2006 (6) TMI 141 - AT - Income Tax

Application for Registration u/s 12A(a) - Charitable Trust - Whether Punjab Urban Planning and Development Authority ('PUDA') is of general public utility and was established to satisfy the need for housing accommodation of various sections of the people of Punjab and specially for planning and development in the cities, town and villages and is of charitable nature ? - HELD THAT - Admittedly, the assessee is doing some activities like housing/infrastructure development and the public is also benefited but for the same the assessee has already charged in the form of hidden cost. Rather the assessee is generating income, so no charity is involved. We agree with the conclusion of the learned CIT, as contended by learned CIT-DR, that a charitable institution provides services for charitable purposes free of cost and for no gain and are for the benefit of public at large. As we have discussed, the assessee acquires land at nominal rates and after developing the same, the same land (is sold) on high profit which cannot be said to be a charitable activity. Even just for argument sake, under the present facts, if registration is granted, then every private colonizer will claim charity. The facilities which are provided to the plot holders are incidental to the commercial activity carried out by the PUDA and if certain facilities like parks, community center, school are provided is not only basic requirement, rather a tool of attracting the investors wherein the hidden cost of these facilities is already included. In the absence of these facilities, normally the purchaser may not invest and the prices may be less. Thus, we are of the view that the application of the assessee has been rightly rejected by learned CIT. The stand of the learned CIT is upheld. Appeal of the assessee is, therefore, dismissed.

Issues Involved:
1. Rejection of application for registration under Section 12A(a) of the IT Act, 1961.
2. Interpretation of "charitable purpose" under Section 2(15) of the IT Act.
3. Comparison of the appellant with private builders.
4. Applicability of the Supreme Court judgment in the case of Asstt. CIT vs. Thanthi Trust.
5. Consistency in granting registration under Section 12A to similar entities.

Detailed Analysis:

1. Rejection of application for registration under Section 12A(a) of the IT Act, 1961:
The appellant, Punjab Urban Planning and Development Authority (PUDA), challenged the rejection of its application for registration under Section 12A(a) by the CIT, who held that the institution's objects were commercial rather than charitable. The Tribunal noted that PUDA was created under the Punjab Regional & Town Planning & Development Act, 1995, for planned development. The CIT argued that PUDA's activities were akin to those of private colonizers, focusing on profit-making rather than charitable purposes.

2. Interpretation of "charitable purpose" under Section 2(15) of the IT Act:
The Tribunal examined the definition of "charitable purpose" under Section 2(15), which includes relief to the poor, education, medical relief, and advancement of any other object of general public utility. PUDA argued that its activities, such as developing infrastructure and providing civic amenities, were for general public utility. However, the Tribunal found that PUDA's activities were commercial, involving profit motives, as it acquired land at low prices and sold it at higher rates, earning significant profits.

3. Comparison of the appellant with private builders:
PUDA contended that, unlike private colonizers, it was not profit-driven and provided amenities to economically weaker sections. The Tribunal disagreed, noting that PUDA's activities were similar to those of private developers, who also provided infrastructure and amenities. The Tribunal emphasized that charitable institutions should provide services free of cost and not for profit, which was not the case with PUDA.

4. Applicability of the Supreme Court judgment in the case of Asstt. CIT vs. Thanthi Trust:
PUDA argued that the Supreme Court judgment in Asstt. CIT vs. Thanthi Trust, which dealt with the charitable status of a trust running a newspaper, was misinterpreted by the CIT. The Tribunal found that the judgment supported the view that institutions with commercial activities and profit motives do not qualify as charitable. The Tribunal emphasized that the predominant object of an institution should be charitable, without profit motives, which was not true for PUDA.

5. Consistency in granting registration under Section 12A to similar entities:
PUDA cited the registration granted to Patiala Urban Planning & Development Authority and Maharashtra Housing & Area Development Authority (MHADA) on similar grounds. The Tribunal clarified that res judicata does not apply to income-tax proceedings, and each case must be judged on its own merits. The Tribunal also noted that errors or inconsistencies in other cases should not be perpetuated.

Conclusion:
The Tribunal upheld the CIT's decision to reject PUDA's application for registration under Section 12A(a), concluding that PUDA's activities were commercial with profit motives and did not qualify as charitable. The appeal was dismissed, emphasizing that charitable institutions should provide services free of cost and for the public's benefit, which was not the case with PUDA.

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