TaxTMI 
TaxTMI 
TaxTMI 
2022 (7) TMI 490
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....essing Officer (hereinafter called "the AO") under Section 143(3)of the Income-tax Act, 1961 (hereinafter called "the Act") for ay: 2011-12, assessment order dated 30.03.2015 passed by AO under Section 143(3)of the 1961 Act for ay: 2012-13, assessment order dated 29.02.2016 passed by AO under Section 143(3)of the 1961 Act for ay: 2013-14 and assessment order dated 27.12.2016 passed by AO under Section 143(3)of the 1961 Act for ay: 2014-15. These four appeals were heard in Open Court through Physical hearing mode. 2. Since, all these four appeals involve common issues, these four appeals were heard together and are disposed off by this common order. With the consent of both the parties, appeal for ay: 2011-12 is taken as a lead case and our decision in ay:2011-12 shall apply mutatis mutandis to all the remaining three appeals for ay: 2012-13 to 2014-15. This is the second round of litigation before the tribunal. 3. The grounds of appeals raised by assesseein memo of appeal filed with Income Tax Appellate Tribunal, Varanasi (hereinafter called "the tribunal") for ay: 2011-12, reads as under: "1. Because the appellate order dated 05.09.2017 which has been impugned in this appeal, ....
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.... an "Authority" for development of the 'Specified Development Area' as assigned to it and the provisions, as referred to in brief in Annexure-1 to the rounds of appeal, the CIT(A) was obliged to hold that the activities carried on by VDA/appellant, even if consideration, were not hit by the proviso to Section 2(15) of the Act and accordingly it was entitled to exemption under section 211 of the Act. 6. Because the case of VDA/appellant is frequently covered by the decision of Hon'ble Jurisdictional High Court in the case of CIT (Exemption), Lucknow vs. Moradabad Development Authority, Moradabad in ITA No. 3 of 2017, dated 05.05.2017 which in turn was based on the earlier decision of the Hon'ble Jurisdictional High Court in the case of CIT(Exemption), Lucknow vs. Yamuna Express Industrial Development Authority and others, and the CIT(A) has erred in not following the said judgment, while dismissing the appeal. 7. Because the order appealed against is contrary to the facts, law and principles of natural justice." 4(i). The brief facts of the case (ay: 2011-12) are that the assessee filed return of income on 30.09.2011, declaring total income of Rs. Nil. The case of the assessee ....
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....bject of ensuring the development of Varanasi. The AO observed that on dissolution of the assessee-authority, the assets of the assessee will revert back to State, which is duly mentioned in Section 58 of the 1973 State Act, which reads as under: (1) "Where the State government is satisfied that the purpose for which the authority was established under this Act has 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 disallowed accordingly." (2) From the said date- a. all properties, funds and dues which are vested in, or realizable by, the Authority shall vest in or be realizable by, the State Government; b. all nazul lands placed at the disposal of the Authority shall revert to the State Government; c. all liabilities which are enforceable against the Authority shall be enforceable against the State Government; and d. for the purpose of carrying out any development which has not been ....
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....on of land and after development of land, selling that on commercial prices, approval of maps of residential and commercial constructions. The AO also observed that the assessee is also developing houses and selling it on commercial lines. The AO further observed that the assessee is engaged in the sale of shops. The AO also observed that the assessee is engaged in the business activities, and hence it has filed audit report u/s 44AB of the 1961 Act, in Form No. 3CB and Form No. 3CD. 4(v) the AO observed that the assessee has explained that the assesseeis engaged in the objective of developing Varanasi and has carried out various activities, to name a few: "(i) for development of objects of general public utilities including management, regulation and control of infrastructure being falling within Varanasi city, (ii) The major working includes approval of maps of residential and commercial construction within the city, (iii) Regulation and implementation of various plans for development of the city. (iv) Development and allotments of plots, residential units etc. to specific class of people/public at large, (v) Infrastructure development including roads, sever(sic. sewer) ....
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....y: 2011-12, restored the matter to the file of ld. CIT(A) for fresh adjudication, with following directions as under: "4. We have considered the rival submissions. We find that in the case of CIT vs. Lucknow Development Authority (supra), the judgment of Hon'ble Allahabad High Court is on this basis that there is not material/evidence brought on record by the Revenue which may suggest that the assessee was conducting its affairs on commercial line with the motive to earn profit. It was held that under these facts, the proviso of Section 2(15) is not applicable. Now we examine the facts of the present case to find out as to whether the Revenue has brought on record any material/evidence which may suggest that the assessee was conducting its affairs on commercial line with the motive to earn profit. When we do so, we find that on page 4 of the assessment order, it is noted by the A.O. that on dissolution of the assessee authority, all properties, funds and dues which are vested in or realizable by the authority shall vest in or be realisable by the state government and therefore, the funds generated during so called charitable purpose period may be utilized for the purpose of the b....
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....imply because the predecessor CIT(A) has merely followed the judgment in the case of Lucknow Development Authority. 6. In Para-4 of the assessment order, the A.O. has observed that the objects of the authority as defined u/s 7 of the UP Urban Planning Development Act, 1973 is as under: "The objects of the Authority shall be to promote and secure the development of the development area according to plan and for that purpose the Authority shall have the power to acquire, hold, manage and dispose of land and other property, to carry out building, engineering, dispose of land 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 purpose of such development and for purpose incidental thereto." 5. Nowhere in the Uttar Pradesh Urban Planning and Development Act, 1973 words like charity or charitable, poor, economically weaker, subsidy/subsidized, assistance, uplift are mentioned. It is evident from the Uttar Pradesh Planning and Development Act, 1973 th....
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.... 4,80,44,700 2 Interest from bank H 4,58,23,859 3 Interest from allottees& Schemes Loans I 2,32,25,290 4 Others receipts K 6,65,61,591 The above detail show that the incomes in the form of realization from allotted property, interest from bank, interest from allotees and scheme loan and other receipts are received from different parties on commercial lines. The provisions of s. 2(15) of IT Act which have been amended with effect from 01.04.2009 and the amended provisions defined charitable purpose as under:- "Charitable purpose" includes relief of the poor, education, medical relief, preservation of environment (including watersheds, forests and wildlife and preservation of monuments or places or objects of artistic or historic interest) and the advancement of any other object of general public utility. Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for acess or fee or any other consideration, irrespective....
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....ocedure-Main object of the assessee- development authority under Government Control was to promote and secure development of local area- Its activities were found to aim at earning profit and it was not mere incidental to its activity- There was no obligation on part of assessee to spend income on charitable purpose only- On dissolution of assessee all properties and funds would vest in Government- There was no restriction as to how said funds were to be utilized by Government-Whether assessee was not entitled to registration under Section 12A-Held, yes ( in favour of revenue) 10. It may not be out of place to mention here that this decision of Hon'ble ITAT has been confirmed by Hon'ble Punjab and Haryana Court in ITA No. 64 of 2012 dated 12.11.2003 and that the SLP has been dismissed by Hon'ble Supreme Court on 24.07.2014 vide No. 4990/214. 11. It has been further held by Hon'ble ITAT Cochin Bench in the case of Greater Cochin Development Authority Vs. JDIT (OSD) (Exemption), Range-4 Kochi as under; Section 2(15) of the Income tax Act, 1961-Charitable purpose(Objects of general public utility)-Assessment years 2009-10 and 2010-11 Assessee trust was constituted by Government ....
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....se as defined u/s 2(15) of the Act. However, we notice there appears to be drastic change in the approach of the assessee. In the present days, the assessee appears to be adopting the system of offering plots/space by way of "auctioning"/tender, obviously the object is to corner maximum possible price on sale of plot/space. The assessee has also lost its monopoly in this field and the private entrepreneurs are also nowadays allowed to develop urban estates. The present day scenario would show that the private entrepreneurs are developing many special economic Zones all over the country. Hence, in the present day scenario, the activities of the assesseee and the private entrepreneurs stand on same footing. There cannot be any dispute that the activity of setting up/developing urban estates and maintaining the infrastructure facilities by the private entrepreneurs is considered as "Business activity". Since the activity carried on by the assessee is no different from the one carried on by the private entrepreneurs, in our view, the activity carried on by the assessee should also be considered to be "business activity" only. Hence, the activity carried on by the assessee, in our view,....
