Jhansi Development Authority Commissionery Compus Vs DCIT (ITAT Agra)
As the assessee had derived all its income only on account of charitable activities undertaken by it pursuant to its object and for the welfare the general public, which were not in the nature of trade , commerce or business. The income even if any earned by way of the interest income on the fixed deposit is also required to be exempted under section 11 of the Act,as there is no other source of income of the assessee other than doing the charitable activities .For the purpose of exemption of interest income we may rely upon the full bench decision of Karnatka High Court in the matter of HewlettPackard Global Soft Ltd.*2017] 87 taxmann.com 182 (Karnataka) (FB), which on examining the exempt income under section 10, had allowed the exemption even on interest income , if there is no other source of income except the exempt income
FULL TEXT OF THE ORDER OF ITAT AGRA
These appeals are arising out of the orders passed by the Commissioner appeal for the assessment year 2010-11 to 2013-14 filed by the assessee as well as by the revenue. We are reproducing hereinbelow the grounds raised by the assessee/revenue for the each assessment year, which are as under:
2. The following grounds what raised by the assessee for the assessment year 2010 – 2011:
“1. Because the Ld. Commissioner of Income Tax (Appeals)-I, Agra, hereinafter referred to as ‘CIT(A)’ erred, both in law and on facts, in holding that the Assessing Officer was justified in adopting status of the appellant as AOP/BOI. The findings of Ld. CIT(A) are self contradictory.
2. Because the Ld. CIT(A) erred, both in law and on facts, in dismissing ground nos. 4,5,7,8,9,10 and 11 taken before him and holding that the appellant is engaged in commercial activities by virtue of section 2(15) of the I. T. Act, as amended from 01.04.2009. Ld. CIT(A) failed to appreciate that the appellant is carrying on non commercial activities and enjoying registration u/s 12A. The provisions of section 2(15) cannot, legally, be invoked during the subsistence of registration u/s 12A. Ld. CIT(A) has arbitrarily differentiated the authoritative judicial pronouncement in the case of Hira Lal Bhagwati vs. CIT [(2000) 246 ITR 188 (Guj)] and ACIT VS Surat City Gymkhana (2008) 170 Taxmann 612 (SC). The order of Ld. CIT(A) is erroneous and perverse.
3. Because the Ld. CIT(A) erred, both in law and on facts, in holding the activities of the appellant as commercial in utter disregard to the authoritative pronouncement of Hon’ble Allahabad High Court in the case of Lucknow Development Authority [(2013) 38 taxmann.com 246 (All.)]. Ld. CIT(A) failed to appreciate that the appellant is also a statutory body constituted by the same statute viz. Uttar Pradesh Urban Planning And Development Act 1976 with the sole object of planned development of Jhansi City.
4. Because the Ld. CIT(A) erred, both in law and on facts, in confirming the action of Assessing Officer in completing the assessment under Chapter IV of the Income tax Act and invoking provisions of section 145(3) in the absence of any income under the head “ Profit and Gains of business or Profession” or “ Income from other sources”. The completion of assessment under Chapter IV and invoking provisions of section 145(3) is wholly illegal in the case of the appellant which is enjoying registration u/s 12AA.
5. Because the Ld. CIT(A) erred, both in law and on facts, in sustaining the addition of Rs 1,30,72,364/- out of addition of Rs 20,28,52,965/- made by the Assessing Officer. The Ld. CIT(A) erroneously held that income is recognizable against receipts shown in the ‘project development fund’ a/c which are in respect of allotment money received during the year. The Ld.CIT(A) has erroneously confirmed the addition of entire receipts as income of the appellant. The authorities below have arbitrarily rejected the system of accounting consistently followed by the appellant from the date of its inception. In the absence of any amount reserved by the appellant as profit, holding entire amount of allotment money as income is arbitrary and whimsical. The addition may kindly be directed to be deleted.
6. Because the Ld. CIT(A) erred, both in law and on facts, in sustaining the addition of Rs 3,59,03,019/- being the receipts shown in the ‘infrastructure development fund’ account. Ld. CIT(A) failed to appreciate that the above statutory receipts are in the form of government grants and not against any of the alleged business activities. The same is again utter disregard to judicial pronouncement including authoritative judicial pronouncement of Hon’ble Allahabad High Court in the case of Lucknow Development Authority [(2013) 38 taxmann.com 246 (All.)].
7. Because the Ld. CIT(A) erred, both in law and on facts, in sustaining the addition of Rs 3,58,61,640/- being the excess shown in the ‘income and expenditure’ account. The authorities below have erroneously disallowed the benefit of exemption u/s 11 claimed by the appellant. The authorities below further failed to appreciate that various receipts forming the above excess included interest from bank amounting to Rs 3,51,83,751/- which is not at all the receipt from the alleged commercial activities. The authorities below failed to appreciate various authoritative judicial pronouncements in this regard.
8. Because the Ld. CIT(A) erred, both in law and on facts, in holding the revenue expenditure of Rs 4,84,000/- as capital expenditure. The authorities below failed to appreciate the nature and expectancy of life of the equipments purchased including the expenditure made in cabling of the generator.
9. Because the Ld. CIT(A) erred, both in law and on facts, in sustaining the addition of Rs 1,44,000/-, being the expenses made during the year by holding them of prior period. The authorities below failed to appreciate the accounting system consistently maintained by the appellant in respect of expenses made to the professionals.
10. Because the Ld. CIT(A) erred, both in law and on facts, in sustaining the addition of Rs 29,63,000/- being the surplus appearing in the ‘ManyawarKashiramAwasYojna’. The authorities below failed to appreciate that the appellant, merely, functioned as nodal agency for completion of the work assigned by the State Government and that the unutilized amount was to be refunded to the State government. The addition is contrary to the facts available on record and is wholly illegal.
11. Because the appellant craves leave to alter/ modify grounds before or at the time of hearing of the appeal.”
ITA No. 355/Agra/2014
Following Grounds Were Raised by the revenue for the assessment year 2010 – 2011
“1. The Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.18,97,80,601- out of total addition of Rs.20,28,52,965/- made by the AO on account of sale of shopping complexes, residential houses / commercial spaces etc. without appreciating the facts that the assessee never recognized revenue from the above sale in the past nor ever treated them as business receipts in his books of accounts.
2. The Id. CIT(A) has erred in law and on facts in deleting the addition on account of grant received from Govt. of Rs.1,30,55,310/-and in holding that the entire receipt was capital receipt This amount was given by the state government to the assessee for carrying out civil works which is in the nature of business activity. The assessee spent an amount of Rs.32,33,663/- on this works, therefore, proportionate part of the receipt amount should have been recognized as revenue in the books of accounts of the assessee.
3. The Ld. CIT(A) has erred in law and on facts in deleting the estimated addition of Rs.27,00,839/- on account of security deposit shown as liabilities. Since the assessee has failed to explain the nature and source of such liabilities appearing in his books of account and that such liabilities were still surviving the AO was justified in drawing a conclusion that 50% of outstanding liabilities has seized to survive.
4. The order of Ld. CIT(A) being erroneous in law and on facts deserves to be quashed and that of the A.O. deserves to be restored.
5. The appellant craves leave to add of alter any or more ground or grounds of appeal as may be deemed fit at the time of hearing of appeal.”
ITA No. 49/Agra/2017
The grounds of the assessee’s are as under:-
“1. Because the Ld. Commissioner of Income Tax (Appeals)-II, Agra, hereinafter referred to as ‘CIT(A)’ erred, both in law and on facts, in holding that the Assessing Officer was justified in adopting status of the appellant as AOP/BOI. .
