2017 (8) TMI 164 - AT - Income Tax

Grant of registration u/s 12A (a) - charitable activities - claim of the assessee that it is an urban development authority engaged in the object of advancement of any other object of general public utility‟ - scope of amendment made w.e.f. 01.04.2009 in provisions of section 2(15) - Held that - Assessee placed list of various work which has been done by the assessee most of them are with respect to development of roads, lighting and sewage etc. It has also submitted the details of various area development and guidelines. At page 79 of the paper book it is submitted certain basic principles of charging price of the property which is based on market rate. It has also specified at page No. 80 of its paper book regarding acquisition of land which is also at prevailing circle rate. Therefore it shows that it acquires the land for development at market rate and also sales the same after development at market rate. In fact it is doing similar objects which an infrastructure company does by acquiring the land in similar fashion. Therefore, there is no difference between the activity carried out by the assessee compared to activity carried out by any other private organization for profit. Therefore on reading the financials presented before us and the various projects demonstrated it is apparent that the activities of the assessee has profit motive and therefore it is carrying on the business. Order of High Court of Jammu and Kashmir in case of Jammu Development Authority Vs. CIT 2013 (11) TMI 1578 - JAMMU AND KASHMIR HIGH COURT is the only decision of the High Court which deals with the provisions of section 2(15) amended w.e.f. 01.04.2009 applicable to the persons carrying on objects of general public utility. Therefore, we respectfully following the decision of the Hon‟ble Jammu and Kashmir High Court hold that the assessee M/s. Mussoorie Dehradun Development Authority is not formed for charitable purposes as defined u/s 2(15) of the Income Tax Act and hence is not entitled to registration u/s 12A (a) of the Act. - Decided against assessee.

Summary

Issues Involved:

1. Rejection of application for registration under section 12A(a) of the Income Tax Act.
2. Interpretation of "charitable purpose" under section 2(15) of the Income Tax Act.
3. Applicability of amendments to section 2(15) by the Finance Act 2008.
4. Comparison with similar authorities granted exemption under section 12A(a).
5. Examination of the nature of activities as commercial or charitable.

Issue-wise Detailed Analysis:

1. Rejection of Application for Registration under Section 12A(a):

The assessee filed an appeal against the order dated 05.11.2012, where the CIT Dehradun rejected the application for registration under section 12A(a) of the Income Tax Act, 1961. The primary grounds for rejection included the CIT's failure to appreciate the charitable nature of the assessee's activities and the comparison with other authorities that had been granted exemption.

2. Interpretation of "Charitable Purpose" under Section 2(15):

The assessee argued that its activities fell under "advancement of any other object of general public utility," which is considered a charitable purpose under section 2(15). However, the CIT noted that despite being set up by the government, the assessee's activities were commercial in nature, involving profit motives, such as acquiring land, developing it, and selling it at market rates.

3. Applicability of Amendments to Section 2(15) by the Finance Act 2008:

The CIT's rejection was influenced by the amendment to section 2(15) effective from 01.04.2009, which clarified that activities involving trade, commerce, or business for a fee or consideration would not be considered charitable. The CIT relied on this amendment and the CBDT Circular No. 11/2008, which explained that entities engaged in commercial activities could not claim charitable status.

4. Comparison with Similar Authorities Granted Exemption under Section 12A(a):

The assessee contended that similar authorities, such as the Hardwar Development Authority, had been granted exemption under section 12A(a). However, the CIT distinguished these cases, noting that the decisions cited by the assessee pertained to periods before the 2008 amendment. The CIT also referenced cases like Punjab Urban Planning Development Authority and Jalandhar Development Authority, where similar applications were rejected due to the commercial nature of activities.

5. Examination of the Nature of Activities as Commercial or Charitable:

The CIT examined the assessee's financials, noting significant income from various fees and charges, and concluded that the activities were commercial. The assessee's own classification of income under "business and profession" in tax returns further supported this conclusion. The CIT emphasized that the profit motive was evident in the assessee's operations, such as selling properties at market rates and charging interest on delayed payments.

Judgment:

The Tribunal upheld the CIT's order, agreeing that the assessee's activities were commercial and not charitable. The decision was influenced by the amendment to section 2(15) and relevant judicial precedents. The Tribunal noted that the assessee's reliance on earlier decisions was misplaced, as those decisions did not consider the post-2009 legal framework. The appeal was dismissed, and the rejection of the application for registration under section 12A(a) was affirmed.

Conclusion:

The Tribunal's judgment emphasized the importance of the 2008 amendment to section 2(15) in determining the charitable status of entities. It highlighted that activities involving trade, commerce, or business for a fee or consideration would not qualify as charitable, regardless of the application of income. The decision underscored the need for entities claiming charitable status to avoid commercial activities to maintain their eligibility for tax exemptions.