TaxTMI 
TaxTMI 
2021 (11) TMI 307
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....haritable object within the meaning of Section 2(15), and is eligible for exemption under section 11 of the Act ? 2. Assessee is a Board established under section 3 of Karnataka Housing Board Act,1962( hereinafter referred to as KHB Act) as a successor of Mysore Housing Board which was constituted in the year 1956. The said Act was amended from time to time. The State Government of Karnataka, passed the KHB Act, with a view to satisfy the need of housing accommodation in the state of Karnataka. The Ld.AO observed that as per the annual report for year 2008 and 2009, the primary objective of KHB is to make such schemes and to carry out such works as are necessary for the purpose of dealing with and satisfying the need of housing accommodation. The KHB Act also says that, it endeavors in providing housing to people of Karnataka at affordable cost. The KHB was availing benefit of Section 10(20A) of the Act from its inception upto financial year 2001-02. Section 10(20A) was omitted by Finance Act with effect from 1/04/2003. Thereafter the Board obtained registration under section 12A of the Act on 03/02/2004. 3. It is submitted by the Ld.AR that the Director of Income tax (Exemptions....
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....652 6. The Ld.AO observed that assessee has earned profit over total turnover and after claiming expenses. It is observed by the Ld.AO that the net profit rate was 10% for assessment year 2009- 10 and 14.06% for assessment year 2010-11. The Ld.AO called for details of profit earned during preceding assessment years. The details filed by assessee are as under: Sl.No. Asst. Year Rupees in lakhs 01. 2010-11 2439.78 02. 2009-10 2162.52 03. 2008-09 2724.44 04. 2007-08 3342.62 05. 2006-07 2867.07 7. From the above the Ld.AO was the opinion that, assessee earned profit over a period of time in preceding years, ranging more than 10%, and that it was involved in the systematic commercial activity in the nature of seal of sites, apartments, houses, most of which is being through open auctions to the highest bidder. The Ld.AO thus held that, assessee was running its activities on commercial principles. He placed reliance on the decision of Hon'ble Uttarakhand High Court in case of Queens Education Society reported in 177 Taxman 326 and denied exemption under section 11 for years under consideration. Aggrieved by the order of the Ld.AO, assessee preferred appeal....
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..../2015. Accordingly, these ground are dismissed as infructuous. 12. It is submitted that facts in respect of Ground Nos.3-4 in both the years under consideration are identical and the issue raised by assessee are same. Accordingly, these grounds in both the years under consideration are disposed of by way of a common order. The Ld.AR by way of written submission submitted as under:- Assessment order passed in the status of AOP(Trust) is bad in law [Ground No. 3] 1.1. The appellant is a Board established under the Karnataka Housing Board (KHB) Act, 1962. As per section 3(2) of the KHB Act, the Board constituted under such Act shall be a body corporate having perpetual succession and a common seal with power to acquire, hold and dispose of the property and may by its corporate name sue and be sued. The decision of the Supreme Court in Assistant Commissioner, Assessment II, Bangalore v Velliappa Textiles Ltd. (2003) 263 ITR 550 (SC) supports the principle that a body corporate is a person. Once the Board is formed, it would become a juridical person as opposed to natural persons) The properties of the Appellant vest in the Appellant managed by the Board (section 51 of KHB Act).....
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....I-IB Act for short hereafter). The KHB Act was passed with a view to satisfy the need of housing accommodation in the state of Karnataka. The Act was passed by the State Government with a view to fulfil the constitutional requirement of providing housing facilities. The preamble to the Act states as under. "An Act to provide for measures to be taken to deal with and satisfy the need of housing accommodation. WHEREAS it is expedient to take such measures, to make such schemes and to carry out such works as are necessary for the purpose of dealing with and satisfying the need of housing accommodation and with that object in view it is necessary to establish a Board for the State of Karnataka and to make certain other provisions." 2.4 In pursuance of the power vested under section 3 of the KHB Act, the State Government has notified a Board called as the 'Karnataka Housing Board' (Board in short) to achieve the objectives of the KHB Act. As per section 3 of the KHB Act, the Board is a statutory corporation having separate legal existence. It has no shareholders, members, partners or owners. It has no capital. No person has any stake, financial or otherwise, in the Board. ....
