be dissolved u/s 58 of the UPUPD Act with effect from such date as may be specified in the notification. Further in order to achieve objects, the land is acquired solely with the approval of State Government and thereafter schemes are developed for plots / flats over the said land. Your honour will kindly appreciate that no margin of profit is kept while working out cost of the project. Copy of few schemes are placed at page no. 74 - 88 of PB No. 1 The special audit in this case was also conducted u/s 142(2A) vide authorization letter No. DCIT-1/Agra/JDA/2012-13 dated 22.03.2013. The report in this case was submitted on 22.06.2013. The report is placed at page 1 - 123 of the paper book-I. The special auditor examined the books of accounts and had given findings on the books of accounts on various pages. At page 51 of the Paper book, the special auditor has commented on whether the income of the assessee falls within scope of section 2(15) and in continuation at page 54 of the Paper book has observed that the activities are in the nature of business activities and the same ca....
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.... are in the nature of commercial activities at Page 54 of the Paper book. Ld CIT(A) has endorsed the finding at Page 83 of the appellate order relying on the case of Moradabad Development Authority 15 taxmann.com 389. Ld. CIT(A) failed to appreciate that above order related to the A.Y. 2007-08 when provisions of section 2(15) were not existing. It is however submitted that in the subsequent decision in the same assessee, Moradabad Development Authorityrelevant for the period under consideration, Hon'ble ITAT has categorically held that provisions of section 2(15) in so far as the nature of the activities are not applicable and as such exemption u/s 11 should be allowed. The order is placed at Page 1 - 3 of Judicial Index Paper Book dated 23.02.2018 (Relevant Para 3,4,5,&6). The Ld CIT(A) has again relied upon the comments of special auditor on Point no. 3 at page 51 of the Paper Book. Despite the objections by the assessee that the special auditor has no legal authority to decide the application of section 2(15) of the Act and the Ld. CIT(A) having admitted that it is his (special auditor) opinion over the issue, has decided to adjudicate after examining the Act and various dec....
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....denied exemption u/s 11 of the I.T. Act. The Assessing Officer has also relied upon following judicial orders:- * Jammu Development Authority [2012] 23 Taxmann.com 343 [ Page No. 8 of JOPB No. 1 ] * Indore Development Authority ITA No.366/Ind/2008 dt.06.07.2010 [ Page No. 17 of JOPB No.1 ] In appeal, Ld. CIT(A) has confirmed the findings of the AO (Page 11 - 91 of his order. Ld. CIT(A) has relied upon following judicial orders:- * Infoparksvs.Dy.CIT(TDS)[2010] 329 ITR 404 Kerala HC [ Page No. 48 ] * Andhra Pradesh State Seed Certification Agency vs CCIT[2012]28 Taxmann.com 288(AP) [ Page No. 50 ] * Himachal Pradesh Environment Protection &Pollution Control Board Vs CIT[2010] 42 SOT 343(Chd) [ Page No. 57 ] * Entertainment Society of Goa vs CIT [2013] 34 Taxman.com 210 (Panji) [ Page No. 61 ] * M/s VanitaSamaj Vs DIT(E) ITA No.1034/Mum/2012 ITAT Mumbai dt. 26.02.2014 [ Page No. 71 ] * Rajasthan Housing Board vs. CIT [2012] 21 taxman.com 77 (ITAT Jaipur) [ Page No. 72 ] * Adityapur Industrial Area Development Authority vs.Union of India [2006] 283 ITR 97 SC [ Page No.72 ] The nature of activities of development authorities constituted by "the Act" have been exam....
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.... respectfully submitted that in the above case, the dispute was whether registration U/s 12A can be granted to the authority. The registration u/s 12A has been denied in the above case. It is respectfully submitted that the facts of the assessee/authority are different. The assessee/authority enjoys registration u/s 12A from 01.04.2009 (Copy at Page 144 to 156 of the Paper Book No. 1). Hon'ble ITAT in Moradabad Development Authority, Jaipur Development Authority, Bangalore Development Authority (Supra) have analyzed applicability of judicial pronouncement of Hon'ble Supreme Court and Hon'ble J & K High Court and have found that above judicial pronouncement is not applicable to the development authorities having registration u/s 12A. The objects and activities of the appellant, are identical with those of the authorities referred above . The issue being covered, the exemption u/s 11 may kindly be directed to be allowed. Submissions of Revenue 26. On behalf of the revenue ld CIT DR had made elaborate submissions supporting the case of the assessing officer as well as of the Commissioner appeal. The first argument raised by the revenue that the case of the assessee falls within the ....
