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TMI Blog2012 (7) TMI 734X X X X Extracts X X X X X X X X Extracts X X X X ..... essee are aimed at earning profit as it is carrying on activity in the nature of trade, commerce or business, and there is no obligation on the part of the assessee to spend income on 'charitable purpose' only - even on dissolution or winding up by not having any restriction on application of asset for charitable purpose, the objects pursued by the assessee cannot be said to be a charitable in nature - CIT, Jammu, has rightly being satisfied held that the Jammu Development Authority is not entitled to registration and accordingly cancelled the registration so granted - against assessee. - IT APPEAL NO. 30 (ASR.) OF 2011 - - - Dated:- 14-6-2012 - H.S. SIDHU, B.P. JAIN, JJ. K.N. Goyal and Smt. Mala Rajan for the Appellant. R.L. Chhanalia for the Respondent. ORDER 1. This appeal of the assessee arises from the order of the Commissioner of Income Tax, Jammu, dated 08.12.2010 passed under section 12AA(3) of the Income Tax Act, 1961 (In short 'the Act'). 2. The assessee has raised following grounds of appeal: "1. That the impugned order of the learned Commissioner of Income Tax (CIT) is patently against law, erroneous and merits to be quashed. 2. That the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c utilities which were working under the garb of charity as also clarified by Circular No. 11 dated 19th December, 2008 of the CBDT and not to restrict state-owned genuine public utilities which were established by the State for meeting public purpose; ( i ) Arbitrarily holding that the appellant existed for profits while the predominant and the only objective of the appellant is the development of the city of Jammu and that the appellant works on a self-sustaining model so as to reduce its reliance on budgetary support, which is already under great strain, wherein the revenue and surplus generated in certain activities like allotment of land and properties for commerce and business compensate the subsidies and rebates allowed to economically weaker section and lower income group, institutions, etc. and for meeting expenditure on non-revenue generating activities like laying, flyovers, rehabilitations works, maintaining greens, maintaining public places, heritage sites, etc. ( j ) Not appreciating that the appellant is a city development agency and acquisition, development, construction and allotment of land and properties, providing infrastructural facilities, providing wate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rat Art Cloth Manufacturers Association [1980] 121 ITR 1 (SC); ( q ) Placing reliance upon the judgements rendered in the case of Punjab Regional Urban Development Authority and Jalandhar Development Authority while holding that res judicata is not applicable to judicial proceedings and ignoring the fact that the said cases had already been considered and distinguished by the respondent while allowing registration to the appellant; ( r ) Holding that the view taken by the Respondent's predecessor in allowing registration was erroneous and that he is bound to correct the error committed by him while he has no power to reopen concluded proceedings just because his opinion is different from his predecessor; ( s ) Wrongly quoting and relying upon the decision in A. Distributors (Baroda) P. Ltd. v. Union of India and Ors. 155 ITR 120 (SC) that an error should be corrected and not allowed to be perpetuated without appreciating that the said case was not one of reversal of decision on change of opinion but was a case of erroneous interpretation of law which had been subsequently rectified by an amendment and even otherwise, was a overruling of decision of a three member benc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proviso has been added below the said section, which reads as under: "Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce, or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or rentention of the income from such activity". Further, as per the Finance Act, 2010 after the first proviso, proviso-2 has been inserted and shall be deemed to have been inserted with effect from the Ist day of April, 2009, namely: "Provided further that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is ten lakh rupees or less in the previous year." Prior to insertion of these proviso, certain bodies have been treated 'charitable ' on the ground of advancement of object of general public utility. However, after the insertion of the above proviso, the advancement of any other object of general public utility shall not be a 'charitable purposes', if it invo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 2 of the Income Tax Act, 1961, therefore, I am satisfied that the applicant Authority is not entitled to registration in terms of provisions of section 12AA(1)(1)(ii) of the Income Tax Act, 1961. Therefore, in terms of the provisions of section 12AA(3) which provides that where a Trust has been granted registration u/s 12AA(1)(b) and subsequently the Commissioner of Income Tax is satisfied that the activities of such trust are not genuine or are not being carried out in accordance with the objects of the Trust, he shall after affording reasonable opportunity of being heard to it, cancel the registration by passing an order in writing. 4. You are hereby requested to appear before the undersigned at Ayakar Bhawan, Railhead Complex, Panama Chowk, Jammu on 29.10.2010 at 11.30AM/PM and show cause why an order canceling the registration granted to Jammu Development Authority should not be made u/s 12AA(3) of the Income Tax Act, 1961. If you do not wish to avail yourself of this opportunity of being heard in person or through an authorized representative, you may show cause in writing on or before the said date which will be considered before any such order made u/s 12AA(3) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and it came into effect from 31.10.1970. As per the said Act, the object of the Authority is to promote and secure the development of the local area for which it is constituted according to plan and for that purpose the Authority shall have the power to acquire hold, manage and dispose off land and other property, to carrying out building, engineering and other operations, to execute works in connection with supply of water and electricity, disposal of sewerage and other services and amenities and generally to do anything