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....rd is required to submit reports, statements, returns, statistics, particulars etc to the State Government [sections 69 and 70]. The State Government is empowered to order for valuation of assets and liabilities of the Board at any time as it may consider necessary [section 73]. The State Government has formulated Karnataka Housing Board rules in respect of various matters connected with carrying of activities by the Board. The State Government may give such directions to the Board as in its opinion are necessary or expedient for carrying out the purposes of the Act and it is the duty of the Board to comply with such directions [section 84]. If the State Government is satisfied that the Board has made default in performing any duty it may fix a period for performance of that duty; the State Government is empowered to supersede and reconstitute the Board in the prescribed manner in certain circumstances [section 86]. The State Government may, by notification, order for dissolution of the Board [section 87]. The State Government exercises general administrative control and supervision over all the activities and affairs of the Board [section 87A]. As per rule 20 of the KHB Rules, 196....
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....) ----------------------------- x 100 = 1.65%. This is ignoring Rs. 9.72 crores of administration expenses being capitalized. 226,90,11,264 (Sales) Note:- The interest income, rent, lease rent and other income are not operational income. The co-ordinate bench in Karnataka Industrial Areas Development Board v Ad. DIT - ITA No. 378/B/13 dt. 4.9.2015 at page 24 held that there can be no profit element in earning the interest income. 2.8.The appellant carries on various housing schemes as decided by the Karnataka State Government. For instance, the programme of '100 Housing Projects' was launched during 2002 to provide 15,000 sites and 13,500 houses as per the State Government order. Out of these 61 schemes at a project cost of Rs. 25,794.23 crores have been completed. For the year, 2445 houses, 11525 sites have been developed / constructed. Further 39 schemes at a project cost of Rs. 60,472.49 crores have been under various stages of completion/progress to develop 13,745 sites and construct 3,854 houses. 2.9. The appellant has taken up 50 housing schemes at various places under Suvarna Karnataka Programme at a cost of Rs. 1,406.48 cro....
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....400, the allotment rate for EWS category would be Rs. 200 per sq.ft. As per rule 2 of the Karnataka Housing Board Regulations, 1983, income limits of economically weaker section group and low income group, middle income group and higher income group is as under. Sl. No Group Income limit 1 Economically weaker section group and low income group Class of persons whose annual income does not exceed Rs. 7,200 or such annual income as may be fixed by the Government from time to time. 2 Middle income group Class of persons whose annual income exceed Rs. 7,200 but does not exceed Rs. 18,000 or such annual income as may be fixed by the Government from time to time. 3 High income group Class of persons whose annual income exceed Rs. 18,000 but does not exceed Rs. 50,000 or such annual income as may be fixed by the Government from time to time. 2.17 The above facts and figures have been taken from the Annual report of the appellant for the year ending 31st March 2009 and the same is already on record before the Hon'ble Bench. (FOLLOWING DETAILS ARE REPRODUCED FROM WRITTEN SUBMISSION FOR ASSESSMENT YEAR 2010-11) The financial results of the appellant as depicted ....
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....00 Crores was approved and the tender was invited. Construction of 30 Mini Vidhana Soudha at the cost of Rs. 68.60 Crores are completed and handed over to revenue department. Construction of Mini Vidhana Soudha at Surapura, Athani, Rona, Devadurga, Raichur, Siraguppa, Naragunda and Hosanagar at the cost of Rs. 17 Crores was under progress. Construction of AC Staff quarters at Sagar at the cost of Rs. 2 crores was under progress. The Tender to take up the construction of Mini Vidhana Soudha and AC Office at Chikkaballapura at the cost of Rs. 4.75 Crores and at Gudibande - Chikkaballapura at a cost of Rs. 2 Crores were being finalized and was to be submitted to Government for approval during the year under consideration. The work of construction of Kandaya Bhavan in Bangalore at the cost of 31 Crores was under progress. Construction of Belgaum City Corporation Building at Belgaum was completed and handed over to Corporation at the cost of Rs. 5.50 crores. The construction of Administrative building and other related buildings for Basava Kalyana Development Board at Basavakalyana at a cost of Rs. 4.59 crores was completed, and handed over to the Board. The additional works at the ....
