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TMI Blog2015 (6) TMI 721X X X X Extracts X X X X X X X X Extracts X X X X ..... n with profit motive and also there is no clause for application of income for charitable activities including relief to poor, education or medical relief and advancement of any other object of general public utility. There is nothing in this case which provides services to the mankind on charity basis. The argument of the learned counsel is not tenable because a charitable institution provides services for charitable purposes free of cost and not for gain. The object of the assessee is similar to activities performed by big developers, who are earning profit . If the registration is granted to the assessee u/s 12A of the Act, then, it will open pandora's box and everybody will claim exemption from tax, who are incidentally doing some charitable activities in providing parks or roads. The activities of the assessee is nothing but profit making activities for which it is taking money from general public and no charity activities are carried on for the public. Considering all these facts brought on record by the DIT(E), in our considered view, the assessee is not entitled for grant of registration u/s 12A of the Act. Being so, we do not find infirmity in the order of the DITE) in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to enter into partnership with other organizations for sharing of profits and such partnership including joint-venture arrangement are for the purpose of carrying business transactions. Further, the DIT(E) observed as follows: 7.1 On a careful reading of such object clauses, it may be seen that the same refute the claim of the assessee regarding a charitable organisation. Further, from the objects of the assessee corporation, it is seen that, it intends to carry on business in construction materials, apart from carrying on business as a builder. In this context, it is relevant to reproduce the following objects as mentioned under (c) other Objects' in the said Memorandum of Association, which is as under: To carry on the business of builders and contractors of all descriptions, decorators, manufacturers and dealers in stone, sand, lime, soorkey, bricks, timber, hardware, paints and other building materials and of brick and tile and terra-cotta makers, job makers, carriers, furnishers and house agents. From the foregoing objects stipulating to carry on trading in construction materials, apart from engaging in construction of buildings, it clearly shows that the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the main object of the assessee is to undertake or regulate construction of buildings and create or cause to be created other infrastructural facilities required for the said house scheme. It is submitted that the assessee's ancillary objects to enter into partnership of any agreement sharing profits etc. on the main objects of the assessee. According to the learned counsel, the assessee has not derived any income from construction activities and if any dividend is declared it is from the profit of the assessee and it does not carry any interest. According to the learned counsel, the assessee is carrying on the activities, which are giving relief to the poor people. He relied on the following judgments: 1. Dharmaphoshanam Co. Kerala Vs. CIT, SC 114 ITR 463 2. Ecumenical Christian Centre Vs. CIT 139 ITR 226 (Karn.) 3. CIT Vs. Mahendra Mohta Sewa Nidi, 152 ITR 516 (P H) 4. CIT Vs. Ootacamund Gymkhana Club, 110 ITR 392 (Mad.) 5. CIT Vs. Sarvhitkari Education Society, 318 ITR 92 (P H) 6. Sri Venkateswara Bhakti Channel Vs. ACIT, 131 ITD 84 (Hyd.) 9. On the other hand, the learned DR relied upon the order of the DIT(E). 10. We have heard both the parties, pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be prescribed, and provide by regulations made in this behalf for rules of procedure at the meeting of the Committees and allowances to members thereof. As noted above, the Tribunal, in its earlier round has set aside the matter to the file of the Commissioner of Income- tax for consideration of the assessee's application for registration under S.12AA of the Act afresh, in the light of the case-law in favour and against the assessee, brought to its notice, as in Gujarat Maritime Board (supra) and Adityapur Industrial Area Development Authority (supra). 11. In the fresh round of proceedings before him, after taking note of the above two decisions, the Commissioner of Income-tax followed the decision of Punjab Urban Planning and Development Authority V/s. CIT (supra), in which case also, the assessee was an urban development authority constituted under Punjab Regional and Town Planning and Development Act, 1995, which is analogous to Andhra Pradesh Urban Areas (Development) Act, 1975 under which the assessee before us was constituted, and declined to grant registration to the assessee, vide order dated 16.12.2009. In that case of Punjab Urban Planning and Development Auth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der which the assessee was constituted is analysed, it includes the State of Punjab excluding Patiala. Shri Ajay Vohra contended that it can be said that Patiala authority is part of the State and when registration has been granted to Patiala authority, then no two yardsticks should be adopted. At the outset, we are of the view that we are not agreeable with the contention of the learned Counsel because if the intention of creating Patiala authority was the same then there was no need of its creation as the same objects would have been fulfilled by the bigger unit, i.e., the assessee. At the same time, res judicata is not applicable in income-tax proceedings. We do not want to comment as to why and how the registration was granted to Patiala authority as the same is not pending before us for adjudication. Reliance