TaxTMI 
TaxTMI 
2021 (5) TMI 822
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.... "1. Because the Ld. CIT(Appeals) has erred in law and on facts is not treating the status of appleant as AOP (Trust). 2. Because the Ld. CIT(Appeals) has erred in law and on facts in holding that provision of Sec 2(15) of LT.Act 1961are applicable to appellant and further holding the activities of the appellant as activities in nature of Trade, Business or Commerces or rendering services in relation to trade, commerce or business. 3. Because the Ld CIT(Appeals) has erred in holding that benefit of Sec 11 of the IT Act 1961are not allowable to the appellant inspite of the fact of appellant being legally recognized and registered u/s 124 of the IT Act 1961. 4. Because the Ld CIT(Appeals) has erred in holding that the provisions of Sec 145(3) of IT Act 1961 are applicable to the appellant. 5. Because the Ld CIT(Appeals) has erred in confirming the recaseted net loss of Rs. 4,70, 12,656. 6. Because the Ld CIT(Appeals) has erred in not holding the following incomes, which are included in the income & expenditure account, as exempt income (a) Development Charges & Levies Rs. 46,60,22,334 (b) Bank Interest Rs. 18,95,22,2....
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....on facts, in holding that the assessment was within the limitation prescribed in section 153 of the ITAct Ld. CIT(A) failed to appreciate that the extension of time u/s 142(2C) beyond 29.05.2012 for Special Audit was wholly invalid in the eyes of law. The assessment, being barred by limitation prescribed u/s 153, may kindly be declared as invalid. 2. Because the La CITA) erred, both in law and on facts in holding that the appellant is engaged in commercial activities by virtue of section 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). 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....
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....rities below. The same is again in utter disregard to 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.)]. 8. Because the Ld. CIT(A) erred, both in law and on facts, in sustaining the addition of Rs. 5,755/- being the Advertisement Expenses incurred by the appellant. The supporting evidence filed before authorities below has been arbitrarily rejected. The addition may kindly be directed to be deleted. 9. Because the Ld. CIT(A) erred, both in law and on facts, in sustaining the addition of Rs. 10, 16,129/- being the Electrification Expenses incurred by the appellant. The supporting evidence filed before authorities below has been arbitrarily rejected. The addition may kindly be directed to be deleted. 10.Because the Ld. CIT(A) erred, both in law and on facts, in sustaining the addition of Rs. 2,08,56,996/- out of Rs. 3,53,23,000/- being the expenses incurred by the appellant on construction of drainage. The supporting evidence filed before authorities below has been arbitrarily rejected. The addition may kindly be directed t....
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....appellant. The addition made u/s 69A is wholly illegal which may kindly be directed to be deleted. 17. Because the Ld. CIT(A) erred, both in law and on facts, in sustaining the addition of Rs. 18,27,873/- out of total addition of Rs. 54,77,878/-made by the Assessing Officer as Fictitious Expenses. The supporting evidence has arbitrarily been rejected by the authorities below. The addition is wholly illegal which may kindly be directed to be deleted. 18. Because the Ld. CIT(A) erred, both in law and on facts, in sustaining the addition of Rs. 50,38,053/- made by the Assessing Officer u/s 69C for the alleged failure to record the amount in books of account. The supporting evidence has arbitrarily been rejected by the authorities below. Further, section 69C has no application in the facts and circumstances of the case of the appellant. The addition made u/s 69C is wholly illegal which may kindly be directed to be deleted. 19. Because the Ld. CIT(A) erred, both in law and on facts, in restoring the matter to the file of assessing officer for verification of expenses amounting to Rs. 76,18,731/- out of Rs. 1,20,81,971/- claimed under the head " Cost o....
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.... Registration money. The authorities below erred in rejecting the system of accounting consistently followed by the appellant from the date of its inception. The addition is wholly illegal and the same may kindly be directed to be deleted. 26. Because the Ld. CIT(A) erred, both in law and on facts, in sustaining the addition of Rs. 13,54,75,801/- made by the Assessing Officer under the head" allotment money received during the year". The authorities below have arbitrarily rejected the system of accounting consistently followed by the appellant from the date of its inception. In any case, holding entire amount of allotment money as income is arbitrary and whimsical. The addition is wholly illegal which may kindly be directed to be deleted. 27. Because the Ld. CIT(A) erred, both in law and on facts, in sustaining the addition of Rs. 7,70,449/- out of Rs. 9,39,396/- being the revenue expenditure disallowed by the assessing officer. The authorities below have arbitrarily rejected the supporting evidence. The finding of Ld. CIT(A) in holding the expenses as of capital nature and allowing depreciation thereon is wholly illegal. The addition is....
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....Because Ld.CIT(A) has erred in law and on facts in not holding the invoking of provisions of section 145(3) as illegal in the absence of any income under the head "Profit and Gains of business or Profession". Further in the absence of any violation of provisions of section 145(3), the assessment made is illegal and bad in law. (4) Because Ld.CIT(A) has erred in law and on facts in holding activities of the appellant as commercial activity under the provisions of Sec.2(15). LdCIT(A) has erred in law and on facts in not allowing benefit of section 11 of the Income Tax Act 1961 which the appellant is legally entitled by virtue of registration u/s 12A. The amended provisions of section 2(15) are not at all locally applicable. Appellant may held to eligible to exemption u/s 11 and 12 of I.T.Act 1961 as well as its activities be held to be charitable in nature. (5) Because The CIT (Appeal) has erred in law and on facts in confirming the addition of Rs. 5,56,40,365/- being the net profit arrived at by recasting profit and loss account. Application of proviso to section 2(15) read with section 17/8) and holding the activities of the assessee as non charitable is illegalan....
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....contractor contribution for city development. The Ld. CIT(A) failed to appreciate that the contribution from the contractor was voluntary and with specific consent for incurring the same for the city development. The same was no receipts within the meaning of section 12 of the I.T.Act. The addition is wholly illegal. The same may kindly be directed to be deleted. (10) Because The CIT (Appeal) has erred in law and on facts in confirming the addition Rs. 2,59,527/- in respect of expenditure alleged as wrongly claimed by the appellant. The refund of Sursadan Security claimed as expenditure does not affect the "receipt or expenditure account" as the same was included in the receipts at the time of booking of Sursadan. The addition is wholly ill*al. The same may kindly be directed to be deleted. (11) Because Ld.CIT (Appeal) has erred in law and on facts in confirming the addition Rs. 26, 720/- in respect of prior period expenses. The TDS having been deducted during the year, the expenditure is allowable u/s 40(a). The disallowance is wholly illegal. The same may kindly be directed to be deleted. (12) Pause Ld.CIT (Appeal) has erred in law and....
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....und of appeal before or at the time of hearing." ITA No. 183/Agra/2014 This is revenue appeal, the grounds raised as under: "That, the Ld.CIT(A) has erred in law in allowing coverage of exemption u/s 11, when he has himself held that the activities of the trust attracted the proviso to section 2(15) and hence these were not for 'charitable purpose' and fur this reason provisions of section 13(8) of the I.T.Act are clearly attracted. (ii) That, the Ld.CIT(A) has erred in law in directing to exclude Rs. 17,56,27.767/- from the amount of Rs. 42,24,51,350/- by ignoring the provisions of sec.13(8) and allowing exemption u/s 11(1 )(a) r.w. 11 (2) of the I.T. Act. (iii) That, the Ld.CIT(A) has erred in law & on facts by deleting the addition of Rs. 10,16,129/-,on account of electricity expenses, by ignoring the facts brought on record by the AO that no supporting bill was produced by the assessee during the course of asstt. proceedings. (iv) That, the Ld.CIT(A) has erred in law by deleting the part addition of Rs. 1,44,66,004/- out of total addition of Rs. 3,53,23,000/-, on account of no tax was deducted as per section 40(a)(ia) of IT Act,....