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.... at Udupi were nearing completion. The allotment of houses and sites are done as per the KHB Allotment Regulation 1983 Karnataka Gazette Notification No. 28 Volume No. 118 dated 14.7.1983. Statutory reservations for various categories are as under. (i) SC/ST/BT 18% (ii) Defence / Ex-Servicemen 5% (iii)Central Govt. employees 5% (iv) State Govt. employees 15% (v) Physically handicap 3% (vi)Senior Citizens 5% (vii) General 49% Break up of allotment of houses, flats and sites to Economically Weaker Section (EWS), Low income group (LIG), Middle income group (MIG) and High income group (HIG) during the year was as under. Break up of allotment of Properties : HOUSES & FLAT TOTAL HOUSES EWS LIG MIG HIG 54 330 218 8 610 SITES TOTAL SITES EWS LIG MIG HIG 14 1492 1153 714 3373 SHOPS TOTAL SHOPS EWS LIG MIG HIG 4 137 325 71 537 GRAND TOTAL 72 1959 1696 793 4520 The allotment to Economically Weaker Sections (EWS) of the society is made at half of allotment rate to other sections. For instance, if rate per square feet for the other categories is Rs. 400, the allotment rate for EWS category would....
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.... (SC) held that mere surplus does not mean institution is existing for making profit. The predominant object test must be applied. The AO must verify the activities of the institution from year to year. It was observed: "Where profit making is the predominant object ofthe activity, the purpose, though an object of general public utility, would cease to be a charitable purpose. But where the predominant object of the activity is to carry out the charitable purpose and not to earn profit, it would not lose its character ofa charitable purpose merely because some profit arises from the activity. The exclusionary clause does not require that the activity must be carried on in such a manner that it does not result in any profit." 2.20 The Delhi High Court in ICAI v DGIT(E) [2013] 358 ITR 91 held that functions performed which are in the genre of public welfare and not for any private gain or profit cannot be said to be involved in carrying on any business, trade or commerce. 2.21 The appellant Board was established under the Karnataka Housing Board Act, 1962 for carrying out the state functions and fulfilling the housing needs. The activities of the appellant Board are carried on ....
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....expenditure. 2.24 In CIT v Gujarat Industrial Development Corporation [2017] 83 taxmann.com 366 (Gujarat), it was held that assessee corporation having been constituted under Gujarat Industrial Development Act, 1962, for purpose of securing and assisting rapid and orderly establishment and organization of industrial areas and industrial estates in State of Gujarat, and for purpose of establishing commercial centers in connection with establishment and organization of such industries, entitled to exemption under section 11. It was held that considering the object and purpose for which the assessee has been established under the provisions of the Act and the activities carried out by the assessee, it cannot be said that the activities carried out by the assessee can be said to be either in the nature of trade, commerce or business, or rendering any services in relation to any trade, commerce or business for a Cess or Fee or any other consideration so as to attract proviso to Section 2 (15) of the IT Act. 2.25 Similarly, the Gujarat High Court in Ahmedabad Urban Development Authority v ACIT (Exemptions) [2017] 83 taxmann.com 78 (Gujarat) [Page 530 to 558 of case law compilation] h....