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....n seeks to overcome the decisions of the hon'ble Supreme Court in the cases of 'Surat Art Silk Cloth Mfg.' (supra) and 'Thanthi Trust' (supra) as relevant to the period post substitution of the section 11(4A) of the Act. Firstly, the position that the carrying of business incidental to the attainment of the objectives of the trust as was allowable to the intuitions u/s 11(4A) carrying the activity under the all the limbs of section 2(15) of the Act is no more available to the institutions carrying on the advancement of object of public utility. The institutions carrying out the object of public utility have been barred from doing any activity in the nature of trade, commerce or business for claiming their activity for "charitable Purposes". Secondly this bar is irrespective of application of income from such commercial activity. That it will be immaterial whether the income from the commercial activity is utilized or ploughed back to such activity serving object of public utility. However, the restriction imposed by the above amendment is/was applicable only in respect of fourth limb of section 2(15) of the Act i.e. for the institutions or trusts carrying out ....
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....ch is trade, commerce, or business or rendering of any service in relation to trade, commerce or business. Each case would, therefore, have to be decided on its own facts, and generalizations are not possible. An assessee who claims that their object is 'charitable purpose' within the meaning of s. 2(15) would be well advised to eschew any activity which is in the nature of trade, commerce or business or rendering of any service in relation to any trade, commerce or business." (emphasis supplied by us) 40. The above explanation given by the CBDT that the newly amended s. 2(15) will apply only to the entities whose purpose is 'advancement of any other object of general public utility' and that such entities will not be eligible for exemption under s. 11 or under s. 10(23C) of the Act, if they carry on commercial activities irrespective of application of income from such activity has not gone well with the interpretation given by the High Courts. The Jurisdictional Punjab & Haryana High Court has discussed at length the effect of newly inserted proviso to section 2(15) of the 1961 Act w.e.f. 1.4.2009 while referring to several case laws of other High Courts of the....
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....siness or a commercial activity other than for profit. The Hon'ble High Court in this respect referred to the several judgments of the Delhi High Court including in the case of Bureau of Indian Standards v. DGIT(Exemptions) [2013] 358 ITR 78/212 Taxman 210/[2012] 27 taxmann.com 127, The Institute of Chartered Accountants of India v. DGIT (Exemptions), [2013] 358 ITR 91/217 Taxman 152/35 taxmann.com 140 (Delhi) wherein it has been held that while construing the term business for the purpose of Section 2(15) of the Act the object and purpose of the Section must be kept in mind and a broad and extended definition of business would not be applicable for the purpose of interpreting and applying the first proviso to Section 2(15) of the Act. The object of introducing the first proviso is to exclude organizations which are carrying on regular business from the scope of "charitable purpose. The expressions "business", "trade" or "commerce" as used in the first proviso must, thus, be interpreted restrictively and where the dominant object of an organisation is charitable, any incidental activity for furtherance of the object would not fall within the expressions "business", "trade" or "....
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....rce or business, the dominant and the prime objective has to be seen. If the dominant and prime objective of the institution, which claims to have been established for charitable purposes, is profit making, whether its activities are directly in the nature of trade, commerce or business or indirectly in the rendering of any service in relation to any trade, commerce or business, then it would not be entitled to claim its object to be a 'charitable purpose'. On the flip side, where an institution is not driven primarily by a desire or motive to earn profits, but to do charity through the advancement of an object of general public utility, it cannot but be regarded as an institution established for charitable purposes." (emphasis supplied by us) 41. The crucial point for the entire discussion in the above case of 'India Trade Promotion Organization (supra)' was relating to the interpretation of section 2(15) r.w.s. 10(23C) (iv) of the Income Tax Act. The Hon'ble High Court has observed that the expression "charitable purposes" in context of section10 (23C) (iv) has a reference to income. It is only when an institute has an income that it will claim exemption f....
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....(supra) the position that has emerged is that as if the new proviso to section 2(15) has never been brought in and has been rendered redundant or otiose. The theory of predominant object or activity and incidental income therefrom can well be applied as per the provisions of section 11(4A) of the Act and as interpreted by the Supreme Court in the case of 'Thanthi Trust' (supra) and several High Court decisions thereafter. Even with all due respect, in our humble opinion, the restriction put by newly inserted proviso was applicable only to the activity of 'any other object of general public utility' but not to the other limbs of the definition as provided u/s 2(15) of the Act. Hence, to say that the newly inserted proviso would make for all purposes the section 2(23)(iv) or section 11(4) of the Act redundant or otiose, in our humble view, may not be correct. Even the crucial words in the second limb of the proviso 'irrespective of the nature of use or application, or retention, of the income from such activity' are also required to be considered and the same, in our view, cannot be ignored. By the insertion of these words, intention of the government is to ov....
