2017 (6) TMI 82 - HC - Income Tax

Registration of the respondent under Section 12AA - cancellation of registration as assessee has not produced /maintained the books of accounts separately and /or individually plot wise - object and purpose for which AUDA has been constituted - Held that - Merely because AUDA is selling the plots by holding public auction, the activities of the respondent assessee cannot be said to be in the nature of trade or business. By the aforesaid, it cannot be said that the activities of AUDA are not in consonance with the object and purpose for which the same has been constituted and as the respondent assessee is providing public utility services, the same can be said to be charitable purpose within the meaning of Section 2(15) of the Income Tax Act. As in the books of accounts maintained, which is audited by the office of the Auditor General, income from sale of the plots have been specifically disclosed and mentioned. There is no requirement to maintain the books of accounts individually plot wise. By the aforesaid itself the activities of the statutory body cannot be doubted. Considering the aforesaid facts and circumstances of the case, more particularly, considering the relevant provisions of the Gujarat Town Planning Act and the object and purpose for which AUDA has been constituted and the activities to be carried out by AUDA, which is in the nature of public utility services, the learned tribunal has rightly quashed and set aside the order passed by the Director of Income Tax (Exemption) cancelling the registration under Section 12AA of the Income Tax Act. - Decided in favour of assessee.

Summary

Issues:
Challenge to the cancellation of registration under Section 12AA of the Income Tax Act by the tribunal overlooking the amendment in Section 2(15) of the Act.

Analysis:

Issue 1:
The appellant contested the cancellation of registration under Section 12AA by the tribunal, arguing that the activities of the respondent were commercial in nature, not charitable, as they recovered costs from the public and engaged in profit-making ventures. The appellant emphasized the amendment to Section 2(15) of the Income Tax Act, asserting that the tribunal erred in not upholding the cancellation order.

Issue 2:
The respondent, represented by its advocate, defended the cancellation, contending that the activities were for public utility services and aligned with the charitable purpose under Section 2(15) of the Act. They highlighted that the funds raised were solely for development purposes and infrastructure facilities, maintaining that the tribunal rightly set aside the cancellation order.

Judgment:
The High Court noted that the respondent, AUDA, was a statutory body established under the Gujarat Town Planning Act for area development. The court emphasized that selling plots for development did not constitute trade or business, as the proceeds were used for infrastructure development. The court observed that the respondent's activities were in line with its purpose, providing public utility services, and were subject to statutory audit. The court upheld the tribunal's decision, stating that the cancellation lacked specific reasons and did not prove deviation from the statutory objectives. Consequently, the court dismissed the Tax Appeal, ruling in favor of the respondent and against the revenue.

This detailed analysis of the judgment showcases the legal arguments, interpretations of relevant sections, and the court's reasoning leading to the final decision.