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....f the appellant society are not in the nature of commercial, or business. When the main objects of the appellant society are not business, the incidental activity, which is pursued for attainment of the main objects, cannot be called "business", merely because the appellant society renders services against payment as fees or cess, even if resulting in profit. [Para 15] 2.29 Where assessee institution, established under control of Irrigation Department of State Government, was imparting training to Government officials in field of water and land management, since said activity had direct connection with preservation of environment, it was held by the High Court of Judicature at Hyderabad in the case of CIT(E) v Water and Land Management Training and Research Institute [2017] 83 taxmann.com 234 (Hyderabad) that it was not a fit case for invoking first proviso to section 2(15), even though assessee was providing guidance to farmers and rendering consultancy services to various other organizations as well by charging certain fee. 2.30 Following are the list of other decisions wherein it was held that proviso to section 2(15) would not be applicable and consequently exemption under ....
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....u & Kashmir in the case of Jammu Development Authority v CIT ITA No. 164/2012 dt. 7.11.2013. However, the aforesaid decision of the High Court of Jammu & Kashmir has been distinguished in the following cases. (a) CIT v Jodhpur Development Authority [2017] 79 taxmann.com 361 (Rajasthan)/[2016] 287 CTR 473 (Rajasthan) (b) Tribune Trust v CIT [2016] 76 taxmann.com 363 (Punjab & Haryana)/[2017] 247 Taxman 36 (Punjab & Haryana)/[2017] 390 ITR 547 (Punjab & Haryana)/[2017] 291 CTR 352 (Punjab & Haryana) (c) Jaipur Development Authority v CIT [2014] 52 taxmann.com 25 (Jaipur - Trib.)/[2015] 67 SOT 1 (Jaipur - Trib.) (d) Vanita Samaj v DIT(E) [2014] 45 taxmann.com 303 (Mumbai - Trib.)/[2014] 63 SOT 267 (Mumbai - Trib.) (e) Rajasthan Cricket Association v Ad.CIT [2017] 79 taxmann.com 464 (Jaipur -Trib.)/[2017] 164 ITD 212 (Jaipur - Trib.) (f) ITO v Moradabad Development Authority [2016] 71 taxmann.com 339 (Delhi -Trib.)/[2016] 49 ITR(T) 270 (Delhi - Trib.)/[2016] 159 ITD 971 (Delhi -Trib.)/[2017] 183 TTJ 278 (Delhi - Trib.) 2.32 Relevant extracts from the above decisions are separately enclosed as Annexure. 2.33 The High Court of Jammu & Kashmir in the case of Jammu Developm....
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....se the assessee is relying on the fact that it is established by a State Legislation with the State Government and therefore, the assessee is totally accountable to the State Government and there are no Members, share holders or Partners etc. However, it is to be noted that KHB is a separate Board by Legislative House, it is not a Government and it is having an independent body to control its affairs. A perusal of the Profit & Lose Account shows that the assessee is mainly dealing in lands and is making huge profits on sale of lands. This aspect has been brought in very clearly in the assessment order. Various Courts have held that the charitable organisations can have incidental profit, but in this case, looking at the sale value of the land, which is at the prevalent market rate and looking at the surplus earned by the assessee it can be never said that the assessee id doing any charitable activities. Therefore, the A.O. had correctly denied benefit of Section 11 of the I.T. Act to the assessee. II. THE CASE OF APPELLANT IS COVERED BY THE PROVISO TO SECTION 2(15) The case of the assessee is clearly covered by the proviso to section 2(15) of the I.T. Act, 1961. The assessee....
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....the facts were that the assessee was established by the Reserve Bank of India to promote the State Government and dissemination of the knowledge and conducting of research in the area of information technology with respect to finance sectors. In the course of activities the assessee render consultancy services and generate surplus. In this circumstances, the Tribunal held that the assessee's activities were not carried on with any profit motive and that the surplus was incidental. The Tribunal clearly found out that the activities of the assessee were not in the nature of commerce or business in nature. It was also held that the consultancy services was only incidental activities and not the main activity of the assessee. The main activity of the assessee was only charitable and therefore, the Tribunal allowed exemption u/s 11 to the assessee. In the case of KHB, it can be seen that the main activity of the assessee is to make profit in land and flat dealings. The statistics provided to show that no charitable activities is undertaken by the assessee by allowing land at a lower or free of cost to the major portion of the society. The land/flat is sold at the current prevailing ....
