IN THE ITAT AMRITSAR BENCH
Commissioner of Income-tax
IT Appeal No. 366 (Asr.) of 2012
December 18, 2012
1. The assessee-trust filed the present appeal against the order of the Commissioner of Income Tax (In short, ‘CIT’) Bathinda, dated 20.07.2012 passed under section 12AA(3) of the Income Tax Act, 1961 ( In short, ‘the Act).
2. The Ld. CIT Bathinda on 30.06.2012 issued a show cause notice to the assessee-trust as to why the registration granted u/s 12AA of the Act on 16.08.2010 may not be cancelled under section 12AA(3) of the Act. In response to this notice, the assessee submitted the audited accounts statements and audit reports for the assessment years 2008-09 to 2010-2011. The Ld. CIT Bathinda perused the audit reports as well as the activities reveals that the assessee is earning huge profits by carrying our various activities which included, the purchase of land at nominal cost, then level and clear it, cut into plots and sell the plots at much higher prices and earning huge profits. The Ld. CIT(A) also noticed that the assessee is charging fees and fines from the sale of forms, land enhancement fee, building plan fees, road cutting fees, transfer fee, fine and penalties and non construction charges. Keeping in view the amend definition of section 2(15) of the Act w.e.f. 01.04.2009, the Ld. CIT, Bathinda has issued a show cause notice to the assessee. The Ld. counsel for the assessee has submitted before the Ld. CIT that the assessee-trust applied for registration u/s 12AA of the Act on 15.05.2005 and all the relevant documents were submitted before the ld. CIT(A) as well as DCIT, Circle-1, Bathinda during the process of granting the registration and discussed all the issues at length. But predecessor rejected the registration application and the assessee Improvement Trust, Bathinda went in appeal before the I.T.A.T. Amritsar Bench, who also rejected the appeal and later on assessee filed M.A. u/s 254(2) of the Act, which was accepted by the Tribunal and set aside the matter to CIT to decide the matter with some directions vide M.A.No.67(Asr)/2009 dated 04.03.2010 and so keeping in view the directions of the ITAT, the predecessor allowed registration u/s 12AA w.e.f. 12.06.2003 vide order dated 13.08.2010. The assessee has also filed the some case laws before the ld. CIT, Bathinda which he has mentioned in the written submission filed by the assessee in para 5 page 2 to 9 and lastly the ld. CIT considered the submissions of the assessee-trust and held that the assessee is selling commercial properties in the open auctions and the residential properties are partly sold by auction and partly through draw of lots. The activities are accomplished by the trust at a nominal cost which results in tremendous value addition in the land. It brings the land in the same category as the other real estate products available in the market, offered by the private colonizers and real estate agents. The assessee advertised its product widely in print and electronic media so as to attract a large number of customers from all the strata of the general public including financially affluent. Thus, the assessee trust sold all these plots, residential as well as commercial by organizing a public auction through bidding process, as a result of which, the price of land escalates and finally, the land is sold off to the highest bidder, thus generating huge profits. The Ld. CIT, has also held in the impugned order that the sale of plots by the assessee-trust are also partly made through trade of plots but here again the sale price of the land is fixed by the assessee-trust arbitrarily which is the much above the cost price and the only motive behind such activity is to maximize the profits. It clearly shows that the assessee-trust is not merely a mediator to the buying and selling of land to the general public. Rather it operates in a very business oriented way on the well known principles of the profit generation, like any other real estate developer.
3. The Ld. CIT, Bathinda further held that the assessee-trust is charging fees and fines on account of sale of forms, building plan fees, transfer fee, fines and penalties, land enhancement fees, road cutting fees, non construction charges, interest income and Misc. income, which shows the activity of the trust is in nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business for a fee and levy of fines and penalties too implies that there is an element of forcible acceptance of money and conditionality to avail of any benefit. Such are not the ways of being charitable. The clear cut activities of the assessee trust hardly veil the fact that the assessee trust is only in the mushrooming business of real estate development and sale, which is contrary to the definition of charitable purpose as given in section 2(15) of the Act, amended w.e.f.01.04.2009. As regards to the contention of the assessee that some other Institutions have been granted registration u/s 12A in this regard, the ld. CIT has observed that such registration has been granted before insertion of provisions of section 2(15) of the Act w.e.f. 01.04.2009. The change in the definition of charitable purpose has came into effect from 01.04.2009 and hence the assessee-trust cannot draw any benefit that registration u/s 12AA has been granted to the Institution having similar objects/activities, prior to the change of definition to the Charitable purpose u/s 2(15) of the Act.