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.... section 2(15)-what does the advancement of any object of general public utility mean? Whether it includes therein carrying on of any activity in the nature of trade, commerce or business. In fact, by putting the proviso by Finance Act, 2008 w.e.f 2009 the legislature specified that advancement of any other general public utility shall not be a charitable purpose if it involves carrying on of activity in the nature of trade, commerce or business or any activity in the nature of trade, commerce or business or any activity of rendering any services in relation to a trade, commerce or business for cess or fee or any other consideration irrespective of the nature of the use or application or retention of the income from such activity . From the notes and clauses of the Finance Bill, 2008 we noted that proviso was inserted in Sec. 2(15) so as to exclude from advancement of any other object of general public utility. Any activity in the nature of trade, commerce or business or, (1) Any activity of rendering any service in relation to any trade, commerce or business, for a fee or cess or any other consideration irrespective of the nature of use, application or retention of the income ....
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....but limits the scope of the phrase 'advancement of any other objects of general public utility' so that the benefit may not be available to any activity in the nature of trade, commerce or business or any activity of rendering any service in relation to trade, commerce, or business for a fee, cess or any other consideration irrespective of the nature of the use or application of the income from such activity or retention of such income by the concerned entity. The Assessing Officer has to look into the definition of charitable purpose as applicable for the A.Y. for deciding whether the Assessee is engaged in charitable purpose or not if the Assessee is engaged in any activity in the nature of trade, commerce or business for consideration and hit by the proviso to Section 2(15) and accordingly has to decide whether the income of the assessee is exempt u/s 11 or not. 34. Once, in our opinion, the assessee no more remains being established for charitable purpose after the insertion of proviso in Section 2(15), the eligibility of assessee for registration stands cancelled. The CIT is the law implementing authority u/s 12A and therefore, it has power to rectify its order by cancelling....
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....of the Triubnal with regard to exemption under Section 12 of the Act is also substantially illegal? "Whether by assuming registration under Section 12AA of the income tax Act and exempting income of the assessee without considering the dispute in terms of sections 11,12 &13 of the Income Tax Act coupled with nature of activities, the Tribunal has acted arbitrarily or substantially illegal. "Whether the learned Income Tax Appellate Tribunal was correct in law in holding that without exhausting the provisions contained in section 143(2) of the Act the proceedings initiated by the Assessing Officer by issuing notices u/s 148 of the Act were not valid in the given facts and circumstances of the case". 36. In that case the registration u/s 12AA of the Income tax Act was granted by the CIT in pursuance of its order dated 25.07.2005 the Assessing officer while examining the issue during the course of the assessment took the view that entire activities of the assessee during the year under consideration are beyond the purview of charitable purposes and therefore the income earned by the assessee is not allowable for benefits available under Secretion 11 of the Income Tax Act. The obj....
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.... of the Income Tax. The case before us does not relate to the registration being sought u/s 12A of the Income Tax. We also noted that all the other decision relied on the by the learned AR are also prior to the amendment in Section 2(15) of the Income Tax Act therefore they are also not applicable in the instant case. 39. We therefore in view of our aforesaid discussion as well as the proviso to Section 2(15) and the provision of Section 13(8) as inserted by the Finance Act, 2012 w.e.f. 1.4.2009, confirm the order of the CIT(A) and dismiss the appeal of the assessee." 10. Respectively, following the said decision of the tribunal, we noted that the registration u/s 12AA of the Act granted by learned CIT does not grant the assessee a license to claim exemption under Section 11 of the Act. Once the assessee is hit by first proviso to section 2(15) of the Act in view of applicability of section 13(8), the assessee is not entitled to claim exemption u/s. 11 of the Act. We, therefore, confirm the order of CIT(A) on this issue. Thus, ground No. 3 stands dismissed. 13. The written submissions of the assessee have been duly considered the discussion held during the course of hearing o....
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.... to charge people on account of prospective and notional increase in the price of their properties, it would be a better example of Mahajans charging compound interest at high interest rates on the amounts lent out, from the poor people of the society. From the above analysis of Hon'ble ITAT order referred to above, it becomes clear that decision of Allahabad High Court in the case of Lucknow development Authority relied upon by the appellant does not help it, but goes against it. 16. It is also clear that the judgment in the case of Lucknow Development Authority was on the basis that there was no material/evidence brought on record by the revenue which may suggest that the assesse was conducting its affairs on commercial lines. However, the facts as discussed above in para-7, clearly established that M/s Varanasi Development Authority is running its affairs on the lines of a private developer and is charging its customers on commercial lines as discussed by the AO in page-5 of the assessee order with a motive to earn profit. 17. In view of the above I hold that the case of the assessee falls under last limb of S. 2(15) of IT Act as the asessee is carrying on its activity in ....
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.... deductions under section 11 and 12 of the 1961 Act are not allowed, if it exceeds taxable limits as prescribed u/s. 2(15) of the 1961 Act. Our attention was also drawn to provisions of Section 2(15) and 13(8) of the 1961 Act. The Ld. CIT DR submitted that the registration under Section 12AAof the 1961 Act does not mean that the assessee will get exemption/deduction u/s 11 and 12 of the 1961 Act. Our attention was drawn to the judgement and order of Hon'ble Allahabad High Court in the case of Allahabad Development Authority in ITA No. 134/2013, dated 07th December, 2017. Our attention was also drawn by ld. CIT-DR to the decision of ITAT-Chandigarh in the case of Chandigarh Lawn Tennis Association v. ITO, in ITA No. 1382/Chd/2016, dated 26.07.2018. Our attention was also drawn to page 54 of the paper book filed by the assessee, and provisions of Section 11(4A) of the 1961 Act. It was submitted that no separate books of accounts are maintained by theassessee. Our attention was drawn by ld. CIT-DR to provisions of Section 10(23C) of the 1961 Act and its proviso. Our attention was also drawn by ld. CIT-DR to provisions of Section 2(15) of the 1961 Act, and to the first proviso and seco....
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.... of Jhansi Development Authority (supra), which was adjudicated by tribunal in favour of the tax-payer. The ld. Counsel for the assessee relied upon decision of Agra-tribunal in the case of Jhansi Development Authority(supra) and it was submitted that Hon'ble Allahabad High Court decision was also considered by Agra-tribunal while deciding the above case. 8. We have considered rival contentions and perused the material on record, including cited case laws. This is second round of litigation before tribunal. In the first round of litigation, the tribunal while adjudicating appeal filed by the Revenue, set aside and restored the matter to the file of ld. CIT(A) for a fresh decision with following directions, vide appellate order dated 28.08.2015 in ITA no. 380/Lkw/2015 for assessment year 2011-12, by holding as under:- "4. We have considered the rival submissions. We find that in the case of CIT vs. Lucknow Development Authority (supra), the judgment of Hon'ble Allahabad High Court is on this basis that there is not material/evidence brought on record by the Revenue which may suggest that the assessee was conducting its affairs on commercial line with the motive to earn profit. It....
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.... Allahabad High Court in the case of CIT v. Lucknow Development Authority, reported in (2014)265 CTR 433(All. HC) without comparing whether the facts in the instant case are tallying with the facts in the case of Lucknow Development Authority(supra). The tribunal noted that the AO has brought on record in its assessment order that on dissolution of the assessee, all properties, funds and dues which are vested in or realizable by assessee shall vest in or realizable by State Government, and thus the funds during the so called charitable purpose period may be utilized by State Government for business purposes. Further the tribunal noted that the AO has brought on record in its assessment order that realization from allotted properties is only Rs. 480.45 lacs, while interest income and other receipts are to the tune of Rs. 1356.11 lacs. The tribunal observed that the AO came to conclusion that the receipts of the assessee are commercial in nature. The tribunal further observed that the ld. CIT(A) has simply followed the judgment and order of Hon'ble Allahabad High Court in the case of Lucknow Development Authority(supra) and granted relief to the assessee without examining this aspect....