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....to therein is 10 lakh rupees or less in the previous year.' (emphasis supplied by us) 45. to 51 ......................................... 52. A corresponding amendment has also been brought in section 10(23C) of the Act inserted by the Finance Act, 2012, w.r.e.f. 1-4-2009 adding the following proviso added: "10. In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included- (23C) any income received by any person on behalf of- ** ** ** (iv) any other fund or institution established for charitable purposes which may be approved by the prescribed authority , having regard to the objects of the fund or institution and its importance throughout India or throughout any State or States; or (v) any trust (including any other legal obligation) or institution wholly for public religious purposes or wholly for public religious and charitable purposes, which may be approved by the prescribed authority , having regard to the manner in which the affairs of the trust or institution are administered and supervised for ensuring that the income accruing thereto is properly applied for the objects thereo....
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.... words " in the nature of trade, commerce or business" find mentioned in the second proviso have the same meaning as was ascribed to the words " not for making profits' as were there in the originally introduced provisions of section 2(15) in the 1961 Act. However, in our view, that was perhaps never the intention of the parliament to restore the position to that was operative or as interpreted by the courts of law from the year 1961 to the year1983. That is why immediately in the next financial year vide Finance Act 2010 with retrospective effect from 1.4.2009, the date with effect from which the first proviso to section 2(15) was introduced, the second proviso was brought in with the sole purpose of diluting the rigours of the first proviso and to mitigate the hardship created to the institutes genuinely carrying out the object of general public utility. Since with the introduction of second proviso, the rigour of the first proviso was diluted to ensure appropriate balance being drawn between the object of preventing business activity in the garb of charity and at the same time protecting the activities undertaken by the genuine organization, hence the interpretation given by....
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....section 11 neither makes inoperative or redundant the provisions of section 2(15) nor of sub-section 4 of section 11. On the other hand the provisos to section 2(15) only put restrictions on the benefits available to the trusts carrying on the advancement of any other object of general public utility which also involves the incidental activity in the nature of trade, commerce or business. Newly inserted proviso to section 10(23C) also controls or restricts the benefit available to the institutions claiming benefit thereunder, however none of the provisions, in our view, in any manner, makes the other section inoperative, otiose or redundant. On the other hand, in our view, adopting the interpretation as given by the courts to the first proviso to section 2(15) bereft of second proviso and ignoring section 13(8) of the Act and other related amendments brought into section 10(23C) and section 143(3) of the Act with retrospective effect from 1.4.2009, would make these provisions redundant, otiose and inoperative. 56. It is pertinent to point here that the hon'ble supreme court in the case of "Thanthi Trust" (supra) while interpreting the relevant provisions as they stood for the....
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....ilable to the institutions involved in the activity of advancement of any other object of general public utility and not of the institutions carrying out the activity in respect of other limbs, to which the provisions of amended subsection 4A to section 11 continue to apply. 57. Another crucial phrase brought in the first proviso are "irrespective of the nature of use or application, or retention, of income from such activity". The addition of the above crucial words obviously is to overcome the decision of the Hon'ble Supreme court in the case of Surat Art Silk Cloth Mfgr. Assn (supra) as well in the case of Thanthi Trust' (supra) wherein it was held that if all the surplus or profit from the business activity is invested or ploughed back into the assets of the assessee or applied to the main activity, the business will be a business incidental to the attainment of the objects of the trust. However, this proposition has been made inapplicable or to say bygone by the Legislature for the institutions carrying on object of general public utility by way inserting the crucial words " irrespective of the nature of use or application, or retention, of the income from such activ....
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....ly its income wholly to the charitable purpose carried on by the trust or institution. However, the Hon'ble Supreme Court held that in such an event the provisions of section 11 (4) would be rendered wholly superfluous and meaningless. The High Courts of Delhi and Pb. &Hry. followed the obove construction made by the Supreme Court in the caae of 'Surat Art Silk Cloth Manufacturers Assn.' (supra) 59. However, the Govt. very soon, even before the coming of above interpretations by the High Courts, realized the consequence that were likely to arise from the above amendment. Therefore, taking into consideration the harsh and strict meaning of the first proviso, it was felt that the plain and literal meaning to the first proviso would be of great hardship to the trust or institution which were genuinely carrying out the object of general public utility and that in the course of which it also generates some incidental or ancillary income. It was under such circumstances that the second proviso was brought in the next financial year itself with retrospective effect so as to make the first proviso to section 2(15) workable and to remove the ambiguity in the provisions of se....