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....brought on record that assessee has failed to produce the original bills/vouchers. (xii) That, the Ld.CIT(A) has erred in law & on facts by deleting the addition of Rs. 1,91,78,975/- out of the total addition of Rs. 2,02,84,696/-, on account of expenditure claimed against adjustment of advances, by Ignoring the facts brought on record that there was no supporting evidences for advance adjustment and entire amount remains unverifiable in nature. (xiii) That, the Ld.CIT(A) has erred in law & on facts by deleting the addition of Rs. 89.91,305/-, on account of depreciation, by ignoring the facts brought on record that assessee failed to give the break up of cost of land and building to justify the depreciation claimed on the ADA building which includes the cost of land. (xiv) That, the Ld.CIT(A) has erred in law & on facts by deleting the addition of Rs. 15,08, 159/-, on account of house tax and water tax payable, without appreciating the fact of the case that house tax and water tax were neither paid in that year nor upto the filing of the return. (xv) That, the Ld.CIT(A) has erred in law & on facts by deleting the addition of Rs. 11,65,845/- out of....
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...."Local Authority". As per this definition, the assessee (appellant) in the present case has been excluded from being assessed as 'Local Authority' w.e.f. 01.04.2003. Subsequently, the assessee (appellant) has been given registration u/s 12A in 2003 under the status of a charitable institution and thereafter, it has been filing its return of income claiming exemption u/s 11 and showing 'Nil' income. Later on, section 2(15) of the Act has been amended w.e.f. 01.04.2009 defining the word 'Charitable' for the purpose of granting exemption and providing registration to the trusts and institutions engaged in charitable activities by way of inserting two provisos in this section denying exemption to those trusts / institutions uls 11, which are found to be engaged in the activities of general public utilities and carrying on any activity in the nature of trade, commerce or business or any activity of rendering any service in relation to/and trade, commerce or business for a cess or fee or any other consideration and having receipts for such activity exceeding Rs. 10 lac that is now revised to Rs. 25 lac w.e.f. 01.04.2012 . The AO has completed the assessment of the....
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....ee found under the act and the set amount collected by the assessee were accounted to the act logical server from the for maintaining an uplifting of the archaeological sites. Further it was submitted that the main source of revenue of the assessee is mentioned at pace 35 the latest paper book where the assessee is drawing the receipt from various regulatory activities including sanction plan amalgamation of buildings, issuance of tenders, issuance of booklet, parking slots, cess/tax as permissible under the act. It was the contention of the Ld.AR that all these activities are charitable in nature as these activities are undertaken by the assessee in accordance with the act and none of the activities of the assessee falls outside the permit of the activities which are permitted by the act. The Ld.AR had also submitted that the case of the assessee is covered by the media is decisions are by the tribunals including the decision rendered by this tribunal in the case of Jhansi Development Authority, and therefore had submitted that the case of the assessee is required to be allowed. He had also filed the written submission in support of the oral contention made by which are to the fol....
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....ion of income by overriding title. RAJA BEJOY SINGH DUDURIA VS. CIT(1933) 1 ITR 135 (PC) Prince Khanderao Gaekwar vs. CIT (1948) 16 ITR 294 (Bom) Seth Motilal Manekchand vs. CIT (1957) 31 ITR 735 (BOM) CIT VS. TOLLYGUNGE CLUB LTD.(1977)107 ITR 776(SC) JIT & PAL X-RAYS (P) LTD. S. CIT (2004) 134 TAXMAN 62 (ALL) (3) Most of the functions carried out by the appellant authority are functions of state and the income accruing in performance of such functions is inherently charitable- Union of India vs. R.C.Jain (1981 AIR 951) Bureau of Indian Standards vs. D.G. (358 ITR 78) (4) Predominant view of the Apex Court as well as various High courts is that for determining whether activities of an institution are charitable or commercial in nature the intention to earn profit is a basic criteria. In case of appellant there is no intention at all to earn profit. UPUPD Act as well as various G.O. of UP Govt . does not prescribe earning of profit as a motive. However, for running any charitable institution surplus is in any way an essential part without which no charitable activity is possible. Addl. CIT vs. ....
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.... work in the State had already been delayed it was felt necessary to provide for early establishment of such Authorities. 7. Objects of the Authority.- The objects of the Authority shall be promote and secure the development of the development area according to plan and for that purpose 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 purposes incidental thereto: Provided that save as provided In this Act nothing contained in this Act shall be construed as authorising the disregard by the Authority of any law for the time being in force. 8. Civil survey of, and master plan for the development area: (1) The Authority shall, as soon as may be, prepare a master plan for the development area. -------------- (3) The master plan may provide for any other matter which may be necessar....
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....t, without undertaking or carrying out any development thereon; orany such land after undertaking or carrying out such development as it thinks fit. to such persons, in such manner and subject to such terms and conditions as it considers expedient for securing the development of the development area according to plan. (2) Nothing in this Act shall be construed as enabling the Authority or the local Authority concerned to dispose of land by way of gift,(***) but subject thereto, references in this Act, to the disposal of land shall be construed as references to the disposal thereof in any manner, whether by way of sale, exchange or lease or by the creation of any easement, right or privilege or otherwise. (7)The land so re-entered upon after forfeiture of lease may be disposed of in accordance with the provisions of Sub-sections (1) and (2)]. 19. Nazul lands.- (1) The State Government may, by notification in the Gazette and upon such terms conditions as may be agreed upon between that Government and the Authority, place at the disposal of the Authority all or any developed and undeveloped lands in the development area vested in the State ....
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.... moneys so borrowed. The sinking fund or any part thereof shall be applied in or towards, the discharge of the loan for which such fund was created, and until such loan is wholly discharged it shall not be applied for any other purpose. Budget of the Authority:- 1) The Authority shall prepare in such and at such time every year as the State Government may specify a budget in respect of the financial year next ensuing, showing the estimated receipts and expenditure of the Authority. (2) Accounts and Audit:- 1).-The Authority shall maintain proper accountsand other relevant records and prepare an annual statement of accounts including the balance sheet in such form as the State Government may specify. (2) The accounts of the Authority shall be subject to audit annually by the Examiner, Local Fund Accounts: Provided that in place of or in addition to the Examiner, Local Fund Accounts, the State Government may entrust and audit to the Accountant General, Uttar Pradesh or Comptroller and Auditor General of India or to any other Auditor on such terms and conditions, in such manner, for such period and at such times as may be agreed upon betwee....