4. The Ld. CIT, Bathinda respectfully followed the decisions of Hon’ble Supreme Court in the case of Indian Chamber of Commerce v. CIT  101 ITR 796 as well ITAT, Amritsar Bench and ITAT Chandigarh Bench and finally held that he is not satisfied with the activities of the assessee-trust, which are not charitable in nature within the meaning of proviso to section 2(15) of the Act and the assessee trust does not qualify to be treated as charitable institution and cancelled the registration already granted u/s 12AA to the assessee w.e.f.12.06.2003 by passing the impugned order dated 20.07.2003 u/s 12AA(3) of the Act.
5. The Ld. counsel for the assessee, Sh. K.R. Jain, Advocate stated that the order of the Ld. CIT, Bathinda canceling the registration which has already been granted by him is contrary to the law and facts on record and deserves to be cancelled on the ground that the assessee-trust is doing charitable purpose for general public utility. He further stated that the amended definition of section 2(15) of the Act was before the ITAT, Amritsar Bench, Amritsar, in ITA No.413(Asr)/2009 and the ITAT, Amritsar Bench has set aside the issue in dispute to the ld. CIT, Bathinda for granting registration to the assessee-trust which has wrongly been cancelled by the ld. CIT u/s 12AA(3) of the Act, merely because of change of opinion by the ld. CIT, Bathinda. He stated that the assessee is not involving in carrying out any activity in the nature of trade, commerce and business. The assessee acquired land from time to time under acquisition Act, 1984 and the payment is made to the land-owner and also further enhanced compensation is paid on the order of jurisdictional Civil Courts, Bathinda. This land is acquired for residential plots and other amenities for all section of societies as per guidelines received from the Government. From the acquired land about 40% of land goes to roads, parks, community hall etc and for the remaining area provision for shops/plots are kept. These activities are with the object of general public are mentioned in para 5 of CIT order canceling registration already granted to the assessee-trust. He finally argued that the ld. CIT(A) is not justified in comparing the assessee with other Private Colonisers and real estate agents. In fact, the assessee trust is incurring loss almost in all the years indicates that the activities undertaken by the trust are not trade, commerce and business rather public activities. He finally stated that the ld. CIT has referred to the decision of ITAT, Chandigarh Bench in the case of Punjab Urban Planning & Development Authority (PUDA) v. CIT  156 Taxman 37 (CHD) (Mag.) the facts of this case are entirely different and not applicable to the case of the assessee-trust and without prejudice to the arguments advanced by him, he submitted that power to cancel registration u/s 12AA(3) is prospective. Registration granted earlier to the assessee-trust can not be cancelled by the CIT retrospectively. The order of the CIT does not mentions whether registration is being cancelled from the date of order passed or some earlier dated. In support of his contention, he relied upon the various decisions mentioned a under:
(i) Welham Boy’s School Society v. CBDT  285 ITR 74
(ii) Chaturvedi Har Prasad Educational Society v. CIT  45 SOT 108 (Luck.)
(iii) Kailashanand Mission Trust v. Asstt. CIT  88 ITD 125 (Delhi)
(iv) Punjab Urban Planning & Development Authority case (supra).
5.1 Lastly he requested that the impugned order passed by the Ld. CIT, Bathinda may be cancelled.
6. On the contrary, the Ld. DR, Sh. Tarsem Lal, controverted the arguments advanced by the ld. counsel for the assessee and stated that in view of the amended definition of section 2(15) of the Act, w.e.f. 01.-04.2009, the Ld. CIT, Bathinda has issued a notice to the assessee regarding cancellation of granting registration u/s 12AA for which the ld. CIT has the power provided u/s 12AA(3) of the Act. He also argued that the facts and circumstances of the present case are squarely covered against the assessee by the decision of the ITAT, Chandigarh Bench, in the case of Punjab Urban Planning & Development Authority (supra) and the ld. CIT has rightly cancelled the registration granted u/s 12AA(3) of the Act. Finally, the ld. DR stated that keeping in view the change of definition of charitable purpose, which came into existence w.e.f. 01.04.2009, the assessee-trust cannot draw any benefit from the fact that registration u/s 12A granted to the institution cannot be cancelled, reply to his answer is amended definition of charitable purpose u/s 2(15) of the Act. The Ld. DR stated that the case laws relied upon by the ld. counsel for the assessee are totally distinguishable on the facts, as the facts are not identical to the facts of the assessee’s case. The activity of the assessee trust is not charitable and is only earning profit by doing trade, commerce and business for which the assessee has been involved for carrying on the activities in the nature of trade, commerce or business or any other activities of rendering any service in nature of trades, commerce or business, which is contrary to the provisions of section 2(15) of the Act and the Ld. CIT has rightly cancelled the registration of the assessee-trust and requested that the impugned order passed by the Ld. CIT may be upheld by dismissing the appeal filed by the assessee.