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....o make profits, and clearly the assessee is hit by proviso to Section 2(15) of the 1961 Act. The appellate order passed by ld. CIT(A) in second round of litigation is reproduced in para 6 of this order, and is not repeated again. That is how, we are now seized of the matter, in this second round of litigation. Before we proceed further, it will be relevant to reproduce the relevant extracts of judgment and order passed by Hon'ble Allahabad High Court, in the case of Lucknow Development Authority(supra), as under: "17. We have heard learned counsel for the parties and gone through the material available on record. 18. 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 were 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 Se....
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.... even if public welfare is intended to be served. If the primary purpose and the predominant object are to promote the welfare of the general public the purpose would be charitable purpose. When an object is to promote or protect the interest of a particular trade or industry that object becomes an object of public utility, but not so, if it seeks to promote the interest of those who conduct the said trade or industry [CIT v. Andhra Chamber of Commerce [1965] 55 ITR 722 (SC)]. If the primary or predominant object of an institution is charitable, any other object which might not be charitable but which is ancillary or incidental to the dominant purpose, would not prevent the institution from being a valid charity [Addl. CIT v. Surat Art Silk Cloth Mfrs. Association [1980] 121 ITR 1/[1979] 2 Taxman 501 (SC)].' 21. Applying the ratio laid down in the case of CIT v. Andhra Pradesh State Road Transport Corpn. [1986] 159 ITR 1 (SC), where of in the present case, the "Autonomous Authority" was established for the purpose of predominant of development the area and provide to shelter to the homeless people within the State of U.P. The management and control of the Authority is essenti....
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....it purposes such as relief to destitute, orphans or the handicapped, disadvantaged women or children, small and marginal farmers, indigent artisans or senior citizens in need of aid. Entities who have these objects will continue to be eligible for exemption even if they incidentally carry on a commercial activity, subject, however, to the conditions stipulated under Section 11(4A) or the seventh proviso to Section 10(23C), which are that - (i) the business should be incidental to the attainment of the objectives of the entity, and (ii) separate books of account should be maintained in respect of such business." 26. For the applicability of proviso to Section 2(15), the activities of the trust should be carried out on commercial lines with intention to make profit. Where the trust is carrying out its activities on non-commercial lines with no motive to earn profits, for fulfilment of its aims and objectives, which are charitable in nature and in the process earn some profits, the same would not be hit by proviso to section 2(15). The aims and objects of the assessee-trust are admittedly charitable in nature. 27. Mere selling some product at a profit will not ipso facto hit a....
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....th ay: 2011-12 wherein amended Section 2(15) shall be applicable, which read as: Definitions. 2. In this Act, unless the context otherwise requires,- *** *** (15) "charitable purpose" includes relief of the poor, education, medical relief, preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest, and the advancement of any other object of general public utility: Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any 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 ten lakh rupees or less in the previous year;] Thus, as could be seen that charitable purpose shall include advancement of any other o....
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....he scope of the phrase "advancement of any other object of general public utility", it is proposed to amend section 2(15) so as 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- (a) any activity in the nature of trade, commerce or business or, (b) any activity of rendering of any service in relation to any trade, commerce or business, for a fee or cess or any other consideration, irrespective of the nature of use or application of the income from such activity, or the retention of such income, by the concerned entity. This amendment will take effect from the 1st day of April, 2009 and will accordingly apply in relation to the assessment year 2009-10 and subsequent assessment years." It will be relevant at this point of time to refer to a recent appellate order passed by Lucknow-tribunal in the case of Lucknow Development Authority v. ACIT(Exemption) in ITA no. 185 &186/Lkw/2019 for ay: 2013-14, ITA no. 163 & 164/Lkw/2019 for ay: 2014-15 and 2015-16 and ITA no. 439/Lkw/2019 for ay: 2016-17, vide common order dated 10th March, 2022 wherein the tribunal decided the issue in favo....
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....o are only answerable to each other for their actions. c. The Authority is neither running for profit motive nor it is actually earning profit. However, in case of private colonizers/ Real Estate Developers, the difference between the actual cost and the sale consideration is exorbitant to earn maximum profits and no discounts are granted to weaker section. d. The appellant Authority cannot utilize funds in any activity other than the main objects / administration of the Act under which it is constituted, however, no such restrictions are upon such private colonizers/ Real Estate Developers. e. Books of accounts are audited by auditor appointed by State Government/ office of Authority General of India in case of LDA. On the other hand, audit in case of private colonizers/ Real Estate Developers is done by an auditor appointed by them and in some cases, it is even not compulsory by law. f. In the case of the appellant Authority, no personal benefit of any person or entity is involved, all the decisions are made within the ambit of law for the overall development of the city, however, private colonizers/ Real Estate Developers, focus mainly on their personal benefits. 9.1 D....
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....pose and the predominant object are to promote the welfare of the general public, the purpose would be charitable purpose. In this regard reliance is placed of following judgements of Hon'ble Supreme Court: i. Commissioner of Income-tax v. Ahmedabad Rana Caste Association [1983] 140 ITR 1 (SC) ii. Commissioner of Income-Tax Vs. Gujarat Maritime Board [2007] 295 ITR 561 (SC) iii. CIT v. Bar Council of Maharashtra (1981) 130 ITR 28 (SC) 9.2 Further, in the case of Additional Commissioner of Income-Tax, Gujarat Vs. Surat Art Silk Cloth Manufacturers Association [1980] 121 ITR 1 (SC) a Constitution Bench held that, if primary purpose and predominant object of a trust are to promote welfare of general public, the purpose would be charitable purpose. If primary or predominant object of an institution is charitable, any other object which might not be charitable, but which is ancillary or incidental to dominant purpose, would not prevent institution from being a valid charitable trust. Therefore, irrespective of the fact that LDA receipts include consideration from sale of property, rent, interest, etc., LDA has to be considered as charitable trust in light of abovementioned judgm....
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....r business in the garb of advancement of public utilities and enjoying the exemption of income which is accrued because of such activities. In this regard reference can be made to the budget speech of the Hon'ble Finance Minister before the house which affirms the said interpretation, the abstract of which is given below: "Charitable purpose includes relief of the poor, education, medical relief and any other object of general public utility. These activities are tax exempt, as they should be. However, some entities carrying on regular trade, commerce or business or providing services in relation to any trade, commerce or business and earning incomes have sought to claim that their purposes would also fall under "charitable purpose". Obviously, this was not the intention of Parliament and, hence, I propose to amend the law to exclude the aforesaid cases. Genuine charitable organizations will not in any way be affected" 9.6 It can very well be seen from the above extract that the intent of the Finance Minister in bringing such an amendment is to target those nongenuine NGOs who carry on activities in the nature of trade or business under the grab of charity. The appellant Au....
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.... Bros., (1964) 15 STC644, 647(SC); State of Guajrat v. Raipur Mfg. Co. Ltd., (1967)19 STC 1 (SC) ; Director of Supplies and Disposals v. Member, Board of Revenue (1967) 20 STC 398 (SC); CST v. Anil Co-operative Credit Society, (1969) 24 STC 180, 192 (Gui); Mahammad Faruq, In re (1938) 6 ITR 1, 7 (Ail); Bharat Development (P.) Ltd. v. CIT, (1982) 133 ITR 470,474 (Del); Government Medical Store Depot v. Superintendent of Taxes, (1986) Tax LR 2164 (SC) = (1985) 60 STC 296 (SC); Government Medical Store Depot v. State of Haryana, (1986) 63 STC 198(SC))." The expression "business" has further been defined in the Commentary on Income Tax Law by Chaturvedi & Pithisaria(Pages 1322 and 1323; Vol1 ; Fifth edition)as under: "The word 'business' is a word of large and indefinite import. It is something which occupies the attention and labour of a person for the purpose of profit. It has a more extensive meaning than the word 'trade'. An activity carried on continuously in an organized manner with a set purpose and with a view to earn profit is business [CIT v. M.P. Bazaz, (1993) 200 ITR 131, 135, 136 (Ori)]. Also see, Khoday Distilleries Ltd. v. State of Karnataka, JT 1994 ....