can be placed upon the decision pronounced by the Hon'ble apex Court in the case of Distributors (Baroda) (P) Ltd. v. Union of India and Ors. wherein the Hon'ble apex Court held that it is almost as important that the law should be settled permanently as that it should be settled correctly but there may be circumstances where public interest demands that the prev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thin the provisions of Section 11(4A), as it then stood, and was not entitled to exemption from tax. The Hon'ble apex Court also considered various judicial pronouncements which were referred to it by the respective counsel as are available in the said order specially at p. 787. However, there is a major shift in the law with regard to institutions who are claiming charities. It is a well known fact that in some of the situations the provisions of law is misused in the names of charities. If an expanded/broader latitude is extended to the word charity, then there are so many institutions/Departments who will try to come under the umbrella of this provision to misuse the provision. Therefore, for the broad development of the nation/society a strict and positive vigil is required so that the provision can be saved from its misuse in any manner. We are aware that no activity can be carried on efficiently, properly unless and until it is carried out on business principle but it does not mean that the provision is misused in any manner under the garb of charity and any institution be allowed to become richer and richer under the garb of charity by making it a non-tax payable orga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bjects 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 a profit therefrom. A new trend has also emerged that PUDA, i.e., 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, we are of the view that 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. During argument, the learned Counsel relied upon the decision of the Hon'ble apex Court pronounced in the case of Addl. CIT v. Surat Art Silk Cloth Manufactures Association (supra) where the assessee was incorporated under the Companies Act wherein the dominant or the primary purpose of the assessee was to promote commerce and trade in art silk yarn, raw silk, cotton yarn, art silk cloth, silk cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... circumstances which depends upon facts of each case in the light of primary object and real activities done by the assessee, so these judicial pronouncements in our humble opinion are not going to help the assessee. The Hon'ble High Court of Delhi in the case of Daulat Ram Public Trust v. CIT wherein on scrutiny of objects; of the assessee-trust, there was no defined dominant charitable purpose in the trust deed to which the said objects would serve as ancillary objects and which were meant to feed the dominant purpose. Clause 21 of the trust deed empowered the chairman of the trust to spend the funds of the trust for the purchase of immovable property and since no part of the income of the trust was applied on any specific charitable purposes, the exemption under Section 11 of the Act was denied. The Hon'ble Court relied upon various judicial pronouncements which are available at p. 515 of the said order and then came to a particular conclusion. In view of these facts and judicial pronouncements, we are supposed to see the predominant object of the assessee. If all the objects and activities actually carried out by the assessee are analysed and kept in juxtaposition with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es in general. Admittedly, the assessee is doing some activities like housing/infrastructure development and the public is also benefited but for the same the assessee has already charged in the form of hidden cost. Rather the assessee is generating income, so no charity is involved. We agree with the conclusion of the learned GIT, as contended by learned CIT-Departmental Representative, that a charitable institution provides services for charitable purposes free of cost and for no gain and are for the benefit of public at large. As we have discussed in the preceding para, the assessee acquires land at nominal rates and after developing the same, the same land (is sold) on high profit which cannot be said to be a charitable activity. Even just for argument sake, under the present facts, if registration is granted, then every private colonizer will claim charity. The facilities which are provided to the plot holders are incidental to the commercial activity carried out by the PUDA and if certain facilities like parks, community center, school are provided is not only basic requirement, rather a tool of attracting the investors wherein the hidden cost of these facilities is already i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expanded /broader latitude is extended to the word charity, then there are so many institutions / departments who will try to come under the umbrella of this provision to misuse the provision. Therefore, for the broad development of the nation / society, a strict and positive vigil is required so that the provision can be saved from its misuse in any manner. No activity can be carried on efficiently, properly unless and until it is carried out on business principle but it does not mean that the provision is misused in any manner under the grab of charity and any institution be allowed to become richer and richer under the grab of charity by making it a non-tax payable organization. A charitable institution provides services for charitable purposes free of cost and not for a gain. In the present scenario, similar activities are performed by big colonizers/developers who are earning a huge profit. If this registration is granted, then anybody will claim the exemption from tax. If the accounts of the assessee are