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TMI Blog2005 (7) TMI 668X X X X Extracts X X X X X X X X Extracts X X X X ..... der this section. Section 7 of the said Act has also provided for the objects of these Authorities as mentioned. Needless to say that as per clause 4 of Land Acquisition Act. the land could be acquired only for public purposes. Section 57 of the said Act also provides that Authorities could make its bye-laws with the approval of the State Government. Section 58 provides that in case of dissolution of the Authority, all the properties, funds and dues which are vested in or realizable by the Authority, shall vest in or to be realizable by the State Government. Various sections of the said Act make it abundantly clear that the activities of the Authorities were aimed at public purposes and not personal one. We, therefore, have no hesitation in holding that the activities of the assessees before us are for enhancement of general public utility and the ld. CIT was not justified in relating registration u/s 12AA of the Act. From the perusal of various documents on record, there is no dispute that the activities of the assessees before us were genuine and object of the assessees was in consonance with its creation. Even on these two grounds, the ld. CIT was not justified in refusing regis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssed. We will first take up the appeal in the case of UP Awas Evam Vikas Parishad. 2. Briefly the facts of the case are that the assessee was created by an Act styled as UP Awas Evam Vikas Parishad Adhiniam, 1865 (U.P. Adhiniyam Sankhya 1 of 1966) by UP Legislature assented to by the President on 28-1-1966 published in UP Gazette Extra 16-2-1966 to undertake the various functions for establishment of housing in the State of UP. The income of the Parishad was exempt under section 10(20A) of the Income-tax Act, 1961 till the end of the financial year 2001-02 relating to assessment year 2002-03. It either on its own motion or on request by any local authority or on the direction of the State Government frames housing schemes. The schemes are developed keeping in view the public purpose that it has to serve. The schemes are formulated with the idea of developing a complete township in an area not developed at all keeping in mind disbursal of population and avoidance of overcrowded condition in any area. The assessee filed an application in Form 10A to the CIT for registration under section 12A of the Act. Originally, the ld. CIT pointed out certain defects in the application of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation and is being run on commercial lines. He observed that in the instant case, the activities were predominantly commercial and was not incidental to any charitable purpose. No explanation whatsoever has been given by the assessee to show as to how the activities of the authority differ from the private developers, who also conduct development of large chunk of areas. He observed that with effect from 1-4-1992. Section 11(4A) of the Act has imposed blanket prohibition on charitable societies for carrying out business unless business is incidental to the attainment of the objects and separate books are maintained for such business. He also held that in view of the facts, the authority cannot be said to be charitable within the meaning of section 2(15) of the Act and the benefit of section 11 cannot be given. The above finding is also in line with the legislative intention deleting the erstwhile section 10(20A) with effect from 1-4-2003. This section has provided exemption to the income of various housing authorities but the exemption was withdrawn from assessment year 2003-04. He also referred to the explanatory note to Finance Act, 2002 while deleting section 10(20A) of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elops a notified area strictly as per the master plan approved by the State Government. Its sole aim is of development and making provisions of various amenities for public convenience and comfort and not for profit. Its various intentions are governed by the State Government which alone has power to dissolve it under section 158. Under section 58(2), all the property and funds of the authority shall vest in the State Government on dissolution. Thus, any appropriation of profit was ruled out. It was submitted that the assessee was created by an Act of Government and was thus a public institution. Its management is governed by a Board comprising of ex-officio, Government officials and members of public and hence, the institution cannot be said to be for the benefit of controlling persons. The authority is not running on profit motive. It has been running schemes for the weaker section of the society at cost in pursuance of the Constitution of India under which every State is responsible for town planning for the welfare of the public. The ld. CIT considered the submissions of the assessee. He observed as under: . . . So far as the omissions relating to the filing of original documen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the applicant authority are given under clause 7 of the Act which are as under: . . . To promote and secure the development of the development area according to plan and for that purpose the Authority shall have the power to acquire, hold, manage and dispose of land and other property, to carry out building, engineering, mining and other operations, to execute works in connection with the supply of water and electricity, to dispose of sewage and to provide and maintain other services and amenities and generally to do anything necessary or expedient for purposes of such development and for purposes incidental thereto . . . . 7. While refusing to register the authority under section 12A, the ld. CIT gave almost the same reasoning which was given by him refusing the registration to UP Awas Evam Vikas Parishad. Kanpur Development Authority 8. The authority filed an application before the ld. CIT, Kanpur, in Form No. 10A for its registration under section 12AA of the Act. The objects and creation of the authority are similar to Lucknow Development Authority. 9. During the course of hearing before the ld. CIT, it was pointed out that the assessee was hitherto exempt from taxation in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11 cannot be allowed to it. 14. All the above assessees have, challenged the orders of the ld. CIT before us. 15. It is argued by the learned Counsel that irrespective of the fact whether the assessee s income was exempt, under any other section if the assessee s activities were covered under charitable purposes, the assessee will be entitled the status of charitable institution and the provisions of section 11 of the Act will apply. On behalf of UP Awas Evam Vikas Parishad, Shri Kanchun Kaushal, the learned Counsel, took us to the objects, of the creation of UP Awas Evam Vikas Parishad and argued that the words charitable purpose were defined in section 2(15) of the Act. The definition includes and object of general public utility. He argued that the object of the Parishad was general public utility which was evident from the fact that the assessee, through the Government has power to acquire land to fulfil the objects of the Parishad. A private enterprise cannot acquire land for public purposes. He argued that as mentioned earlier, the acquisition of land has to be done by the