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....en commenced or is being carried out or has been completed, within such period not being less than fifteen days and more than forty days from the date on which a copy of the order of removal, with a brief statement of the reasons he therefore, has been delivered to the owner or that person as may be specified in the order and on his failure to comply with the order, 2[the Vice-Chairman or such officer] may remove or cause to be removed the development, and the expenses of such removal as certified by 3[the Vice- Chairman or such officer) shall be recoverable from the owner of the person at whose instance the development was commenced or was being carried out or completed as arrears of land revenue and no suit shall lie in the Civil Court for recovery of such expenses: -------------- 28 Power to stop development;- (I) Where any development in a development area has been commenced or continued in contravention of the Master Plan or Zonal Development Plan or without the permission, approval or sanction referred to in Section 14 or In contravention of any conditions subject to which such permission, approval or sanction has been granted, then, without prejudice to the....
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.... order prejudicial to any person without affording such person a reasonable opportunity of being heard. (4) Every order of the State Government made in exercise of the powers conferred by this Act shall be final and shall not be called ii question In any court.] 58. Dissolution of Authority.- (1) Where the State Government is satisfied that the purposes for which the Authority was established under this Act have been substantially achieved so as to render the continued existence of the Authority in the opinion of the State Government unnecessary, that Government may by notification in the Gazette, declare that the Authority shall be dissolved with effect from such date as may be specified in the notification; and the Authority shall be deemed to be dissolved accordingly. (2) From the said dateall properties, funds and dues which are vested in or realisable by, the Authority shall vest in, or be realisable by, the State Government; all nazul lands placed at the disposal of the Authority shall revert to the State Government: all liabilities which are enforceable against the Authority shag be enforceable against the State Government: and ....
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....uildings and selling them and various such other activities are charitable in nature in the hands of those authorities. In the above case following question of law were referred. Honourable Allahabad High court answered after first two questions in favour of the assesse after a lengthy discussion about the nature of activities in terms of the provisions of section 2(15) of I.T Act 1961. " i) Weather on the basis of the facts of the case and the law applicable , the Tribunal was justified in allowing the Appeal and issuing a direction to the authority concerned to register the respondent as being entitled to exemption under the provisions of section 12 AA of the Income Tax Act 1961 and read with section 2( 15) thereof ? ii) Weather the findings recorded by the Tribunal to the effect that the respondent assessee was not carrying out any activity of profit and it's predominant object of welfare of public at large are correct or not ? iii) Weather the Income tax Appellate Tribunal at New Delhi had the jurisdiction to entertain an appeal from the order of the Commissioner of Income Tax (Exemptions) Luck now in exercise of power under section 12 AA....
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....Para 21. We have heard learned counsel for the parties and gone through the material available on record. It is undisputed fact that the assessee is a "statutory authority" which was established under the provisions of the Uttar Pradesh Planning and Development Act, 1973. In the instant case, prior to 1st April, 2003, the assessee was enjoying exemption under Section 10(20A) and Section 10(29). When these provisions were amended w.e.f. 1st April, 2003, then the necessity arose to register these institutions under Section 12A. In view of the objects, there is no good reason for holding that statutory bodies could not be treated as "charitable" within the meaning of Section 2(15). The object of the "Authority" is to provide shelter to the homeless people, therefore, there is no objectionable material to treat these institutions as non-charitable. (Emphasis supplied) .The registration under Section 12A is mandatory to claim exemption under Sections 11 & 13, but registration alone cannot be treated as conclusive. It is always open to Revenue Authorities, while processing return of income of these assessees, to examine the claim of the assessees under Sections....
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....itable trust institution are undertaken are highly relevant to decide the issue of applicability of proviso to Section 2(15). (2.4) HapurPilakhwa Development Authority (page 19-20 of compilation) " 9. Commissioner of Income Tax, Ghaziabad (hereinafter referred to as "CIT") vide order dated 21.06.2006 rejected application observing that HPDA is not an Institution working for charitable purposes since it was not registered under Indian Trusts Act, 1882 (hereinafter referred to as "Act, 1882") or Societies Registration Act, 1860 (hereinafter referred to as "Act, 1860"). Further its activities are also not charitable, per se as it sells land on commercial rates and to fudge profit it does not follow commercial accounting principles. HPDA preferred appeal i.e. ITA No. 2735 (Del) of 2006 which has been allowed by Tribunal vide orders impugned in these appeals. 10. Tribunal has followed its earlier decision dated 31.07.2007 passed in ITA No. 2903 (Del) of 2006 in respect to Ghaziabad Development Authority which is also a body constituted under U.P. Act, 1973 and held that it was also entitled for registration under Section 12A. Tribunal has also referred to an e....
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....l to the attainment of the objectives of the trust" came up for consideration before the Supreme Court in the case Asstt. CIT v. Thanthi Trust [2001] 247 ITR 785/ 115 Taxman 126. It was held that, in any event, if there be any ambiguity in the language employed, the provision must be constructed in a manner that benefits the assessee. (3.3) The Supreme Court again considered the applicability of the last limb of the definition of "charitable purpose" in the case of CIT v. Gujarat Maritime Board [2007] 295 ITR 561/[2008] 166 Taxman 58 (SC), a statutory board set up by the State Government of Gujarat for development of minor ports in Gujarat. The Court observed :- "The 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. It cannot be said that a purpose would cease to be charitable even if public welfare is intended to be served. If the primary purpose and the predominant object are to promote the welfare of the general public, the purpose would be a charitable purpose." The Court held that the board was established for a charitable purpos....
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....tion of Indian Chambers of Commerce & Industry 130 ITR 186held: "that the dominant object with which the Federation was constituted being a charitable purpose viz. promotion, protection and development of trade, commerce and industry, there being no motive to earn profits, the respondent was not engaged in any activity in the nature of business or trade, and, if any income arose from such activity it was only incidental or ancillary to the dominant object for the welfare and common good of the country's trade, commerce and industry, and its income was, therefore, exempt from tax under s.11 of the IT Act, 1961" (3.7) Again reiterating the dominant purpose theory, the Hon'ble SC in the case of CST v. Sai Publication Fund 258 ITR 70 laid out as follows: "... If the main activity is not business, then any transaction incidental or ancillary would not normally amount to "business" unless an independent intention to carry on "business" in the incidental or ancillary activity is established. In such cases, the onus of proof of an independent intention to carry on "business ": connected with or incidental or ancillary sales will rest on the Department. Thus, if th....
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....ther 225 ITR 1010 and A.P. High Court in the case of Girijan Co-operative Corporation Ltd. v. Commissioner of Income-tax 178 ITR 359. (3.10) Recently, the Hon'ble Supreme Court in the case of Queen's Educational Society v. CIT [2015] 372 ITR 699 had reversed the decision of the UttarkhandHigh Court, which held that when there is heavy profit the educational institution is intended for profit and therefore, exemption was denied. The very fact that the profit was large made the Hon'ble High Court to believe that there was a profit motive in establishing the educational institution. The Hon'ble Supreme Court after referring to the judgments of the Punjab & Haryana High Court in the case of Pinegrove International Charitable Trust v. Union of India [2010] 327 ITR 73 and Delhi High Court in St. Lawrence Educational Society (Regd.) v. CIT [2013] 353 ITR 320 and Tolani Education Society vs Deputy DIT (Exemptions) [2013] 351 ITR 184, which are contrary to The judgment of Uttarakhand High Court in the case of CIT v. Queen's Educational Society 319 ITR 160, held as follows:- "..........We reiterate that the correct tests which have been culled o....