2. Because the Ld. CIT(A) erred, both in law and on facts, in confirming the action of Assessing Officer in completing the assessment under Chapter IV of the Income tax Act and invoking provisions of section 145(3) in the absence of any income under the head “ Profit and Gains of business or Profession” or “ Income from other sources”. The completion of assessment under Chapter IV and invoking provisions of section 145(3) is wholly illegal in the case of the appellant which is enjoying registration u/s 12A.
3. Because the Ld. CIT(A) erred, both in law and on facts, holding that the appellant is engaged in commercial activities by virtue of section 2(15) of the I. T. Act, as amended from 01.04.2009. Ld. CIT(A) failed to appreciate that the appellant is carrying on non commercial activities for which registration u/s 12A had been granted. The authorities below could not legally hold the charitable objects as of commercial nature during the subsistence of registration u/s 12A in view of authoritative judicial pronouncements and as such, the order of Ld. CIT(A) is erroneous and perverse.
4. Because the Ld. CIT(A) erred, both in law and on facts, in holding the activities of the appellant as that of commercial nature and consequentially denying exemption u/s 11 of the I.T. Act. The same is again in utter disregard to the several judicial pronouncements including authoritative pronouncement of Hon’ble Allahabad High Court in the case of Lucknow Development Authority [(2013) 38 taxmann.com 246 (All.)J. Ld. CIT(A) failed to appreciate that the appellant is also a statutory body constituted by the same statute viz. Uttar Pradesh Urban Planning And Development Act 1976 with the sole object of planned development of Jhansi City.
5. Because the Ld. CIT(A) erred, both in law and on facts, in sustaining the addition of Rs 3,26,00,848/- being the excess shown in the ‘income and expenditure’account. The authorities below have erroneously disallowed the benefit of exemption u/s 11 of the I.T. Act claimed by the appellant. The disallowance is again in utter disregard to the authoritative judicial pronouncements. The exemption u/s 11 of the I.T. Act, being in accordance with report in 10B, may kindly be directed to be granted.
6. Because the Ld. CIT(A) erred, both in law and on facts, in sustaining the addition of Rs 6,31,13,830/- being the receipts shown in ‘infrastructure development fund ‘ account. Ld. CIT(A) failed to appreciate that the receipts are in terms of notification issued by Uttar Pradesh Government and has no correlation with the regular activities of the appellant. The same is again in utter disregard to various judicial pronouncement including authoritative judicial pronouncement of Hon ’ble Allahabad High Court in the case of Lucknow Development Authority [(2013) 38 taxmann.com 246 (All.)J.
7. Because the Ld. CIT(A) erred, both in law and on facts, in sustaining the addition of Rs 10,42,10,133/- out of addition of Rs 12,46,85,554/- made by the Assessing Officer against the receipts shown in ‘project development fund’account. The receipts are in respect of installments received against allotment of house / plot by the appellant. In the absence of any margin of profit kept by the appellant at the time of allotment of house / plot, holding entire allotment money as income is arbitrary and whimsical. The addition may kindly be directed to be deleted.
8. Because the Ld. CIT(A) erred, both in law and on facts, in sustaining the addition of Rs 23,65,000/- being the surplus appearing in the ‘ManyawarKashiramAwasYojna’ account. The authorities below failed to appreciate that the appellant merely functioned as nodal agency for completion of the work assigned by the State Government. The surplus appearing is in respect of undergoing work and further the unutilized amount was to be refunded to the State government in terms of Govt. Notification. The addition is contrary to the facts available on record and is wholly illegal.
9. Because the Ld. CIT(A) erred, both in law and on facts, in holding the revenue expenditure of Rs 65,200/- as capital expenditure. The authorities below failed to appreciate that the equipments purchased had expectancy of life of less than a year and as such holding the expenditure of capital nature is wholly illegal.
10. Because the Ld. CIT(A) erred, both in law and on facts, in sustaining the addition of Rs 38,586/-, being the expenses made during the year by holding them of prior period. The authorities below failed to appreciate the accounting system consistently maintained by the appellant in respect of expenses made to the professionals.
11. Because the appellant craves leave to alter/modify grounds before or at the time of hearing of the appeal.”
ITA No. 150/Agra/2017
The grounds of the assessee’s are as under:-
“1. Because the Ld. Commissioner of Income Tax (Appeals)-II, Agra, hereinafter referred to as ‘CIT(A)’ erred, both in law and on facts, in holding that the Assessing Officer was justified in adopting status of the appellant as Society.
2. Because the Ld. CIT(A) erred, both in law and on facts, holding that the appellant is engaged in commercial activities by virtue of section 2(15) of the I. T. Act, as amended from 01.04.2009. Ld. CIT(A) failed to appreciate that the appellant is carrying on non commercial activities for which registration u/s 12A had been granted. The authorities below could not legally hold the charitable objects as of commercial nature during the subsistence of registration u/s 12A in view of authoritative judicial pronouncements and as such, the order of Ld. CIT(A) is erroneous and perverse.
3. Because the Ld. CIT(A) erred, both in law and on facts, in holding the activities of the appellant as that of commercial nature and consequentially denying exemption u/s 11 of the I.T. Act. The same is again in utter disregard to the several judicial pronouncements including authoritative pronouncement of Hon’ble Allahabad High Court in the case of Lucknow Development Authority [(2013) 38 taxmann.com 246 (All.)J. Ld. CIT(A) failed to appreciate that the appellant is also a statutory body constituted by the same statute viz. Uttar Pradesh Urban Planning And Development Act 1976 with the sole object of planned development of Jhansi City.
4. Because the Ld. CIT(A) erred, both in law and on facts, in sustaining the addition of Rs 4,17,18,254/- being the excess shown in the ‘income and expenditure’ account. The authorities below have erroneously disallowed the benefit of exemption u/s 11 of the I.T. Act claimed by the appellant. The disallowance is again in utter disregard to the authoritative judicial pronouncements. The exemption u/s 11 of the I.T. Act, being in accordance with report in 10B, may kindly be directed to be granted.
5. Because the Ld. CIT(A) erred, both in law and on facts, in sustaining the addition of Rs 5,12,62,249/- being the receipts shown in ‘infrastructure development fund ‘ account. Ld. CIT(A) failed to appreciate that the above receipts are in terms of notification issued by Uttar Pradesh Government and has no correlation with the regular activities of the appellant. The same is again in utter disregard to various judicial pronouncement including authoritative judicial pronouncement of Hon’ble Allahabad High Court in the case of Lucknow Development Authority [(2013) 38 taxmann.com 246 (All.)].
6. Because the Ld. CIT(A) erred, both in law and on facts, in sustaining the addition of Rs 4,40,01,735/- out of addition of Rs 4,91,33,396/- made by the Assessing Officer against the receipts shown in ‘project development fund’account. The receipts are in respect of installments received against allotment of house / plot by the appellant. In the absence of any margin of profit kept by the appellant at the time of allotment of house / plot, holding entire allotment money as income is arbitrary and whimsical. The addition may kindly be directed to be deleted.
7. Because the appellant craves leave to alter/ modify grounds before or at the time of hearing of the appeal.”
ITA No. 151/Agra/2017
The grounds of the assessee’s are as under:-
“1. Because the Ld. Commissioner of Income Tax (Appeals)-II, Agra, hereinafter referred to as ‘CIT(A)’ erred, both in law and on facts, in holding that the Assessing Officer was justified in adopting status of the appellant as Society.
