2014 (5) TMI 1172 - AT - Income Tax

Registration under section 12AA denied - non charitable activities - Held that - As confirmed in JAMMU DEVELOPMENT AUTHORITY case 2013 (11) TMI 1578 - JAMMU AND KASHMIR HIGH COURT wherein it has been held that the objects like sale and purchase of properties makes the Authority, a commercial organization and in absence of any restriction on application of asset for charitable purpose in the event of dissolution or winding up, the objects pursued by the assessee cannot be said to be a charitable in nature. We find no merit in the claim of registration made by the assessee under section 12A of the Act and we uphold the order of Commissioner of Income Tax in refusing to grant registration under section 12AA of the Act. Appeal of the assessee is dismissed

Issues Involved:
1. Denial of registration under section 12AA of the Income Tax Act, 1961.
2. Rejection of application under section 12A(a) of the Income Tax Act, 1961.
3. Examination of whether the activities of the assessee qualify as charitable under section 2(15) of the Income Tax Act, 1961.

Detailed Analysis:

1. Denial of Registration under Section 12AA of the Income Tax Act, 1961:
The appeal was directed against the order of the Commissioner of Income Tax (CIT), Panchkula, which denied registration under section 12AA of the Income Tax Act, 1961. The assessee, created under the Haryana Housing Board Act, 1971, had claimed exemption under section 10(20A) until its omission w.e.f. 01.04.2002. Consequently, the assessee sought registration under section 12AA, asserting its status as a charitable institution under section 2(15) of the Act. The CIT refused registration on several grounds, including the inordinate delay in filing the application, the profit-oriented nature of the Board's activities, and the commercial principles applied in its operations. The CIT noted that the Board's activities, such as acquiring and selling land, charging betterment charges, and retaining profits, indicated a profit motive rather than charitable purposes.

2. Rejection of Application under Section 12A(a) of the Income Tax Act, 1961:
The CIT also rejected the application under section 12A(a) of the Act, citing the Board's commercial activities and profit generation. The CIT observed that the Board's income and expenditure accounts reflected significant profits from activities such as the sale of houses and interest income, which contradicted the claim of charitable purposes. The Board's treatment of houses as stock-in-trade and the resultant profits further supported the CIT's conclusion that the Board operated on commercial principles.

3. Examination of Whether the Activities of the Assessee Qualify as Charitable under Section 2(15) of the Income Tax Act, 1961:
The Tribunal examined whether the Board's activities qualified as charitable under section 2(15) of the Act. The Tribunal noted that the Board's activities, including the sale and auction of plots and houses, were conducted on commercial principles and generated substantial profits. The Tribunal compared the Board's activities with those of private developers and concluded that the Board's operations were more commercial than charitable. The Tribunal also referenced similar cases, such as Punjab Urban Planning and Development Authority and Jammu Development Authority, where the courts held that activities aimed at profit-making did not qualify as charitable.

Conclusion:
The Tribunal upheld the CIT's order, finding no merit in the claim for registration under section 12A of the Act. The Tribunal concluded that the Board's activities were predominantly commercial and profit-oriented, disqualifying it from being recognized as a charitable institution under section 12AA. The appeal of the assessee was dismissed, affirming the CIT's decision to deny registration. The Tribunal's decision emphasized that charitable institutions must operate without a profit motive and provide services for the public good without commercial gain.

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