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....so to Section 2(15) of the said Act was "applicable to assesses, who are engaged in commercial activities, i.e., carrying on business, trade or commerce, in the garb of 'public utilities' to avoid tax liability as it was noticed that the object 'general public utility' was sometimes used as a mask or device to hide the true purpose, which was 'trade, commerce or business'." From this, it is evident that the introduction of the proviso to Section 2(15) by virtue of the Finance Act, 2008 was directed to prevent the unholy practice of pure trade, commerce and business entities from masking their activities and portraying them in the garb of an activity with the object of a general public utility. It was not designed to hit at those institutions, which had the advancement of the objects of general public utility at their hearts and were charity institutions. The attempt was to remove the masks from the entities, which were purely trade, commerce or business entities, and to expose their true identities. The object was not to hurt genuine charitable organizations. And, this was also the assurance given by the Finance Minister while introducing the Finance Bill 20....
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....cidated in Institute of Chartered Accountants of India (2012) 347 ITR-99(Delhi) in the following words: 'Section 2(15) defines the term charitable purpose. Therefore, while construing the term business for the said Section, 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 in fact in the nature of business. The test as prescribe in Raipur Manufacturing Company (s....
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....re". In Black's Law Dictionary, Sixth Edition, the word "business" has been defined as under : "Employment, occupation, profession or commercial activity engaged in for gain or livelihood. Activity or enterprise for gain, benefit, advantage or livelihood. Union League Club v. Johnson18 Cal 2d 275. Enterprise in which person engaged shows willingness to invest time and capital on future outcome. Doggett v. Burnet 62 App DC 103 ; 65 F. 2D 191. That which habitually busies or occupies or engages the time, attention, labour and effort of persons as a principal serious concern or interest or for livelihood or profit." (3.14) That Honourable ITAT Hyderabad Bench in the case of Institute for Development & Research in Banking and Technology (IDRBT) ITAT No-1712/Hyd/2014 ITAT(Hyd) dt. 30/06/2015 after considering plethora of judgments, on the issue under consideration, of Honourable Supreme Court and High Courts came to the conclusion " The rational that can be culled out from the above decisions is that once the primary objects of an institution are established to be in the nature of charity, then the proviso to section 2(15) of the Act cannot be made applica....
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....fact that there was a surplus from the ancillary activities carried on by the assessee society does not mean that its objects ceases to be charitable." (3.15) The ITAT Ahmedabad Benches vide order dated 7-6-2013 in the case of Sabarmati Ashram Gaushala Trust Vs. ADIT (Exemption) [ ITA no. 670/Ahd/2013], following observations are made: "We find that reading of the proviso to section 2(15) along with speech of the Hon'ble Finance Minister and Circular of the CBDT reproduced above make it clear that only the institutions carrying on commercial activities are intended to be covered by the proviso, not the genuine charitable institutions. The activity will be deemed to be in the nature of trade, commerce or business, only if same is carried on with the intention to earn profit. The Courts in series of decisions have held that it is an activity carried on in a systematic manner with a view to earn profit, which will be termed as "business". Accordingly, in order to hold that the activity is in the nature of trade, commerce or business, there should be profit motive. If during the course of carrying out any activity on non-commercial lines, some profit is received by the Trust, ....
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....re. Nor for that matter is an educational institution prohibited from upgrading its infrastructure on educational facilities save on the pain of losing the benefit of the exemption under Section 10(23C). Imposing such a condition which is not contained in the statute would lead to a perversion of the basic purpose for which such exemptions have been granted to educational institutions. Knowledge in contemporary times is technology driven. Educational institutions have to modernise, upgrade and respond to the changing ethos of education. Education has to be responsive to a rapidly evolving society. The provisions of Section 10(23C) cannot be interpreted regressively to deny exemptions. So long as the institution exists solely for educational purposes and not for profit, the test is met." 25. We approve the judgments of the Punjab and Haryana, Delhi and Bombay High Courts. Since we have set aside the judgment of the Uttarakhand High Court and since the Chief CIT's orders cancelling exemption which were set aside by the Punjab and Haryana High Court were passed almost solely upon the law declared by the Uttarakhand High Court, it is clear that these orders cannot stand. .....
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.....T.Act 1961. FUNCTIONS OF STATE (6) That a perusal of provisions of U.P.D.A. Act 1973 makes it clear that ADA was established as an agency of the State Govt. to carry out those functions which would otherwise be carried out by the State Govt. Appellant finds support in the Ruling of Honourable Supreme Court . (6.1) That functions and duties of a Development Authority was defined by the honorable Supreme Court in Union of India Vs. R.C.Jain AIR 1981 SC 951 wherein it was held: " They must be entrusted by statute with such government functions and duties as are usually entrusted to municipal bodies, such as those connected with providing amenities to the inhabitants of the locality. Like health and education services, water and sewerage, town planning and development, roads, markets, transportation, social welfare services, etc. Broadly we may say that they may be entrusted with the performances of civic duties and functions which would otherwise be governmental duties and functions. Finally they must have the power to raise funds for the furtherance of their activities and the fulfillment of their projects by levying taxes, rates, charges of fe....
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....r that they are sold on "no profit no loss" basis. Mere nomenclature will not change the nature of income. (B)The assesse sells its master plan book & tender forms and gives scoter & car stands operating licenses to the contractors. ( C ) The assesseearns form additional 2% stamp duty imposed in development areas. ADA carries out survey and prepares a master plan keeping in mind the development of the city and surrounding areas in next 20 to 25 years, which is essentially a function of "State". The price of a copy of master plan is much less than the money spent on its preparation, however, it is for larger "public utility". The regulation of traffic and parking, a "State" function, is in the larger interest of the public, and is thus a charitable activity. (C)Stamp duty is a State revenue and is essentially not taxable. Moreover ADA is just an agency for utilization of State revenue for development of the area and stamp duty is not its income. (D) The regulation of buildings and construction, a " State" function, is in the larger interest of the public, and the charges recovered is in the nature of state revenue, which is recoverable as " State ....
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....ts of ADA are charitable in nature. The expenses are incurred in connection with "Objects of general public utility". ADA does not derive any benefit out of expenses incurred by it for general public utility which are in the interest of the general public in the name of Infrastructure Development work, which includes construction and maintenance of roads, drains parks etc. These works, involve a substantial amount of the resources of ADA without any income or benefit to ADA. These are development works for the town of Agra and benefit of the inhabitants of Agra and are for general public utility. Agra Development Authority (ADA) like all other Development Authorities is an institution with the main object of providing development of the city of Agra and providing better infrastructure and services for general public utility. It is thus clear from above that the objects of ADA are mandatory and directed by the State Govt. Hence the development and repair of general public utility services is a mandatory activity without any profit motive. (6.7) It may further be mentioned that ADA functions directly under the control of the State Government and all policies and activities a....
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....r accreditation involves charging of such fees. It cannot be said that the public utility activity of evolving, prescribing and enforcing standards, "involves" the carrying on of trade or commercial activity." DIVERSION ON INCOME BY OVERRIDING TITLE (7.) That as per government order No 152/E-0-1-1998 issued by Housing Department Government of UP, (Page 32-33 of PB-1)Assessee has to transfer a major percentage of receipts under various heads to infrastructure development fund. The percentage of receipts which are transferred to infrastructure development fund are as follows- Percentage transferred Conversion of Land Use 90% Betterment & Registration 90% Compounding Fee 50% Income from Stamp Duty 90% Free Hold Charges 90% Assessee has no discretion to spend any of the infrastructure expenses with its own sweet will. A committee consisting of Chairman (Commissioner), Vice Chairman, District Magistrate, M.N.A. Nagar Nigam, Executive Officers of Nagar PalikaParishad, Jal Nigam, Electricity Department, looking to the requirements and instructions provided by Govt.of U.P., decides on utilization of funds. Th....