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....e income derived by the Trust from ancillary commercial activity while carrying out the pre-dominant object of general public utility is totally exempt as stood canvassed by the Ld. Counsel for the assessee in the light of the various case laws including the decision of the Hon'ble Jurisdictional High Court of Punjab & Haryana in the case of ' Tribune Trust' (supra) . In that event the argument that can be reasonably put is that the second proviso inserted by Finance Act 2010 with retrospective effect from 1.4.2009 allowing the carrying out of the business activity up to the prescribed limit of receipts from such activity would be applicable in those cases where an institution or trust is carrying out the activity of advancement of general public utility but at the same time its object is also to make profits as observed by the hon'ble Supreme Court in the case of 'Surat Art Silk Cloth Mfg. Association' (supra) in respect of the privy Council decision in the case of "Trustees of the Tribune" (supra) and then by the Hon'ble Pb. &Hry. High court in respect of activities carried out by the Tribune Press Trust in the case of "Tribune of the Trust" (supra), i....
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....ise would have to travel large distances to get the same. The taxation limits fixed by the Department will fail and the taxation in respect of such persons doing different business will start only if their receipts during the year would cross the limit as prescribed from time to time. Even big institutions or companies will divide themselves into subsidiaries or smaller units ensuring that income of each of such taxable unit or entity should not increase the prescribed monetary limit of the receipts. Such an interpretation of the second proviso to section 2(15) would lead to absolute absurdity, confusion and unwanted and uncalled for consequences. Even it will be also an issue in dispute as which of the activity/activities of an assessee is/are towards the advancement of object of General Public Utility though may be with profit making object also and which of these is/are of a pure commercial venture. Thus. in our view, the different but related provisos of the Act are to be read in harmony with each other. The interpretation as canvassed for the period prior to the introduction of the second proviso, if adopted now, will render the newly inserted amended provisions of the Act a....
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....urt while further relying upon its another decision in the case of "DIT (Exemption) v. Khar Gymkhana [2016] 385 ITR 162/240 Taxman 407/70 taxmann.com 181 (Bom.) has duly taken note of the provisions of section 13(8) of the Act inserted vide Finance Act 2012 w.r.e.f. 1.4.2009 as well as the CBDT Circular No.21 of 2016 and though, held that merely because in one year income of assesseetrust exceeded prescribed limit provided under second proviso to section 2(15), that by itself, could not warrant cancellation of registration of trust, however, where the receipts are hit by the proviso to Section 2(15) of the Act, the benefit of exemption to its income for the previous year relevant to the subject assessment year will not be available. However it has been further held that if this happens on continuous/regular basis, it could justify further probe/inquiry before concluding that the trust is not genuine. 63. Though in the above referred to decisions of Mumbai Bench of the Tribunal and that of the Hon'ble Bombay High Court (supra), the question was whether the registration granted u/s 12 to the charitable institution can be cancelled if the monetary receipts from its business acti....
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.... trust exemption u/s 11 is to be allowed has been done away with by the crucial words "irrespective of the nature of use or application, or retention, of the income from such activity" introduced in the first proviso of section 2(15) of the Act. 69 (2). Now, coming to the provisions of section 10(23C)(iv) of the Act, the income received by any person, on behalf of any fund or institution established for charitable purposes which may be approved by the prescribed authority, having regard to the objects of the fund or institution and its importance throughout India or throughout any State or States exempt from taxation. Now for approval to claim exemption u/s 10(23C)(iv), the institute for the fund must fall in the definition of 'charitable purposes' which includes activity under all or any limb as discussed above and can not be said to be applicable solely for activity of General Public Utility. So far institutes established for the objects of relief to the poor, education yoga, medical relief, preservation of environment and preservation of monuments or places or objects of artistic or historic interest, their income may be claimed as exempt u/s 10(23C) (iv) if they oth....
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....cond proviso to section 2(15) of the Act wherein the income from incidental or ancillary commercial activity has also been allowed and included while carrying out the advancement of object of general public utility also subject to the limit prescribed of the receipts. The second proviso of the section is in consonance of the provisions of section 11(4) & (4A) of the Income Tax Act. 69(5). We may point out here that the provisions of sections 11(4) and 11 (4A) of the Act are general provisions and are applicable to all the institutions claiming exemption u/s 11 of the Act carrying out activity for charitable purposes. Definition of the 'Charitable purposes' as provided u/s 2(15) of the Income Tax Act includes relief to the poor, education yoga, 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. Sub-section 4A do not bar the carrying on of business activity , however, puts restriction that such business should be incidental to the attainment of the objectives of the trust or institution ....