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....see has lost its charitable character and the income has been rightly taxed in the status of an AOP as per law. 12.2 There is no dispute that the assessee was granted registration under section 12A(a) vide registration vide letter dated 02.05.2005 w.e.f. 01.04.2003. Prior to 01.04.2003, the assessee was enjoying exemption under section 10(20A) of the Act. Since the assessee was granted registration under section 12A, the income of assessee will be exempt under section 11, subject to fulfillment of other conditions specified in the sections 11 and 13 of the Act. 12.3 In the case before us, the contention of the Ld.AO is that, the activities of assessee in so far as they relate to purchase, development and sale of plots/shops, houses, could not be treated for charitable purposes and, therefore, assessee was not entitled for exemption u/s 11 of the Act. He is of the opinion that provisions of section 11 were applicable in the case of charitable institutions. 12.4 In the case before us, the activities of assessee are charitable in nature. The assessee has been constituted for providing cheaper residential and commercial properties to the public. The management of the Board are offic....
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....rovided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity; Provided further that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is Rs. 10 lakh or less in the previous year." Circular No.11/2008, F. No.134/34//2008-TPL, dated 19-12-2008 explains the above amendment w.e.f. 1-4-2009 as under :- An entity with a charitable object of the above nature was eligible for exemption from tax under section 11 or alternatively under section 10(23C) of the Act. However, it was seen that a number of entities who were engaged in commercial activities were also claiming exemption on the ground that such activities were for the advancement of objects of general public utility in terms of the fourth limb of the definition of 'charitable purpose'. Theref....
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....e activity. 12.11 If any 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 with a desire to earn profits, it would, not be entitled to claim that its object is for charitable purpose. In such a case, the object of 'general public utility' will be only a mask or a device to hide the true purpose. In our view, each case would, therefore, have to be decided on its own facts and no generalization is possible. 12.12 In this very connection, the definition of the term "business" furnished in section 2(13) was also discussed. The word "business" has been defined in an inclusive manner to include any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture. 12.13 Therefore, the question before us is-whether, the activity of construction and sale of immovable property constitutes "business"? The only objection of the assessee in regard to the first mentioned question is that there is no profit motive. In other words, there is no doubt that the activity has been carried on continuously in an organized manner with a set purpose. The ques....
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....exclusionary clause does not require that the activity must be carried on in such manner that it does not result in any profit. The restrictive condition that the purpose should not involve the carrying on of any activity for profit would be satisfied if profit making is not the real object. 12.18 Plethora of decisions have been cited and relied on by both sides. Before us, the plea of assessee is that, the activities of assessee involves carrying out charitable purpose which is not motivated to earn profit but is undertaken for the purpose of advancement or carrying out of the charitable purpose are correct. 12.19 Whereas Revenue alleges that, the predominant purpose of the assessee is driven towards earning of profits and that assessee during the rears have not carried out any activity that could be catagorised for advancement of general public utility. 12.20 It is not necessary that there must be a provision in the constitution of the trust or institution that the activity shall be carried on a "no profit no loss" basis or that the profit shall proscribed. Even if there is no such express provision, the nature of the charitable purpose, the manner in which the activity for ad....
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....treets and back lanes; (i) provision for the draining, water-supply and lighting of the area included in the scheme and carrying out by the Board in such area, drainage, sewerage and water supply works; (j) the provision of parks, playing-fields and open spaces for the benefit of any area comprised in the scheme and the enlargement of existing parks, playing fields, open spaces and approaches; (k) the provision of sanitary arrangements required for the area comprised in the scheme, including the conservation and prevention of any injury or contamination to rivers or other sources and means of water-supply; (l) the provision of accommodation for any class of inhabitants; (m) the advance of money for the purposes of the scheme; (n) the provision of facilities for communication and transport; (o) the collection of such information and statistics as may be necessary for the purposes of this Act; (p) any other matter for which, in the opinion of the State Government, it is expedient to make provision with a view to provide housing accommodation and to the improvement or development of any area comprised in the scheme or the general efficiency of the scheme. Section 18A ....