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....e sons, having paid Rs. 6,000 in excess of their obligations, sought to deduct the amount from their assessable income, and it was allowed by the Bombay High Court, observing that though the payment was a voluntary payment, it was subject to a valid and legal charge which could be enforced in a Court of law and the amount was thus deductible under s. 9(1)(iv). There is no distinction between a charge created by a decree of Court and one created by agreement of parties, provided that by that charge the income from property can be said to be diverted so as to bring the matter within s. 9(1)(iv) of the Act. Seth Motilal Manekchand vs. CIT (1957) 31 ITR 735 (Bom) : TC38R.611. In that case, there was a managing agency, which belonged to a Hindu joint family consisting of A, his son, B and A's wife. A partition took place, and it was agreed that the managing agency should be divided, A and B taking a moiety each of the managing agency remuneration but each of them paying A's wife 2 as. 8 pies out of their respective 8 as. share in the managing agency remuneration. Chagla, C.J. and Tendolkar, J., held that under the deed of partition A and B had really intended that they ....
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....ncome and integral part of sale deed- Amount paid to wife of HS is income diverted at source by overriding title, hence deductible- Fact that wife of HS was not owner of business was irrelevant. ADA was established by the State Govt. to carry out activities which are the activities of the "State" and the State Govt as per government order No 152/E-0-1-1998 (supra) directed ADA to transfer certain percentage of the receipts collected by it to "Infrastructure Fund" over which it will not have any control. This clearly is a case of diversion of income by overriding title. The entire income which is subject of this government notification is not the income of the assessee. (8) Rebuttal of CIT(A) Ld. CIT(A) relied on following rulings 21.1 Infoparks vs. Dy. CIT(TDS) reported in [2010] 329 ITR 404 (Kerala) Andhra Pradesh State Seed Certification Agency vs. CCIT-III, Hyderabad reported in (2012) 28 Taxman.com 288 (AP Appellant's argument Rulings in Infopark and A.P State Seed Certification Agency Not applicable in present case as in both cases assesse is a registered coop. society while appellant is a statutory authority and i....
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....eligious faith.] -------------- (8.2) CIT(A) atPage 66 para 9.7.4 Entertainment Society of Goa vs. CIT (2013) 34 Taxman.com 210(Panji) In the above case in the order on para 16 - 16.---The nature of each receipt was duly explained by the Learned AR as has been reproduced hereinabove in the submissions of the AR. The institution itself accepts that so far as sponsorship and contributions are concerned, that it is directly connected with the film festival. It has received authorization charges for conducting the shooting, it has received hiring charges for hiring out the auditorium, it has received the licence fees for issuing licence to the multiplexes, even the premises usage charges has also been received and it has received charges for listing hotels in their website. This in our opinion represents activity of rendering the service in relation to film industry. It is not denied that all the services were rendered for a consideration. It has also received the film exhibit fees from the viewers for screening the film, it has received even short film receipts by way of entrance fees,Even the institution has given various stalls on hire and got rec....
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.... applicability of the proviso of Sec. 11(4) of the Income Tax Act. (8.3) Appellant's argument on the above case Above rulings in Entertainment Society of Goa, the assesse is a registered coop. society while appellant is a statutory authority and is a regulatory body. The Court has itself drawn distinction in case of regulatory body and the said society. In Goa case the activities involve authorization charges for conducting the shooting, it has received hiring charges for hiring out the auditorium, it has received the licence fees for issuing licence to the multiplexes, even the premises usage charges has also been received and it has received charges for listing hotels in their website. It has also received the film exhibit fees from the viewers for screening the film, it has received even short film receipts by way of entrance fees, Even the institution has given various stalls on hire and got receipt from that. The above activities by no stretch of imagination be equated with the activities of appellant. (8.4) Appellant's contention The Ld. CIT(A) has himself accepted that various courts time and again have held business is an activity which i....
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....ness; 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." Provided further that "the first proviso shall not apply if the aggregate value of the receiptsfrom the activities referred to therein is ten lakh rupees or less in the previous year." There are many activities which are in the nature of trade, commerce or business in which assessee was engaged and income earned during the concerned previous year from the said activities are as follows: (Amount in Lacs) A. Income from sale of plots/lands : Rs. 998.43 B. Freehold Conversion Income : Rs. 162.31 C. Interest Income from Installments : Rs. 495.53 D. Development Charges : Rs. 372.00 E. Building Plans Sanction Fees : Rs. 29.42 F. Lease Rent : Rs. 12.68 G. Building Rent : Rs. 38.26 H. Intt. Income from FDR a....
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....specialised nature of business activity of the assessee, and" That Special Auditor has no legal authority to arrive at legal interpretation of sec. 2(15) of IT Act 1961 under provisions of sec.142 (2A). Moreover, just for argument sake without accepting auditors authority to make a legal interpretation, he has merely stated figures of income under different heads of income without giving any logic or facts as to the nature of activities being business activity. Reliance by Ld. CIT(A) on his opinion is unwarranted and illegal. In view of above submission and legal position as held by jurisdictional High Court it is requested that all the activities of appellant may please held as charitable in nature and to Is entitled to exemption u/s 11 & 12 of the Act. (9) Rebuttal of issues raised by Ld. D.R. (A) Appellant authority was established almost 50 years back, tax department has been assessing it as a charitable institution till A.Y.2008-09. All the assets and properties as reflected in the balance sheet till A.Y.208-09 was duly considered as property held under trust. Even in the year under consideration the A.O. or CIT(A) did not establish that the....
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....ct general public utility. However, by introducing first proviso an exception was created where in if activity of the assessee involves carrying out of business activity then such activity will not be treated charitable activity. The first proviso was introduced by Finance Bill 2008 w.e.f 1st April 2009 i.e. A.Y 2009-10. Second proviso creating exception to the first proviso was introduced by Finance Bill 2010 with retrospective effect from 1 st April 2009. Second proviso is a rider / exception to the first proviso and it restricts the application of first proviso to the cases wherein the receipts ,even if they are business activity, to the extent of Rs. 10 lakh in a year are to be treated as charitable activity. Accordingly first proviso is providing exception to the main clause and second proviso is providing exception to the first proviso. Conjoint plain reading of the both the provisos does not indicate that if the receipts exceed Rs. 10 Lakhs than the receipts would automatically are to be treated as " non charitable". At the initial stage the first thing to be determined is if the activities of the appellant involves the carrying on of any activity ....
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....nder sub-section (23C) of section 10 or section 11 of the Act on the ground that they are charitable institutions. This is based on the argument that they are engaged in the "advancement of an object of general public utility" as is included in the fourth limb of the current 13 definition of "charitable purpose". Such a claim, when made in respect of an activity carried out on commercial lines, is contrary to the intention of the provision. 5.2 With a view to limiting the scope of the phrase "advancement of any other object of general public utility", sub-section (15) of section 2 has been amended to provide 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. Scope of this amendment has further been explained by the CBDT vide its circular no.11/2008 dated 19th Dec 2008. 5.3 Applicability: This a....