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.... Lahore Electric Supply Co. Ltd (1966)60 ITR 1 (S.C) has held as under: "Income Tax business Income-Carrying On of Business - Government Acquired Assessee Company's Undertaking In Regard To Supply Of Electricity-Mere fact That It Did Not Go Into Liquidation Would Not Establish That It Had Intention To Do Business-at The Relevant Time The Company Was Not Express And Intention To Resume Business-Thus, no Business was Carried On-facts That It had To Pay The Government Half Share Of Profits For Some time and That It Had To Return Deposits To Consumers Would Not Indicate That It was Carrying On Business Business as Contemplated By S.10 Of 1922 Act Is An Activity Capable of Producing A Profit Which Can Be Taxed." 9.10 In the case of CIT V. K. S. Venkatksubbiah Reddiar (1996), 221 ITR 18,21 (Mad.), Hon'ble Madras High Court has, while holding that profit - motive is essential to constitute a business, observed as under: "It is, therefore, clear that the two essential requirements for any activity to be considered as business are (i) it must be a continuous course of activity; and (ii) it must be carried on with a profit motive." Similar findings have been made in the follo....
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.... dominant object of MandiSamiti is to regulate, procure and supply of agricultural and some other produce and to meet expenses required for achieving the said object. Legislature has empowered Assessee to levy/cess/fee. Whatever surplus remains in market fund would come back for carrying on the object for which MandiSamities are established. 10.2 The aforesaid judgement of High Court has been confirmed by the Hon'ble Supreme Court in Appeal reported in (2012) 12 SCC 267. If the predominant object is to carry out charitable purpose and not to earn profit, the purpose would not lose its charitable character merely because some profit arises from the activity [CIT v. Andhra Pradesh Road Transport Corporation (1986) 159 ITR 1 (SC), Thiagrajan Charities v. Addl. CIT (1997) 225 ITR 1010 (SC), Girijan Co-operative Corporation Ltd v. CIT (1989) 178 ITR 359 (AP)]. In view of above, it is held that the receipt of money by way of sale consideration, sundry receipts, interest, rent etc. is arising out of sole purpose of growth and development of the areas and not to earn profit. 11. We further find that in the case of assessee itself in assessment year 2005-06, the Hon'ble Allahaba....
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....(Mad), it was observed that the construction of commercial complex by charitable trust is eligible. If the objects of the "Authority" is charitable as public utility then the benefit being a charitable trust is eligible as per the ratio laid down in the case of CIT vs. Gujarat Maritime Board, [2007] 295 ITR 561 (SC), where it was observed that:- "... in Section 2(15), namely, "any other object of general public utility". From the said decisions it emerges that the said expression is of the widest connotation. The word "general" in the said expression means pertaining to a whole class. Therefore, advancement of any object of benefit to the public or a section of the public as distinguished from benefit to an individual or a group of individuals would be a charitable purpose [CIT vs. Ahmedabad Rana Caste Association, [1983] 140 ITR 1 (SC)]. The said 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 charita....
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....hether the contribution made by the employer should be treated as a business expenditure, the requirement being contribution should be made to a recognized provident fund. Needless to mention that this Hon'ble Court in the case of CIT vs. M/s. U.P. Forest Corporation Ltd., in Income Tax Appeal No. 70 of 2009 observed that the Forest Corporation being an statutory entity is entitled for the registration under Section 12A of the Act. The said observations was upheld by the Hon'ble Apex Court vide its order dated 12.05.2011 in Special Leave Petition No. (Civil) No. 2590/2011. We may also like to refer a C.B.D.T. Circular No. 11/2008 dated 19.12.2008, wherein the applicability of the commercial activities in respect of charitable purpose has been clarified. The said circular is reproduced as below:- "2.2. 'Relief of the poor' encompasses a wide range of objects for the welfare of the economically and socially disadvantaged or needy. It will, therefore, include within its ambit purposes such as relief to destitute, orphans or the handicapped, disadvantaged women or children, small and marginal farmers, indigent artisans or senior citizens in need of aid. Entities w....
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....s not given any defective in computation of income as per Section 11 as submitted in Form-XB, but observed that the activities of the assessee are not charitable. The activities of the assessees are genuine. So, then it is so, then we find no reason to interfere with impugned orders passed by the Tribunal. The same are hereby sustained along with reasons mentioned therein. The answer to the substantial questions of law are in favour of the assessee and against the department. In view of above, all the appeals filed by the department are dismissed, as stated above." Hon'ble Allahabad High Court in the case of Moradabad Development Authority, vide order dated 03/05/2017 had framed the following questions of law: "(a.) Whether on the facts and circumstances of the case the Hon'ble ITAT was justified by upholding the order of Ld. CIT (A) by not considering the amended provision of Section 2(15) of the Income Tax Act, 1961. In which there is a provision for charging tax if total receipt of entities engaged in advancement of general public utility exceeds Rs.10 Lakh. Whereas the assessee has shown excess of income over expenditure of Rs.16,69,28,027/- by sales of Plots, s....
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....rcial nature of activities, and the same has already been confirmed by the Hon'ble High Court of Jammu & Kashmir vide order dated 07.11.2013 in ITA No.164/2012 as well as by the Hon'ble Supreme Court of India vide order dated 21.07.2014 in Special Leave to Appeal No.4990/2014. Hence the appellant authority is not entitled to registration under section 12A of the Income Tax Act, 1961." 11.1 The above questions of law have been decided against the Revenue and in favour of the assessee and while answering the questions, the Hon'ble Court has followed the judgment in the case of YEIDA. The questions of law, answered in favour of the assessee, if read as a whole, clearly state that the MDA is not doing any business activity and its activities are not hit by the proviso to section 2(15) of the Act. We find that MDA has been constituted under the same Act of Uttar Pradesh Urban Development and Planning Act, 1973 and its objects are similar to the objects of the assessee. Therefore, this judgment of Hon'ble Allahabad High Court in the case of Moradabad Development Authority is directly applicable to the assessee. The arguments of Revenue that in this case the issue before....
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....o refusal to the assessee for registration u/s 12A of the Act whereas in the cases before us there exists registration u/s 12A of the Act and the issue involved here is regarding the Exemption u/s 11 of the Act. As regards the reliance placed by Revenue on the case law of Kanpur Development Authority, we find that the said order has been recalled by Lucknow Bench of the Tribunal vide order dated 17/02/2018. We further find that in the case of the assessee itself for assessment year 2018-19, the Assessing Officer himself has allowed exemption u/s 11 of the Act during proceedings u/s 143(3) vide order dated 15/06/2021, a copy of which is placed at pages 361 to 363. We further find that in the case of the assessee itself, for assessment year 2009-10 and 2010-2011, on an appeal filed by the assessee, the CIT(A), vide order dated 01/10/2021 and 16/09/2021 has allowed the appeal of the assessee and has granted exemption u/s 11 of the Act. As regards the argument of Revenue that assessee has violated the provisions of section 13, we find that the act of the assessee in allowing some rebate to it's employees and reservation of some plots for it's employees does not amount to violation of s....
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....e author because 'relative' means a person connected by birth or marriage with another person. The person having any other relationship pursuant to a contract like that of employer and employee cannot be said to be a relative. Therefore, the application of part of the income of the trust for the benefit of the employees of TISCO and their relatives could not disentitle the trust from claiming exemption under section 11(1)(a)." 11.5 The facts and circumstances of the case laws relied on by Revenue for the proposition that assessee violated the provisions of Section 13 do not apply to the facts of present cases as in the case of CIT vs. Awadh Educational Society, the assessee had given interest free loan to the treasurer of the society who is listed in the list of specified person u/s 13(3) of the Act whereas in the cases before us the assessee has given benefit to employees who are not specified persons as mentioned in section 13(3) of the Act. 11.6 In the case law of Maruti Centre for Excellence, the assessee was rendering training to its members who, in turn were giving donations to the assessee exceeding an amount of Rs.50,000/- therefore, those persons were the perso....
