2022 (6) TMI 659 - AT - Income Tax

Exemption u/s 11 - AO denied exemption holding that the assessee was hit by the proviso to section 2(15) of the Act as the assessee has been doing the activities which amounts to carrying on of business or trade - CIT(A) allowed the exemption - question of law -when can Hon'ble Supreme Court be said to have laid down any law - assessee is a Parishad namely The Uttar Pradesh Awas Evam Vikas Parishad which has been incorporated by the Legislative Assembly vide Uttar Pradesh Awas Evam Vikas Parishad Adhiniyam 1965. The scope of activities to be performed by the Parishad are strictly circumscribed by the provisions contained under section 15 of the said very enactment under the head function of the board and through the Parishad it is the Government of Uttar Pradesh itself which has been carrying on the objects of general public utility HELD THAT - Revenue had placed heavy reliance on the order of Hon'ble Supreme Court in the case of Greater Cochin Development Authority 2015 (9) TMI 1727 - SC ORDER wherein it was claimed that under similar facts and circumstances, Hon'ble Supreme Court had dismissed the appeals filed by the assessee. We observe that the Learned counsel for the assessee had not elaborated on this argument of the Revenue therefore, the cases were refixed and were finally heard on 17/05/2022. Learned counsel for the assessee filed supplementary written submissions, which has been made part of this order. In the supplementary written submissions, the Learned counsel for the assessee has argued that the judgment of Hon'ble Supreme Court in the case of Greater Cochin Development Authority is not applicable to the facts and circumstances of assessee. Elaborating on such judgment, Learned counsel for the assessee, through her written submissions, had submitted that in that case the Hon'ble ITAT had held that the activities of the assessee were hit by the proviso to section 2(15) of the Act and Hon'ble High Court 2014 (12) TMI 1314 - KERALA HIGH COURT had dismissed the appeal of the assessee by holding that no substantial question of law arose in that appeal and in this respect our attention was invited to the judgment of Hon'ble Kerala High Court dated 19/12/2014. We find force in this argument of the ld. Counsel as Hon'ble High Court did not frame any question of law therefore, the Special Leave Petition dismissed by Hon'ble Supreme Court does not lay down any law in this respect and therefore, the judgment of Hon'ble Supreme Court is not a binding precedent. We further find that the judgment of Hon'ble High Court of Jammu Kashmir in the case of Jammu Development Authority 2013 (11) TMI 1578 - JAMMU AND KASHMIR HIGH COURT is also not applicable to the assessee as that case related to the denial of registration u/s 12A of the Act and in the present cases there is no dispute regarding registration u/s 12A of the Act as the assessee is duly registered u/s 12A of the Act. Moreover, in this case also the Hon'ble High Court had not framed any question of law. We find that Hon'ble Punjab Haryana High Court in the case of the Tribune Trust Chandigarh vs. CIT 2017 (1) TMI 53 - PUNJAB AND HARYANA HIGH COURT has observed that where the High Court had not framed any question of law, the SLP dismissed by Hon'ble Supreme Court do not lay down any law. We find from the findings of Hon'ble High Court of Kerala and further from the findings of Hon'ble Jammu Kashmir High Court in the case of Jammu Development Authority that Hon'ble High Courts had not framed any question of law and had dismissed the appeals of the assessees based upon the facts of those assessees and therefore, the dismissal of SLP, filed by the assessee, by Hon'ble Supreme Court, cannot be said to have laid down any law and therefore, the findings of Hon'ble Supreme Court in the case of Greater Cochin Development Authority and in the case of Jammu Development Authority, will not be applicable to the cases of the assessee as in the case of the assessee, the jurisdictional High Court of Allahabad 2017 (7) TMI 1421 - ALLAHABAD HIGH COURT has already decided the issue in favour of the assessee wherein the Hon'ble court has held that the activities of the assessee are not hit by the proviso to section 2(15) of the Act. Since admittedly by both parties, there has not been any change in the activities undertaken by the assessee therefore, the activities undertaken by the assessee during these years under consideration will not be hit by the proviso to section 2(15) of the Act. As in M/S YAMUNA EXPRESSWAY INDUSTRIAL DEVELOPMENT AUTHORITY, M/S GREATER NOIDA INDUSTRIAL DEVELOPMENT AUTHORITY, M/S NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY, NOIDA 2017 (4) TMI 1154 - ALLAHABAD HIGH COURT after discussing various provisions of section 12A, 11A and 2(15) of the Act, along with the proviso to section 2(15), the Hon'ble High Court has answered all these three questions in favour of the assessee and against the Revenue. Therefore, their Lordships while considering question No. 2, exhaustively examined the activities of the assessee and held them to be non commercial in nature. As with the insertion of section 10(46) of the Act, introduced by the statute by the Finance Act 2011, the specified income arising to a body or trust or Board or Trust or Commission, which has been established or constituted by a Central or a State Act, for any activity for the benefit of general public and which is not engaged in any commercial activity has been held to be exempt. The Greater Noida Industrial Development Authority, which again is set up by UP State Government and which is engaged in industrial development activity in the Greater Noida, has been held to be engaged in non commercial activities vide order dated 26/02/2018 by Hon'ble Delhi High Court and Hon'ble Supreme Court has dismissed the SLP filed by the Revenue vide order dated 25/11/2019. We further find that CBDT, vide notification dated 23/06/2020, has allowed exemption u/s 10(46) for assessment year 2013-14 to 2016-17 to Greater Noida Industrial Development Authority. The said notification allows the activities undertaken by Greater Noida Industrial Development Authority, as activities for charitable purposes. Similarly, vide notification dated 24th December, 2020 in the case of Yamuna Expressway Industrial Development Authority, which again has been set up by UP State Government and wherein again similar income, arising from similar activities as in the case of Greater Noida Industrial Development Authority, has been held to be eligible for exemption u/s 10(46) of the Act. The activities being undertaken