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....;" (10.6) Explanatory Notes Finance Bill 2010 4. Change in the Definition of "charitable purpose" 4.1 For the purposes of the Income-tax Act, "charitable purpose" has been any other object of general public utility". 4.2 However, "the advancement of any other object of general public utility" is not 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. 4.3 The absolute restriction on any receipt of commercial nature may create hardship to the organizations which receive sundry considerations from such activities. Therefore, section 2(15) has been amended to provide that "the advancement of any other object of general public utility" shall continue to be a "charitable purpose" if the total receipts from 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 do....
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....ther such an entity is carrying on an 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 u/s 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, 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. ....
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....tted, that the application of the amount received by the assessee and use of the said amount will not make any difference if the aggregate receipt of the activities during the previous year exceed threshold limit provided by the act. 26.He had drawn our attention to the decision of the Coordinate Bench in the matter of Chandigarh Lawn Tennis Association[2018] 95 taxmann.com 308 (Chandigarh - Trib.), To bolster his argument the provisions of section 2 are applicable and activities of the assessee are not charitable nature and would fall in last 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....
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.................. 39. The CBDT issued a circular dated 19.12.2008, paragraph-3 whereof reads as under:- "3. The newly amended s. 2(15) will apply only to the entities whose purpose is 'advancement of any other object of general public utility' i.e., the fourth limb of definition of 'charitable purpose' contained in s. 2(15). Hence, 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. Whether such an entity is carrying on an 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 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 ....
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....ase (supra) while interpreting the unamended provisions of 1961 Act. The Hon'ble High Court has observed that the crucial words "not involving the carrying on of any activity for profit" as were mentioned originally in the section 2(15) of the 1961 Act, were akin to the wording introduced vide Finance Act 2008 w.e.f. Ist April 2009 i.e. ""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." The Hon'ble High court has observed that 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,....
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....termining whether an organisation is carrying on business or not. The Hon'ble High Court also referred to the decision of the Delhi High Court in the case of India Trade Promotion Organization v. DGIT (Exemptions) [2015] 371 ITR 333/229 Taxman 347/53 taxmann.com 404 wherein it was held as under:- "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 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 al....
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....itable purpose, receives income would not make it any less a charitable institution. That it is not the income but the objects of the institution that have to be looked into. The Hon'ble Delhi High Court observed that it was undisputed that the institute (India Trade Promotion Organization) had been established for charitable purpose. The Hon'ble High Court took the notice that prior to the amendment introduced w.e.fIstApril, 2009 the institute had been recognized as an institution established for charitable purposes and that this 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'b....
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....urat Art Silk Cloth Mfgr. Assn' (supra) and 'Thanthi Trust' (supra). To be more precise, the effect of the above introduced words is that it will be immaterial if the funds or the profits from business activity are ploughed back to subserve the main or the predominant object of the trust. Again, even at the cost of repetition, it is to be mentioned here that this restriction is applicable only to the activity of advancement of any other object of general public utility but not to the other limbs of the activity 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 b....
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....titution referred to in sub-clause (iv) or sub-clause (v) shall be included in its total income of the previous year if the provisions of the first proviso to clause (15) of section 2 become applicable to such trust or institution in the said previous year, whether or not any approval granted or notification issued in respect of such trust or institution has been withdrawn or rescinded;" 53. A corresponding amendment has also been brought to section 143(3) of the Act inserted by the Finance Act, 2012, w.r.e.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 o....
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....onsideration the hardship caused by the first proviso , in our view, can not be applied as such at this stage, but the same is required to be looked into in the light of the second proviso and the amendments brought in other related sections also, as discussed above. In our view, it will not be proper to just ignore the second proviso brought in by the parliament on the statute by following the interpretation given by the courts of the first proviso which was to mitigate the hardship created by the first proviso 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 consider....
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....m AY 1984-85 to AY 1991-92, denied the benefits of exemption to the assessee trust applying and adopting the literal interpretation of the more stringent provisions of section 11(4A) of the act as were there in the statute for the aforesaid period. Though, the provisions of Sub-section (4) of section 11 remained on the statute book which defines the words 'property held under trust' for the purposes of section 11 to include 'a business held under trust', yet, the supreme court observed that Sub-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 p....
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.... activity" in the first proviso to section 2(15) of the Act. 58. The Government realized need to curb the practice of business houses to claim exemption on the ground that they were carrying out of objects of general public utility and thereby making the benefit of exemption in respect of business carried out by them in the mask of charity and that is why they introduced first proviso to section 2(15) thereby excluding the institutions carrying on the object of the general public utility if their activities involves 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 &#....
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....ty in the provisions of section 2(15) of the Act. Now with the insertion of second proviso, meaning and interpretation which is more rational has to be arrived at. However, if the interpretation of section (2(15) as per the decision of the Hon'ble Pb. &Hry. High cour t in the case of "Tribune Trust'(supra) and in other decisions of the Delhi High court as discussed above considering the first proviso to section 2(15) alone and ignoring the subsequent amendments, is applied to the amended section 2(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 constructi....
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....st in the case of "Tribune of the Trust" (supra), in that event such institutions would also be eligible to claim exemption u/s 2(15) subject to the condition that their total receipts would not exceed the prescribed limit of Rs. 10 lacs or Rs. 25 lacs or 20% of the total receipts as applicable from time to time. In that scenario, each and every trust or institution indulged into business activity involving the providing of some sort of public utility services will claim exemption if total receipt of such institution does not 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 ut ility as it provides security against unforeseen events to the insured . An industriali....
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....now, will render the newly inserted amended provisions of the Act as infructuous and redundant. 62. The issue relating to the effect of insertion of first and second provisos to section 2(15) of the Act vide Finance Acts 2008 and 2009 respectively came into consideration in the case of 'Jammu Development Authority (supra) wherein, it has been held that if activities of any Institution/Trust/Society under the fourth limb i.e. `the advancement of any other object of general public utility' are in the nature of 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 tha....
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....the charitable institution can be cancelled if the monetary receipts from its business activity crosses the limit prescribed as per the second proviso to section 2(15) of the Income Tax Act and it was held that the registration on this ground granted to a charitable institution cannot be cancelled. However, it is to be noted that it was also held that in the previous year during which such income from business activity of the trust or institution crosses the prescribed limit, benefit of exemption u/s 11 for that year will not be available 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 ...............................
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....ts or places or objects of artistic or historic interest, their income may be claimed as exempt u/s 10(23C) (iv) if they otherwise fulfill the conditions as enumerated u/s 10(23C)(iv) of the Act. So far as the institute carrying on the advancement of any other object of general public utility, as noted above, their commercial income has also not been excluded in the light of second provision to section 2(15) of the Act but subject to the limit prescribed of the quantum of receipts. In respect of the question that if an institute 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 b....
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....ss activity , however, puts restriction that such business should be incidental to the attainment of the objectives of the trust or institution and separate books of account are maintained. The restriction put by earlier section 13(1)(bb) and after its omis sion and by the subsequently inserted section 11(4A) have been well considered, interpreted and applied by the Hon'ble Supreme Court in the case of "Thanthi Trust" (supra) and thus it can not be said to be said there is any anomaly created by the above provisions . 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....
