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TMI Blog2011 (10) TMI 155X X X X Extracts X X X X X X X X Extracts X X X X ..... - matter restored to the AO to ascertain as to whether separate books have been maintained for construction business. If separate books have been maintained, deduction under sub-sections (1), (2), (3) and (3A) will be available to the assessee, otherwise not. - ITA NO. 2276 (Del.) of 2011 - - - Dated:- 21-10-2011 - SHRI RAJPAL YADAV, AND SHRI K.G. BANSAL, JJ. Represented By: Shri Raj Tandon for the Appellant. Shri Piyush Kaushik for the Respondent. K.G. Bansal, Accountant Member The revenue has taken six grounds in the appeal as under:- "(1) The CIT(A), Bareilly has erred in fact as well as law in holding that the facts of the case Safdurjung Enclave Educational Society v. Municipal Corporation of Delhi [1992] 3 SCC 390, in which it has been held that the activities run on commercial lines do not fall within the ambit of charitable object, are different from the present case without distinguishing the facts of both the cases. (2) The CIT(A), Bareilly erred in holding that the criteria which enable the receipts of a trust as eligible income for exemption u/s 11 12 of the Act, are fully applicable to the facts of the case whereas the activities of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1297376266 Less: Application of income Revenue expenditure 439004524 Capital expenditure 1139242 Repayment of loan 172000000 Amount deemed to applied during the previous year-clause (2) of the Explanation to sec.11(1) 490626000 1102769766 Income exempt u/s 11(1)(a) Income accumulated or set apart up to 15% 194606440 1297376206 Gross total Income: 60/-" 2.1 The AO came to the conclusion that the activities carried out are regarding purchase of land and to sell it after developing. Further, it carries on the activities of construction of houses, flats, shops etc. which are sold. These activities are similar to the activities carried out by dealers, builders and developers of real estate. In other words, the activities are in the nature of carrying on of business. No charitable activity has been carried on by the assessee. In view thereof, the surplus in the building activ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icable to the facts of the case under consideration. Accordingly, the claim of the assessee of having its income as exempt u/s 11 is allowed." 3.1 Aggrieved by this order, the revenue is in appeal before us. 4. At the outset, the ld. counsel submitted that the issue stands decided in favour of the assessee by the Tribunal in its own case in ITA No. 1986(Del)/2008, dated 09.03.2009, for assessment year 2005-06, a copy of which has been placed in the paper book on page nos. 1 to 4. Therefore, it is agitated that the various issues may be decided in the favour of the assessee by following the aforesaid order. The findings recorded by the Tribunal in paragraph 7 are as under:- "7. We have heard the ld. DR and gone through the material available on record. Ld. CIT, DR fairly conceded that the CIT, Moradabad has granted registration under section 12A w.e.f. 01.04.2003, therefore, assessment could not be made under section 143(3) in the status of AOP. There is no dispute that the assessee was granted registration under section 12A(a) vide registration vide letter dated 02.05.2005 w.e.f. 01.04.2003. Prior to 01.04.2003, the assessee was enjoying exemption under section 10(20A) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee. We order accordingly." 4.1 The ld. CIT (DR) referred to page no.7 of the assessment order. In paragraph no. 11, the AO referred to the activities carried out by the assessee vis- -vis the object for which registration was granted u/s 12AA. It is mentioned that the assessee earned income mainly from sale of houses in different residential colonies. This activity has not been included in the object clause. It was granted registration for development of the area of the city by carrying out building engineering, mining and other operations, to execute works in connection with supply of water and electricity, to dispose off sewerage, to provide and maintain other services etc. No such activity has been carried out as ascertained from the contents of the profit and loss account. It has mainly engaged itself in construction and sale of immovable properties to the general public and this is similar to the activities carried out by dealers, builders and developers. Therefore, the activities are not in pursuance of the object of development of town planning and public utility system and also not without any profit motive. On the other hand, the activities are commercial in nature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd to follow the position obtained in earlier years blindly and it is open to him to take an independent view in case any grave error of law has been committed earlier. It is argued that the position as aforesaid is obtained in this case and, therefore, the order of the Tribunal for assessment year 2005-06 (supra) may not be followed blindly. 5. In reply, the ld. counsel submits that the assessee is an authority constituted under a statute and it has been in existence since the year 1973. Its income was not liable to tax earlier u/s 10(20A). However, on deletion of the provision, the assessee applied for registration, which has been granted with effect from 01.04.2003. The object is to promote and secure development of the development area according to the plan and for this purpose it has the power to acquire, hold, manage and dispose of land and other properties to carry out building, engineering, mining and other operations, to execute works in connection with supply of water and electricity, to dispose off sewerage and to provide and maintain other services and amenities and in general to do anything necessary or expedient for the purpose of such development and for purposes i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rm "charitable purpose" furnished in section 2(15) of the Act. 7. The further facts are that the assessee had applied for its registration which had been granted with effect from 01.04.2003. The registration has not been cancelled till date. In other words, the registration is effective for this year. The grant of registration is not an empty formality as it has to be granted after satisfying that the objects are charitable in nature. Since the registration has effect for this year also, the object of the development authority will have to be taken as charitable in nature. 