by the assessee are similar which includes the money received from disposal of land, building and other properties movable and immovable and also money received by way of rent, lease charges from the immovable properties. Therefore, in view of the fact that CBDT itself has considered similar activities as being undertaken by various assessees being of non commercial nature, the activities undertaken by the assessee also cannot be said to be of commercial nature. Admittedly, under the definition of charitable purposes, the objects of the assessee fall into advancement of any other object of general public utility. Therefore, the proviso inserted by the Finance Act, 2012 with effect from 01/04/2009 will be quite relevant in the case of the assessee. Such examination and effect of insertion of proviso to section 2(15) has already been made by Hon'ble Allahabad High Court, which is a jurisdictional High Court in the case of the assessee itself 2017 (7) TMI 1421 - ALLAHABAD HIGH COURT where the Hon'ble High Court,has held that the activities carried on by the assessee are not hit by the proviso to section 2(15) Whether CIT(A) has failed to comply with the provisions of section 11(2) ? - We find that this provision requires an assessee to spend 85% of the income earned to be eligible for exemption u/s 11 of the Act. From the order of the Assessing Officer, it is observed that the Assessing Officer has not raised any observation regarding non spending of income earned by the assessee and therefore, neither assessee filed any grounds of appeal before learned CIT(A) against the order of the Assessing Officer in this respect. However, we find that since the Assessing Officer had outrightly disallowed the exemption u/s 11 of the Act, he has not examined the provisions of section 11(2) of the Act which necessitates that exemption u/s 11 will be available to the assessee only if it fulfills the provisions contained in section 11(2) of the Act. The provisions of section 11(2), as already noted by us above, relates to spending of 85% of the income and accumulation of 15% of the income, which aspect can be examined by the Assessing Officer while allowing exemption u/s 11 of the Act. Therefore, the Assessing Officer is directed to examine this aspect while allowing exemption u/s 11 of the Act. In view of the above, ground No. 2 of the additional grounds of appeal is allowed for statistical purposes. Whether CIT(A) has not taken into account the provisions contained in section 13(1)(d)? - The provisions contained in section 13(1)(d) of the Act relate to investments of the accumulated fund in the specified modes as contained in sub section 5 of section 11 of the Act. This aspect can also be examined by the Assessing Officer while granting exemption u/s 11 of the Act. In view of the above, ground No. 3 of the additional grounds of appeal is allowed for statistical purposes. Non consideration of provision contained in section 13(3) - We find that this provision relates to use of funds of the assessee by the author of the trust or the founder of the institution or any person who has made a substantial contribution to the trust or institution, or any relative of any such author, founder, person, member, trustee or manager or any concern in which any of the persons referred to in clauses (a), (b), (c) and (d) has a substantial interest. As in the present case, it is undisputed fact that the assessee was allowing discount to its employees, therefore, this case law is not applicable. However, we find that such stay order was passed in assessment year 2017-18 whereas the present cases relate to earlier years therefore, the Assessing Officer can again examine these facts while granting exemption u/s 11 of the Act in the present previous years. However, while examining such facts, the Assessing Officer will have to consider the ratio of judgment in the case of Tata Steel Ltd 1993 (1) TMI 32 - PATNA HIGH COURT where employees of the assessee had been held to be not part of persons mentioned in section 13(3) of the Act. Revenue appeal dismissed. Additional Ground 1 - wheher the provisions contained in section 13(8) of the Act, introduced by the Finance Act, 2012 with retrospective effect from 01/04/2009 is applicable - HELD THAT- Admittedly, under the definition of charitable purposes, the objects of the assessee fall into advancement of any other object of general public utility. Therefore, the proviso inserted by the Finance Act, 2012 with effect from 01/04/2009 will be quite relevant in the case of the assessee. Such examination and effect of insertion of proviso to section 2(15) has already been made by Hon'ble Allahabad High Court 2017 (7) TMI 1421 - ALLAHABAD HIGH COURT , which is a jurisdictional High Court in the case of the assessee itself where the Hon'ble High Court, has held that the activities carried on by the assessee are not hit by the proviso to section 2(15) - additional ground No. 1 is dismissed. Additions Ground 2 - Accumulation of income - compliance with the provisions of section 11(2) - HELD THAT - The provisions of section 11(2), as already noted by us above, relates to spending of 85% of the income and accumulation of 15% of the income, which aspect can be examined by the Assessing Officer while allowing exemption u/s 11 of the Act. Therefore, the Assessing Officer is directed to examine this aspect while allowing exemption u/s 11 of the Act. Additions Ground 3 - Investment of Accumulation of income in specified manner - HELD THAT - This aspect can also be examined by the Assessing Officer while granting exemption u/s 11 of the Act. In view of the above, ground No. 3 of the additional grounds of appeal is allowed for statistical purposes. Additions Ground 4 - allotment of plots were made to the employees of the assessee - use of funds of the assessee by the author of the trust or the founder of the institution or any person who has made a substantial contribution to the trust or institution, or any relative - Scope of provision of Section 13(3) - HELD THAT - in the present case, it is undisputed fact that the assessee was allowing discount to its employees - AO can again examine these facts while granting exemption u/s 11 of the Act in the present previous years. However, while examining such facts, the Assessing Officer will have to consider the ratio of judgment in the case of Tata Steel Ltd. 1993 (1) TMI 32 - PATNA HIGH COURT where employees of the assessee had been held to be not part of persons mentioned in section 13(3) of the Act. Though main appeal of the revenue dismissed, 3 additional grounds admitted for statistical purpsoe.