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....e Act. Therefore, ground No. 9 to 12 in I.T.A. No.185, ground No. 10-16 in I.T.A. No.186, ground No. 10 to 15 in I.T.A. No.163, ground No. 10 in I.T.A. No.164 and ground No. 10-12 in I.T.A. No.439 are dismissed as having become infructuous." Thus, as could be seen above that the Lucknow-tribunal in the case of Lucknow Development Authority(supra), held that the Lucknow Development Authority(LDA) is not engaged in carrying on any activity in the nature of trade, commerce or business or any activity in rendering any service in relation to any trade, commerce or business, and it was held by tribunal that L.D.A. is entitled for exemption u/s 11 of the 1961 Act being engaged in charitable activities by persuing objects of advancement of objects of general public utility. This appeal decided by Lucknow-tribunal was for ay:2013-14 to 2016-17, wherein allay's were for the period post amendment of Section 2(15) by Finance Act, 2008 w.e.f. 01.04.2009. While adjudicating this appeal, the tribunal has dealt with the judgment and order passed by Amritsartribunal in the case of Jammu Development Authority(supra) which stood affirmed by Hon'ble High Court of Jammu and Kashmir and SLP filed again....
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....en able to cope with these problems to the desired extent. In order to bring about improvement in this situation, the State Government considered it advisable that in such developing areas Development Authorities patterned on the Delhi Development Authority be established. As the State Government was of the view that the urban development and planning work in the State had already been delayed it was felt necessary to provide for early establishment of such Authorities. (3) The present measure seeks to replace the aforesaid Ordinance by a President Act. (4) The Committee constituted under the proviso to Sub-section (2) of Section 3 of the Uttar Pradesh State Legislature (Delegation of Powers) Act, 1973 (Act 33 of 1973), has been consulted before the enactment of this measure as a President's Act." Thus, as could be seen, the 1973 State Act was enacted to tackle the problems of town planning and urban development resolutely, in the developing areas of U.P.. It is recognized that the existing local bodies and authorities were not able to cope with the problems to the desired extent, and hence need was felt to create an authority in developing areas on the pattern of Delhi De....
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....planned and organized manner, instead of having hapharzd and unorganized development of the development area falling within the jurisdiction of the Development Authority . Section 4 of the 1973 State Act, reads as under: "4 The Development Authority- (1) The State Government may, by notification in the Gazette, constitute for the purposes of this Act, an Authority to be called the Development Authority for any development area. (2) The Authority shall be a body corporate, by the name given to it in the said notification, having perpetual succession and a common seal with power to acquire, hold and dispose of property, both movable and immovable and to contract and shall by the said name sue and be sued. (3) The Authority in respect of a development area which includes whole or any part of a city as defined in the [Uttar Pradesh Municipal Corporation Act. 1959), shall consist of the following members namely a- Chairman to be appointed by the State Government: b- Vice-Chairman to be appointed by the State Government: c- the Secretary to the State Government, in charge of the Department in which, for the time being, the business relating, to the Development Authorities ....
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....sed to the State Government resign his office and on such resignation being accepted shall be deemed to have vacated his office. (8) No act or proceedings of the Authority shall be invalid by reason of the existence of any vacancy in, or defect in the constitution of, the Authority." It is provided in Section 4 of the 1973 State Act that the Development Authority shall be body corporate, having perpetual succession. Thus, the Development Authority shall be a body corporate having perpetual succession, thus enjoying perpetual existence. The 1973 State Act also provides that the Staff/officers of the Authority shall be appointed by State Government, namely Chairman, Vice Chairman, who shall be Members of the Development Authority. The authority shall also have ex-officio Members, namely (a) Secretary to the State Government, in charge of the Department in which, for the time being, the business relating, to the authority is transferred, (b) Secretary to the State Government in charge of the Department of Finance, (c) Chief Town and Country Planner, U.P.,(d) Managing Director of the Jal Nigam established under the Uttar Pradesh Water Supply and Sewerage Act, 1975 (e) Mukhya Nagar A....
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....and 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." The word 'amenity' is defined in section 2(a) of the 1973 State Act, which includes roads, water supply, street lighting, drainage, sewerage, public works and such other convenience as the State Government may by notification in the Gazette specify to be an amenity for the purposes of this Act. Thus, the authority has been vested with responsibility to provide amenities within the development area falling within its jurisdiction, which include road, water supply, street lighting, drainage, sewerage, public works and other conveniences. Section 2(a) of the 1973 State Act, reads as under: "(a) 'amenity' includes road, water supply. street ligh....
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....n of shops. work-shops, warehouses of factories or buildings of a specified architectural feature or buildings designed for particular purposes in the locality, the maintenance of walls, fences, hedges or any other structural or architectural construction and the height at which they shall be maintained: the restrictions regarding the use of any site for purposes other than erection of buildings; any other matter which is necessary for the proper development of the zone or any area thereof according to plan and for presenting buildings being erected haphazardly, in such zone or area. Section 10 of the 1973 State Act provides that master plans and zonal development plans as prepared by Authority shall be submitted to State Government for its approval, and State Government has powers to approve the Master Plan and/or Zonal Development Plans with or without modification, or reject the plan with directions to the Authority to prepare a fresh plan according to such directions. Thus, it could be seen that the Authority is been given vast and onerous responsibilities under the 1973 State Act to undertake planned, regulated and integrated development of the entire area which falls under it....
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....l complete the development according to the approved plan and send a notice in writing of such completion to the Authority, and obtain a completion certificate from the Authority in the manner prescribed or provided in the bye-laws of the Authority. Section 16 of the 1973 State Act provides that no person or body shall use land and buildings in the Zone in contravention of the Zonal Development Plan. Chapter VI of the 1973 State Act provides for compulsory acquisition of land by State Government under the Land Acquisition Act and transferring of the said acquired land with the Authority, for achieving its objects of planned and regulated development of development area falling within its jurisdiction. It also empowers Authority to dispose of land . The Authority is also vested with powers to recover charges, in case of failure by the lessee to construct the building within stipulated time. The State Government is also empowered to transfer Nazul Land to Authority, for achieving its objects of development in the development area(Section 19). Section 22 of the 1973 State Act provides that accounts of the Authority shall be subject to audit by annually by the Examiner, Local Fund Acco....
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....en benefitted by the development, has increased or will increase, the Authority is empowered to levy betterment charges on the owners of the property or on any person having interest in the property. Section 40 of the 1973 State Act provides that all dues to the authority can be recovered as arrears of land revenue and also by attachment and sale of property, apart from any other mode of recovery. Section 41 and 42 of the 1973 State Act provides that there is deep and pervasive control exercised by State Government over the Authority in carrying out directions issued by State Government whose decision shall be final, and also in calling for records, returns by State Government from Authority, and inspection by State Government, which reads as under: "41. Control by State Government.- (1) The Authority, the Chairman or the Vice-Chairman shall carry out such directions as may be issued to it from time to time by the State Government for the efficient administration of this Act. (2) If in, or in connection with, the exercise of its powers and discharge of its functions by the [Authority, the Chairman or the Vice-Chairman) under this Act any dispute arises between the authority, ....
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....ty shall vest in, or realizable by State Government. Section 58 reads as under: "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 date- (a) all properties, funds and dues which are vested in or realisable by, the Authority shall vest in, or be realisable by, the State Government; (b) allnazul lands placed at the disposal of the Authority shall revert to the State Government: (c) all liabilities which are enforceable against the Authority shall be enforceable against the State Government: and (d) for the purpose of carrying out any development which has not been fully carried out by the Authority and for the purposes of realising properties, funds and dues referred to in Clause (a) the func....
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....er the 1973State Act to tackle the problems of town planning and urban development in a planned manner. Thus, on perusal of the entire scheme of 1973 State Act, it could be said that the assessee is engaged in advancement of object of public utility i.e. the town planning and urban development in a planned manner, which is the predominant object of the assessee, while sale of properties etc. are incidental objective.. Section 2(15) of the 1961 Act stipulates that charitable purposes, inert-alia, includes advancement of any other object of public utility. However, the advancement of any other object of public utility shall not be charitable, if it involves carrying on 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 use or application, or retention, of the nature from such activity, unless such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility and aggregate receipts from such activity do not exceed Rs. 10 lacs. It will be relevant to refer to the jud....