necessary or expedient for purposes such development and for the purposes incidental thereto. The Authority is a body corporate having perpetual succession and a common seal with power to acquire, hold and dispose of properties, both movable and immovable to contract, and by the said name sue or to be sued. The Authority consists of a Chairman, Vice Chairman and seven other members appointed by the State Government. The Authority is responsible for the planned development of the city including preparation of the Master Plan of the area. The State Government is authorized to entrust the Authority from time to time with any work connected with planned development a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, which before the amendment was not included in computing the total income, was omitted. Consequently, the benefit conferred by clause (20A) on such an Authority was taken away. Thus, in view of the fact that section 10(20A) was omitted and an Explanation was added to section 10(20)A) of the Act, enumerating the "Local Authorities" contemplated by section 10(20), the assessee i.e. Jammu Development Authority could not claim any benefit under those provisions after April 1, 2003. The benefit conferred by section 10(20)A) of the Act on the assessee upto the A.Y. 2002-03 has been expressly taken away and the explanation added to section 10(20) enumerates the "Local Authority" which do not cover the Authority. The assessee i.e. Jammu Development Authority subsequently claimed that its objects falls under the provisions of section 2(15) of the Act and has complied with all the eligibility criteria for grant of registration u/s 12A of the Act, which was allowed vide order dated 30.09.2009 subject to fulfilment of certain condition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are other objects like sale and purchase of land and property which make the Authority a commercial organization. Therefore, the objects pursued by the Authority cannot be said to be charitable in view of the fact that the authority being a commercial organization with no restriction as to the application of the assets on dissolution or winding up of for charitable purposes. In order to find out whether n organization is a charitable one, tests have been laid down by the Hon'ble Supreme Court in the case of Addl. CIT v. Surat Art Silk Cloth Mfrs. Association [1980] 121 ITR 1/[1979] 2 Taxman 501 and CIT v. Andhra Pradesh State Road Transport Corpn. [1986] 159 ITR 1. In the case of Surat Art Silk Cloth Mfrs. Association ( supra ), it was held as under: "Since the income and property of the assessee were liable to be applied solely and exclusively for the promotion of the objects set out in the Memorandum and no part of such income or property could be distributed amongst the Members in any form or utilized for their benefit either during its operational existence or on its winding up or dissolution as such the object was a charitable one". 4.5 Therefore, vide para 4.6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Authority is profit making and as such s not entitled for registration u/s 12AA of the Act and upheld the decision of the ld. CIT-2, Jalandhar. The ITAT, Amritsar Bench, in the said case of Jalandhar Development Authority has also considered the cases of Surat Art Silk Cloth Mfrs. Association ( supra ), while deciding the case in favour of the Revenue. The Ld. CIT, referred to the decision of the Hon'ble Supreme Court in the case of Indian Chamber of Commerce v. CIT [1976] 101 ITR 796 wherein it has been held as under: "that the activities of the chamber being activities carried on for profit, in the absence of any restriction in its memorandum and articles of association against the making of profit from those activities, the income of chamber from those activities was liable to income tax. Section 2(15) must be interpreted according to the language used therein and against the background of India Life. By definition in section 2(15) the benefit of exclusion from total income is taken away when in accomplishing a charitable purpose the institution engages itself in activities for profit". 4.8 The ITAT, Amritsar Bench, in the case of M/s. Jalandhar Development Authori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee by the Government is again a public money or generated from public itself. The objects of the assessee, though claimed to be charitable, but actually are of purely commercial nature where profit motive is involved. It is a known fact that the assessee is acquiring the land at very low prices and selling the same land on very higher rates and is earning as profit therefrom. A new trend has also emerged that the assessee has started auctioning the plots by way of bidding at the market rate and sometimes more than that and charging interest on belated payments In such a situation, no charity is involved. Rather the assessee has converted itself into a big businessman. Similar development/infrastructure/facilities are also provided by private developers these days, then they will also claim the status of a charitable institution. The facilities which are provided to the plot holders are incidental to the commercial activity carried out by the assessee and if certain facilities like parks, community center, school are provided, it is not only basic requirement, rather a tool attracting the investors wherein the hidden cost of these facilities is already included. In the absence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dia [1985] 155 ITR 120/22 Taxman 49 wherein while reversing the order of the three Member Bench, the Hon'ble Court ruled as under: "We have given our most anxious consideration to this question, particularly since one of us, namely, P.N. Bhagwati J, was a party to the decision in Cloth Traders' case .. we are compelled to reach the conclusion that Cloth Traders case must be regarded as wrongly decided. The view taken in that case must be held to be erroneous and it must be corrected.. To perpetuate an error is no heroism. To rectify it is the compulsion of the judicial conscience. In this, we derived comfort and strength from the wise and inspiring words of Justice Bronson in Pierce v. Delameter (A.M.Y at page 18) "a judge ought o be wise enough to know that he is fallible and therefore, ever ready to learn: great and honest enough to discard all mere pride of opinion and follow wherever it may lead " and courageous enough to acknowledge his errors". 