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....hat 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 under other limbs of the definition of "Charitable Purposes". Thus the provisos to section 2(15) or to section 10(23C) or to section 143 do not make the provisions of section 10(23C)(iv) redundant or inoperative, but only put some restrictions on the institutions carrying on the object of General Public Utility in respect of their business activity. 71. As per the 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 wi....
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....blished 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 any other object of public utility which also involves the carrying of incidental 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, the restrictions inter alia put by the provisos to section 2(15) such as that the incidental business 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, wou....
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....led 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 charitable activities (as discussed in para 61 (2) above) and not relating to the activity in the nature of trade, commerce or business would also become taxable. The moment the receipts from the commercial activity crosses the stipulated limit, the provisions of section 13(8) of the Act and provisos to section 10(23C) and section 143 , 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 ame....
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....d not be liable to be cancelled. However, if it were to be found that the assessee was not engaged in such an activity, it would then necessarily require examination as to the date from which such registration could be cancelled. 62. The notice for cancellation of registration being occasioned and being based on the allegations that the assessee had not engaged in any activity that was covered by "charitable purpose" as defined under Section 2(15) of the Act, the finding of the Tribunal setting aside the entire order of the Commissioner on the reasoning that such registration could not be cancelled w.e.f. A.Y. 2009-10, cannot be sustained. 63. In our view, the Tribunal should have considered whether the registration could have been cancelled because the assessee was not pursuing a "charitable purpose". If the Tribunal found that the registration granted to the assessee was liable to be cancelled because it had not engaged in any activity in pursuance of "charitable purpose", then, the date from which such registration could be cancelled, would become relevant and be given effect to. At present, there is no finding of the Tribunal as to the merits of the matter. ....
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.... 12AA of the Act), that it's receipts arising from the activity (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 ....
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....roviso 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. Thus, income is brought to tax to secure the Revenue's interest but it does not necessarily result in automatic cancellation of registration. Therefore, the mere fact that in one particular year, the respondent assessee may have income receipts in excess of Rs. 10 lakhs or such other limit as provided in the proviso to section 2(15) of the Act, that by itself would not warrant cancellation of the registration under section 12AA(3) of the Act. A similar issue had arisen before us in DIT (Exemptions) v. Khar Gymkhana [2016] 385 ITR 162(Bom.) where we had rejected the Revenue's appeal. In the above decision, we relied upon the Central Board of Direct Taxes' Circular No. 21 of 2016, dated May 27, 2016* to conclude that the amendment to the definition of "charitable purpose" by addition of the proviso with effect from April 12, 2009 would not ipso facto give jurisdiction to the Commissioner of Income- tax to cancel the registration. Circular No. 21 of 2016 in terms directed the authorities not to cancel the registrati....
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....he field authorities are, therefore, advised not to cancel the registration of a charitable institution granted under section 12AA just because the proviso to section 2(15) comes into play. The process for cancellation of registration is to be initiated strictly in accordance with section 12AA(3) and 12AA(4) after carefully examining the applicability of these provisions." 9. However, the issue of the trust not being genuine cannot be concluded by merely giving a finding in one year that income earned from activities of trade, business or commerce are in excess of the limit specified in the proviso to section 2(15) of the Act. This is so held by us in Khar Gymkhana (supra). However, if this happens on continuous/regular basis, it could justify further probe/inquiry before concluding that the trust is not genuine. 10. In fact, the Karnataka High Court in DIT (Exemptions) v. Karnataka Badminton Association [2015] 378 ITR 700 (Karn.) had on similar facts, viz., cancellation of registration under section 12AA(3) of the Act in view of amendment to section 2(15) of the Act, had not accepted an identical submission on behalf of the Revenue. In appeal, the High Court whil....
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....ntention raised by the assessee, that it was pursuing a charitable purpose and as to the date from which the registration could have been cancelled in pursuance of the notice dated 06.03.2012, we consider it necessary to remit the matter to the Tribunal to decide this issue afresh in accordance with law. Needless to add while making such decision the Tribunal would abide by the observations made above and consider all relevant law including the division bench judgment of this Court in the case Yamuna Expressway Industrial Development Authority (supra). Such exercise may be completed within six months from today." 7. The LdDR for the revenue had further submitted, that though the Department is contemplating file the appeal of the Jhansi development authority decision of this tribunal, however in terms of the decision of the tribunal in the said case, the activities of the assessee on the face of it are not charitable and are not driven on account of the statutory obligations under the act and therefore the activities are required to be examined with a specific reference to the Parent Act. He had also made the reference of the recent statement given by the Hon'ble Prime Minister, ....
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....y of rendering service in relation to a trade, commerce or business . c) The assessee owns numerous properties/public utilities like buildings, community centers, parks, conference halls, auditorium like Sursadan etc. It regularly gives them on hire for rent. It earned Rs. 56,15,048/ (schedule 13 of Annual Statement) from such activities. These are business or commercial activities . d. The assessee sold master plan book and tender forms and earned an income of Rs. 23,51, 704/-. It gives scooter and car stand to contractors and earns Rs. 1,53,83,520/-. The assessee earns Rs. 5,54,96,955/- as income from stamp duty and Misc. income of the assessee itself is Rs. 2, 70,27,4431- . All these activities are in the nature of commerce or business or they are in the nature of rendering any service for trade or commerce and attract proviso to section 2(15) as such. e. The assessee approved building plans of builders and common people and it earned Rs. 46, 60,22,334/- (schedule 12 of Annual Statement) . This activity is clearly commercial in nature . f. The assessee allots plots/houses to allottees and fixes a schedule of installments for payment. These ins....
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....hich attracts the proviso to section 2(15). 4.6 So, from the discussion above it is clear that above activities of the assessee are in the nature of trade, commerce or business or they are rendering service in relation to trade, business or commerce. The perusal of balance sheet, Profit and loss account, Income and Expenditure account and report in form 1OB along with UP Urban Planning and Development Act, 1973, unequivocally suggests that the activities of the assessee were hit by newly introduced first proviso to section 2(15). The activities of the assessee are also aimed at earning profit, which is neither incidental nor by-product of assessee and the activities of purchase and sale of assessee makes it to be a commercial organization. It is pertinent to mention that Hon'ble ITAT, Amritsar Bench in its decision in the case of M/s Kapurthala Improvement Trust Vs CIT ITA No. 732/AMR./2013 dated 03.06.2015, has analyzed the scope of section 11. The relevant portion as per Para 14, 15 and 16 of the order of Hon'ble ITAT is reproduced as under:- 14. "It is thus clear that the impact of the proviso to Section 2(15) in the case of the appellant will ....
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....tled for exemption under section 11 to that extent. It is also important to bear in mind the fact that the disentitlement for exemption under section 11, as a result of the activities of an assessee being held to be not for charitable purposes under section 2(15) read with provisos thereto, is in respect of entire income of the assessee trust or institution but only for the assessment year in respect of which the first proviso to Section 2(15) is triggered. 5.10 Further, Hon'ble ITAT, Amritsar Bench, in another decision on similar issue in the case of Mis Jalandhar Development Authority (124 TT J 598) has relied upon the decision of the Hon'ble ITAT Chandigarh Bench, in the case of Punjab Urban Planning & Development Authority vs. CIT. (103 TT 988). The Hon'ble ITAT in the case of M/s Jalandhar Development Authority has held as under:- It is a well-known fact that in some of the situations the provisions of law are misused in the names of charities. if an expanded/broader latitude is extended to the word charity, then there are so many institutions/departments who will try to come under the umbrella of this provision to misuse the provision. Therefore,....