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....unreasonable to doubt that his object was to benefit the people of Upper India by providing them with an English newspaper-the dissemination of news and the ventilation of opinion upon all matters of public interest. While not perhaps impossible, it is difficult for a newspaper to avoid having or acquiring a particular political complexion unless indeed it avoids all reference to the activities of governments or legislatures or treats of them in an eclectic or inconsistent manner. The circumstances of Upper India in the last decade of the nineteenth century would doubtless make any paper published for Indian readers sympathetic to various movements for social and political reform. But their Lordships having before them material which shows the character of the newspaper as it was in fact conducted in the testator's lifetime, have arrived at the conclusion that questions of politics and legislation were discussed only as many other matters were in this paper discussed and that it is not made out that a political purpose was the dominant purpose of the trust." In All India Spinners' Association v. Commissioner of Income-tax [1944] 12 ITR 482, 488 (PC), the assessee was form....
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.... in the most material particulars ; the words of the section being " for the advancement of any other object of general public utility" and not as Lord Macnaghten said "other purposes beneficial to the community". The Judicial Committee observed that the primary object of the association was relief of the poor and apart from that ground there was good ground for holding that the purposes of the association included advancement of other purposes of general public utility. The Judicial Committee then held : "These words, their Lordships think, would exclude the object of private gain, such as an undertaking for commercial profit though all the same it would subserve general public utility. But private profit was eliminated in this case. Though the connexion in one sense of the Association with the Congress was relied on as not consistent with 'general public utility' because it might be for the advancement primarily of a particular party, it is sufficiently clear in this case that the Association's purposes were independent of and were not affected by the purposes or propaganda of Congress. The Indian. legislature has evolved a definition of the expression "charitable....
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.... not entitled to the exemption sought. In Bowman v. Secular Society Ltd. [1917] AC 406, 442 Lord Parker observed : "A trust for the attainment of political objects has always been held invalid, not because it is ... illegal but because the court has no means of judging whether a proposed change in the law will or will not be for the public benefit ........" This court, in a recent judgment, LaxmanBalwantBhopatkar by Dr. DhananjayaRamchandraGadgil v. Charity Commissioner, Bombay [1963] 2 SCR 625, considered whether for the purposes of the Bombay Public Trusts Act (29 of 1950) a trust to educate public opinion and to make people conscious of political rights was a trust for a charitable purpose. The court held (Subba Rao J. dissenting) that the object for which the trust was founded was political, and political purpose being not a charitable purpose did not come within the meaning of the expression "for the advancement of any other object of general public utility" in section 9(4) of the Bombay Public Trusts Act, 1950. The definition of "charitable purpose" in section 9 of the Bombay Public Trusts Act closely follows the language used in the definition given under the Income-ta....
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....t of those who conduct the said trade or industry-CIT v. Andhra Chamber of Commerce [1965] 55 ITR 722 (SC). If the primary or predominant object of an institution is charitable, any other object which might not be charitable but which is ancillary or incidental to the dominant purpose, would not prevent the institution from being a valid charity-Addl. CIT v. Surat Art Silk Cloth Mfrs. Association [1980] 121 ITR 1 (SC). 15. The present case in our view is squarely covered by the judgment of this Court in the case of CIT v. Andhra Pradesh State Road Transport Corpn. [1986] 159 ITR 1 in which it has been held that since the Corporation was established for the purpose of providing efficient transport system, having no profit motive, though it earns income in the process, it is not liable to income-tax. 16. Applying the ratio of the said judgment in the case of Andhra Pradesh State Road Transport Corpn. (supra), we find that, in the present case, Gujarat Maritime Board is established for the predominant purpose of development of minor ports within the State of Gujarat, the management and control of the Board is essentially with the State Government and there is no profit motive, as ....
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.... is said to be non-charitable is a main or primary object of the trust or institution or it is ancillary or incidental to the dominant or primary object which is charitable. It was on an application of this test that in CIT v. Andhra Chamber of Commerce (supra), the Andhra Chamber of Commerce was held to be a valid charity entitled to exemption from tax. The Court held that the dominant or primary object of the Andhra Chamber of Commerce was to promote and protect trade, commerce and industry and to aid, stimulate and promote the development of trade, commerce and industry and to watch over and protect the general commercial interests of India or any part thereof and this was clearly an object of general public utility and though one of the objects included the taking of steps to urge or oppose legislation affecting trade, commerce or manufacture, which, standing by itself, may be liable to be condemned as non-charitable, it was merely incidental to the dominant or primary object and did not prevent the Andhra Chamber of Commerce from being a valid charity. The Court pointed out that if "the primary purpose be advancement of objects of general public utility, it would remain charit....
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....Indian Chamber of Commerce v. CIT [1975] 101 1TR 796, there can be no doubt that the dominant or primary purpose to promote commerce and trade in art silk yarn, raw silk, cotton yarn, art silk cloth, silk cloth and cotton cloth fall within the category of advancement of an object of general public utility. It is true that according to the decision of the Judicial Committee of the Privy Council in All India Spinners' Association v. CIT [1944] 12 ITR 482, the words "advancement of any other object of general public utility" would exclude objects of private gain, but this requirement was also satisfied in the case of the assessee, because the object of private profit was eliminated by the recognition of the assessee under section 25 of the Companies Act, 1956 and clauses 5 and 10 of its memorandum. It must, therefore, be held that the income and property of the assessee were held under a legal obligation for the purpose of advancement of an object of general public utility within the meaning of section 2, clause (15) . 8. But the question still remains whether this primary purpose of the assessee, namely, to promote commerce and trade in art silk yarn, raw silk, cotton yarn, art....
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....they imply, so far as the purpose of advancement of an object of general public utility is concerned? 9. It would be convenient at this stage to refer briefly to the legislative history of the definition of "charitable purpose" in the Income-tax Law of this country, as that would help us to understand the true meaning and import of the words "not involving the carrying on of any activity for profit". These restrictive words, it may be noted, were not to be found in the definition of "charitable purpose" given in sub-section (3) of section 4 of the Indian Income-tax Act, 1922 and they were added for the first time when the present Act was enacted. What were the reasons which impelled the Legislature to add these words of limitation in the definition of "charitable purpose" is a matter to which we shall presently advert, but before we do so, we may usefully take a look at the definition of "charitable purpose" in section 4, sub-section (3) of the Act of 1922. There, "charitable purpose" was defined as including ''relief of the poor, education, medical relief and the advancement of any other object of general public utility" without the additive words "not involving the carr....
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.... in the summary of Sir Samuel Romilly or in the classification of Lord Macnaughten while the fourth is drawn from the last head in the summary of Samuel Romilly. The definition of "charitable purpose" in Indian law thus goes much further than the definition of charity to be derived from the English cases, because it specifically includes medical relief and embraces all objects of general public utility. In English law it is not enough that a purpose falls within one of the four divisions of charity set out in Lord Macnaughten's classification. It must also be within the spirit and intendment of the preamble to the Statute of Elizabeth if it is to be regarded as charitable. There is no such limitation so far as Indian law is concerned. Even if a purpose is not within the spirit and intendment of the preamble to the Statute of Elizabeth, it would be charitable if it falls within the definition of "charitable purposes" given in the Statute. Every object of general public utility would, therefore, be charitable under the Indian law, subject only to the condition imposed by the restrictive words "not involving the carrying on of any activity for profit" added in the present Act. It ....
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....urpose or is carried on by the trust or institution by way of investment of its money for the purpose of earning profit which, under the terms of its constitution, is applicable solely for feeding the charitable purpose. The consequence would be that even if a business is carried on by a trust or institution for the purpose of accomplishing or carrying out an object of general public utility and the income from such business is applicable only for achieving that object, the purpose of the trust or institution would cease to be charitable and not only income from such business but also income derived from other sources would lose the exemption. This would indeed be a far reaching consequence but we do not think that such a consequence was intended to be brought about by the Legislature when it introduced the words "not involving the carrying on of any activity for profit" in section 2, clause (75). Our reasons for saying so are as follows: 10. It is clear on a plain natural construction of the language used by the Legislature that the ten crucial words "not involving the carrying on of any activity for profit" go with "object of general public utility" and not with "advancement". ....
