9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2019 (3) TMI 1300 - AT - Income TaxCharitable purpose - Applicability of proviso to section 2(15)- Cancellation of registration u/s 12A - Bangalore Development Authority (BDA) - real estate developer - HELD THAT - No doubt, it is a fact that one will see a lot of similarities in the activity of the assessee vis- -vis that of a real estate developer. However, the issue to be considered is, not whether the activity of the assessee is similar to that of the private real estate developer or not, but whether the underlying purpose of the activity is the same as that of the private real estate developer, i.e., making and maximization of profit. In the case of this assessee; viz., BDA, the underlying motive / objective is not making and maximizing of profits, but planned development of Bangalore City. It is important in this context to note the fact that concerned Income Tax authorities have recognized the assessee as a public charitable organization by grant of registration under section 12A of the Act since 26.03.2003 and that the assessee s objects clause, i.e., section 14 of the BDA Act has not undergone any change or modification since its enactment; which is what must have prompted the Income Tax Department to take the view that it was charitable in nature. In other words, the Income Tax Department considered the assessee, BDA to be covered by the provisions of section 2(15) of the Act. It is after the introduction of the proviso to section 2(15) of the Act that the Income Tax Department took a view that the activity of BDA was in the nature of trade, commerce or business and cancelled the registration, granted under section 12A of the Act, vide order dated 08.11.2011. The assessee s registration under section 12A of the Act however stood restored by a decision of the Co-ordinate Bench of this Tribunal vide order in 2015 (7) TMI 198 - ITAT BANGALORE . In this prevailing factual matrix, there is no change in the objects and the only issue which apparently prompts Revenue to take the view it has taken, i.e., that the activity of the assessee is hit by the proviso to section 2(15) of the Act; is the fact that the activity of the assessee has resulted in huge surplus or profits. In our view, the fact of surplus or shortfall is not to be reckoned as the test for applicability of the proviso to section 2(15) of the Act; but rather, whether the activity is embarked upon solely with the view to earn profit or not; which the AO and CIT(A) have not done. we find that in the case of Ahmedabad Development Authority 2017 (5) TMI 1468 - GUJARAT HIGH COURT , the Hon ble Gujarat High Court has upheld the appeal of the assessee, by overruling therein the decision of the Ahmedabad Tribunal in that case. In the case of Lucknow Development Authority 2013 (9) TMI 570 - ALLAHABAD HIGH COURT , the Hon ble Allahabad High Court has upheld the decision of the Lucknow Bench of ITAT which was in favour of the assessee. We find that in the above judicial pronouncements cited by the assessee, the facts are identical to that of the assessee in the case on hand; that the AOs in these cases have taken a view that the activity is in the nature of trade, commerce or business and hit by the proviso to section 2(15) of the Act and the assessees have got relief at the higher appellate forums, viz., the Hon ble High Courts and / or Tribunals. Further, in view of the decision of the Hon ble Apex Court in the case of CIT Vs. Vegetable Products 1973 (1) TMI 1 - SUPREME COURT , it is judicially correct to follow the decisions of Hon ble High Courts of Gujarat and Allahabad which support the case of the assessee (supra), when the same are in favour of the assessee; despite there being decisions contrary by other High Courts; when there is no decision of the jurisdictional High Court against the assessee. In view of the factual and legal matrix of the case, as discussed above, we hold that the activities of the assessee, i.e., Bangalore Development Authority are not hit by the proviso to section 2(15) of the Act. Having held so, we direct the AO to allow the assessee the benefits of section 11 of the Act while giving effect to this order. Consequently, grounds raised by the assessee on this issue are allowed. In view of the finding rendered by us above on the applicability of the proviso to section 2(15) of the Act in the case on hand, all other grounds / issues raised by assessee in this appeal and by Revenue in its cross appeal become academic in nature and do not call for adjudication at this juncture.