analysed, it has turned into a huge profit-making agency for which it is taking money from the general public. If any institution of public importance like schools, community ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar State Forest Development Corporation Vs CIT (1997) 224 ITR 757 (Pat) reline on : Addl. CIT Vs Surat Silk Cloth Manufacturers Association (1979) 13 CTR (SC) 378: (1980) 121 ITR 1 (SC), CIT Vs Andhra Pradesh State Road Transport Corporation (1986) 52 CTR (SC) 75: (1986) 159 ITR 1 (SC) and New Life in Christ Evangelistic Association (NLC) Vs CIT (2001) 165 CTR (Mad) 446: (2000) 246 ITR 532 (Mad) distinguished. The Tribunal, distinguishing among others, the decision of the Apex Court in the case of Gujarat Maritime Board (supra), the Tribunal in that case observed in para 6.4 of its order as follows- 6.4 The major trust of the learned counsel for the assessee is that JDA is a general public utility as it satisfies the need for housing accommodation. For the section (section) of the people of State of Punjab and is also doing planning and development of the cities, towns and villages. We are not agreeable with the argument of the learned counsel because a charitable institution provides services for charitable purposes free of cost and not for a gain. In the present scenario, the similar activities are performed, by big colonizers/developers who are earning a huge profit. If thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Tribunal in the case of Punjab Urban Planning and Development Authority V/s. CIT (supra) squarely applies to the facts of that case, the Tribunal in that case held that the assessee was not entitled for registration under S.12AA of the Act. 14. Similarly, following the order of the Tribunal in the case of Jalandhar Development Authority (supra), in similar circumstances, in the case of Jammu Development Authority V/s. CIT (ITA 30/Asr/2011), the Amritsar Bench of the Tribunal, vide its order dated 14.6.2012, the Tribunal considered the legality and validity of the action of the Commissioner of Income-tax in withdrawing the registration granted in favour of the assessee, by invoking the provisions of S.12AA(3) of the Act. The Tribunal, besides following the coordinate Bench decision in the case of Jalandhar Development Authority (supra), considered at length the various contentions urged before it in the light of the case law relied upon by the parties, and ultimately upheld the action of the Commissioner of Income-tax in withdrawing the registration. Relevant portion of the order of the Tribunal dated 14.6.2012 in that case is reproduced below- 7. We have heard the ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion 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 A Distributors (Baroda) P. Ltd. vs. Union of India Ors.(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 present assessee are ₹ 10 lakhs. Also on the principle of consistency, we concur with the views of the ld. CIT relying upon the decisions of various courts of law that an erroneous view in law could not be allowed to be perpetuated on the ground of consistency. Therefore, in the facts and circumstances of the present case, the Ld. Counsel for the assessee was put a question by the Bench how the facts in the present case are different from the facts in the case of M/s. Jalandhar Development Authority. The ld. counsel for the assessee argued and replied that the difference in the facts and circumstances of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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) of the Act, an Explanation was added to section 10(20), which has been mentioned hereinabove. The income of Local Authority is chargeable under the head 'Income from House property', 'Capital gains' or Income from other sources or from a trade or business carried on by it was earlier excluded in computing the total income of the Authority of a previous year. However, in view of the amendment, with effect from 01.04.2003, the Explanation Local Authority was defined to includ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rties 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 regards the reliance on the decisions of various courts of law by the Ld. CIT, most of the decisions have been dealt by the Tribunal in the case of M/s. Jalandhar Development Authority vs. ITO (supra). In the facts and circumstances of the present case, we concur with the views of the ld. CIT 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 Author ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... There is nothing in this case which provides services to the mankind on charity basis. The argument of the learned counsel is not tenable because a charitable institution provides services for charitable purposes free of cost and not for gain. The object of the assessee is similar to activities performed by big developers, who are earning profit . If the registration is granted to the assessee u/s 12A of the Act, then, it will open pandora's box and everybody will claim exemption from tax, who are incidentally doing some charitable activities in providing parks or roads. The activities of the assessee is nothing but profit making activities for which it is taking money from general public and no charity activities are carried on for the public. Considering all these facts brought on record by the DIT(E), in our considered view, the assessee is not entitled for grant of registration u/s 12A of the Act. Being so, we do not find infirmity in the order of the DITE) in refusing to grant registration u/s 12A to the assessee and accordingly, the order of the DIT(E) is hereby confirmed dismissing the appeal of the assessee. 12. In the result, appeal of the assessee is dismissed. - ..... X X X X Extracts X X X X X X X X Extracts X X X X
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