2. Because the Ld. CIT(A) erred, both in law and on facts, holding that the appellant is engaged in commercial activities by virtue of section 2(15) of the I. T. Act, as amended from 01.04.2009. Ld. CIT(A) failed to appreciate that the appellant is carrying on non commercial activities for which registration u/s 12A had been granted. The authorities below could not legally hold the charitable objects as of commercial nature during the subsistence of registration u/s 12A in view of authoritative judicial pronouncements and as such, the order of Ld. CIT(A) is erroneous and perverse.
3. Because the Ld. CIT(A) erred, both in law and on facts, in holding the activities of the appellant as that of commercial nature and consequentially denying exemption u/s 11 of the I.T. Act. The same is again in utter disregard to the several judicial pronouncements including authoritative pronouncement of Hon’ble Allahabad High Court in the case of Lucknow Development Authority [(2013) 38 taxmann.com 246 (All.)J. Ld. CIT(A) failed to appreciate that the appellant is also a statutory body constituted by the same statute viz. Uttar Pradesh Urban Planning And Development Act 1976 with the sole object of planned development of Jhansi City.
4. Because the Ld. CIT(A) erred, both in law and on facts, in sustaining the addition of Rs 7,54,48,269/- being the excess shown in the ‘income and expenditure’ account. The authorities below have erroneously disallowed the benefit of exemption u/s 11 claimed by the appellant. The disallowance is again in utter disregard to the authoritative judicial pronouncements. The exemption u/s 11, being in accordance with report in 10B, may kindly be directed to be granted.
5. Because the Ld. CIT(A) erred, both in law and on facts, in sustaining the addition of Rs 5,47,56,721/- being the receipts shown in ‘infrastructure development fund ‘ account. Ld. CIT(A) failed to appreciate that the above receipts are in terms of notification issued by Uttar Pradesh Government and has no correlation with the regular activities of the appellant. The same is again in utter disregard to various judicial pronouncement including authoritative judicial pronouncement of Hon’ble Allahabad High Court in the case of Lucknow Development Authority [(2013) 38 taxmann.com 246 (All.)J.
6. Because the Ld. CIT(A) erred, both in law and on facts, in sustaining the addition of Rs 8,03,08,852/- out of addition of Rs 8,81,47,163/- made by the Assessing Officer against the receipts shown in ‘project development fund’account. The receipts are in respect of installments received against allotment of house / plot by the appellant. In the absence of any margin of profit kept by the appellant at the time of allotment of house / plot, holding entire allotment money as income is arbitrary and whimsical. The addition may kindly be directed to be deleted.
7. Because the appellant craves leave to alter/ modify grounds before or at the time of hearing of the appeal.”
3. At the outset both the parties have mentioned, that the appeal for the assessment year 2010-2011, be decided as a lead appeal and the decision in the said appeal be applied for the remaining assessment years pending before this tribunal.
APPEAL NO 256/ AGRA/ 2014
4. The Ld.AR for the assessee has submitted that appellant has raised 11 grounds in the present appeal out of which, the assesseeis not pressing down 1 ,2 and 4 of the grounds of appeal. As a assessee is not pressing these ground , therefore these grounds are dismissed as not pressed.
5. During the course of argument, both the parties, have agreed that the ground No. 3 is a basic and common ground in all the assessee appeal which is required to be decided first and the remaining ground are consequential in nature.
6. The facts are that the assessee under appeal is a body corporate constituted under Uttar Pradesh Urban Planning & Development Act, 1973. The assessee was filing return of income in the status of ‘Local Authority’ and claiming exemption u/s.10(20A) earlier. Later, vide Finance Act, 2002, section 10(20A) has been deleted and an explanation to section 10(20) has been added defining the term “Local Authority”. As per this definition, the assessee (appellant) in the present case has been excluded from being assessed as ‘Local Authority’ w.e.f. 01.04.2003.
7. Subsequently, the assessee (appellant) has been given registration u/s.12AA by the CIT-II, Agra w.e.f. 01.04.2003 vide order dated 21.10.2010 under the status of a charitable institution and thereafter, it has been filing its return of income claiming exemption u/s 11 and showing “Rs. Nil” income. In earlier years, while filing the return of income, the assessee has shown its surplus in “income and Expenditure Account” as income from business or profession and also paid taxes but later on due to registration u/s 12A has been provided by the Ld. CIT-II, Agra w.e.f. 01.04.2003, the assessee claimed exemption of its income u/s 11, particularly for A.Y. 2004-05 and 2005-06 in appeal against the assessment order passed for those assessment years considering the surplus earned by the assessee as its income under the head “Income from business.
8. The Ld CIT-II, Agra vide his order dated 25.10.2011 had withdrawn registration u/s 12A granted to the assessee, on the ground that its activities are not charitable as per the section 2(15) amended by Finance Act, 2008.
9. This order of withdrawal of registration u/s 12A was challenged by the assessee before the Hon’ble ITAT, Agra, which was allowed by the tribunal by order dated 30.3.2012.
10. For the assessment year under consideration, the assessee filed the return of income showing nil income. The case of the assessee was selected for scrutiny and the proceeding for assessment were initiated. During the course of the assessment proceedings, the assessee has brought to the notice of the assessing officer the order passed by the tribunal on 30.3.2012 however the assessing officer sadly mentioned in the order at page 2 that the tribunal had allowed the appeal on technical ground without going into the merits of the case.
11. Despite passing of the order by the tribunal, cancelling the withdrawal of 12AA order of the CIT, the assessing officer had examined the activities of the assessee in detail, and had that the activities of the assessee was the nature of trade, commerce or business and has the assessee is not entitled to the exemption under the Act. For the ready purposes we are reproducing herein below the finding recorded by the assessing officer at page 6 and 7 of the assessment orders to the following effect:
“2. In order to consider the issue, I have carefully perused the provisions of Uttar Pradesh Urban Planning and Development Act, 1973 (UPUPD Act, 1973) along with various sources of income of the assessee, as given in income and expenditure statement, from which following facts emerge out, each indicating that the activities of the assessee are hit by newly introduced first proviso to section 2(15) :-
a. The assessee is engaged in acquiring land from the farmers, converting the land use, plotting the land and selling it at higher price thereby making a profit. The assessee also sells such land to colonizers and builders for further development and constructions.. These activities are clearly in the nature of trade and commerce and therefore the same attracts proviso to section 2(15) of I.T.Act.
b. The assessee converts a lease hold land to Free Hold Land thereby increasing its value and rendering it useful for further sale and development by builders and colonizers and common people. The assessee earned Rs 2,11,24,087/- (Part of schedule 8 of Annual Statement) during the relevant Assessment Year from such activities. This activity clearly attracts the new proviso as it is an activity of rendering service in relation to a trade, commerce or business.
c. The assessee sold master plan book and tender forms and earned a income of Rs 3,59,600/-. It has earned an amount of Rs 19,20,460/- as development charge and Rs 52,71,369/- as supervision charges. Misc. income of the assessee itself is Rs 89,703/-. These all activities are in the nature of commerce or business or they are rendering any service for trade or commerce and attract proviso to section 2(15) as such.
d. The assessee allots plots/houses to allottees and fixes a schedule of installments for payment. These installments include principal plus interest. The assessee also charges penal interest for any default. The assessee earned approximately Rs 12 crores (schedule 6 of Balance Sheet) during A.Y. 2010-11 by doing such activities. This activity is clearly commercial in nature.
g. Section 2(ddd) of UPUDP Act, 1973 defines ‘city development charge’ as the charge levied on private developer U/s 38A for the development of land. Section 38A says that the Authority shall levy and collect city development charge from a private developer who has been given a license to develop land in a development area. This charge is collected from a private developer who in turns develops and profits from such business. This activity clearly attracts the new proviso as it is an activity of rendering service in relation to a trade or business.
h. Section 38A of UPUPD Act, 1973 provides for land use conversion charge for the change of land use in the MASTER PLAN. This section enables the authority to charge money when non-agricultural land is converted to residential or commercial land or Residential land is converted to commercial land thereby increasing its valuation. This charge is paid by general public including the colonizers and builders who acquire agriculture land and later on use it for developing residential or commercial property for sale. This activity clearly attracts the new proviso as it is an activity of rendering service in relation to a trade or business.
i. Section 39B of UPUPD Act, 1973 provides for imposition of license fee, on a private developer who has been authorized for assembly and development of land in the development area.
j. Section 15 of UPUPD Act, 1973 provides for imposition of stacking fees from the general
public who use authorities land for keeping buildingmaterial. This activity is in the nature of trade as Authority gives the right to use of its land in consideration of a fee thereby attracting provisions of proviso to section 15.
k. The assessee invests the surplus money in FDRs and other deposits like any regular businessman and earned Rs 3,51,83,751/- as interest income. This is a commercial activity which attracts the proviso to section 2(15).