7. We have heard the rival contentions and perused the material available with us as well as decisions cited by Ld. counsel for the assessee along with other documentary evidences filed by him. As per impugned order and submissions of the assessee, the main activities of the assessee trust at that to purchase land, to enhance and develop the land by cutting it into plots etc., to advertise for sale of plots in the developed land and to sell off the land through auction, meaning thereby that the assessee trust was buying undeveloped land at a low price and developed it and provides the some basic facilities i.e. levelling and clearing the land, cutting it into plots, providing access roads, electricity, providing water and sewerage facilities etc. The assessee-trust enhanced cost of land from cost of purchase by it. The assessee-trust is also charging fees and fines from selling of Forms, land enhancement fees, building plan fees, road cutting fees, transfer fees, fine and penalties and non-construction charges and thus earning huge profits, which is contrary to the provisions of section 2(15) of the Act, amended w.e.f. 01.04.2009. For the sake of convenience provision of section 2(15) of the Act is produced as under:
“2(15) “charitable purpose” includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility: Provided that the advancement of any other object of general public utility shall not be a charitable purpose, 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.”
7.1 Keeping in view the aforesaid provisions, the charitable purpose include relief to the poor, education, medical relief and advancement of any other object of general public utility. In the present case, we found that the assessee-trust is carrying on various activities in the nature of trade, commerce or business and rendering its services for the purpose of trade, commerce and business because as stated above, the assessee-trust is charging huge fees on account of various facts, as mentioned above. No doubt, the assessee has given some explanation for charging fees for the afore-mentioned activities by stating that the assessee-trust is charging fees as per rules framed by the Punjab Local Bodies Govt. which is clearly the admission by the assessee-trust that the assessee-trust is doing activities not for charitable purpose but for business purpose only. No doubt, these penalties charged by the assessee-trust are in the nature of compensatory but that is not permissible for the charitable institution. Some of the activities undertaken by the assessee trust, the ld. CIT(A) has reproduced at pages 7 to 9 of his order, which are reproduced as under:
(a) To develop sewerage in the city costing about Rs.58.36 crores vide Resolution No.49 dated 05.09.2008 (without charges or recovery).
(b) The trust has reserved 18.27 Acres Land for Bus Stand for General Public vide Resolution No.18, dated 03.10.2007 free of cost).
(c) Land measuring 1.30 Acres for CIA staff (Police Department) vide Resolution No.71 dated 12.12.2008 (free of cost).
(d) Community Hall, measuring 2000 sq.yds to be erected & built in Rajiv Gandhi Nagar, Gurukul Road, Bathinda, vide Resolution No.75 dated 30.09.2005 (free of cost).
(e) The trust is to provide Service lane 16 wide with parking and footparth. The amount to be spent is Rs. One crore vide Resolution No.48 dated 26.08.2008 (free of cost).
(f) The trust has given as charity of town cleaning machine, (Vaccum Machine) to the Municipal Corporation, Bathinda for Rs.64.86 lakhs vide Resolution No.56 (app. Rs.Ten lacs) vide letter No.1146 dated 24.09.2007 (free of cost).
(g) To provide land as well as construction of building for 14 plots measuring 1512 s. yds valuing Rs.45.2 lacs and construction cost Rs.64.86 lakhs vide Resolution No.56 dated 31.08.2006 and were handed over to the poor (free of cost).
(h) To construct ‘Road Divider’ and development & Renovation of Goniana Bathinda- Mansa – G.T.Road, costing Rs.10.64 crore vide Resolution No.41 dated 31.12.2007 (free of cost).
(i) Donation of Rs. 5 lacs to : Deaf & Dumb School for the welfare of such handicap students, vide Resolution No.81 dated 31.10.2005.
(j) Land for Vridh Ashram (Rest house for Senior citizens) measuring 2038 sq. yds in Transport Nagar (Free of cost).
(k) Land measuring 2055 sq.yds for children & ladies welfare association in Transport Nagar vide Resolution No.107 dated 30.12.2005 (free of cost).
(l) Land for ‘Public Health Care Centre’ measuring 1825 sq. yds in Kamla Nehru vide Resolution No.23, dated 03.06.2009.
(m) construction of Rs.25 lakh for construction of divider & road from ‘Bridge to N.F.L. chowk’ payment was made in 21.11.2001 by cheque to PWD (B&R) for public use.
(o) Grant of Rs.1.25 lakhs to “Deaf and Dumb School” Bathinda vide Resolution No.11 dated 14.04.2007 for the welfare of such handicap students.
(p) Land reserved for ‘Yatri Niwas’ in Bathinda near to New Bus Stand in 49.5 Acre (free of cost).
