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2017 (7) TMI 1367 - AT - Income TaxExemption u/s 11 - assessee as covered by section 2(15) or not - AO observed that the appellant was carrying on business of sale purchase of residential houses, construction of mutli-storeyed houses, sale of residential plots and commercial plots by auction and earned huge net profit - HELD THAT - Considering the nature of the Act, selling of plots and premises by the trust is only incidental and ancillary to its main purpose which at the cost of repetition is town improvement . Even where the plots are developed and premises are constructed and sold at the market price, the activity is not commercial or business venture per se but one necessitated on account of the implementation of the provisions of the trust through statutory schemes. The main purpose of such schemes is driven by public requirements and not as a commercial venture per se. They are incidental to the main object of the trust. In the present case, the AO has not indicated any facts which indicate that the assessee deviated from this principle. He has merely referred the extent of profit making activities without correlating the same to the other activities of the trust. As decided in Tribune Trust 2017 (1) TMI 53 - PUNJAB AND HARYANA HIGH COURT Section 2(15) and the corresponding sections including Sections 11, 12, 12A and 12AA are independent of Section 10(20A) of the Act. Upon the omission of Section 10(20A), the provisions of the other sections were not affected. They remained intact. An assessee could have been entitled to the provisions of Section 10(20A) and the other provisions simultaneously. The omission of one, however, does not affect the validity or the existence of the others. The two provisions are distinct and independent of each other. Thus the omission of Section 10(20A) did not affect the rights of the parties claiming the benefit of Sections 2(15), 11, 12, 12A and 12AA - Decided in favour of assessee.
List of Issues Involved:
1. Scope of provision to Section 2(15) of the Income Tax Act. 2. Interpretation of CBDT Circular No. 11 of 2008 concerning entities claiming charity under Section 2(15). 3. Comparability of the assessee's activities with those of PUDA and JDA as per ITAT Amritsar. 4. Tax obligations of government-created authorities performing statutory functions. 5. Reliance on the judgment in the case of Jammu Development Authority. Issue-wise Detailed Analysis: 1. Scope of provision to Section 2(15) of the Income Tax Act The primary issue was whether the CIT(A) erred in law by not considering the scope of Section 2(15) of the Act while deciding the case. The appellant, an artificial juridical person engaged in planning and development of cities, was granted registration under Section 12AA of the Income Tax Act. The Assessing Officer (AO) observed that the appellant was involved in activities such as the sale and purchase of residential houses, construction of multi-storeyed houses, and auctioning of residential and commercial plots, earning a significant net profit. The AO contended that these activities were in the nature of trade, commerce, or business and thus not covered under "the advancement of any other object of general public utility" as per Section 2(15). However, the CIT(A) deleted the addition based on a previous judgment by the ITAT Chandigarh in the assessee's own case for AY 2011-12. 2. Interpretation of CBDT Circular No. 11 of 2008 The Revenue argued that the CIT(A) misinterpreted CBDT Circular No. 11 of 2008, which clarified that entities claiming charity under Section 2(15) should avoid activities in the nature of trade, commerce, or business. The Ld. DR contended that the CIT(A) failed to discuss and distinguish case laws similar to the assessee's case, which were relied upon by the AO. The CIT(A) had relied on the ITAT Chandigarh's decision in the assessee's case for previous assessment years, which favored the assessee based on the order of ITAT Amritsar in the case of Hoshiarpur Improvement Trust vs. ITO. 3. Comparability with PUDA and JDA as per ITAT Amritsar The Revenue also argued that the CIT(A) ignored the ratios laid in the cases of PUDA and JDA by ITAT Amritsar. The Ld. DR pointed out that the ITAT Chandigarh, while deciding in favor of the assessee, did not follow its own decisions in the cases of Housing Board Haryana vs. CIT and Khanna Improvement Trust vs. CIT, where it was held that these entities were not covered by the definition of charitable organization under Section 2(15) post-01.04.2009. The ITAT Amritsar's decision in the case of Jammu Development Authority (JDA), upheld by the J&K High Court and the Supreme Court, was also cited. 4. Tax Obligations of Government-created Authorities Ground No. 4, which questioned whether performing statutory functions absolves a government-created authority from paying taxes, was deemed theoretical and not dealt with. However, the broader issue of whether such authorities are exempt from taxes was addressed indirectly through the interpretation of Section 2(15) and related judgments. 5. Reliance on the Judgment in the Case of Jammu Development Authority The Revenue heavily relied on the judgment in the case of Jammu Development Authority (JDA), where it was held that the JDA was not advancing any object of general public utility and thus not entitled to exemption under Section 2(15). The Ld. AR, however, argued that the Punjab and Haryana High Court, in the case of Improvement Trust, Moga, distinguished this judgment, stating that the JDA case was based on its specific facts and did not lay down any general law. Conclusion The tribunal upheld the CIT(A)'s decision, stating that the predominant purpose of the assessee was "town improvement," which falls under "advancement of any other object of general public utility" as per Section 2(15). The activities of selling plots and premises were considered incidental to the main objective of town improvement and not as commercial ventures per se. The tribunal found no infirmity in the CIT(A)'s order and dismissed the Revenue's appeal. The judgment emphasized that the omission of Section 10(20A) did not affect the applicability of Sections 2(15), 11, 12, 12A, and 12AA, which remain independent and intact. The appeal filed by the Revenue was thus dismissed. Order Pronounced The appeal filed by the Revenue was dismissed, and the order was pronounced in the open court.
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