So, from the discussion above it is clearly established that above activities of the assessee are in the nature of trade, commerce or business or they are rendering service in relation to trade, business or commerce. The perusal of balance sheet, Profit and loss account, Income and Expenditure account and report in form 103 along with UP Urban Planning and Development Act, 1973, leads to inescapable conclusion that the activities of the assessee were hit by newly introduced first proviso to section 2(15). The activities of the assessee are also aimed at earning profit, which is neither incidental nor by-product of assessee and the activities of purchase and sale of assessee makes it to be a commercial organization.”
12. During the course of assessment proceedings, the assessee was asked by the assessing officer as to the applicability of the proviso to section 12A and disallowance of the exemption claimed under section 11 and 13 of the Act as the activities of the assessee was in the nature of trade, commerce or business in nature. In response to that the assessee filed the reply of 7th August 2013 and in the reply it was mentioned as under.
“ Before replying to specific queries, the assessee w ould like to bring fundamental objections to the proposed presumption of your honour that the activities of the assessee are. commercial within the meaning of amended provisions of section 2(15j and as such, irrespective of registration u/s 12A the claim deduction u/s 11 can not be given. The objection goes to the root of the matter and as such the same should be decided before proceeding further on the merits of the case.
Fundamental Objections:
The facts in brief for kind consideration are as under:-
1. That the applicant is an authority constituted by Uttar Pradesh Urban Planning and Development Act 1973 for the purposes of carrying out activities contained in section 7 of the Act. Section 5 of the Act is reproduced as under.-
“ Objects of the Authority : – The objects of the Authority shall be to promote and secure the development of the development area according to plan and for that pm pose the Authority shall have the power to acquire . hold, manage and dispose of land and other property, to carry out building, engineering, mining and other operations, to execute works in connection with the supply of water and electricity ,to dispose of sewage and to provide and maintain other services and amenities and generally to do anything necessary or expedient for purposes of such development and for purpose incidental thereto :
2. That after the amendment in section 10(20) of the I.T Act. the assessee applied for registration u/s 12A. The registration was granted w.e. f 01.04.2003 by the Ld. Commissioner of Income Tax-II, Agra vide order dated 24 09.2003.
3. That the returns were filed from A. Y. 2003-04 and declared results were accepted upto A.Y. 2007-08. The assessment for A. Y. 2007-08 was completed after allowing benefit u/s 11. The proceedings for A.Y. 2008-09 are still pending.
4. That the proceedings for A.Y. 2010 the where you play -1I were started from 2″.09.2011. During the course of proceedings, the Assessing Officer issued various notices on the predetermined presumptions that the assessee is involved in commercial activities by virtue of amendment in section 2(15) w.e.f. 01.04.2009. A proposal for cancellation of registration ws 12A was also sent to Ld. Commissioner of Income Tax-II, Agra who, after considering the proposal cancelled the registration u/s 12A. However, the order of Ld. Commissioner of Income Tax was cancelled by Hon’ble ITAT vide its order dated 11.01.2013 Thereafter, proposal on the identical lines was sent to the Ld. Chief Commissioner of Income Tax, Kanpur for getting Special Audit u/s 142A. The special audit was conducted and report of the Special auditor is on record. The Special auditor too, beyond his authority, has made comments on the nature of activities.
5. The fundamental issue to be considered, in the light of facts and circumstances above, is whether, the assessing officer can legally examine the objects or the activities ignoring registration granted u/s 12A. It has been held by the apex court in Asstt. CIT Vs Surat City Gymkhana ((2008) 170 Taxmann 612 (SC)], the Hon ’ble High Court in Iiira Lai Bhagwati Vs CIT ((2000) 246 ITR 188 (Guj.) (HC)/ and by the Hon’ble ITAT in Mumbai Metropolitan Region Development Authority vs DDIT (ITA No. 5584 and 5062 /Mum /2009 dated 29.06.2012] that the Assessing Officer has no authority to examine the objects or the nature of activities, once the registration is available us 12A. The low laid down by the Apex court reads as under:
” The registration of a trust once done is a fait acomplie and the assessing officer cannot thereafter made further probe into the objects of the trust. “
6. Section 2(15) describes the object as per its head note. Thus, the authority of the A O is legally restricted to examine the conditions for claim u/s 11 during the course of assessment. The scope to examine objects or the activities or the application of section 2(15) is exclusively with the Ld. Commissioner of Income lax. The grunt of registration is not a empty formality, as has been observed in the judicial pronouncement referred to above. In view of the above, it is requested that the assessment be. fairly, completed on the identical lines of A.Y. 2007-08 keeping in view authoritative judicial pronouncements referred to above. “
(Page 11 and 12 of AO order)
13. The assessing officer had examined the reply and after examining the reply had passed the impugned assessment order. In the concluding para internal page 19 of the assessment order it was mentioned as under:
6. During the course of assessment proceedings assessee has quoted recent decision of the Hon’ble ITAT, Agra Bench. Agra in his case for withdrawing exemption U/s 12AA(3) of the Act. In this regard assessee’s submission is considered. After perusal of order of the Hon’ble ITAT, Agra Bench. Agra dated 30.03.2012 , it is found that Hon’ble ITAT has limited itself about power of the CIT u/s 12AA(3) in withdrawing exemption and has not given any finding in respect of the proviso of section 2(15) and section 13(8) of the I.T.Act, 1961. The Hon’ble Bench has also not given any finding whether assessee is a charitable entity as per section 2(15) of the Act or not. In such a scenario judgment of Hon’ble ITAT, Amritsar and Hon’ble ITAT. Indore in the case of Jammu Development Authority and Indore Development Authority (cited supra) are directly applicable in the case of the assessee.