Summary

Issues Involved:
1. Applicability of Section 2(15) of the Income Tax Act.
2. Eligibility for exemption under Section 11 of the Income Tax Act.
3. Interpretation of the term "charitable purpose."
4. Impact of amendments to Section 2(15) by the Finance Act, 2008.
5. Validity of the cancellation of registration under Section 12AA.
6. Relevance of judicial precedents and higher court decisions.
7. Application of Section 13(3) regarding benefits to employees.

Issue-Wise Detailed Analysis:

1. Applicability of Section 2(15) of the Income Tax Act:
The core issue is whether the activities of the appellant fall under "charitable purpose" as defined in Section 2(15), especially after the amendment by the Finance Act, 2008. The Tribunal and High Court examined whether the appellant's activities, primarily involving the development of housing and related infrastructure, constituted an "advancement of any other object of general public utility" and whether these activities were in the nature of trade, commerce, or business. The High Court held that the appellant's activities did not fall under trade, commerce, or business, emphasizing the public utility nature and the absence of a profit motive.

2. Eligibility for Exemption under Section 11:
The appellant sought exemption under Section 11, which is available to entities engaged in charitable activities. The Tribunal and High Court scrutinized whether the appellant's income was applied for charitable purposes and whether the activities were genuinely charitable. The High Court affirmed that the appellant's activities were charitable, focusing on the development of public infrastructure and housing without a profit motive, thus qualifying for exemption under Section 11.

3. Interpretation of the Term "Charitable Purpose":
The interpretation of "charitable purpose" was central to the case. The Tribunal and High Court referred to various judicial precedents, including the Supreme Court's rulings, to conclude that the appellant's activities aimed at public welfare and infrastructure development fell within the ambit of "charitable purpose." The courts emphasized that incidental profits did not negate the charitable nature if the primary objective was public welfare.

4. Impact of Amendments to Section 2(15) by the Finance Act, 2008:
The amendment introduced a proviso to Section 2(15), excluding entities engaged in trade, commerce, or business from being considered charitable if their activities involved such elements. The Tribunal and High Court analyzed whether the appellant's activities post-amendment still qualified as charitable. They concluded that the appellant's activities were not commercial in nature, as they were mandated by statute to serve public utility without a profit motive.

5. Validity of the Cancellation of Registration under Section 12AA:
The cancellation of the appellant's registration under Section 12AA was contested. The High Court reiterated that the registration under Section 12AA should not be canceled if the entity's activities remained charitable. The court found no grounds for cancellation, as the appellant continued to fulfill its statutory mandate of public welfare and infrastructure development.

6. Relevance of Judicial Precedents and Higher Court Decisions:
The Tribunal and High Court considered various precedents, including those from the Supreme Court and other High Courts. They emphasized the importance of following jurisdictional High Court decisions unless overruled by the Supreme Court. The High Court's decision in the appellant's favor, affirming the charitable nature of its activities, was upheld, despite contrary decisions in other jurisdictions.

7. Application of Section 13(3) Regarding Benefits to Employees:
The issue of whether benefits provided to employees violated Section 13(3) was examined. The Tribunal and High Court found that benefits to employees did not constitute a violation, as employees were not considered "specified persons" under Section 13(3). The benefits were part of the appellant's operational policies and did not detract from its charitable status.

Conclusion:
The Tribunal and High Court concluded that the appellant's activities were charitable, focused on public welfare and infrastructure development without a profit motive. The amendments to Section 2(15) did not alter the charitable nature of the appellant's activities. The registration under Section 12AA was valid, and the appellant was entitled to exemption under Section 11. Judicial precedents and higher court decisions supported this interpretation, and benefits to employees did not violate Section 13(3).