2016 (5) TMI 1350 - AT - Income Tax

Grant of registration under sec. 12AA rejected - whether appellant is a profit making body and is not carrying out any charitable activities? - Greater Noida Industrial Development Authority - Held that - Vide notification No. 6710/77-4-2001-56BHA/99 dated 24.12.2001, the State Government in exercise of powers under the proviso to clause (i) of Article 243Q of the Constitution of India has specified the Greater New Okhla Industrial Development Area to be an Industrial Town-ship w.e.f. the date of the publication of the said notification in the official gazette. In this notification, it has been mentioned that having regard to the size of Greater New Okhla Industrial Development Area which has been declared as an industrial development area by government notification dated 28.1.1991 and the municipal services are being provided by the Greater New Okhla Industrial Development Authority in that area. Thus, it is clear that the appellant has been constituted by the State Act and it is assigned not only with the object of development of industrial area but would be an industrial town-ship and would provide services of a municipal corporation. Thus, the objects of the appellant are in the nature of public utility. When it is not the case of Revenue that profit from the activities of acquiring land and selling it after development is being utilized not in the objects of the appellant, it cannot be compared with the activities carried out by a builder developing a colony. The appellant might be selling certain property at market rate through auction after developing that property but it is not the main object of the appellant. Such activity is incidental to the objects of the appellant. We thus come to the conclusion that the appellant is very much entitled for the claimed registration under section 12A(1)(a) of the Act. We thus while setting aside the order impugned direct the Learned CIT(E) to grant registration under sec. 12AA of the Act to the appellant. The grounds are accordingly allowed in favour of assessee.

Issues Involved:
1. Rejection of registration under section 12AA of the Income-tax Act, 1961.
2. Classification of the assessee as a commercial business entity.
3. Assessment of the assessee’s activities as charitable or profit-oriented.
4. Application of relevant judicial precedents and principles of natural justice.
5. Examination of the statutory authority’s compliance with public utility services.

Issue-wise Detailed Analysis:

1. Rejection of Registration under Section 12AA:
The assessee challenged the rejection of its application for registration under section 12AA of the Income-tax Act, 1961. The CIT(Exemption) rejected the application on grounds that the assessee was a profit-making body and not carrying out any charitable activity. The CIT(E) also noted the absence of books of account and vouchers, making it impossible to verify the genuineness of the assessee's activities. Additionally, the CIT(E) observed that the assessee had not filed its return of income for the last 12 assessment years and had delayed the application for registration by 12 years without justification.

2. Classification as a Commercial Business Entity:
The CIT(E) treated the assessee as a commercial business entity, noting that the assessee earned income from property development, urban services, administrative activities, and interest-bearing funds given as interest-free loans. The CIT(E) concluded that any charitable activity was incidental to the assessee's business, and the primary motive was profit.

3. Assessment of Charitable Activities:
The assessee argued that it was a statutory authority constituted under the Uttar Pradesh Industrial Development Act, 1976, and notified as an industrial township under Article 243Q of the Constitution of India. The assessee claimed that its activities were in furtherance of public policy and met the requirements of section 2(15) of the Income-tax Act. The assessee contended that earning surplus receipts for self-sustenance did not equate to a profit motive.

4. Application of Judicial Precedents and Natural Justice:
The assessee cited several judicial precedents, including decisions from the Supreme Court and High Courts, to support its claim for registration under section 12AA. The assessee argued that the CIT(E) failed to follow binding judgments and violated principles of natural justice by passing the order on the same day as the hearing. The assessee also claimed that all requisite details were supplied, contrary to the CIT(E)'s observations.

5. Compliance with Public Utility Services:
The assessee emphasized that it was mandated by section 6 of the UPIDA to render public utility services and could not be treated as a commercial entity. The assessee's activities included providing municipal services, developing infrastructure, and promoting industrial growth, which were in line with its statutory obligations.

Judgment:
The Tribunal examined the facts and judicial precedents cited by the assessee. It noted that the assessee was a statutory authority with the primary purpose of developing industrial areas and providing municipal services, which qualified as charitable activities under section 2(15) of the Act. The Tribunal found that the CIT(E) erred in treating the assessee as a commercial entity and failing to appreciate the statutory mandate and public utility nature of the assessee's activities.

The Tribunal referred to the Supreme Court's decision in CIT vs. Gujarat Maritime Board, which held that an entity could claim exemption under section 11 if its primary purpose was charitable, even if it earned income. The Tribunal also considered the Allahabad High Court's decision in CIT vs. Lucknow Development Authority, which upheld the exemption for a statutory authority engaged in public utility activities.

The Tribunal concluded that the assessee was entitled to registration under section 12AA of the Act. It set aside the CIT(E)'s order and directed the CIT(E) to grant the claimed registration to the assessee.

Conclusion:
The appeals were allowed, and the Tribunal directed the CIT(E) to grant registration to the assessee under section 12AA of the Income-tax Act, 1961. The Tribunal emphasized that the assessee's activities were charitable, aligned with public utility services, and not driven by profit motives. The judgment reinforced the application of judicial precedents and principles of natural justice in assessing the eligibility for registration under section 12AA.

← Previous Next →