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....tion (4A), such business for profit should be incidental to the attainment of the objectives of such trust or institution and separate books of account are to be maintained. Further, to claim exemption u/s 10(23C)(iv) of the Act, the fund or institutes must be established for charitable purpose and is approved/registered by the prescribed authority having regard to their objects and importance throughout India and otherwise fulfill the other conditions as enumerated u/s 10(23C) of the Income Tax Act. Here we may point out the restriction put by section 11(4A) or section 13(8) do not in any manner comes into play or otherwise restrict the business activity of the fund or institutions established for charitable purposes and claiming exemption u/s 10( 23C)(iv) of the Act. But the restriction inter alia created by the provisos to section 2(15) read with the newly inserted 18th proviso to section 10( 23C) (as reproduced above) and newly inserted proviso to section 143 (as inserted by Finance Act 2012 w.e.f. 1.4.2009) will apply that too only to the Institutions carrying on the activity of advancement of any other object of General public utility and not to the institutions established u....
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....cribed for such receipts to be eligible for claiming exemption from taxation u/s 11 of the Act. As discussed in the paras above of this order, any income received by a person on behalf of any fund or institutions established for charitable purposes as included in the first part of the definition as defined u/s 2(15) of the Act i.e. for the objects of relief to the poor, education yoga, medical relief, preservation of environment and preservation of monuments or places or objects of artistic or historic interest can be claimed as exempt from levy of tax u/s 10(23C)(iv) of the Act irrespective of the quantum of such income i.e without any cap or limit on such income subject to fulfilling the other conditions as prescribed therein such as approval of such fund or institution by the prescribed authority, having regard to the objects of the fund or institution and its importance throughout India or throughout any State or States. However, the trusts or institutions carrying on such activity or established to carry on such activity, as the case may be, that is falling in the last limb of the definition of charitable purposes as defined u/s 2(15) of the Act i.e. for the advancement of....
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....on from the ancillary activity in the shape of trade and commerce or business are Rs. 9.95 lacs, the institution will be treated as an institution for charitable purposes and its entire income exempt from taxation either u/s 11 or 10(23C) as the case may be, whereas, if there is a slight increase of Rs. six thousands only in such business income, say it crosses the limit of Rs. 10 lacs, i.e say at Rs. 10.01 lacs, then such trust or institution will be out of purview of the 'charitable purpose' and its entire income will be included in the total income, including the receipts which are not directly connected with the carrying of the incidental activity in the nature of trade, commerce or business. Such an anomaly will create utter confusion and will operate as restriction on the institution genuinely involved in carrying out the objects of general public utility. The Institutes which are rather carrying of the activity of general public utility on large scale will not be entitled to claim the benefit under the provisions of sections 11 & 12 of the Income Tax Act. Even the non-business income in the form of voluntary contribution and donations or directly relating to charitab....
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....bed limits , assessee is not entitled to exemption under section 11 of the Act. In that case it was held as under "65. Upon a co-joint reading of both the provisos to Section 2(15) of the Act, the legislative intent appears not to allow exemption to an assessee who may engage in an activity mentioned in the first proviso to Section 2(15) of the Act, if his receipts for a previous year exceed Rs. 10,00,000/-. At the same time that benefit is not to be denied to such an assessee it his receipts in the previous year do not exceed Rs. 10,00,000/-. 66. The activities of any assessee are conducted on a day- to-day basis and accounts are made up at the year end. Therefore, at the relevant time i.e. during the previous year relevant to an assessment year, it may not always be predicted or determined or be known whether the receipts (from activities have been specified in the first proviso to Section 2(15) of the Act) exceed the statutory limit of Rs. 10,00,000/- set in the second proviso to Section 2(15) of the Act. 67. Then Section 13(8) of the Act had also been incorporated with retrospective effect from 1.4.2009 i.e. the date of introduction of the first proviso to Section 2(15) o....
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.... but it's benefit to be deprived in assessment proceedings in certain specified circumstances." 29. The Ld.AR had also drawn our attention to the order passed by the assessing officer wherein the assessing officer has captured the various activities carried out by the assessee which, in the opinion of the assessing officer as well as of the Ld. DR were not perse charitable in nature , as t falls under last limb of definition given in section 2 (15) of the Income Tax Act. The Ld. DR had also drawn our attention to the special audit report done by the auditor to point out that the activities of the assessee are in the nature of trade commerce or business. It was submitted though the assessee may be exercising its jurisdiction and functions under the act it was constituted. It was submitted merely because the assessee was discharging its functions as per local/ state Act would not a reason to treat the assessee as charitable . The criteria to determine the activities of the assessee a charitable nature are provided under the Income Tax Act, therefore the activities of the assessee should meet the requirement of IT Act . Therefore it was submitted that the assessee is not entitled....
