Case Law Details
Maharashtra Housing & Area Development Authority (MHADA) Vs DCIT (ITAT Mumbai)
Merely because MHADA builds tenements and sells them does not lead to any inference that MHADA’s activities are in the nature of trade, commerce or business. We have already discussed in detail that assessee’s activity is no way can be held for the profit motive or for carrying out systematic business, albeit all its policy as well as conduct is to provide shelter to the needy and poor people in line with the mandate of Constitution of India.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
The present appeal has been preferred by the assessee against the order dated 31.01.2019 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2015-16.
2. The issue raised in ground No.1 & 2 is against the order of Ld. CIT(A) upholding the order of AO whereby the AO has denied exemption under section 11 of the Act on the ground that proviso to section 2(15) of the Act applies to the assessee.
3. At the outset the Ld. Counsel of the assessee submitted that the issue is squarely covered by the decision of the coordinate Bench of the Tribunal in assessee’s own case in ITA No. 894/M/2018 A.Y. 2012-13 and in ITA No. 895/M/2018 A.Y. 2014-15 vide order dated 23.11.2020 wherein the issue has been decided in favour of the assessee. The Ld. A.R. therefore prayed that since there is no change in facts and circumstances in the current year, therefore the issue may kindly be allowed by following the order of co-ordinate Bench of the Tribunal as stated above.
4. The Ld. D.R., on the other hand, relied on the orders of authorities below and grounds of appeal though candidly agreeing that the issue is decided by the tribunal in favour of the assesse in A.Y. 2012-13 & 2014-15.
5. After hearing both the parties and perusing the material on record including the consolidated order of the co-ordinate Bench of the Tribunal in ITA No. 894/M/2018 A.Y. 2012-13 and ITA No. 895/M/2018 A.Y. 2014-15 dated 23.11.2020, we find that the issue of exemption under section 11 of the Act has been decided by the co-ordinate Bench of the Tribunal in favour of the assesse by directing the AO to allow the exemption u/s 11 to the assesse. The operative part is extracted below:
“9. The ground No.2 and 3 of the appeal are taken up together as both these grounds are interconnected. The assessee has been claiming the benefit of registration under section 12A of the Act. The Assessing Officer denied the exemption available to the assessee under section 11 of the Act on the ground that the activities of the assessee fall within the meaning of ‘advancement of any other object of general public utility’ as specified in proviso to section 2(15) of the Act. We find that for the identical reason benefit under section 11 of the Act was denied to the assessee in assessment year 2010-11. The assessee carried the matter in appeal before the Tribunal in ITA No.6678/Mum/2013. The Tribunal vide order dated 04/06/2019 examined the issue of assessee’s eligibility to claim the benefit of exemption under section 11 threadbare. In a detailed order, after considering various judicial pronoucements and different facets of the arguments raised by rival sides, the Tribunal concluded that the activities carried out by the assessee fall within the ambit of ‘charitable purpose’ under section 2(15) of the Act and the proviso to said section does not get attracted. For the sake of brevity the entire detailed findings of the Tribunal are not reproduced, however, the relevant findings and operative part of the order is quoted herein below:-
“36. From the aforesaid discussion and the rebuttal made by Ld. Sr. Counsel, we do not find that the reasons cited by the Ld. Special Counsel in any way, diminishes the assessee’s claim or its entitlement to claim benefit u/s. 11; or persuade us to come to a conclusion that the assessee’s activities are done purely for a profit motive. Whether an activity construes business or is in the nature of business is largely dependent upon the factor, whether such activity is actuated by profit motive or not. Merely because MHADA builds tenements and sells them does not lead to any inference that MHADA’s activities are in the nature of trade, commerce or business. We have already discussed in detail that assessee’s activity is no way can be held for the profit motive or for carrying out systematic business, albeit all its policy as well as conduct is to provide shelter to the needy and poor people in line with the mandate of Constitution of India.
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44. The aforesaid decision clearly clinches the entire issue not only to the nature and scope of definition of ‘charitable purposes’ in section 2(15) but also the scope of restriction provided in proviso to section 2(15). If the principle laid down by Hon’ble High Court is applied here in this case, then ostensibly under the facts and circumstances of the case the assessee as discussed above, would not only be held as an institution carrying out ‘charitable purposes’ but its activities clearly are beyond the scope of restrictive provisions of the proviso. The most crucial test and the findings which needs to be seen specifically if the proviso to section 2(15) is to be applied in the cases like assessee is to see, whether their activities can be reckoned as in the nature of trade, commerce and business. Some of the tests of applicability of proviso in cases like that of assessee which are statutory bodies providing housing needs to the needy and poor people can be short listed in the following manner:
i) Is the Institution supported/promoted by the state?
