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2020 (3) TMI 1018 - AT - Income TaxExemption u/s 11 - cancellation of registration u/s 12AA(3) - assessee is engaged in the commercial activity and selling the vacant lands to the highest bidders and entering into joint venture for construction of buildings for commercial purposes which is not the object of the assessee - HELD THAT - In the instant case, the Ld.CCIT viewed that the assessee has lost sight of the objects from the assessment year 2008 onwards and carrying on commercial activity. In this regard, the Ld.Counsel has elaborately discussed the activities carried out by the assessee for furtherance of the objects and argued that the assessee is continuously engaged in the activities for development of the area in its jurisdiction and carried on various activities which are discussed in detail in para No.3 of this order, such as construction of houses for low income groups, widening of roads, development of various areas as per the master plan, sports complex, maintenance of schools, parks, bridges etc. and given a note on the projects which were undertaken and the projects in progress vide note dated 04.10.2019 and argued that the assessee is continuously taking all possible steps for overall development of the areas entrusted to it for orderly growth of the area as per the objects. During the appeal hearing, the Ld.Standing Counsel did not controvert the developmental activities undertaken by the assessee, therefore, we hold that the observation of the Ld.CCIT that the assessee has lost sight of its objects is not based on proper appreciation of facts, hence, we are unable to accept the same. Selling of vacant lands to the highest bidders in auction and entering into joint ventures for construction of buildings - As provided in section 19 of APUDA Act the assessee is permitted to dispose off the lands after development or without carrying out any development in such manner as per the terms and conditions mentioned therein. Sub sec.3 of sec.19 allows the assessee to dispose the lands by sale. Therefore, the assessee is permitted to sell the lands in public auction which is one of the most popular and transparent methods approved by courts also. The Department did not explain how the sale of lands earmarked for high income groups and for commercial ventures in public auction violate the objects of the assessee. As long as the sale proceeds are utilized for advancement of the objects without diversion, it does not violate the objects of the assessee. The department did not place any material to show that the funds of the assessee other than the sale proceeds of land in GO No.1401 are diverted for other purposes. Therefore, we, are of the opinion that the same is not against the objects of the Society and do not violate the objects mentioned in APUDA Act. It is necessary for VUDA to come forward for developing the malls and commercial complexes for the benefit of the public. Therefore, we are of the view that entering into joint venture for construction of buildings cannot be held to be against the object of the assessee society. CCIT has not brought on record how the construction of commercial buildings are against the objects of VUDA. Therefore, we hold that construction of commercial complexes, Malls etc., and entering into joint ventures for construction of the houses does not violate the objects of APUDA Act. Assessee is the owner of the lands alienated to VUDA, thus the assessee becomes the absolute owner of the lands, hence the assessee ought to have utilized the funds instead of remitting the funds back to Government - Sale proceeds of lands mentioned by the Ld.Standing Counsel which were stated to be belonged to the assessee were neither proved to be remitted to the government nor the parts of the lands in GO No.1401, thus there is no impact on Registration u/s 12AA of the Act. Therefore, we are unable to accept the contention of the Ld.Standing Counsel that the assessee has sold the lands belonging to it and remitted the sale proceeds to Government account. Contention of the Department is that the assessee acted as an agent for sale of lands and the agent is disentitled for grant of registration u/s 12AA(3) - VUDA has also collected the service charges and utilized the same for it s objects. Revenue also did not place any evidence or material to show that the VUDA is barred from acting as an agent or in assisting the sale of Government s lands. When Government is giving the loans, funds, grants, loans and advances and giving all the support for advancement of it s objects, we do not find any reason to hold that VUDA is prohibited from helping the Government in selling the Government s vacant lands as per the specific directions of the Government and there is no case law brought on record by either parties to support or to prohibit the assessee to sell the lands of the Government. Therefore, we are of the considered opinion that assisting the Government, in sale of lands, after collecting the expenses does not make the assessee disentitle for registration u/s 12AA(3) of the Act. Assessee has carried on commercial activity, hence, the assessee is hit by the amendment to section 2(15) - In the instant case, whatever surplus generated was used for the activities of the assessee society, therefore, the same cannot be held to be the commercial activities. Even otherwise, through Circular No.21 of CBDT dated 27.11.2016, it has directed the field authorities not to cancel the registration of charitable institution already granted u/s 12AA of the Act just because the provision to section 2(15) comes into play. The process for cancellation of registration to be initiated strictly in accordance with the provisions of section 12AA(3) and 12AA(4) of the Act after carefully examining the provisions. There is no material placed before us to establish that the assessee is not carrying on the activities in accordance with the objects or the activities of the assessee are not genuine. CCIT has cancelled the registration on presumptions and assumptions without having proper material. Therefore, we cancel the order of the Ld.CCIT passed u/s 12AA(3) of the Act and restore the registration granted to the assessee. Accordingly, appeal of the assessee is allowed.