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....hall contain a statement showing the estimated receipts and expenditure on capital and revenue accounts for the next year. Section 20 of the KHB Act reads as follows: 20. Sanctioned program, budget and establishment schedule- The State government may sanction the program, the budget and the schedule of the staff of officers and servants forwarded to it with such modification as it deems fit. Section 21 of the KHB Act reads as follows: 21. Publication of sanctioned program- The State government shall publish the program sanctioned bite under section 20 in official Gazette. Section 22 of the KHB Act reads as follows: 22. Supplementary programme and budget.- The Board may, at any time,during the year, in respect of which a programme has been sanctioned under section 20 submit a supplementary programme and budget and the additional schedule of the staff, if any, to the State Government and the provisions of sections 20 and 21 shall apply to such supplementary programme. Section 23 of the KHB Act reads as follows: 23. Variation of programme by Board after it is sanctioned.- The Board may, at any time, vary any programme or any part thereof included in the programme s....
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....eps for the compulsory acquisition of any land or any interest therein required for the execution of a housing scheme or land development scheme in the manner provided in the Land Acquisition Act, 1894, as modified by this Act and the acquisition of any land or any interest therein for the purposes of this Act shall be deemed to be acquisition for a public purpose within the meaning of the Land Acquisition Act,1894." 13.1 A cumulative reading of the aforesaid provisions would indicate that it is the duty of the Housing Board to undertake housing schemes and land development schemes, as it may consider necessary from time to time and as may be entrusted to it by the State Government. What has to be provided for in a housing scheme is stated in Sections 18 and 18-A of the Act which would include, inter alia, the acquisition of property by purchase, exchange or otherwise i.e., by way of acquisition of any property necessary for or affected by the execution of the scheme. Under Section 19 of the Act before the first day of December in each year, the Board has to prepare and forward, inter alia, a programme and a budget for the next year and the programme shall contain the particulars ....
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....een sanctioned by the State Government. 13.5 In this regard, it is necessary to emphasize the expressions 'the Board shall not execute' and 'unless the same has been sanctioned by the State Government' which mean that no housing scheme, land development scheme and labour housing scheme can be executed, unless it has received the sanction of the State Government. The object and purpose of insertion of sub-section (2) to Section 24 are not for to seek, the same being to ensure that the State Government is made aware of which one of the housing schemes, land development schemes or labour housing schemes, included in the programme, which has been sanctioned under Section 20 of the Act would be executed and further, where such a scheme involves acquisition of land, the State Government is appraised of the said fact also, as it has to make available the budget for the purpose of paying compensation to the land owners, where the land is sought to be acquired for execution of the housing schemes, land development schemes or labour housing schemes. 13.6 This aspect becomes clearer when sub-section (2) of Section 24 of the Act is juxtaposed with Section 32 of the Act. The l....
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....not execute" and the words "unless the same has been sanctioned by the State Government" have been intentionally used by the State Legislature so as to make it a mandatory requirement. 14 From the above, it is clear that the schemes undertaken by assessee (on its own) must be with the sanction of the State government. Further, it is also clear that assessee is independently allowed to implement schemes on its own by private negotiations. This is clear from the Karnataka Housing Board allotment regulations 1983, forming part of the KHB act. We note that Rule 15A is inserted with effect from 22/08/2002 by the amendment regulations 2002 reads as under: 15A. Nothing contained in these regulations shall apply to joint-venture projects executive by Karnataka Housing Board's or any form, company Corporation et cetera promoted by the Karnataka Housing Board in association with corporate awards in society, Corporation, company Association union, private interpreter or a private firm where projects are developed on lands belonging to joint-venture partner or where Karnataka Housing Board and the joint-venture partner or partners contribute to the investment of capital in a joint-venture p....