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....on is not a government organization while the assessee is constituted by the Uttar Pradesh Government. It is therefore prayed that order passed by Hon'ble ITAT, Ahmedabad bench, being the latest order, the same may kindly be followed. Analysis and Decision 31. We have considered the rival contention of the parties and perused the material available on record, including the judgments cited at bar during the course of hearing by both the parties. Section 2(15) has been reproduced herein above while recording the submissions of the assessee as well as the revenue. From the perusal of the section 2(15) it is amply clear that the charitable purpose includes * relief of the poor, education, Yoga, medical relief * preservation of environment (including water-Sheds, forests and wildlife) * preservation of monuments or places or objects of artistic or historic interest and * advancement of any other object of general public utility 32. Undoubtedly, the activities of the appellant, if at all, would fall in the last limb of the definition, of charitable Purpose. Therefore it is necessary to examine the objects for which the assessee was constituted by the state government . It is ....
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....5th December 2008 was challenged by the revenue before the Hon'ble High Court and the Hon'ble High Court violets order dated 29 August 2016 after relying upon the decision on the Lucknow development Authority had dismissed the appeal of the revenue. The important observation of the Hon'ble High Court mentioned in paragraph 15 ,19 and 20 were as under : 15. "Advancement of any other object of general public utility" is a term of very wide connotation. There is no requirement for the purpose of Section 12 that Institution must be registered under Act, 1882 or Act, 1860. CIT added this condition on his own though we do not find any such condition provided under Section 12A or 12AA of Act, 1961. In order to consider whether creation of HPDA is for advancement of general public utility. Tribunal has looked into objects and purposes of U.P. Act, 1973 and also the purpose of acquisition of land by HPDA, which is only for public purpose and not personal one. 19. The findings and observations in the aforesaid judgment are squarely applicable in the case in hand also. 20. We also find that another statutory body, namely, Krishi Utpadan Mandi Samiti constituted under U.P. Krishi Utpadan....
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.... upon 13 by the Ld. DR have been rendered in the context of grant of registration u/s 12AA which stands on a slightly different footing as compared to cancellation of registration u/s 12AA(3). The grant of registration u/s 12AA(1)(b) requires satisfaction about the objects of the trust as well as genuineness of the activities, while for cancellation u/s 12AA(3) all that is insisted upon is the satisfaction as to whether the activities of the trust or institution are genuine or not and whether the activities are being carried on in accordance with the objects of the trust. Further we find that on the issue under adjudication in the present case, there are decisions of the Hon'ble Tribunal in favour of the assessee as pointed out by the Ld. AR and in such a situation it is settled law that the view favourable to the assessee has to be taken. Moreover the decision of the Hon'ble Madras High Court has precedence on the decisions of the Hon'ble Tribunal on this issue following the principles of judicial precedence. 14. In view of the above discussion, in our considered view, the action of the Ld. Commissioner in canceling registration under section 12AA(3) is wholly devoid of any lega....
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....f services for trade , commerce or business . The assessing officer had examined the activities of the assessee in paragraph 2 at page 6 of the assessment order reproduced herein above ( para 8) and thereafter held that the activities of the assessee are in the nature of trade, commerce or business. 40. On the closer look of the activities of the assessee and reasoning of AO , it is clear that primarily the activities of the Assessee consist of acquiring the land from the farmers, converting the land use, plotting the land selling the land to coloniser and developer for construction activities. The assessee is discharging all these functions within the four corners of the Parent Act under which it was created, which ,in our view are statutory functions . The assessee is under an obligation to do all these activities as per the mandate given in section 9A of the act. Section 9A of UP act provides as under 9. Zonal Development plans.- (1) Simultaneously with the preparation of the master plan or as soon as may be thereafter, the Authority shall proceed with the preparation of a zonal development" plan for each of the zones into which the development area may be divided. (2) A zo....
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....he assessing officer in paragraph 2 at page 6 of the order, were done by the assessee pursuant to the fulfilment of its primary objects of its creation under state act and for the purposes of advancement public benefit. Similar view was taken by the Hon'ble High Court in the matter of Yamuna Expressway Industrial Development Authority*[2017] 81 taxmann.com 208 (Allahabad) , wherein it was held as under : "71. Entire discussion, if we summarize, can be placed in a small arena of judicial analysis, that is, a body or institution which is functioning for advancement of objects of general public utility and its activities are not in the nature of trade, business or commerce and also not a sheer profit making, such institution is entitled to claim itself to be constituted for "charitable purposes" and seek registration under Section 12A(1) of Act, 1961." 42. We are also of considered view ,the assessee is the extended arm of the UP state and is discharging it statutory functions within the four corners of the Act. The assessee is part of welfare state and is discharging its duties and function as has been empowered by the Act and also by the Constitution of India for the advancement ....