ii) Is it constituted under an Act of the Legislature?
iii) Has the Institution been incorporated for implementing the directive principles enunciated in the Constitution of India?
iv) Are the activities of the institution closely regulated and controlled by the state?
v) Has the institution been conferred with powers which a businessman would never enjoy, say, eviction of a tenants or closure of roads etc.?
vi) Is the institution required to carry out activities like repairs to building, demolition of dangerous structures etc. which would not be the duties of a businessman carrying on building activities?
vii) Does the institution look after the elementary needs of a citizen by providing basic housing?
viii) Does the state subsidize the activities of the Institution?
ix) Is the Institution managed by Government servants or private businessmen?
x) Is there a restriction placed on who can purchase the properties? That is, income criteria has to be met, the applicant or his family member should not already be in possession of a housing unit?
xi) Are the prices at which the Institution is to sell its properties closely regulated and monitored?
xii) Does the Institution sell properties at below the market price? If it sells the property at below the market price, is it substantially below the market price?
xiii) In implementation of its objects and purpose does the Institution sell its properties at a low price and consciously and deliberately forgoes the profit which it could easily have made.
xiv) Does the Institution stick to its resolve to sell properties at predetermined rates even though the demand supply position for housing is such that it could have sold the properties at a much higher rate?
xv) Does it sell properties by inviting bids and allotting the property on the basis of a draw of lots rather than allotting the properties by holding an auction which would ensure the receipt of the highest price?
xvi) Does the Institution sell its properties primarily to the economically less fortunate at a concessional price rather than the maximum price available from any free purchaser who would offer a higher price?
xvii) Is the making of profit deliberately shunned?
xviii) Does the institution continues to operate and run its activities as per its framed policy and rules and sells its properties in the manner and at the rates as per its regulations even though the demand for the properties of the institution far exceeds their supply? If the aforesaid tests are applied on the facts of the present case which have been discussed in detail hereinabove, the only inference /conclusion which can be drawn is that the assessee passes through all the tests and it is not existing or carrying out its activity under the restrictive conditions as envisaged in proviso to section 2(15), i.e., carrying out its activities in the nature of trade, commerce or business with profit motive.
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“48.In view of our aforesaid finding, we do not deem it fit to enter into the semantics of other arguments as raised by the Ld. Sr. Counsel like assessee being a unique organization, therefore, it is to be treated as existing for charitable purpose; or on the issue that it is existing for giving relief to the poor. Our finding is mostly confined to Proviso to section 2(15), that is, the assessee is not covered by the restriction as envisaged therein and its activities fall within ‘ advancement of objects of general public utility’ , hence existing for “ charitable purpose” .
Further, the issues raised in ground No.3 will become purely academic in view of our finding given above that the assessee is entitled for benefit u/s.11 and accordingly, its income and expenditure have to be computed in terms of section 11 to section 13.”
10. The ld. Departmental Representative has raised objection that the facts in the impugned assessment year whether are similar to preceding assessment years is not clearly emanating from impugned order. We do not find force in the contention of the ld. Departmental Representative. The CIT(A) in para-7.9 of the impugned order has observed that the facts are similar. The CIT(A) has not given its independent finding for adjudicating the issue and has only applied the reasoning given by the CIT(A) in assessment year 2010-11 to disallow benefit of section 11 of the Act in the impugned assessment year.”
6. Since the facts of the present case are same as involved in A.Y. 2012-13 & 2014-15 as discussed above, we, therefore, respectfully following the decision of the co-ordinate Bench of the Tribunal set aside the order of Ld. CIT(A) and direct the AO to allow the exemption under section 11 of the Act to the assessee.
7. In respect of the issues raised in ground Nos. 3 to 5, the Ld. A.R. submitted before us that the Ld. CIT(A) has not decided these issues and therefore the same may kindly be restored to the file of the Ld. CIT(A) with the direction to decide the same after affording a reasonable hearing to the assessee.
8. On the other hand, the Ld. D.R. fairly agreed that issues have not been decided by the ld CIT(A) and leave the matter to the wisdom of the bench so far as restoring of these issues to the file of the Ld. CIT(A) is concerned. Accordingly, ground Nos. 3 to 5 are restored to the file of the Ld. CIT(A) to decide after affording a reasonable opportunity of hearing to the assessee. The ground nos. 3 to 5 are allowed for statistical purpose.
9. In the result, the appeal of the assessee is partly allowed for statistical purposes.
Order pronounced in the open court on 13.10.2021.