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....e in relation to trade, commerce or business, it would not be entitled to claim exemption u/s. 11 of the Act. It also cannot be held that the primary object of assessee is for charitable purposes. In the above context we analyse the actual affairs of assessee as demonstrated in its annual accounts submitted before us and the paper book. 14.5 For assessment years under consideration on perusal of schedule 1 & 3 to the balance sheet, it is noted that assessee had following funds: Schedule No. 1 Housing Fund A/C Code HEAD OF ACCOUNT As on 31.3.2010 1 CAPITAL FUND 1193816623 TOTAL 1,193,816,623 Schedule 4 gives the breakup of deposits available with assessee: 14.6 On perusal of KHB Act, section 50 under Chapter VII, provides regarding the funds of the board and section 51 provides for application of fund as under: Section 50: Board's Fund (1) the board shall have a fund because the Housing Board funds. (2) the board may accept grants, subventions, donations and gifts from the central government and state government or local authority or any individual or body, whether Incorporated does not warrant any or all of the purposes of this act. (3) xxxx (4) ....
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....00 11998948 60060000 55520556 15. It is very much clear from the above that, the main source of revenue generated by assessee is from sale of sites and houses as compared to the income generated from housing schemes. We therefore have no doubt that assessee has undertaken majority of activities which cannot be construed to be charitable in nature as they have been valued based on commercial principles. Further from the details provided by assessee, it is clear that the development that could be construed to be charitable in nature is much less as compared to income earned from other categories. The dominant nature of the development activities undertaken by assessee for years under consideration therefore cannot be construed to be 100% for charitable purposes. It is also amenable from the above that there is no distinction between the other receipts collected by the assessee and are taken to the main account which if remained unutilized would be amenable to tax. 15.1 As such all receipts exceeding the threshold limit of Rs. 10 lakhs as stipulated by the amended provision of section 2 (15) would be relevant to consider whether the activities of assessee can be considered to ....
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.... the decisions is given below for ready reference: (i) The Hon'ble Supreme Court in the case of P Krishna Menon Vs. CIT (35 ITR 48) has held that it is not essential to the carrying on of trade that the people carrying it on should make a profit, nor is it even necessary to the carrying on of trade that the people carrying it on should desire or wish to make a profit. It is further observed by the Hon'ble Supreme Court that the question to be looked into is, whether the activity has actually produced an income and it does not matter whether that activity is called by the name of business, profession, vocation or by any other name and it is also immaterial with what intension it was carried out. (ii) It is also held by the Hon'ble Supreme Court in the case of State of Gujarat Vs Raipur Manufacturing Co. Ltd., (19 STC 1) and also by the Hon'ble Delhi High Court in the case of Bharath Development Pvt. Ltd., Vs CIT (133 ITR 470) that to regard an activity as business, there must be a course of dealings, either actually continued or contemplated to be continued with a profit motive and not for sport or pleasure. It is also made it clear by the Hon'ble Supreme Cou....
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....ner on the ground that its income was not liable to be assessed under Act, in view of article 289(1). The High Court held that in view of the fact that section 10(20A) was omitted and an Explanation was added to section 10(20) enumerating the 'Local Authorities' contemplated by section 10(20), the assessee-authority could not claim any benefit under those provisions after 1-4-2003 and that the exemption under article 289(1) was also not available to the assessee - authority as it was a distinct legal entity and its income could not be said to be the income of the State so as to be exempt from Union taxation. HELD The income of a local authority chargeable under the head 'Income from house property', 'Capital gains' or 'Income from other sources' or from a trade or business carried on by it was earlier excluded in computing the total income of the authority of a previous year. However, in view of the amendment, with effect from 1-4-2003, in the Explanation 'local authority' was defined to include only the authorities enumerated in the Explanation. which does not include an authority such as the assessee. At the same time section .10(20A) w....