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....from whatever source derived, would lose the tax exemption. The result would be that no trust or institution established for promotion of an object of general public utility would be able to engage in business for fear that it might lose the tax exemption altogether and a major source of income for promoting objects of general public utility would be dried up. It is difficult to believe that the Legislature could have intended to bring about a result so drastic in the consequence. If the intention of the legislature were to prohibit a trust or institution established for promotion of an object of general public utility from carrying on any activity for profit, it would have provided in the clear cut terms that on such trust or institution shall carry on any activity for profit instead of using involved and obscure language giving rise to linguistic problems and promoting interpretative litigation. The Legislature would have used language leaving on doubt as to what was intended and not left its intention to be gathered by doubtful implication from an amendment made in the definition clause and that too in language far from clear. 12. Moreover, another consequence of the construct....
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....trust or institution for promotion of an object of general public utility, income from such business could not be exempt since the purpose would cease to be charitable. The construction contended for on behalf of Revenue would thus, have the effect of rendering section 11, sub-section (4), totally redundant after the enactment of section 13(1)(bb) . We do not think we can accept such a construction which renders a provision of the Act superfluous and reduces it to silence. If there is one rule of interpretation more well settled than any other, it is that, if the language of a statutory provision is ambiguous and capable of two constructions, that construction must be adopted which will give meaning and effect to the other provisions of the enactment rather than that which will give none. The construction which we are placing of section 2, clause (15), leaves a certain area of operation to section 11, sub-section (4), notwithstanding the enactment of section 13(1)(bb) and we must, therefore, in any event perfer that construction to the one submitted on behalf of the Revenue. 13. We must, however, refer to the decision of this Court in Indian Chamber of Commerce v. CIT [1975] 101 ....
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.... advancement, to 'object' used in section 2(75), we are clear in our minds that by the new definition the benefit of exclusion from total income is taken away wherein accomplishing a charitable purpose the institution engages itself in activities for profit. The Calcutta decisions are right in linking activities for profit with advancement of the object. If you want immunity from taxation, your means of fulfilling charitable purposes must be unsullied by profit-making ventures. The advancement of the object of general public utility must not involve the carrying on of any activity for profit. If it does, you forfeit. The Kerala decisions fall into the fallacy of emphasising that linkage between the objects of public utility and the activity carried on. According to that view, whatever the activity, if it is intertwined with, wrapped in or entangled with the object of charitable purpose even if profit results therefrom, the immunity from taxation is still available. This will result in absurd conclusions. Let us take this very case of a chamber of commerce which strives to promote the general interests of the trading community. If it runs certain special types of services fo....
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....cannot accept the same. 14. We have already examined the language of section 2, clause (15), and pointed out how the plain natural meaning of the words used by the Legislature in that definitional clause does not accord with the contention of the Revenue. We have said enough on the subject and nothing more need be said about it. It is enough to point out that in a subsequent decision in CIT v. Dharmodayam Co. [1977] 109 ITR 527 which came by way of an appeal from the judgment of the Kerala High Court, this Court itself has, in effect and substance, departed from this view and adopted the same construction which has commended itself to us. The question which arose in this case was whether the income from business of conducting kurries carried on by the assessee was exempt from tax. The contention of the Revenue was that since the assessee was an institution established for promoting an object of general public utility and this purpose was sought to be achieved out of the income of the business of conducting kurries, the last concluding words of section 2, clause (75), were attracted and the income of the assessee was disentitled to exemption from tax. This contention was, however,....
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....ords require is not that the trust or institution whose purpose is advancement of an object of general public utility should not carry on any activity for profit at all but that the purpose of the trust or institution should not involve the carrying on of any activity for profit. So long as the purpose does not involve the carrying on of any activity for profit, the requirement of the definition would be met and it is immaterial how the moneys for achieving or implementing such purpose are found, whether by carrying on an activity for profit or not. We may point out that even in Sole Trustee, LokaShikshana Trust v. CIT [1975] 101 ITR 234 (SC), a decision which, as we shall presently point out, does not command itself to us on another point, the same interpretation has been accepted by this Court. 15. We must then proceed to consider what is the meaning of the requirement that where the purpose of a trust or institution is advancement of an object of general public utility, such purpose must not involve the carrying on of any activity for profit. The question that is necessary to be asked for this purpose is as to when can the purpose of a trust or institution be said to involve t....
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.... the carrying on of an activity for profit or, in other words, whether an activity for profit is actually carried on as an integral part of the purpose or to use the words of Chandrachud, J., as he then was in' Dharmodayam case, "as a matter of advancement of the purpose". There must be an activity for profit and it must be involved in carrying out the purpose of the trust or institution or, to put it differently, it must be carried on in order to advance the purpose or in the course of carrying out the purpose of the trust or institution. It is then that the inhibition of the exclusionary clause would be attracted. This appears to us to be a more plausible construction which gives meaning and effect to the last concluding words added by the Legislature and we prefer to accept it. Of course, there is one qualification which must be mentioned here and it is that if the constitution of a trust or institution expressly provides that the purpose shall be carried out by engaging in an activity which has a predominant profit motive, as, for example, where the purpose is specifically stated to be promotion of sports by holding cricket matches on commercial lines with a view to making ....
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....table in nature" and it must not be a cover for carrying on an activity which has profit making as its predominant object. This interpretation of the exclusionary clause in section 2, clause (15), derives considerable support from the speech made by the Finance Minister while introducing that provision. The Finance Minister explained the reason for introducing this exclusionary clause in the following words: "The definition of 'charitable purpose' in that clause is at present so widely worded that it can be taken advantage of even by commercial concerns which, while ostensibly serving a public purpose, get fully paid for the benefits provided by them namely, the newspaper industry which while running its concern on commercial lines can claim that by circulating newspapers it was improving the general knowledge of the public. In order to prevent the misuse of this definition in such cases, the Select Committee felt that the words 'not involving the carrying on of any activity for profit' should be added to the definition." It is obvious that the exclusionary clause was added with a view to over-coming the decision of the Privy Council in the Tribune case where it....
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.... learned Judge also added that 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" (emphasis supplied). We wholly endorse these observations. 18. The application of this test may be illustrated by taking a single example. Suppose, the Gandhi Peace Foundation which has been established for propagation of Gandhian thought and philosophy, which would admittedly be an object of general public utility, undertakes publication of a monthly journal for the purpose of carrying out this charitable object and charges a small price which is more than the cost of the publication and leaves a little profit, would it deprive the Gandhi Peace Foundation of its charitable character? The pricing of the monthly journal would undoubtedly be made in such a manner that it leaves some profit for the Gandhi Peace Foundation, as, indeed, would be done by any prudent and wise management, but that cannot have the effect of polluting the charitable character of the purpose, because the predominant object of the activity of publication of the monthly journal would be to carry out the charitable p....
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...., J. in Indian Chamber of Commerce case (supra) when he said: "...An undertaking for a business organisation is ordinarily assumed for profit unless expressly or by necessary implication or by eloquent surrounding circumstances the making of profit stands loudly negatived ...A pragmatic condition, written or unwritten proved by a proscription of profits or by long years of invariable practice or spelt from some strong surrounding circumstances indicative of anti-profit motivation - such a condition will nullify for charitable purpose..." Now we entirely agree with the learned Judges who decided these two cases that activity involved in carrying out the charitable purpose must not be motivated by a profit objective but it must be undertaken for the purpose of advancement or carrying out of the charitable purpose. But we find it difficult to accept their thesis that whenever an activity is carried on which yields profit, the inference must necessarily be drawn, in the absence of some indication to the contrary, that the activity is for profit and the charitable purpose involves the carrying on of an activity for profit. We do not think the Court would be justified in drawing any ....
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.... assessee was established was a charitable purpose within the meaning of section 2, clause (75), and the income of the assessee was exempt from tax under section 11. The question referred to us in each of these references must, therefore, be answered in favour of the assessee and against the Revenue. 21. The Revenue will pay the costs of the assessee in two sets; one in Reference Case No. 1A of 1973 and the other in Reference Cases Nos. 10-14 of 1975." Much reliance is placed by Revenue on the betterment charges being levied by the Authority . Firstly, these charges are levied under the authority of Section 35 of the 1973 State Act . Secondly, these betterment charges are levied where in the opinion of the Authority, as in consequence of any development scheme having been executed by the Authority in any development area the value of any property in that area which has been benefited by the development, has increased or will increase, the Authority shall be entitled to levy upon the owner of the property or any person having an interest therein a betterment charge in respect of the increase in value of the property resulting from the execution of the development. Thus, it could be....