14. Feeling aggrieved by the order passed by the assessing officer, the assessee filed the appeal before the Commissioner. The CIT appeal had also dismissed the appeal filed by the assessee. We’re reproducing hereinbelow the relevant portion of the finding recorded by the learned CIT appeal which were to the following effect:
“7.5.1 After considering the discussion made by the AO in the assessment order and the written submission of the Ld. AR, I find that the dispute about the nature of activities of the assessee (appellant) Authority has arisen because of the amendment in section 2(15) inserting a proviso w.e.f. 01.04.2009 and further bringing an amendment w.r.e.f. 01.04.2009 inserting a sub-section (8) in section 13. On the basis of these new provisions, the AO has held the activity of the assessee (appellant) as being in the nature or in relation to trade, commerce or business and taxing the income from such activity under the head “Income from Business or Profession”. However, as per the argument put up by the Ld. AR, once the registration u/s 12A is in force in respect of a trust/institution, the AO is bound to complete the assessment after allowing exemption under section 11 and it has been forcefully argued by him that the AO has illegally assumed the power of CIT provided in section 12AA for examining the nature and activities of the assessee (appellant) Authority. In his view, the power of the AO are restricted in this regard, considering the judgment of Hon ’ble Supreme Court in ACIT vs. Surat City Gymkhana (2008) 170 Taxman 612 (SC), UP Forest Corporation vs. Dy.ClT(2008) 297 ITR 1 (SC), Hon’ble High Court in Hira Lai Bhagwati vs. CIT (2000) 246 ITR 188 (Guj.) and IT AT in Mumbai Metropolitan Region Development Authority vs. DDIT (ITA No.5584 & 5062/Mum/2009 dated 29.06.2012. By referring these decisions, the Ld. AR pointed out that the Hon ’ble Courts have held that the registration of a trust once done is a fait accompli and the AO cannot thereafter, make further probe into the objects of the trust. As per the Ld. AR, once registration u/s 12A is granted, the AO is left with no alternative choice but to allow exemption as per the section 11 of the Act. In this respect, the Ld. AR has also cited a recent judgment of Hon’ble Allahabad High Court, Lucknow Bench in the case of Commissioner of Income-tax-1, Lucknow vs. Lucknow Development Authority, Gomti Nagar reported in [2013] 219 Taxman 162 (Allahabad).
With regard to proviso to section 2(15), the Id. AR has again explained that this proviso clearly specifies that the activities must be for cess, fee or other consideration. In business, as is commonly known, the sale consideration includes cost, the profit and user of the profit. As long as the profit does not reaches to private hands, the provision to charge income tax does not apply. As per the Id. AR, the appellant being a publically owned institution and statutory body, no parts of its receipt, of whatever nature, goes to the public during its subsistence and after its dissolution.
7.5.2 Against the above contention of the Ld. AR of non applicability of proviso to section 2(15) for computation of income of the assessee, if the registration u/s 12A is in force, the view of the AO as discussed in the assessment order, is that the registration u/s 12A / 12AA is only a necessary but not sufficient condition for claiming exemption u/s 11. As per the AO, the sufficient condition is satisfied when the assessee fulfills the condition as laid down in section 11 and section 13. The examination of applicability of section 11 has to be done by the AO separately before allowing the assessee the benefit of exemption, even if the assessee has got registration u/s 12A. As per the finding of the AO, discussed in the assessment order, since the assessee does not fulfill the criteria for charitable purpose, it has been held by him that the assessee cannot be allowed exemption u/s 11 after invoking the newly inserted provision of section 13(8) w.r.e.f. 01.04.2009 as I have already discussed in para 7.1. As regards to the contention of the Ld. AR about the assessee(appellant)being a publically owned institution and statutory body and no parts of its receipt of whatever nature going to the public during its subsistence and after its dissolution also, no part of its profit going to private hand, the AO has relied upon the decisions in respect of certain other Development Authorities i.e. Jammu Development Authority and Jalandhar Development Authority for whom cancellation of registration u/s 12A and denying exemption of income u/s 11 was confirmed by the Hon ’ble ITAT Amritsar and similarly in respect of Indore Development Authority also, cancellation of registration u/s 12A was confirmed by the Hon ’ble ITAT Indore. As regards to nontaxability of a publically owned institution and statutory body of a State Govt., the AO has specifically referred to a decision of Hon ’ble Supreme Court in case of Adityapur Industrial Area Development Authority vs. Union of India &Ors(supra) in which , it has been held that “thus, even the income of the State within the meaning of cl. (1) of Art. 289 may be taxed by law made by the Parliament, if such income is derived from a trade or business of any kind carried on by or on behalf of the Government of a State or any operations connected therewith. ” and as regards to taxability of such authorities which are constituted under an Act of the State Govt., the Hon ’ble Supreme Court in this decision, has further held that ‘Having regard to the provisions of the Bihar Industrial Areas Development Authority Act, 1974, particularly s. 17 thereof, there is no manner of doubt that the income of the appellant/Authority constituted under the said Act is its own income and that the appellant/Authority manages its own funds. It has its own assets and liabilities. It can sue or be sued in its own name. Even though, it does not carry on any trade or business within the contemplation of cl. (2) of Art. 289, it still is an Authority constituted under an Act of the legislature of the State having a distinct legal personality, being a body corporate, as distinct from the State. Sec. 17 of the Act further clarifies that only upon its dissolution its assets, funds and liabilities devolve upon the State Government. Necessarily therefore, before its dissolution, its assets, funds and liabilities are its own. It is, therefore, futile to contend that the income of the appellant/Authority is the income of State Government, even though the Authority is constituted under an Act enacted by the State legislature by issuance of a Notification by the Government there under. The High Court was therefore right in concluding that the appellant/Authority could not claim exemption from Union taxation under Art. 289(1) of the Constitution of India.” In view of the above decision of the Hon ’ble Supreme Court, the question arises that if a Development Authority like Adityapur Industrial Area Development Authority constituted under “Bihar Industrial Areas Development Authority Act, 1974” for development of industries in Bihar by the State Govt, is taxable under the Income-tax Act, why the assessee(appellant) being similar type of Development Authority constituted under “Uttar Pradesh Urban Planning & Development Act, 1973” for development of city of Agra should not be taxable , if it is found that it is engaged in the activities of trade & business and for this purpose , profit to go in private hand is not an important criterion as in the case of Adityapur Industrial Area Development Authority also, the profit did not go to private hand but it has been held as liable to be taxed because of its nature of activities. Therefore, the AO has heavily relied upon this decision along with the decisions in case of Jammu Development Authority, Jalandhar Development Authority and Indore Development Authority.
7.5.3 Since in case of the present assessee , it is registered as charitable institution u/s 12A, the basic question to be decided is whether granting of registration u/s.12A /12AA to a trust/institution will take away the powers of the AO to determine the nature of the income earned by it, specifically of the trust or institution that is provided registration for charitable purposes for advancement of object of public utility, but during the course of assessment proceedings, the AO finds that the activities of such trust/institution are in the nature of or for providing service in relation to trade, business or commerce and their gross receipts from such activities are more than Rs.10 lacs or Rs.25 lacs depending on the year of assessment.
Keeping in view the new provisions inserted in the Income Tax Act as section 13(8) for computation of income of those trusts / institutions whose activities are hit by the proviso to section 2(15) and because of similar provision has also been brought for those trusts / institutions that are registered u/s 10(23C) by inserting a proviso no. (8) in section 10(23C), the issue under dispute to determine the nature of activities of the assessee (appellant) Authority during the year under consideration, has been examined along with the Ld. AR and it has been decided that the following two changes in the provisions of the Income-Tax Act should be dealt upon before finally deciding the issue raised in Grounds 4, 5, 7, 8, 9 & 10.
(i) Effect of amendment in section 2(15) of the Income Tax Act, w.e.f. 01.04.2009.
(ii) Effect of insertion of section 13(8) of the Income Tax Act, w.r.e.f. 01.04.2009.
8.1 In order to resolve the issue before me as raised in ground nos. 4,5,7,8,9 & 10, I have decided to examine both the provisions in the light of the Memorandum of Finance Bill, 2012 explaining these provisions and also certain recent judgments on these new provisions. In this regard, first both the provisions i.e. section 2(15) and section 13(8) are reproduced as under: –
“Sec. 2(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 [twenty-five lakh rupees] or less in the previous year;]
“Sec. 13(8) Nothing contained in section 11 or section 12 shall operate so as to exclude any income from the total income of the previous year of the person in receipt thereof if the provisions of the first proviso to clause (15) of section 2 become applicable in the case of such person in the said previous year.