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....therefore, before its dissolution, its assets, funds and liabilities were its own. It was, therefore, ,futile to contend that the income of the assessee was the income of State Government even though the Authority was constituted under an Act enacted by the State Legislature by issuance of a Notification by the Government thereunder. [Para 9] According to Basu's Commentary on the Constitution of India articles 28 5 and 289 are analogous to each other inasmuch as while article 285 exempts Union property from State taxation, article 289 exempts the State property from taxation. While clause (1) of article 289 exempts from Union taxation any income of a State, derived from Governmental or non-Governmental activities, clause (2) provides an exception, namely, that income derived by a State from trade or business will be taxable, provided a law is made by Parliament in that behalf. Clause (3) of 289 is an exception of the exception prescribed by clause (2) of article 289 and it provides that income derived from particular trade or business may be made immune from Union taxation if Parliament declares such trade or business as incidental to the ordinary functions of Government. The....
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....me of the state so as to exempt from union taxation. Accordingly, the activities of the assessee would squarely fall under the ambit of (1) activities in the nature of trade, commerce or business and (2) rendering any services in relation to any trade, commerce or business as envisaged u/s 2(15). 4.30 In this connection, reliance is placed on various decisions of ITAT and Hon'ble Court wherein it was held that the activities of various statutory bodies such as Jammu Development Authority, Punjab Urban Planning and Development Authority, Indore Development Authority etc., are in the nature of trade, commerce or business as envisaged under amended provisions of section 2(15). The relevant case laws are discussed below: 1. The decision of Hon'ble High Court of Jammu & Kashmir in the case of Jammu Development Authority vs. Union of India dated .12.11.2013 (ITA No.164/2012, CMA2/2012): In this case, the Hon'ble High Court has concurred with the view point of ITAT with regard to upholding the order of CIT withdrawing the status of charitable institution given to the assessee u/s 12AA(1)(b)(i) of the I.T. Act. The relevant portion of the order of the ITAT, Amritsar Bench....
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....tivities are not genuine to the extent, mentioned hereinabove and the Ld. CIT, Jammu, has rightly being satisfied held that the Jammu Development Authority is not entitled to registration and accordingly cancelled the registration so granted." 2. Further, the relevant portion of the Hon'ble High Court of Jammu and Kashmir confirming the above order of the ITAT is reproduced below for ready reference:- "The Tribunal has reached a categorical conclusion that the assessee - Jammu Development Authority cannot be regarded as an institution or trust which may have been set up to achieve the objects enumerated under Section 2 of the Act particularly in view of the addition of first and second proviso made by the Finance Act, 2008 w.e.f. 1.4.2009 to Section 12AA of the Act. There are findings of fact that the assessee-appellant has not been acting to advance any of the object concerning general public utility. Even otherwise the proviso which has been added by the Finance Act, 2008 wef. 1.4.2009 stipulates that the advancement of any other object of the general public utility shall not be a charitable purpose, if it involves carrying on of any activity in the nature of trade, comme....
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....essee was to construct housing projects on land provided by State Government or acquired by it and sell it to people belonging to different income groups. Thus, the assessee has consistently earned substantial profit in this activity. Therefore, the activity has been carried on with profit motive in the same manner in which a private builder would conduct his business. It can't be said that such activities are incidental to the main object of the trust. 16.1 Apart from this, the activity of construction and sale of immovable property cannot be the object but only a mean to achieve the object of development of area in accordance with the plan. Therefore, while the object in a given case may be a charitable purpose, not involving profit, the activities undertaken by assessee in pursuance of the object, attained the colour of business. 16.2 We are also of the view that each individual receipt from disposal of the property cannot be said to be income of the assessee available for charitable purpose because expenditure has to be incurred and has been incurred in acquiring land and construction thereon. Therefore, only the surplus from this activity can be said to be the income derived....