(q) Land provided for ‘Approach Road’ nearly 60 wide 382.4 sq. mtr. Construction cost is nearly Rs.23.67 lacs approved vide Resolution No.21 dated 11.10.2007 (free of cost).”
7.2 After perusing the aforesaid activities, we are of the view that the ld. first appellate authority has rightly held that the land of the assessee trust is in the same category of other real estate products available in the market offered by the private colonizers and real estate agents. Because the assessee advertised this value added product widely in print as well as electronic media so as to attract a large number of customers/clients from all the general public including the financially sound persons from the public.
7.3 It is a matter of record that the assessee-trust sells off all these plots by organizing a public auction, where through the bidding process and the competition generated in it, the prices of their land keep escalating and finally, the land is sold off to the highest bidder. The surplus income which is generated through the sale of land is again used for buying more land, developing it and selling it the same way, thereby generating more profit. On the facts and circumstances explained above, we are of the view that the assessee trust is not merely a mediator in buying and selling of land to the general public. Rather it operates in a business oriented way on the well known principles of profit generation. Therefore, the activities of the assessee trust clearly constitute activities in the nature of trade, commerce or business because no plots are reserved for any socio-economically lower society, there is no element of donation or support to any cause, none of the land is earmarked to be sold at no profit, no loss basis to any person whatsoever, which clearly establish that the element of charity is clearly absent from the activities of the trust, which is contrary to the provisions of section 2(15) of the Act amended w.e.f. 01.04.2009 and the Ld. CIT Bathinda has rightly issued show cause notice to the assessee-trust for cancelling the registration already granted to the assessee-trust which the ld. CIT, Bathinda has the power under section 12AA(3) of the Act. For the sake of convenience, provision of section 12AA(3) of the Act (Inserted by Finance (No.2) Act, 2004, w.e.f. 1.10.2004) is reproduced as under:
[Procedure for registration.
12AA. [(3) Where a trust or an institution has been granted registration under clause (b) of sub-section (1) [ or has obtained registration at any time under section 12A(as it stood before its amendment by the Finance (No.2) Act, 1996 (33 of 1996)] or institution are not genuine or not being carried out in accordance with the objects of the trust or institution as the case may be, he shall pass an order in writing cancelling the registration of such trust or institution:
Provided that no order under this sub-section shall be passed unless such trust or institution has been given a reasonable opportunity of being heard.]
7.4 After going through the aforesaid provisions, we are of the considered opinion that the ld. CIT(A) has rightly cancelled the registration granted to the assessee-trust w.e.f. 12.06.2003 in view of the amended provision of section 12AA(3) of the Act. In the present case, the ld. CIT, Bathinda is fully satisfied that the activities of the assessee-trust are not genuine and not being carried out in accordance with the objects of the assessee-trust, as discussed above.
7.5 The Ld. counsel for the assessee has also not established before us that the assessee-trust is carrying out any charitable activities for the relief of poor, education, medical relief or for any other object of general public utility.
7.6 The ld. counsel for the assessee has cited the various judgments in the case of Welham Boy’s School Society (supra), Chaturvedi Har Prasad Educational Society (supra), Kailashanand Mission Trust‘s case (supra) and Punjab Urban Planning & Development Authority case (supra), which are not relevant and applicable to the facts and circumstances of the present case. In these decisions, there is no adjudication of the amended provisions of section 2(15) substituted by the Finance Act, 2008 w.e.f. 01.04.2009 as well as section 12AA(3) of the Act. As per Finance (No.2) Act, 2004 there is an amendment introduced by the said Act w.e.f. 01.10.2004 in section 12AA(3), which for the sake of clarity has already been reproduced hereinabove. But in the present case, the ld. CIT, Bathinda has decided the case on the basis of amended provisions of the Act.
7.7 Moreover, amendment introduced in the statute in section 12AA(3) as referred to hereinabove, the Finance Act, 2010, w.e.f. 01.06.2010 has given the power to the Ld. CIT to cancel the registration if the activities are not genuine or not to be carried out in accordance with the objects of the trust or institution, as the case may be and also in the cases, where the assessee has obtained registration at any time u/s 12A even before the amendment made by the Finance (No.2) Act, 1996.
7.8 After going through the aims and objects of the assessee-trust and the activities carried out alongwith relevant provisions of law as reproduced above, we are of the considered opinion that the assessee-trust has been involved in carrying on various activities which are in the nature of trade, commerce or business. We have not found any activities done by the assessee-trust which the assessee-trust has done for advancement of general public utility.
7.9 Keeping in view the facts and circumstances of the case explained above, we are of the considered view that the ld. CIT, Bathinda has passed a well reasoned order as per law which need no interference and accordingly we uphold the impugned order dated 20.07.2012 by dismissing the present appeal filed by the assessee.
8. In the result, the appeal filed by the assessee is dismissed.