8.2 Explanatory note given in the Memorandum of Finance Bill 2012 for inserting a new proviso in section 10(23C) and bringing a new sub-section (8) in section 13 is as under: –
“Explanatorv Note to amendment
Assessment of charitable organization in case commercial receipts exceed the specified threshold
Sections 11 and 12 of the Act exempt income of any charitable trust or institution, if such income is applied for charitable purposes in India and such institution is registered under section 12AA of the Act. Section 10(23C) of Income Tax Act also provides exemption in respect of approved charitable funds or institutions.
Section 2(15) of the Act provides definition of charitable purpose. It includes “advancement of any other object of general public utility” as charitable purpose provided that it does not involve carrying on of any activity in the nature of trade, commerce or business.
The 2nd proviso to said section provides that in case where the activity of any trust or institution is of the nature of advancement of any other object of general public utility, and it involves carrying on of any activity in the nature of trade, commerce or business; but the aggregate value of receipts from the commercial activities does not exceed Rs. 25,00,000/-in the previous year, then the purpose of such institution shall be considered as charitable, and accordingly, the benefits of exemption shall be available to it.
Thus, a charitable trust or institution pursuing advancement of object of general public utility may be a charitable trust in one year and not a charitable trust in another year depending on the aggregate value of receipts from commercial activities.
There is, therefore, need to expressly provide in law that no exemption would be available for a previous year, to a trust or institution to which first proviso of sub-section 2(15) become applicable for that particular previous year.
However, this temporary excess in one year may not be treated as altering the very nature of the trust or institution so as to lead to cancellation of registration or withdrawal of approval or rescinding of notification issued in respect of trust or institution.
Therefore, there is need to ensure that if the purpose of a trust or institution does not remain charitable due to application of first proviso on account of commercial receipt threshold provided in second proviso in a previous year. Then, such trust or institution would not be entitled to get benefit of exemption in respect of its income for that previous year for which such proviso is applicable. Such denial of exemption shall be mandatory by operation of law and would not be dependent on any withdrawal of approval or cancellation of registration or a notification being rescinded.
It is, therefore, proposed to amend section 10(23C), section 13 and section 143 of the Act to ensure that such organization does not get benefit of tax exemption in the year in which it’s receipts from commercial activities exceed the threshold whether or not the registration or approval granted or notification issued is cancelled, withdrawn or rescinded.
This amendment will take effect retrospectively from 1st April, 2009 and will, accordingly, apply in relation to the assessment year 2009-10 and subsequent assessment years. [Clauses 5, 6, 58].”
8.3 In the above Explanatory Note, it has been clarified that if the purpose of a trust or institution does not remain charitable due to application of first proviso on account of exceeding commercial receipts threshold provided in second proviso in a previous year, then such trust ! institution would not be entitled to get benefit of exemption in respect of its income for that previous year for which such proviso is applicable. Such denial of exemption shall be mandatory by operation of law and would not be dependent on any withdrawal of approval or cancellation of registration or a notification being rescinded. Keeping in view this objective, amendment has been done in section 10(23C), section 13 and section 143 of the Act to ensure that such organization does not get benefit of tax exemption in the year in which it’s receipt from commercial activities exceeds the threshold whether or not the registration or approval granted or notification issued is cancelled, withdrawn or rescinded. In view of the above explanatory note, I find that the view of the AO that the registration u!s.12A is necessary but not essential condition for providing exemption u!s. 11 is correct because such exemption u!s. 11 is to be governed by the provision of sec. 11 and 13. Now, because of the newly inserted provision of section 13(8), the AO can examine whether during the year under consideration, any of the activities of such trust ! institution is in the nature of or for providing service in relation to trade, commerce or business or not and whether the gross receipts from such activity has exceeded Rs.25 lac or not and then, accordingly compute the income of such trust ! institution. In order to explain the proviso to section 2(15), the CBDT has also issued a circular no.11!2008 dated 19.12.2008 and the same is reproduced as under:-
“CIRCULAR NO. 11/2008. DATED 19-12-2008
1. Section 2(15) of the Income-tax Act, 1961 (‘Act’) defines “charitable purpose” to include the following:—
(i) Relief of the poor
(ii) Education
(Hi) Medical relief, and
(iv) The advancement of any other object of general public utility.
An entity with a charitable object of the above nature was eligible for exemption from tax under section 11 or alternatively under section 10(23C) of the Act. However, it was seen that a number of entities who were engaged in commercial activities were also claiming exemption on the ground that such activities were for the advancement of objects of general public utility in terms of the fourth limb of the definition of‘charitable purpose’. Therefore, section 2(15) was amended vide Finance Act, 2008 by adding a proviso which states 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 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.
2. The following implications arise from this amendment.
2.1 The newly inserted proviso to section 2(15) will not apply in respect of the first three limbs of section 2(15), i.e., relief of the poor, education or medical relief. Consequently, where the purpose of a trust or institution is relief of the poor, education or medical relief, it will constitute ‘charitable purpose’ even if it incidentally involves the carrying on of commercial activities.
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 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.
Similarly, entities whose object is ‘education’ or ‘medical relief’ would also continue to be eligible for exemption as charitable institutions even if they incidentally carry on a commercial activity subject to the conditions mentioned above.
3. The newly inserted proviso to section 2(15) will apply only to entities whose purpose is ‘advancement of any other object of general public utility’ i.e., the fourth limb of the definition of ‘charitable purpose’ contained in section 2(15). Hence, such entities will not be eligible for exemption under section 11 or under section 10(23C) of the Act if they carry on commercial activities. Whether such an entity is carrying on an activity in the nature of trade, commerce or business is a question of fact which will be decided based on the nature, scope, extent and frequency of the activity.
There are industry and trade associations who claim exemption from tax under section 11 on the ground that their objects are for charitablepurpose as these are covered under ‘any other object of general public utility’. Under the principle of mutuality, if trading takes place between persons who are associated together and contribute to a common fund for the financing of some venture or object and in this respect have no dealings or relations with any outside body, then any surplus returned to the persons forming such association is not chargeable to tax. In such cases, there must be complete identity between the contributors and the participants. Therefore, where industry or trade associations claim both to be charitable institutions as well as mutual organizations and their activities are restricted to contributions from and participation of only their members, these would not fall under the purview of the proviso to section 2(15) owing to the principle of mutuality. However, if such organizations have dealings with non-members, their claim to be charitable organizations would now be governed by the additional conditions stipulated in the proviso to section 2(15).
3.1 In the final analysis, however, whether the assessee has for its object ‘the advancement of any other object of general public utility’ is a question of fact. If such assessee is engaged in any activity in the nature of trade, commerce or business or renders any service in relation to trade, commerce or business, it would not be entitled to claim that its object is charitable purpose. In such a case, the object of ‘general public utility’ will be only a mask or a device to hide the true purpose which is trade, commerce or business or the rendering of any service in relation to trade, commerce or business. Each case would, therefore, be decided on its own facts and no generalization is possible. Assessees, who claim that their object is ‘charitable purpose’ within the meaning of section 2(15), would be well advised to eschew any activity which is in the nature of trade, commerce or business or the rendering of any service in relation to any trade, commerce or business.”