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....harging interest on belated payments in such a situation, no charity is involved. Rather the assessee has converted itself into a big businessman. Similar development infrastructure facilities are also provided by private developers these days, them they will also claimed the status of a charitable institution. The facilities which are provided to the plot holders are incidental to the commercial activity carried out by the assessee and if certain facilities like parks, community centre. school are provided. It is not only basic requirement, rather a tool attracting the investors wherein the hidden cost of these facilities is already included. In the absence of these facilities. normally the purchaser may not invest and the prices may be less. In view of these facts. the assessees activities not being of charitable nature, the application of registration under section 12A been rightly rejected by Ld. CIT." 5.11 it is relevant to refer here to another decision of Hon'ble ITAT, Amritsar in the case of MIs Jammu Development Authority, Jammu ITA No. 30 (Asr)/2011dated 14.06.2012, which has been upheld by the Hon'ble High Court of Jammu & Kashmir in ITA No. 164....
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....'s authority's website, it is clearly borne out that the activities of the appellant are commercial in nature. The undernoted information as culled form the assessee's website sufficiently prove that the assessee's authority activities are of commercial in nature- "Agra Development Authority or ADA was formed by the government of Uttar Pradesh in order to meet the growing housing needs of the people of Agra and its nearby areas. The main aim of the Agra Development Authority was to reform the growing real estate business in the city. This has in turn resulted in complete transformation of the landscape of the city. With well -planned and organized development projects, the ADA Agra was successful in achieving a decent infrastructural set up for the city. Agra Development Authority Agra has provided a uniform structure to the constructions of residential flats, luxurious bungalows and duplexes. The ADA is not only engaged in building economical residential projects in Agra but also undertakes construction of commercial as well as office spaces, which will further help in boosting the Agra property market." 5.17 Thus it is clear from above that activ....
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.... referred to therein is ten lakh rupees or less in the previous year." There are many activities which are in the nature of trade, commerce or business in which assessee was engaged and income earned during the concerned previous year from the said activities are as follows: (Amount in Lacs) A. Income from sale of plots/lands : Rs. 998.43 B. Freehold Conversion Income : Rs. 162.31 C. Interest Income from Installments : Rs. 495.53 D. Development Charges : Rs. 372.00 E. Building Plans Sanction Fees : Rs. 29.42 F. Lease Rent : Rs. 12.68 G. Building Rent : Rs. 38.26 H. Intt. Income from FDR and Savings account : Rs. 2516.16 I. Sale of Master Plan Book/Tender Form : Rs. 451.63 J. Cycle/Scooter/Car Stand Charges : Rs. 79.97 K. Income from Stamp Duty : Rs. 1633.33 L. Misc. Income : Rs. 66.73 The above activities are in the nature of business activitie....
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....essee received an amount of Rs. 9 98.43(lacs) during the year under consideration.Reading of section 17 and 18 of development act makes it abundantly clear that the assessee authority which was created under the development act, was having power to not only acquired the land but also having power to dispose of the land, transfer it in such manner and on such conditions as it considered expedient for securing the development of the development area. The assessee while exercising its powers under the said provisions had sold the lands and plots to various person and have received the amount of Rs. 998.43 lacs. Thus it is abundantly clear that the amount was received while discharging the essential and integral function by the assessee authority i.e. to acquire the land, development and then transfer/dispose of in the manner provided by the act. The primary activity of the assessee is acquisition of land and development of it and the inflow of the money is on account of that. To say in other words the prime motive of the assessee for selling the land/plots was not there as that of the developer but the prime motive and purpose of the assessee was to develop the land after acquiring it....
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....e light of Article 14. Once the State decides to grant any right or privilege to others, then there is no escape from the rigour of Article 14. These principles are settled by the judgments of this Court in the cases of Ramana Dayaram Shetty vs. International Airport Authority of India8, Kasturi Lal [1979 (3) SCC 489], Lakshmi Reddy vs. State of J & K9, Ram and Shyam Co. vs. State of Haryana10, Mahabir Auto Stores vs. Indian Oil Corporation11, Sterling Computers Ltd. vs. M & N Publications12 and A.B. International Exports vs. State Corporation of India.13 38. Executive does not have an absolute discretion, certain principles have to be followed, the public interest being the paramount consideration.It has been stated by this Court in Kasturi Lal's case (supra): "It must follow as a necessary corollary from this proposition that the Government cannot act in a manner which would benefit a private party at the cost of the State, such an action would be both unreasonable and contrary to pubic interest. The government, therefore, cannot, for example, give a contract or sale or lease out its property for a consideration less than the highest that can be obtained from it, unl....
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....e of being Charitable for these activities, as in our opinion it is duty of assessee(state) to ensure highestprice for state largesse .( Meerut Development authority). 16. We are also of opinion that the activities like Income from sale of plots/ lands ,Freehold conversion income, interest income from instalments,development charges, building plan sanction fees, lease rent, income from stamp duty , Building rent,Sale of masterplan book/tender form,Cycle/scooter/car stand charges and Miscellaneous incomewere discharged by the assessee in accordance with the objects of the Development Act 1973 and other statutory obligations , and therefore we have no hesitation to hold that all these activities are charitable in nature. These activities were undertaken by the assessee on account of the mandate given to it to do generalize charitable activities for the planned development of the city. These are regulatory and development activities which were done by the assessee and the receipt of the revenue was on account of the said activities. The predominant character of the activities continues to be that of the state and therefore the element of welfare and charity is inbuilt. In the light....
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.... the coordinate bench decision in the case of Jhansi Development Authority for the purposes of determining whether the activity is done by the authorities like the assessee before us are charitable in nature or not. In the said decision we held as under: 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 of development 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 discharging their duties . 51 Similarly the Judgment in the matter of Agra Development (supra), relied upon by the revenue is also not applicable ,as there was no finding of fact by the Court in this case rather , court in para 63 had recorded as under; "63. In our view, the Tribunal should have considere....
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....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, considering the fact that the assessee is a statutory body Urban Development Authority constituted under the provisions of the Act, constituted to carry out the object and purpose of Town Planning Act and collects regulatory fees for the object of the Acts; no services are rendered to any pa....
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....f 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: 7.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 generalpublic 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, commerce or business, or any activity of rendering services in relation to any trade, commerce or business, for a cess or fee or any other consideration. In such a situation, the nature, use or application, or retention of income from such activities would not be relevant. Under the circumstanc....
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....n 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 dealingwith nonmembers, 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 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 o....
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.... 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 undersection 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 assessee are for charitable purposes and for general public utility and therefore, the respondent assesseee is entitled to exemption under section 11 of the Act. In view of the judgment of the Division Bench in the case of Ahmedabad Urban Development Authority (supra), no different view needs to be taken in this appeal. The larg....
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....o 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. SUDA (supra) and in the matter Karnataka Industrial Area Development Board 2020] 121 taxmann.com 88 (Karnataka), we allow Ground no.3 of the appeal of the assessee . 19. Therefore respectfully following the decision of the coordinate bench in the matter of JHANSI DEVELOPMENT AUTHORITY ( supra) we hold that the assessee act....