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....he State Government and for this purpose acquire and transfer land by way of sale, lease, etc. Contention of the petitioner therein that the Corporation established would be a trading one or a commercial corporation was rejected in the following words:- "16. The petitioners contended that the Corporation was a trading one. The reasons given were that the Corporation could sell property, namely, transfer land; that the Corporation had borrowing powers; and that the Corporation was entitled to moneys by way of rents and profits. Reliance was placed on the report of the Corporation and in particular on the income and expenditure of the Corporation to show that it was making profits. These features of transfer of land, or borrowing of moneys or receipt of rents and profits will by themselves neither be the indicia nor the decisive attributes of the trading character of the Corporation. Ordinarily, a Corporation is established by shareholders with their capital. The shareholders have their Directors for the regulation and management of the Corporation Such a Corporation set up by the shareholders carries on business and is intended for making profits. When profits are earned by such a....
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....Commerce connotes transactions of purchase and sale of commodities, dealing in goods. The forms of business transactions may be varied but the real character is buying and selling. The true character of the Corporation in the present case is to act as an architectural agent of the development and growth of industrial towns by establishing and developing industrial estates and industrial areas. We are of opinion that the Corporation is not a trading one." 17. There are a number of decisions of the Delhi High Court on interpretation of the expression "in the nature of trade, commerce or business" in the proviso to Section 2(15) of the Act, for an institution carrying on the aforesaid activities is not a charitable institution under the residual category of advancement of any other object of general public utility. In Institute of Chartered Accountants of India v. DGIT (Exemptions) [2011] 13 taxmann.com 175/202 Taxman 1/[2012] 347 ITR 99 (Delhi) referring to the meaning of the terms "commerce" and "business", it was held as under:- "33. Section 2(15) defines the term 'charitable purpose'. Therefore, while construing the term 'business' for the said Section, the obj....
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....er. The charging of fees is only a by-product or incidental to main activity. We are further of view that for the purpose of regulating the activities of development, creation and maintenance of infrastructure , providing affordable housing etcit is necessary to charge some fees or cess , as said activities could not be discharged for free.Though there mayalways be an element of subsidy or cross subsidy in the functioning of state authorities to provide maximum benefit to the most deserving class or community . Admittedly the revenue is the foundation and basis of every state action. No state or authority can function without the availability or generation of revenue. Hence merely on account of charging of fee or cess would not irresistibly lead to the conclusion that the activities ceases to be charitable ,as it will fall in proviso to section 2(15) . In any caseearning of profit is not the intention of the assessee or by the state.Further narrow approach is not required to be taken for interpreting the "advancement of any other object of general public utility" rather "creative interpretation" is required to be adopted, while interpreting this proviso to section 2(15). The Hon'bl....
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.... A statute is best interpreted when we know why it was enacted. With this knowledge, the statute must be read, first as a whole and then section by section, clause by clause, phrase by phrase and word by word. If a statute is looked at, in the context of its enactment, with the glasses of the statute-maker, provided by such context, its scheme, the sections, clauses, phrases and words may take colour and appear different than when the statute is looked at without the glasses provided by the context. With these glasses we must look at the Act as a whole and discover what each section, each clause, each phrase and each word is meant and designed to say as to fit into the scheme of the entire Act. No part of a statute and no word of a statute can be construed in isolation. Statutes have to be construed so that every word has a place and everything is in its place. It is by looking at the definition as a whole in the setting of the entire Act and by reference to what preceded the enactment and the reasons for it that the Court 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 ....
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....f purposive interpretation: 'Of course it is true that the words used, even in their literal sense, are the primary, and ordinarily the most reliable, source of interpreting the meaning of any writing: be it a statute, a contract, or anything else. But it is one of the surest indexes of a mature developed jurisprudence not to make a fortress out of the dictionary; but to remember that statutes always have some purpose or object to accomplish, whose sympathetic and imaginative discovery is the surest guide to their meaning.' The pendulum has swung towards purposive methods of construction. This change was not initiated by the teleological approach of European Community jurisprudence, and the influence of European legal culture generally, but it has been accelerated by European ideas: see, however, a classic early statement of the purposive approach by Lord Blackburn in River Wear Comrs v Adamson (1877) 2 App Cas 743 at 763, [1874-80] All ER Rep 1 at 11. In any event, nowadays the shift 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....
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....ioner of Taxation (1981) 147 CLR 297 at 320-321]." 24. It is thus clear on a reading of English, U.S., Australian and our own Supreme Court judgments that the 'Lakshman Rekha' has in fact been extended to move away from the strictly literal rule of interpretation back to the rule of the old English case of Heydon, where the Court must have recourse to the purpose, object, text, and context of a particular provision before arriving at a judicial result. In fact, the wheel has turned full circle. It started out by the rule as stated in 1584 in Heydon's case, which was then waylaid by the literal interpretation rule laid down by the Privy Council and the House of Lords in the mid 1800s, and has come back to restate the rule somewhat in terms of what was most felicitously put over 400 years ago in Heydon's case." 47. Similarly the Hon'ble Supreme Court in the matter ofMacquarie Bank Limited vs Shilpi cable civil appeal no 15135 of 2017 held as under 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 no....