Issues Involved:
1. Cancellation of registration under section 12AA(3) of the Income Tax Act, 1961. 2. Engagement in commercial activities by the assessee. 3. Acting as an agent for the Government of Andhra Pradesh. 4. Sale of lands and remittance of proceeds to the Government. 5. Applicability of section 2(15) of the Income Tax Act post-amendment. Issue-wise Detailed Analysis: 1. Cancellation of Registration under Section 12AA(3): The Chief Commissioner of Income Tax (CCIT) cancelled the registration granted to the assessee under section 12AA(3) based on the belief that the assessee was engaging in commercial activities and not adhering to its stated objectives. The CCIT argued that the assessee was auctioning lands and entering into joint ventures for commercial purposes, which violated the conditions of its registration. The Tribunal, however, found that the CCIT's decision was based on presumptions and lacked proper material evidence. It was noted that the assessee had continuously carried out development activities in line with its objectives, such as constructing housing for low-income groups, developing infrastructure, and maintaining public amenities. The Tribunal concluded that the CCIT's cancellation of registration was unjustified and restored the registration. 2. Engagement in Commercial Activities: The CCIT argued that the assessee was engaged in commercial activities by auctioning lands and entering into joint ventures for constructing commercial properties. The Tribunal, however, found that such activities were permitted under the Andhra Pradesh Urban Areas (Development) Act (APUDA Act) and were necessary for the overall development of the area. The Tribunal held that selling lands in public auctions and entering into joint ventures for constructing commercial complexes did not violate the assessee's objectives, as long as the proceeds were used for public utility services and furthering the assessee's objectives. 3. Acting as an Agent for the Government of Andhra Pradesh: The CCIT contended that the assessee acted as an agent for the Government of Andhra Pradesh by selling government lands and remitting the proceeds to the government, which was against the objectives of the assessee. The Tribunal found that the assessee was permitted to assist the government in selling lands under the APUDA Act and that such actions were within the scope of its objectives. The Tribunal noted that the government had directed the assessee to sell the lands and remit the proceeds to the government account, and there was no evidence to suggest that the assessee had violated its objectives or misused the funds. 4. Sale of Lands and Remittance of Proceeds to the Government: The CCIT argued that the assessee sold lands indiscriminately and remitted the proceeds to the government, which was against its objectives. The Tribunal found that the sale of lands was conducted transparently through public auctions, and the proceeds were used for public purposes. The Tribunal noted that the sale of lands was permitted under the APUDA Act and that the proceeds were used for development activities in line with the assessee's objectives. The Tribunal concluded that the sale of lands and remittance of proceeds to the government did not violate the assessee's objectives. 5. Applicability of Section 2(15) Post-Amendment: The CCIT held that the assessee was hit by the amendment to section 2(15) of the Income Tax Act, which came into effect from 01.04.2009, and thus not eligible for exemption. The Tribunal found that the assessee's activities were within the purview of public utility services and were not commercial activities. The Tribunal noted that the Central Board of Direct Taxes (CBDT) had issued a circular clarifying that the registration under section 12AA should not be cancelled merely because the provision to section 2(15) comes into play. The Tribunal concluded that the amendment to section 2(15) did not apply to the assessee, as it was not engaged in commercial activities. Conclusion: The Tribunal allowed the appeal of the assessee, cancelling the order of the CCIT and restoring the registration under section 12AA of the Income Tax Act. The Tribunal found that the assessee had continuously carried out activities in line with its objectives and that the CCIT's decision to cancel the registration was based on presumptions and lacked proper material evidence. The Tribunal held that the sale of lands and remittance of proceeds to the government, as well as entering into joint ventures for constructing commercial properties, were within the scope of the assessee's objectives and did not violate the provisions of the APUDA Act. The Tribunal also concluded that the amendment to section 2(15) did not apply to the assessee, as it was not engaged in commercial activities.
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