8.3 In the above circular, it has been made clear by the CBDT that proviso to section 2(15) will apply to entities whose purpose is ‘advancement of any object of public utility’ i.e. fourth limb of the definition of the ‘charitable purpose’ contained in section 2(15) and it is further clarified that such entities will not be eligible for exemption u/s.11 or u/s.10(23C) of the Act, if they carry on the commercial activities. However, it has been mentioned that whether any entity is carrying on any activity in the nature of trade, commerce or business is a question of fact which will be decided based on nature, scope, extent and frequency of the activity and therefore, each case would be decided on its own facts and no generalization is possible.”
15. The feeling aggrieved by the order passed by the lower authorities is before us on the grounds mentioned hereinabove. At the outset both the parties have submitted that the tribunal by the to various orders have given quietus to the to the dispute with respect to entitlement of the assessee for registration under section 12 AA of the act. For that purposes of attention were drawn to various decision passed by the tribunal cancelling the order passed by the CIT denying the exemption and upholding that the assessee is entitled to registration under section 12 AA of the act. Further our attention was drawn to the High Court in one of appeal preferred by the revenue whereby the order of the tribunal was challenged by the revenue however the order of the tribunal was upheld by the Hon’ble High Court.
16. It was submitted that ,If the tribunal comes to the conclusion that second proviso to section 2 (15) is applicable then assessee would be entitled to the exemption under section 11 of the Act .
17. During the course of argument we have directed both the parties to file the list of the activities , which had resulted in receipt of revenue by the assessee ,both the parties have filed their respective synopsis which were taken on record .
Submission of parties on the aspect of applicability of second proviso to section 2 (15)( Ground no 3)
18. It was submitted that appellant is constituted by legislation to carry out the work independently, on the basis of authorization provided by the statute. The appellant is bound to execute certain works on the basis of directions issued by the State Government from time to time. In fact, only permission is taken from the State Government to acquire particular piece of land for which funds are given by the appellant itself. All the transactions in respect of every activity have been recorded in the books of accounts of the appellant since its incorporation. All the assets are the property held under the Trust within the meaning of Section 11 of the I.T. Act.
19. It was submitted that the development fee was levied on the constructions going on in the city by virtue of statute. It is not correct that the development fee is in lieu of services rendered to a person by the appellant who choose to deal with the appellant, as noted by the AO in the order. The acquisition of land, development of infrastructure facilities in planned manner is a part of the object as well as the provisions contained in Uttar Pradesh Urban Planning and Development Act.
20. The appellant is neither carrying out any business on behalf of Government nor on the orders of Government. The buildings or the land developed by the appellant are sold without keeping any margin of profit. There is no motive a profit earning in either developing the land or selling the land or building developed by the assessee and therefore there is no ingredient of the business in the activities carried out by the appellant. The business is defined on several occasions by judicial authorities. The activities of the appellant does not fall under the category of business.
21. The activities of the appellant are incidental to the achievements of the objects and as such does not falls under the fourth limb of section 2(15) i.e. advancement of any other object of general public utility. The appellant is not carrying out activities in nature of trade, commerce or business for the reasons stated above. Further, the activities from which surplus is generated falls under the head “OTHER SOURCES” and as such no specified books of accounts are required to be maintained and consequentially provisions of section 11(4A) are not attracted. No business activities nor any objects of making profit being carried out by the appellant. It was submitted that Toll, fees and charges are collected under the provisions of statute. There is no business contract with the persons paying toll etc.
22. The appellant has no where disputed that the claim u/s 11 cannot be examined during the subsistence of registration u/s 12A. Only the objects cannot be examined by the Assessing Officer during the subsistence of registration u/s 12A as the same is not within his domain. Entire receipts are in accordance with the provisions of which exemption under section 11 is allowable.
23. The application of fourth limb of section 2(15) as a whole is denied. The appellant does not carry on any business, trade or commerce and as such the limitation of threshold receipts as provided in section 2(15) is not relevant. Further there is no profit motive. In order to explain the nature of receipts, the appellant is only required to prove that the receipts are not from business activities. It is not disputed that exemption under section 11 may be evaluated each year.The application of funds is strictly in accordance with the provisions contained in I.T. Act.
24. Lastly it was submitted that Provisions of section 10(46) and 2(15) read with section 11 and 12 are independent provisions comprised in the I.T. Act. Infact, Central government notifies certain institutions u/s 10(46), whose income from all sources shall remain exempt. While in case of provisions of section 2(15), 11 and 12, the income / receipts are exempt only if they relates to charitable objects and or to any activity incidental in the nature of objects of the trust. It was submitted that the applicant had applied for its notification under section 10(46) of the Act, on 11.2.2019. Further Greater NOIDA Industrial Development authority had beennotified10(46) of the Central Government act for the activities which are similar in nature that of assessee vide notification dated 23.6. 2020. The ld AR prayed that suitable direction be issued by the tribunal for issuance of notification under section 10 (46) of the act to the central board of direct taxes, in the case of Assessee as well.
25. The assessee had also filled the written submissions to the following effect
“ SUBMISSIONS IN ITA NOS. 256/Agr/2014 & 356/Agr/2014(Deptt. Appeal)
The appellant is in appeal against the order of Ld. CIT(A).
The appellant has submitted number of synopsis during the course of hearing on different dates. The assessee begs to file summarized synopsis which is as under:-
The appellant is a development authority and enjoying registration u/s 12A in terms of order of Hon’ble ITAT placed at (Page 144-156 of the PB No. 1). The return declaring NIL income was filed alongwith statutory Form 10B, claiming exemption u/s 11 of the I.T. Act. Form 10B is placed at (page 65 of the PB No. 1). While completing the assessment, exemption u/s 11 has been denied and other additions have been made by the Assessing Officer. The Ld. CIT(A) has allowed partial relief against which the appellant is in appeal. The appellant has taken following grounds of appeal:-
………………………………………………..
Ground wise submissions in brief, are as under:
1. Ground no. 1 is not pressed
2. Ground no. 2 is not pressed
3. Ground no. 4 is not pressed
4. Vide Ground nos. 3 &7, the appellant has challenged the legallity of findings of authorities below in holding the activities of the appellant as of commercial nature within the meaning of proviso to section 2(15) of the I.T. Act and after denial of exemption u/s 11 of the I.T. Act, an addition of Rs. 3,58,61,640/- has been made. Section 2(15) is reproduced as under:-
2(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 appli-cation, 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 twenty-five lakh rupees or less in the previous year.
The relevant pages of findings of authorities below are as under:
1. Findings of AO are at Page no.6-19 & 47-48
2. Findings of Ld. CIT(A) are at Page No’s 11-139
The main challenge is on allowability of exemption u/s 11 amounting to Rs. 3,58,61,640/-, being the surplus shown in the receipt and expenditure account. In this connection, it is respectfully submitted that appellant has never been engaged in commercial activities.
The appellant came into existence on 15.10.1984 by virtue of U.P.Urban Planning & Development Act, hereinafter referred to as ‘the Act’. Copy of bare act is on the record. Copy of the same is again enclosed. The appellant is established for carrying out planned development of the City as per objects contained in section 7 of ‘the Act’.
Relevent provisions of U.P. Urban Planning and Development Act 1973 are as under:
1 the U.P. Urban Planning and Development Act 1973 empowers the State Government to declare any area within the state as development area by issuing a notification under section 3 of the UPUPD Act in Gazette. Section 3 of the UPUPD Act reads as under:-
3. Declaration of development, areas.-
If in the opinion of the State Government any-area within the State requires to be developed according to plan it may, by notification in the Gazette. declare the area to be a development area.
2 After declaration u/s 3 of the UPUPD Act, the State Government under section 4 of the UPUPD Act, may constitute Development Authority for the purposes of the Act to promote and secure the development of the development area according to the Plan. Copy of notification with regard to the area for the development of Jhansi City is on record.
