2018 (10) TMI 2045 - AT - Income Tax

Exemption u/s 11 - Denial of exemption as assessee is engaged in various commercial activities, therefore, not existing for charitable purpose as defined under section 2(15) - HELD THAT - As decided in own case 2015 (4) TMI 885 - ITAT MUMBAI we assessee is not entitled to claim under section 11 of the Act as the activities carried out are of commercial nature, hence, is hit by the proviso to section 2(15) of the Act. Further, we hold that the assessee cannot be regarded as a part of the Government of Maharashtra so as to claim immunity under Article 289 (1) of Constitution of India. Accordingly, ground no. 2 is dismissed. Assessee s claim that lease premium, rent, interest on bank deposits etc. having been received on behalf of Govt. of Maharashtra are not taxable as income at the hands of the assessee - In assessee s own case for A.Y. 2011-12 2018 (11) TMI 778 - ITAT MUMBAI the co-ordinate bench has categorically held that, since, the assessee cannot be considered either owner or deemed owner of the lands, the lease premium, rent, interest etc. cannot be brought to tax at the hands of the assessee. As the aforesaid decision was not available before the Departmental Authorities when they decided the issue in the impugned assessment year, we are inclined to restore the issue to the AO with a direction to examine the facts and decide the issue following the observations of the Tribunal - Ground raised is allowed for statistical purposes.

Summary

1. ISSUES PRESENTED and CONSIDERED

- Whether the assessee qualifies as existing for charitable purposes under section 2(15) of the Income Tax Act, considering the proviso that excludes entities engaged in commercial activities.

- Whether the assessee is immune from taxation under Article 289(1) of the Constitution of India, claiming to be an agency of the Government of Maharashtra.

- Whether the receipts from lease premiums, rent, and interest on bank deposits, shown as liabilities in the balance sheet, should be taxed as income of the assessee.

- The validity of reopening assessments under section 147 of the Act, particularly when the original assessment was completed under section 143(3) and the reopening occurred after four years.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Charitable Purpose under Section 2(15)

- Legal Framework and Precedents: Section 2(15) defines "charitable purpose," and the proviso excludes entities engaged in trade, commerce, or business. The Tribunal referred to precedents like Ramtanu Co-operative Housing Society Ltd and others.

- Court's Interpretation and Reasoning: The Tribunal observed that the assessee's activities, such as auctioning plots, indicated a commercial nature, thus falling under the proviso to section 2(15).

- Key Evidence and Findings: The assessee's practice of auctioning plots and the presence of private competitors indicated a shift from a "no profit no loss" policy to a commercial approach.

- Application of Law to Facts: The Tribunal applied the proviso to section 2(15) to the assessee's activities, concluding they were commercial.

- Treatment of Competing Arguments: The assessee's reliance on past Supreme Court observations was dismissed as those were made in different contexts not related to income tax.

- Conclusions: The Tribunal concluded that the assessee's activities were commercial, disqualifying it from claiming exemption under section 11.

Issue 2: Immunity under Article 289(1)

- Legal Framework and Precedents: Article 289(1) exempts state property and income from Union taxation. The Tribunal referred to cases like Andhra Pradesh State Road Transport Corporation vs. ITO.

- Court's Interpretation and Reasoning: The Tribunal held that the assessee, being a statutory corporation, is distinct from the state and not immune under Article 289(1).

- Key Evidence and Findings: The Tribunal noted the statutory corporation's independent legal status and its actions not binding on the state.

- Application of Law to Facts: The Tribunal found no statutory provision indicating the assessee's income as belonging to the state.

- Treatment of Competing Arguments: The Tribunal rejected the argument that the assessee was performing a sovereign function, noting private parties also engage in similar activities.

- Conclusions: The Tribunal concluded the assessee is not part of the Government of Maharashtra and not immune from taxation under Article 289(1).

Issue 3: Taxability of Lease Premiums, Rent, and Interest

- Legal Framework and Precedents: The Tribunal referred to its previous decision in the assessee's case for A.Y. 2011-12.

- Court's Interpretation and Reasoning: The Tribunal agreed with the assessee's position that it acted as a custodian for the Government of Maharashtra, not the owner of the lands.

- Key Evidence and Findings: The Tribunal noted the absence of any transfer of ownership to the assessee and the land being vested with the state government.

- Application of Law to Facts: The Tribunal applied the principle that income must be assessed in the hands of the right person, concluding the income belonged to the state.

- Treatment of Competing Arguments: The Tribunal dismissed the revenue's claim of ownership transfer to the assessee due to lack of evidence.

- Conclusions: The Tribunal restored the issue to the Assessing Officer for reconsideration in light of its findings.

Issue 4: Validity of Reopening Assessments

- Legal Framework and Precedents: Section 147 allows reopening of assessments if income has escaped assessment, subject to conditions.

- Court's Interpretation and Reasoning: The Tribunal found that the Assessing Officer had material to form a belief of income escapement, justifying reopening.

- Key Evidence and Findings: The Tribunal noted the Assessing Officer's reliance on balance sheet discrepancies and lack of full disclosure by the assessee.

- Application of Law to Facts: The Tribunal upheld the reopening as the conditions under the proviso to section 147 were met.

- Treatment of Competing Arguments: The Tribunal rejected the assessee's claim of mere change of opinion, noting the issue was not examined in the original assessment.

- Conclusions: The Tribunal upheld the validity of reopening assessments under section 147.

3. SIGNIFICANT HOLDINGS

- Verbatim Quotes: "The activities of the assessee are commercial in nature and hence would be hit by the proviso to sec. 2(15) of the Act."

- Core Principles Established: The Tribunal reinforced that statutory corporations are distinct from government entities for tax purposes and that commercial activities disqualify entities from charitable exemptions.

- Final Determinations: The Tribunal dismissed the assessee's claims under sections 11 and Article 289(1), upheld the reopening of assessments, and restored the issue of taxability of lease premiums, rent, and interest for further examination.