Issues Involved:
1. Depreciation on assets. 2. Prior period expenses. 3. Jurisdiction of the Additional Commissioner of Income-tax. 4. Applicability of the proviso to Section 2(15) of the Income Tax Act, 1961. 5. Change of accounting policy. 6. Disallowance of interest paid to KUIDFC. 7. Classification of expenses as capital or revenue expenditure. 8. Disallowance of donations. 9. Inclusion of interest on fixed deposits. 10. Disallowance under Section 43B of the Act. 11. Re-computation of depreciation. 12. Charging of interest under Section 234B. Detailed Analysis: 1. Depreciation on Assets: The Revenue challenged the allowance of depreciation on assets that had already been considered as application of income in earlier years, arguing it amounted to double deduction. The Tribunal upheld the CIT(A)'s decision to allow depreciation, noting that the CIT(A) directed necessary modifications to allow depreciation to the extent of ?2.05 crores. 2. Prior Period Expenses: The Revenue contended that the CIT(A) erred in allowing prior period expenses as the assessee follows a mercantile system of accounting. The Tribunal did not find merit in the Revenue's argument, supporting the CIT(A)'s acceptance of the claim as it involved the reversal of double entries. 3. Jurisdiction of the Additional Commissioner of Income-tax: The assessee challenged the jurisdiction of the Additional Commissioner of Income-tax, arguing that once the registration under Section 12A was canceled, jurisdiction should vest with the regular circle, not the Trust circle. The Tribunal found that the CIT(A) was justified in not holding the assessment void ab initio and upheld the jurisdiction. 4. Applicability of the Proviso to Section 2(15) of the Income Tax Act, 1961: The primary issue was whether the assessee's activities were hit by the proviso to Section 2(15) of the Act, which would deny exemption under Section 11. The Tribunal examined the activities of the Bangalore Development Authority (BDA) and concluded that the activities were not in the nature of trade, commerce, or business. The Tribunal noted that the BDA's primary objective was planned urban development, not profit-making. The Tribunal relied on various judicial precedents to support this view, including decisions from the Gujarat High Court and Allahabad High Court. Consequently, the Tribunal directed the AO to allow the benefits of Section 11 to the assessee. 5. Change of Accounting Policy: The assessee argued that the change in accounting policy, which was approved by the State Government and accepted by the Principal Accountant General, should be accepted. The Tribunal found merit in the assessee's argument and noted that the CIT(A) was not justified in not granting relief for the change in accounting policy. 6. Disallowance of Interest Paid to KUIDFC: The CIT(A) confirmed the disallowance of interest paid to KUIDFC for loans borrowed for construction projects, treating them as capital expenditure. The Tribunal found that these expenses were revenue in nature and incurred for public utility projects, thus allowing the assessee's claim. 7. Classification of Expenses as Capital or Revenue Expenditure: The Tribunal examined the nature of various expenses, including those for construction of grade separators, PRR bridges, and development of lakes. It found that these were revenue expenditures incurred for public utility and preservation of the environment, thus allowing the assessee's claim. 8. Disallowance of Donations: The CIT(A) confirmed the disallowance of donations not falling under the recognition of Section 80G. The Tribunal found that the donations were incurred under directions from government authorities and were within the scope of the assessee's objects, thus allowing the claim. 9. Inclusion of Interest on Fixed Deposits: The Tribunal found that the interest on fixed deposits related to the BDA Employees Superannuation Fund was not the income of the assessee but belonged to the Trust. Thus, it directed the exclusion of this interest from the assessee's income. 10. Disallowance under Section 43B of the Act: The Tribunal examined the disallowance of workers' welfare cess and unpaid service tax under Section 43B. It found that these provisions were not applicable to the assessee, whose income did not come under the purview of Section 28, thus allowing the assessee's claim. 11. Re-computation of Depreciation: The Tribunal found that the re-computation of depreciation by treating revenue expenditure as capital expenditure was not justified. It directed the authorities to allow depreciation based on the opening balance of assets as on 1.4.2011, considering the change in accounting policy. 12. Charging of Interest under Section 234B: The assessee denied liability to be charged interest under Section 234B. The Tribunal found that the calculation of interest was not in accordance with law and directed the authorities to re-calculate interest properly. Conclusion: The Tribunal allowed the assessee's appeal for Assessment Year 2012-13 and dismissed the Revenue's cross appeal, directing the AO to allow the benefits of Section 11 of the Act to the assessee. The Tribunal's decision was based on a detailed analysis of the nature of the assessee's activities, the applicability of the proviso to Section 2(15), and various judicial precedents supporting the assessee's claims.
|