4.11 On the issue of principle of consistency, as argued by the Ld. counsel for the assessee before the Ld. CIT, it was observed by the Ld. CIT vide para 6.2 of his order and referred to the decision of ITAT, Amritsar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsider the Hydron's Rule also known as the "Mischief Rule' which deals with ascertaining the correct intention of the legislature by looking into the mischief that was sought to be remedied by the legislature. This rule of consistency comprises four things to be considered; ( a ) What was the common law before the making of the Act; ( b ) What was the mischief and defect for which the common law did not provide; ( c ) What remedy the Parliament has appointed to cure the defect; and ( d ) The true reasons of the remedy. This rule contemplates n considering the position prevailing anterior to the amendment, which was intended to be rectified by way of amendment or insertion of a section and then considering the amendment as overruling the hitherto legal position. If a particular provision is enacted for getting rid of the existing law, as it is or as interpreted by the Courts, the new amendment would be construed as superseding the earlier prevalent view which was considered by the legislature as mischievous. The Mischief rule has been repeatedly approved by several courts in the country including the Hon'ble Apex court in the case of CIT v. Shahzada Nand Sons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble opportunity of being heard to it, cancel the registration by passing an order in writing. Accordingly, I am satisfied that Jammu Development Authority is an Authority established with the motive of profit constituted under the Jammu Kashmir Development Act, 1970 and that the activities of such Authority are hit by sub-section 15 of section 2 of the Act and are not in line with the objects of the trust so far as the activities relating to purchase and sale of properties as discussed above. Hence, the activities are not genuine to the extent discussed above, therefore, I am satisfied that the Jammu Development Authority is not entitled to registration and accordingly the registration granted is hereby cancelled in terms of provisions of section 12AA(3) of the Income tax Ac, 1961." 5. The Ld. counsel for the assessee argued on similar lines as argued before the Ld. CIT. In addition, it was argued that the decision in the case of Jalandhar Development Authority v. ITO [ITA No. 562(Asr.)/2008 dated 12th June, 2009], is not applicable in the present facts and circumstances of the case, since in that case registration of the Institution was not granted. Whereas in the presen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order of the Ld. CIT, it appears that first proviso so inserted by the Finance Act, 2008 w.e.f. 01.04.2009 was not taken into consideration while granting registration vide order dated 30.09.2009. Therefore, in the facts and circumstances of the case, we concur with the views of the Ld. CIT, who had placed reliance on the decision of five Member Bench of Hon'ble Supreme Court in the case of Distributors (Baroda) (P.) Ltd. ( supra ), wherein it has been held to perpetuate an error is no heroism. To rectify it is the compulsion of the judicial conscience. In this, we derived comfort and strength from the wise and inspiring words of Justice Bronson in Pierce v. Delameter (A.M.Y at page 18). Therefore, the Ld. CIT in view of the decision of the Hon'ble Supreme Court in the case of Distributors (Baroda) (P.) Ltd. ( supra ) is within his power to decide the issue as per insertion of the first proviso by the Finance Act, 2008 w.e.f. 01.04.2009 and also the second proviso inserted by the Finance Act, 2010 w.e.f. 01.04.2009 whereas the aggregate value of the receipts in the present assessee are Rs. 10 lakhs. Also on the principle of consistency, we concur with the views of the ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iso, the advancement of any other object of general public utility shall not be a 'charitable purposes' if it involves the carrying on of :- ( a ) Any activity in the nature of trade, commerce or business; ( b ) Any activity of rendering any service in relation to any trade, commerce or business. ( c ) For a cess or fee or any other consideration, irrespective of the nature of use or application or retention of income from such activity. 7.4.1 Therefore, the Institutions/Trusts/Societies which are involved in the activities in (a) (b) (c) mentioned hereinabove and aggregate value of the receipt of the activities referred to in the first and second proviso is more than Rs. ten lakhs in the previous year, they shall not be eligible to continue with registration u/s 12A and the same is required to be withdrawn. 7.5 The main objects of the assessee's institution has been mentioned in Para 4.1. of Ld. CIT's order, as mentioned hereinabove. It has rightly been mentioned by the Ld. CIT in para 4.2 mentioned hereinabove that till the financial year 2002-03, the income of such Authorities were exempt u/s 10(20A) of the Act. However, in view of omission of section 10(20A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee is not mere incidental or by product of the assessee. There is no real object of the assessee and there is no spending of the income exclusively for the purpose of charitable activities and profits of the assessee are not used for charitable purpose under the terms of the object and there is no obligation on the part of the assessee to spend on 'charitable purpose' only. Also as per clause 53 of the Jammu Kashmir Development Act, on dissolution of all properties and funds to vest in the Government and for the purpose of realizing properties, the function of the Authority shall be discharged by the Government. We concur with the views of the Ld. CIT on transfer of the properties, funds and dues and liabilities etc. will vest in the Govt. There is no restriction, how the same are to be utilized by the Government. There are other objects like sale and purchase, which makes the Authority a commercial organization. Therefore, in the facts and circumstances of the case, even on dissolution or winding up by not having any restriction on application of asset for charitable purpose, the objects pursued by the assessee cannot be said to be a charitable in nature. 7.7 As rega ..... X X X X Extracts X X X X X X X X Extracts X X X X
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