2016 (7) TMI 1416 - AT - Income Tax

Rejection of application for registration u/s 12AA(b)(ii) - scope of amendment in section 2 (15) - Held that - This Bench in the case of Jammu Development Authority vs. C.I.T. Jammu, decided the matter in favour of the Department 2012 (7) TMI 734 - ITAT AMRITSAR as held that in view of the fact that section 10(20A) was omitted and an Explanation was added to section 10(20) of the Act, enumerating the Local Authorities contemplated by section 10(20), the assessee could not claim any benefit under those provisions after April 1, 2003. After insertion of first proviso and second proviso of section 2(15) as added by the Finance Act, 2008 w.e.f. 01.04.2009, any institution carrying on of any activity in the nature of trade, commerce or business etc. shall not be a charitable purpose - As per objects of the assessee, it is observed that the main object of the assessee is to promote and secure the development of local area and there is no charitable purpose or any activity for general public utility. The activities of the assessee are aimed at earning profit as it is carrying on activity in the nature of trade, commerce or business, and there is no obligation on the part of the assessee to spend income on charitable purpose only - even on dissolution or winding up by not having any restriction on application of asset for charitable purpose, the objects pursued by the assessee cannot be said to be a charitable in nature - CIT, Jammu, has rightly being satisfied held that the Jammu Development Authority is not entitled to registration and accordingly cancelled the registration so granted - Decided against assessee.

Summary

Issues Involved:

1. Rejection of application for registration under section 12AA of the Income Tax Act, 1961.
2. Determination of whether the activities of the appellant constitute "charitable purpose" under section 2(15) of the Income Tax Act, 1961.
3. Examination of the impact of amendments to section 2(15) and section 10(20A) of the Income Tax Act, 1961.
4. Consideration of previous judicial decisions and their applicability to the present case.
5. Analysis of the principle of consistency in granting registration under section 12AA.

Detailed Analysis:

1. Rejection of Application for Registration under Section 12AA:

The appellant's application for registration under section 12AA(b)(ii) of the Income Tax Act, 1961, was rejected by the Commissioner of Income Tax (CIT), Jammu. The CIT's decision was based on the assessment that the appellant's activities did not qualify as "charitable purposes" as defined under section 2(15) of the Income Tax Act, 1961.

2. Determination of Charitable Purpose under Section 2(15):

The CIT meticulously reviewed the appellant's activities and concluded that they involved the carrying on of activities in the nature of trade, commerce, or business. The CIT noted that the appellant generated income by disposing of developed lands with a definite motive of profit and did not engage in activities exclusively for charitable purposes. The CIT emphasized that profit-making was not incidental but the predominant purpose of the appellant's activities.

3. Impact of Amendments to Section 2(15) and Section 10(20A):

The CIT referred to the amendments introduced by the Finance Act, 2008, and the Finance Act, 2010, which added provisos to section 2(15) of the Income Tax Act, 1961. These amendments specified that the advancement of any other object of general public utility would not be considered a charitable purpose if it involved activities in the nature of trade, commerce, or business. The CIT also highlighted the omission of section 10(20A) and the addition of an explanation to section 10(20), which restricted the definition of "local authority" and excluded entities like the appellant from claiming benefits under these provisions.

4. Consideration of Previous Judicial Decisions:

The CIT referred to several judicial decisions, including those of the Hon'ble Supreme Court and various High Courts, to support the conclusion that the appellant's activities did not qualify as charitable. The CIT cited the cases of CIT v. Surat Art Silk Cloth Manufacturers Association, CIT v. Andhra Pradesh State Road Transport Corporation, and Indian Chamber of Commerce v. CIT, among others, to establish that activities carried on for profit could not be considered charitable.

5. Principle of Consistency in Granting Registration:

The CIT addressed the argument of the appellant's counsel regarding the principle of consistency, noting that an erroneous view in law could not be perpetuated on the ground of consistency. The CIT emphasized that the registration granted to other similar authorities could not be a basis for granting registration to the appellant if the activities did not meet the criteria for charitable purposes as defined under the amended provisions of the Income Tax Act, 1961.

Conclusion:

The Tribunal upheld the CIT's decision to reject the appellant's application for registration under section 12AA. The Tribunal concurred with the CIT's findings that the appellant's activities were aimed at earning profit and did not qualify as charitable purposes under section 2(15) of the Income Tax Act, 1961. The Tribunal also noted that the appellant's case was similar to the case of Jammu Development Authority, where the registration was canceled based on similar grounds. The appeal was dismissed, and the order of the CIT was confirmed.