Case Law Details

Case Name : Hoshiarpur Improvement Trust Vs The Income Tax Officer (ITAT Amritsar)
Appeal Number : ITA. No. 496/Asr/ 2013 and 18/ Asr/2015
Date of Judgement/Order : 10/09/2015
Related Assessment Year : 2009-10 and 2011-12
Courts : All ITAT (5168) ITAT Amritsar (49)

Brief about the case:  In the case of Hoshiarpur Improvement Trust Vs The Income Tax Officer  the assessee being a trust was registered under the Punjab Towns Improvement Trusts Act, 1922. It was providing services under the control and supervision of State Government for development of cities and towns. It claimed relief under Section 11. However, the revenue denied such relief by equating assessee with a builder /colonizer. The revenue argued that the activity of trust would hit by exclusionary proviso to Section 2(15). The aggrieved-assessee filed the instant appeal before the Tribunal.

Relying upon the five judge bench Hon’ble Supreme Court decision in the case of CIT Vs Vatika Townships Pvt Ltd [(2014) 367 ITR 466 (SC)] The principle of law is lex prospicit non respicit i.e law looks forward not backward. In view of this , even post insertion of proviso to Section 2(15) but before 1st April 2016, when business activities are carried by the assessee trust “in the course of actual carrying out of such advancement of any other object of general public utility”, the benefit of Section 11 read with Section 2 (15) cannot be declined. Nothing, therefore, turns on the assessee carrying out, even if that be actually so, activities in the nature of trade, commerce or business, etc., as long as these activities are carried out in the course of actual carrying out of advancement of any other object of general public utility.

The planned development of cities and towns is an object of general public utility, and that is an object consistently followed by the assessee in all its activities. Thus, assessee-trust was eligible for Section 11 relief.

Facts of the case:  There are eleven appeals belonging to six different assessees but the common thread in all these assessees is that all the assessees involved in these appeals are improvement trust set up under section 3 of the Punjab Towns Improvement Trusts Act 1922. The assessee was providing services under the control and supervision of State Government for development of cities and towns. It claimed relief under Section 11. However, the revenue denied such relief by equating assessee with a builder /colonizer. The issue which was to be considered was that whether the appellant trust engaged in the activity of advancement of any other object of general public utility, can be denied exemption in view of proviso to section 2(15) of the Act whereby exception has been carved out in respect of charitable activities which 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.

Contention of the Revenue:  The revenue thrusted that contrary to the aims and objectives of a charitable trust, the assessee trust is doing trade and business of colonizer by development of the land in flats and commercial booths, and then selling it for earning profit. These trade items are being sold at market rates just to earn profit. The advancement of any object beneficial to public or a section of public would be an object of ‘general public utility’ which the assessee is not doing. It has done no work relating to charitable activities. The work done is solely to earn profit. Thus the exemption u/s 11 is to be disallowed.

Contention of the Assessee:  Assessee concluded by submitting that the assessee is “a non-profit organization, owned and controlled by the State Government formed for the development of urban areas of Hoshiarpur and is not doing any commercial business, and, hence entitled for exemption under section 11 and 12 of the Income Tax Act” The new provision which seeks to restrict the scope of Section 2(15) is effective from the assessment year 2016-17, are only prospective in effect.

Held by Income Tax Appellate Tribunal:  The exclusion clause, by proviso to Section 2 (15), was earlier triggered by “involvement in any activity in the nature of trade, commerce or business etc” but, post Finance Act 2015 amendment, it will be triggered even if “such an activity in the nature of trade, commerce or business etc is undertaken in the course of carrying out such advancement of any other object of general public utility”. The exclusion of these cases from Section 2(15) is only effective 1st April 2016, i.e. assessment year 2016-17. The law is well settled by a five judge bench of Hon’ble Supreme Court, in the case of Vatika Township Pvt Ltd. CIT(A) erred in declining exemption under section 11 read with section 2(15) on the ground that the assessee was not entitled to exemption under section 11 as the assessee was not covered by the provisions of Section 2(15).

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