3 Section 8 of the UPUPD Act provides for preparation of Master Plan and Zonal Development plan.
4 Sub section (2) of section 10 of the UPUPD Act requires that after preparation of Master Plan, the same shall be submitted to the State Government for its approval and the State Government may either approve the plan without modification or with such modification as it may consider necessary or reject the plan with the direction to the authority to prepare a fresh plan according to such direction.
5 The procedure for preparation and approval of plan has been mentioned in section 11 of the UPUPD Act.
6 Section 12 of the UPUPD Act provides that the Master Plan having been approved by the State Government shall be published and it shall come into operation from the date of the first publication.
7 Section 13 of the UPUPD Act (Chapter IV) provides for the amendment of the plan.
8 Section 14 of the UPUPD Act provides that after the declaration of any area as development area under section 3, no development of land shall be undertaken or carried out or continued in that area by any person or body unless permission for such development has been obtained in writing in accordance with the provisions of the UPUPD Act. It also provides that no development shall be undertaken, or carried out or continued in that area unless the same is also in accordance with such plan.
9 Section 15 of the UPUPD Act deals with the application for permission referred to in section 14 of the UPUPD Act. It contemplates making of the requisite enquiry of any land or building in contravention of the plans.
10 Section 16 of the UPUPD Act prohibits use of any land or building in contravention of the plans.
11 Chapter VII deals in finance, accounts and audit of the authority as per the norms issued by the State Government. I may be allowed to read the whole chapter:-
12 Section 29 provides conferment of other powers on the authority after a master plan or zonal development plan has come into operation u/s 12 of the UPUPD Act.
13 Section 41 deals with control of State Government on the authority.
14 Section 55, 56 and 57 deals with the power of the State Government to make rules, regulation and bye laws.
15 And finally, the dissolution clause, where the State Government is satisfied that the purpose for which the authority was established under the UPUPD Act has been substantially achieved, than the State Government, may by notification in the Gazette declare that authority to be dissolved u/s 58 of the UPUPD Act with effect from such date as may be specified in the notification.
Further in order to achieve objects, the land is acquired solely with the approval of State Government and thereafter schemes are developed for plots / flats over the said land.
Your honour will kindly appreciate that no margin of profit is kept while working out cost of the project. Copy of few schemes are placed at page no. 74 – 88 of PB No. 1
The special audit in this case was also conducted u/s 142(2A) vide authorization letter No. DCIT-1/Agra/JDA/2012-13 dated 22.03.2013. The report in this case was submitted on 22.06.2013. The report is placed at page 1 – 123 of the paper book-I. The special auditor examined the books of accounts and had given findings on the books of accounts on various pages. At page 51 of the Paper book, the special auditor has commented on whether the income of the assessee falls within scope of section 2(15) and in continuation at page 54 of the Paper book has observed that the activities are in the nature of business activities and the same cannot be said to be for ‘charitable purposes’ within the meaning of section 2(15) of the Income Tax Act, 1961.
In this connection, it is respectfully submitted that the special auditor has no authority to examine the applicability of section 2(15) for holding the activities of the appellant as business activities. The responsibility of the auditor was limited to the examination of books of accounts as envisaged in section 142(2A). The observations on the activities are irrelevant and unreliable. The authorities below have relied upon his observations which is not permitted in law. The applicability of section 2(15) can only be verified independently, if at all required, by the Income Tax Authorities. The Income Tax Authorities have not applied there independent mind on this issue.
Without prejudice to the above, the special auditor has observed that the income under various heads (Page 53 of the Paper Book) are in the nature of trade, commerce or business. The income shown and considered by the special auditor are independent of any activity in the nature of trade, commerce or business. The receipts are in terms of statutory orders. In respect of trade, commerce or business, there should be a seller and buyer which is absent in all the receipts observed by the special auditor. Thus these receipts cannot be out of any trade, commerce or business.
Likewise, the observation of the special auditor that the assessee is engaged in the business of construction or real estate development projects is again beyond his authority. While giving his observation the auditor failed to appreciate that these constructions were in accordance with the objects for which the authority is constituted. The development activities carried out by the appellant under the statutory powers conferred by state government are not business activities. The activities are part of charitable activities for which the appellant has been granted registration u/s 12AA. In these circumstances, section 2(15) or section 13(8) are not at all applicable in the nature of receipts shown by the appellant.
Ld. CIT(A) at page 83 of the appellate order has summarized various sources of fund of the authority in clause (a) to (e) and has found that the receipts under clause (c),(d) and (e) are directly related to the trade, commerce or business. The special auditor has simply observed that the receipts are in the nature of commercial activities at Page 54 of the Paper book. Ld CIT(A) has endorsed the finding at Page 83 of the appellate order relying on the case of Moradabad Development Authority 15 taxmann.com 389. Ld. CIT(A) failed to appreciate that above order related to the A.Y. 2007-08 when provisions of section 2(15) were not existing. It is however submitted that in the subsequent decision in the same assessee, Moradabad Development Authority relevant for the period under consideration, Hon’ble ITAT has categorically held that provisions of section 2(15) in so far as the nature of the activities are not applicable and as such exemption u/s 11 should be allowed. The order is placed at Page 1 – 3 of Judicial Index Paper Book dated 23.02.2018 (Relevant Para 3,4,5,&6).
The Ld CIT(A) has again relied upon the comments of special auditor on Point no. 3 at page 51 of the Paper Book. Despite the objections by the assessee that the special auditor has no legal authority to decide the application of section 2(15) of the Act and the Ld. CIT(A) having admitted that it is his (special auditor) opinion over the issue, has decided to adjudicate after examining the Act and various decision as discussed by the Ld. CIT(A). It is again submitted that neither the statute nor the decisions relied upon by Ld CIT(A), no where states that collection of fees, toll and various charges are in relation to any trade, commerce or business. The finding of Ld. CIT(A) that these income are earned from purchase and sale of land and construction of flat and selling them at profit are in the nature of trade, commerce or business are wholly imaginary as well as contrary to the facts of the case.
Ld. CIT(A) at page 83 of his order has given much stress on the nature of activities in respect of (c) all fees, tolls and charges received by the Authority under this Act; (d) all moneys received by the Authority from the disposal of lands, buildings and other properties, movable and immovable and (e) all moneys received by the Authority by way of rents and profits or in any other manner or from any other source,and has relied upon the report of special auditor whereby it has been observed that the activities are not in accordance with the objects of the appellant and are certainly relating to rendering of services in relation to trade, commerce or business. It has further been observed that apart from these activities, the appellant is earning profit on construction of sale of flat like other builder. Ld. CIT(A) failed to appreciate that all the above activities are part of the objects and are in accordance with statutory objectives. Further the observation of Ld CIT(A) that the appellant is earning profit on construction of sale of flat just like other builder is contrary to the facts of the case as the appellant has repeatedly intimated, duly supported by documents, that no margin of profit is kept while constructing and sale of flats.
Ld. CIT(A) further failed to appreciate that the appellant is mainly providing services to the common man who are homeless. The flats / commercial complex are sometime allotted at below the cost as is evident from the costing sheet placed at Page 85 of the Paper book.
It is therefore again submitted that the receipts are out of statutory obligations and not from any trade, commerce or business.
On the basis of findings in the audit report, the Assessing Officer too has held the activities of the appellant as of commercial nature (Page 8 to 48 of Asstt order) and after invoking provisions of Sec. 2(15) of the I. T. Act, has denied exemption u/s 11 of the I.T. Act. The Assessing Officer has also relied upon following judicial orders:-