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....n process and is considered to be the most efficient and transparent process for allocation of natural resources. The process of allocation of natural resources through public auction, leads to an efficient and transparent method for price discovery of the natural resources being allocated by State, so that there are no allegation of bias and malafide, and chances of manipulation and distribution of resources at throw away prices is avoided . Reference is drawn to decision of Hon'ble Supreme Court in 2G Telecom case and subsequent Presidential Reference - Special Reference No. 1 of 2012 under Article 143(1) of the Constitution of India (2012) 9 SCR 311. Thus, merely because the assessee had adopted a method of selling properties through public auction, it cannot be said that the assessee is profiteering and is a commercial enterprise, dehors the vast and onerous responsibilities cast upon the assessee under the 1973 State Act to have planned development of the development area falling under its jurisdiction. Thus, this contention of the Revenue is rejected. Revenue has also raised the contention that Section 58 of the 1973 State Act provides that where the State Government is sati....
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....these authorities, is again without merit. State Government on whom the funds, properties and assets will vest itself is a non taxable entity. It is pertinent to mention that India is a Welfare State working with the object of welfare of people, and all the States as well Union Territories comprising within Union of India are working for the welfare of the people. In case on dissolution of the authority, funds, dues, assets and properties if vest in the State Government(a non-taxable entity), who is expected to use these funds for the welfare of the people of the State, and in any case even if it is accepted that the State Government deploys those funds, assets and resources for business purposes, then the income which arises from business of the State Enterprise will obviously get taxed within the provisions of the 1961 Act, but to say that the assessee being engaged in advancement of object of public utility, is not a charitable entity within definition of Section 2(15) is too far fetched, and this contention of Revenue is rejected. Revenue has also raised contention that the perusal of the audited accounts of the assessee will reveal that it is engaged in business. We have care....
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....assessee is rendering various services for which necessary charges are recovered by assessee, which are in discharge of onerous and vast responsibilities entrusted to the assessee under the 1973 State Act, more particularly sub-division of property, plan charges, receipt against map sanction and regularization, compounding charges, strengthening charges, development charges sewerage charges, water charges, Malwa fees, land use conversion, F.A.R Fees, map charges etc. . The assessee has also earned income from allotted properties, which obviously is part of its activities to sell properties under various schemes,tocarry out planned development of the development area under its jurisdiction. Much is said by Revenue as to earning of interest income by the assessee which as per Revenue shows that the assessee is earning income on commercial lines and thus now entitled for exemption u/s 11, as is reflected in its audited accounts for the year under consideration (placed in paper book filed by the assessee, which is now placed on record in file) . We have observed that the assessee has placed surplus funds with banks by way of saving bank account as well FDR's (pb/page 56), on which inte....
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....% 17835952.72 4. PrabhavShulk 90% 8628741.90 5. 2% Stamp Shulk 90% 135854104.50 6. Income from Land Use Conversion Charges 90% 3060000.00 7. FAR fee 90% 16977142.80 8. Free Hold Charges 90% 85620.60 Total 242054805.78 The Infrastructure Development Fund, which the assessee is claiming was utilized for development of infrastructure, as is recorded in audited financial statements, is as under: Balance as on 01.04.2010 Rs. 289638349.82 Add: Transfer During the year Rs. 242054805.78 Rs. 531693155.60 Less: Expenditure on Infrastructure Development Rs.116648106.86 Balance as on 31.03.2011 Rs. 415045048.74 The Revenue has not brought any incriminating material to prove that these expenses were not incurred by the assessee for Infrastructure Development of the development area within its jurisdiction. These expenses incurred by the assessee on Infrastructure development under the head 'The Infrastructure Development Fund', also reflects that the assessee is incurring expenditure on infrastructure development in the development area, to meet vast and onerous responsibilities cast on it under the provisions of ....
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....ise, again this contention lacks merit, as once a specialized Statutory authority is constituted by State Government under the provisions of the 1973 Act, it will always be open for State Government department's to entrust civil construction work to this specialized body who is equipped with all specialized personnel, material, equipment's, know how etc. to carry out these civil construction works for government department, but that does not mean that the assessee whose predominant object being to tackle problems of town planning and urban development in a planned manner, will lose its charitable character of advancing object of general public utilities. We have already seen that State Government has deep and pervasive control over the assessee, and the assessee's accounts are audited by Government Auditors, and the assessee can only utilize its funds, assets and resources, including any surplus generated therein, in discharge of its functions and responsibilities under the 1973 State Act, and for no other purposes. Further, now as per Section 2(15) of the 1961 Act, it is to be seen that the authority is not engaged in the business, trade or commerce . It is pertinent to mention t....
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....GOs. The Learned Assessing Officer has taken a narrow and myopic view, by holding that the assessee Authority is carrying on business, which needs to be corrected. 9.7 While dealing with cases such as of L.D.A., a Government body, a narrow and myopic view should not be adopted. While interpreting the terms trade, commerce or business, in the Commentary on Income Tax Law by Chaturvedi&Pithisaria, "business" has been defined / explained as under (Page 1321; Vol I; Fifth edition): (1) Business "The word "business" is one of large and indefinite import and connotes something which occupies the time, attention and labour of a person normally with the object of making profit [JesselM.R. In smith V. Anderson, (1880) 15 Ch D 247, 258; State of Andhra Pradesh v. H. Abdul Bakshi& Bros, (1964) 15 STC 644, 547 (SC); CIT v. MotilalHirabaiSpng.AndWvg. Co. Ltd., (1978) 113 ITR 173 (GUJ); Bharat Development (P.)Ltd. V. CIT, (1982) 133 ITR 471,474/ (Del)]. The word means almost anything which is an occupation or duty requiring attention as distinguished from sport or pleasure and is used in the sense of an occupation continuously carried on for the purpose of profit [Rogers Pyatt Shella....
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....haturvedi&Pithisaria, "trade" and "commerce" have been defined as under (Page 1323; Vol 1; Fifth Edition): "Trade or Commerce- The definition of 'trade' does not find its place in the Act. The dictionary meaning of 'trade' as per dictionary of Webster's New Twentieth Century Dictionary, (Second edition), means amongst others, 'A means of earning one's living, occupation or work'. In Black's Law Dictionary also 'trade' means a business which a person has learnt or he carries on for procuring subsistence or profit; occupation or employment, etc. [CIT v. Assam Hard Board Ltd., (1997)224 ITR 31.8, 320 (Gauh)]. "Trade" in its primary meaning is the exchanging of goods for goods or goods for money; in its secondary meaning it is repeated activity in the nature of carried business on with a profit motive, the activity being manual or mercantile as distinguished from the liberal arts or learned professions or agriculture [State of Punjab v. Bajaj Electricals Ltd.,(1968) 70 ITR 730, 732 (Sc)]. If a person buys goods with a view to selling them at profit, it is an ordinary case of 'trade'. If the transactions are on a large scale, it is calle....
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.... (3) NarasinghaKar& CO. v, CIT (1978) 113 ITR 712(Ori) 9.11 From the aforesaid, it is clear that the appellant "Authority" is not engaged in carrying on any activity in the nature of trade, commerce or business or any activity in rendering any service in relation to any trade, commerce or business in as much as profit motive is one of the essential conditions of business, trade or commerce as stated above, whereas the L.D.A. has no profit motive. It has been running schemes for various sections of the society in pursuance of the Constitution of India under which every State Government is responsible for Town Planning and for the welfare of the public. Alongwith with affordable houses public utilities are developed as per the plan of the State Government. In recent times houses are being provided to economically weaker section of the society under various schemes of PradhanMantriAwasYojna." We are in complete agreement with the above view of Lucknow-tribunal in the case of LDA. The assessee, like, LDA was also constituted under the provisions of 1973 State Act, and its activities are paramateria with the activities of LDA.Thus, it could be said based on detailed analysis of the ....