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....he correct modern day approach. 48. We are duty bound to the adopt the creative interpretation while interpreting"the advancement of any other object of general public utility" and scope of proviso to section 2(15)keep in mind the purpose of section 2(15) of the Act . In our view, legislature never thought of bringing the activities of statutory bodies like the assessee outside the scope of charitable activities, as bodies like assessee are discharging their statutory functions as per mandate of law ,as an extended arm of welfare state for the benefit of citizens in discharge of statutory duties , like in the present case as per section section 9A of UP development Act.These statutory bodies were created by the statute of the state government or by the central government for the welfare and benefit of the common citizens. There is a inbuilt philosophy of charity in the activities of these bodies and therefore to say that 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 activi....
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.... advancement of any other object of general public utility, is an expression of wide amplitude and there are many activities, like the activities of the assesseeauthority created under the statute, which are neither in the nature of trade, nor commerce nor business , but were done for the advancement of public utility or benefit . 53. Further for the purposes of bringing the activities of the assessee under the rigors of proviso to section 2(15) it is essential that such activity should be in the nature of trade, commerce or business. However as mentioned hereinabove the activities for the advancement of any other object public utility is a bigger set and activities of trade, commerce or business, may be incidentally forming part of advancement of any other object public utility. The reliance on the objects of the assessee by AO, cannot form basis of coming to the conclusion that the assessee was 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 charitabl....
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....s is concerned, for the reasons stated above, merely because the assessee is collecting cess or fees which is regulatory in nature, the proviso to section 2(15) of the Act shall not be applicable. As observed herein above neither there is element of profiteering nor the same can be said to be in the nature of trade, commerce or business. At this stage, decision of the Division Bench of this Court in the case of Sabarmati Ashram Gaushala Trust (supra) is required to be referred to. In the case before the Division Bench, the assessee Trust Sabarmati Ashram Gaushala Trust was engaged in the activity of breeding milk cattle; to improve the quality of cows and oxen and other related activities. The Assessing Officer denied the exemption to the trust under section 11 of the Act on the ground that considerable income was generated from the activities of milk production and 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 s....
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.... on the floor of the House, CBDT issued a Circular No. 11 of 2008 dated 19th December 2008 explaining the amendment as under : 3. The newly inserted proviso to section 2(15) will apply only to entities whose purpose is advancement of any other object of general public utility ie., the fourth limb of the definition of charitable purpose contained in section 2(15). Hence, such entities will not be eligible for exemption under section 11 or under section 10(23C) of the Act if they carry on commercial activities. Whether such an entity is carrying on any activity in the nature of trade, commerce or business is a question of fact which will be decided based on the nature, scope, extent and frequency of the activity. 3.1 There are industry and trade associations who claim exemption from tax under section 11 on the ground that 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, th....
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....tion 2(15) of the Act. Profit making was neither the aim nor object of the Trust. It was not the principal activity. Merely because while carrying out the activities for the purpose of achieving the objects of the Trust, certain incidental surpluses were generated, would not render the activity in the nature of trade, commerce or business. As clarified by the CBDT in its Circular No. 11/2008 dated 19th December 2008 the proviso aims to attract those activities which are truly in the nature of trade, commerce or business but are carried out under the guise of activities in the nature of public utility. 15.1 Applying the aforesaid decision to the facts of the case on hand and the object and purpose for which the assessee is established/constituted under the provisions of the Gujarat 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, commerc....
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.... projects and to function on 'No Profit-No Loss' basis. It has also been held that the State Government acquires the land for the scheme of the assessee and hand over the same to the assessee after the acquisition for the development of the industrial area. The Tribunal has further held that the profit making is not the driving force or objective of the assessee. The Tribunal has therefore, recorded the conclusion that the assessee is engaged in the charitable activity through advancement of an object of general public utility and therefore, has concluded that the Proviso to section 2(15) of the Act is not applicable to the case of the assessee and has further held that the assessee is entitled to benefit of Section 11 of the Act. It has 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 meti....
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....s also propounded by Hon'ble Supreme Court in the following cases:- [I] In Bajaj Tempo Ltd. v. CIT [1992] 196 ITR 188/62 Taxman 480, the Hon'ble Supreme Court held that:- "5. . . . . . Since a provision intended for promoting economic growth has to be interpreted liberally, the restriction on it, too, has to be construed so as to advance the objective of the section and not to frustrate it. But that turned out to be the, unintended, consequence of construing the clause literally, as was done by the High Court for which it cannot be blamed, as the provision is susceptible of such construction if the purpose behind its enactment, the objective it sought to achieve and the mischief it intended to control 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....