8. The further facts are that in this year the assessee has carried on the activity of sale of immovable properties, from which surplus of Rs. 85,52,21,356/- has been derived. This represents the difference between receipts of Rs. 129,73,76,266/- and the revenue expenditure of Rs. 43,90,04,524/-. The case of the revenue is that its activity is purely commercial in nature and in no way different from the activities undertaken by any private builder. On the other hand, the ld. counsel has pointed out two essential differences-(i) the profit from the activity cannot be distributed in any manner to the members, ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the light of aforesaid observations. (iii) In the case of M. Visvesvaraya Industrial Research Development Centre v. ITAT [2001] 251 ITR 852 (Bom.), it has been mentioned that it is the Commissioner who has to examine whether the application is made in accordance with section 12A, i.e., it is for him to see whether objects of the trust are charitable or not. At this stage, he is not required to examine the application of income. Hence, in the present matter, the Tribunal was certainly entitled to ascertain whether there was a proper application of income for charitable purpose. Accordingly, it was held that the Tribunal should have considered the miscellaneous application filed by the assessee. In the context of the contention raised that there is no legal concept propounded by the Tribunal, viz., sale of lease-hold rights of the use of space. The Commissioner had granted registration u/s 12A, however, such registration did not prevent the Tribunal from ascertaining whether there was proper application of income during the years under consideration. (iv) In the case of Madhya Pradesh Madhyam v. CIT [2002] 256 ITR 277 (MP), it has been held that proceedings for registration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofit and gain of any business carried on by the assessee will not be eligible for deduction u/s 11(1)(a) unless separate books of account were maintained and the business activity was incidental to attainment of objects. (viii) In the case of Jalandhar Development Authority v. CIT [2010] 35 SOT 15 (Asr.)(URO), it has been mentioned that the assessee was not engaged in the activities of relief to the poor, education or medical relief and advancement of any other object of general public utility as defined in section 2(15). The activities of the assessee were to carry on business and there was no restriction in its object of making profit. There is no evidence to suggest that the assessee was not engaged in the activities of making profit. It is a known fact that the assessee was acquiring the land at a very low price and selling the same at a very price and was earning profit therefrom. The assessee had also started auctioning plots at market rate and sometimes more than that and it was also charging interest on belated payment. Therefore, the pre-dominant purpose was to make profit and there was no spending exclusively for charitable purpose. Therefore, it was held that the Comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... doubt in the matter and to bring on record any evidence to show that departure from the consistent stand should not be made. However, where he feels that a grave error of law has been committed, he can make a departure because the bona fide acceptance of assessee's version would not vest in him any right which would continue ad-infinitum. (xiv) In the case of Napar Drugs (P.) Ltd. v. Dy. CIT [2006] 98 ITD 285 (Delhi), it has been held that the decision of a coordinate bench does not constitute a binding precedent on any subsequent bench. However, if it is only a case of difference of opinion being held on the same facts, material and aspect already considered, the subsequent bench should not proceed on its own to make a contrary decision and instead refer the matter to the President for consideration of a larger bench. At the same time, it is neither practicable nor necessary to make a reference for constitution of a larger bench when there is a qualitative difference in respect of issues, facts, evidence and material. 10. Coming to the facts of this case, we have already held that the assessee has been registered u/s 12AA of the Act. Therefore, it follows that the assessee wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... indicated by the Supreme Court in the case of Vanguard Fire and General Insurance Co. Ltd. v. Fraser and Ross [1960] 30 Comp Cas (Ins) 13 ; AIR 1960 SC 971. Where, however, the word defined is declared to "include" certain things, the definition is extensive. (See Ardeshir H. Bhiwandiwala v. State of Bombay [1961-62] 20 FJR 113 ; AIR 1962 SC 29). In Smith v. Anderson [1880] 15 Ch. D. 247, 258 (CA), Jessel M.R., after citing definitions of "business" from several dictionaries, said, "anything which occupies the time and attention and labour of a man for the purpose of profit is business." Further on, he remarks (at page 260) : "There are many things which in common colloquial English would not be called a business, even when carried on by a single person, which would be so called when carried on by a number of persons." For instance, a man who is the owner of a house divided into several floors and used for commercial purposes, e.g., offices, would not be said to carry on a business because he let the offices as such. But, suppose a company was formed for the purpose of buying a building, or leasing a house, to be divided into offices and to be divide into offices and to be let ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether, all object clause of the assessee constitutes business or not. The only objection of the assessee in regard to the first mentioned question is that there is no profit motive. In other words, there is no doubt that the activity has been carried on continuously in an organized manner with a set purpose. The question is only regarding the profit motive. It is clear from the accounts that this activity has been undertaken with a view to earning profit so as to use the profit for the object of the authority. This becomes abundantly clear that profit of more than Rs. 85.52 crore has been earned in this activity. The amount of profit is no doubt subject to further verification on the basis of actual accounts of this activity. In the order of the Tribunal for assessment year 2005-06 (supra), it is mentioned that the AO computed the income at Rs. 6,42,41,460/-. Thus, the assessee has consistently earned substantial profit in this activity. Therefore, the activity has been carried on with profit motive and in the same manner in which a private builder of large township will conduct his business. Apart from this, the activity of construction and sale of immovable property cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed his mind whether it is incidental business and separate books have been maintained or not. In absence of any finding by any of the authorities below, we think it fit to restore the matter to the AO to ascertain as to whether separate books have been maintained for construction business. If separate books have been maintained, deduction under sub-sections (1), (2), (3) and (3A) will be available to the assessee, otherwise not. Thereafter, he will have to examine whether capital expenditure, repayment of loan and the amount deemed to have been applied towards charitable purpose under clause (2) of the Explanation to section 11(1) are deductible under the aforesaid provision. Ground nos. 2, 3 and 4 are disposed off accordingly. 10.2 It may be mentioned here that we are not expressing a view different from the view expressed in the order of the Tribunal for assessment year 2005-06. It has been accepted by us that the assessee is engaged in a charitable purpose. Therefore, it is entitled to deduction u/s 11 of the Act. In the earlier decision, the Tribunal restored the matter to the assessing officer after recording this finding. We are now proceeding further to decide the manner i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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