Government. Thus, unless the Parishad satisfies the Government that the acquisition of the land is for p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons 55, 56 and 57 of the said Act. He argued that under section 15(2A) of the said Act, the Authority has right to levy fee. He stated that development of the area was an ongoing process. Even if some profit is generated, the same can be utilized for the development of the area only. He also stated that section 4(3)(i ) of the said Act provides for peoples representation in the management. He stated that the Hon ble Supreme Court in the case of CIT v. Andhra Chamber of Commerce [1965] 55 ITR 722 has explained the expression object of general public utility . He also referred to the decisions of the Hon ble Supreme Court in the case of Addl. CIT v. Surat Art Silk Cloth Mfrs. Association [1980] 121 ITR 1 and in the case of CIT v. Andhra State Road Transport Corpn. [1986] 159 ITR 1. In the above cases, the Hon ble Supreme Court held that the test is what is predominant object of the activity. Whether to carry out a charitable purpose or to earn profit? If the predominant purpose is to carry out a charitable purpose and not to earn profit, the purpose will not lose its charitable character merely because some profit arises from the activity. The learned Counsel also referred to the dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Corporation . Sub-section (2) of section 45, which elucidates the said power also shows that the said power is confined to internal management of the Corporation and the service conditions of its employees is only. The assessee was not a local authority and therefore, was not entitled to claim exemption of its income by virtue of clause (2) in section 10 of the Income-tax Act, 1961. 19. The learned Counsel also relied on the following observation of the Hon ble Supreme Court in the case of CIT v. UP Forest Corpn. [1998] 230 ITR 945 on which the Department may also place reliance. Held, allowing the appeals, (i) that the assessee was not a local authority within the meaning of section 3(31) of the General Clauses Act. Firstly, the members of the respondent-Corporation are not wholly or partly, directly or indirectly, elected by the inhabitants of the area. The second essential attribute, which is lacking in the present case is that the respondent does not have the functions and duties which are usually entrusted to the municipal bodies such as providing civic amenities to the inhabitants of the locality like health, education, town planning, markets, transportation, etc. Finally, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be understood not in any fine and narrow sense as to include only those compulsory exactions of money imposed for public purpose and requiring no consideration to sustain it, but in a broad, generic sense as to also include fees levied essentially for services rendered. 22. In this connection, the learned Counsel invited our attention to section 35 of UPUPD Act which has given powers to the assessees before the Tribunal to levy betterment charges. The reliance was placed on the decision of the Hon ble Delhi High Court in the case of CIT v. Agricultural Marketing Produce Committee [2001] 250 ITR 369. 23. On the other, hand, the ld. DR stated that the purpose of deleting the section 10(20A) of the Act was to withdraw exemption granted to the incomes of the Authorities enacted for the purpose of dealing with and satisfying the needs for housing accommodation. If such authority or authorities claimed exemption under some other provisions of the Act, it will amount to doing violence with the provisions of the deletion of the above section. If somebody goes by the arguments of the learned Counsels for the above assessees, then the purpose of deletion of section 10(20A) will become redun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct. 26. We have considered the rival submissions. As mentioned earlier. UP Awas Avam Vikas Parishad was created by an Act styled as UP Avas Avam Vikas Parishad Adhiniam, 1965 (U.P. Adhiniyam Sankhya 1 of 1966) by UP Legislature. The other authorities were created under UPUPD Act. The Parishad was created with the object of executing housing and improvement schemes. The objects of the other authorities before us was as under: The objects of the Authority shall be to promote and secure the development of the development area according to plan and for that purpose the Authority shall have the power to acquire, hold, manage and dispose of land and other property, to carry out building, engineering, mining and other operations, to execute works in connection with the supply of water and electricity, to dispose of sewage and to provide and maintain other services and amenities and generally to do anything necessary or expedient for purposes of such development and for purposes incidental thereto. Provided that save as provided in this Act nothing contained in this Act shall be construed as authorizing the disregard by the Authority of any law for the time being in force. 27. The income o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sent to the applicant . . . . 30. Actually the assessees before us, by way of getting themselves registered under section 12A of the Act, will ultimately claim exemption under section 11 of the Act. It will be out of place to mention that when section 10(20A) was omitted from the statute the then Chief Minister has requested the Finance Minister, Government of India to withdraw the deletion of the provisions of section 10(20A) of the Act from the statute. But the then Finance Minister, in his letter addressed to the then Chief Minister, Uttar Pradesh, has advised that such authorities could claim exemption under section 11 of the Act. Section 11 of the Act reads as under: 11. Income from property hold for charitable or religious purposes.-(1) Subject to the provisions of sections 60 to 63, the following income shall not be included in the total income of the previous year of the person in receipt of the income . . . . 31. Section 12A provides that the provisions of sections 11 and 12 will not apply unless the person in receipt of the income has made an application for registration of the trust or institution and such trust or institution is registered under section 12AA of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the deletion of section 10(20), the committee moved a petition before the ld. CIT for registration under section 12AA of the Act claiming that its activities were charitable in nature and fully covered by the definition mentioned in section 2(15) of the Act. The Delhi Bench of the Tribunal vide its order dated 14-3-2005 has directed the ld. CIT to register the institution under section 12AA of the Act. In the cases before us the income of the assessees was exempt under section 10(20A) of the Act. After the deletion under section 10(20A) from the statute, all the assessees have moved their CITs for grant of registration under section 12AA of the Act. In view of the Tribunal s order mentioned above, there is no bar for the assessees before us to move their CITs for grant of registration under section 12AA even after the deletion of section 10(20A) of the Act from the statute. 35. The second issue arises as to whether the activities of the assessees before could be said to be for charitable purposes as provided under section 11, read with section 2(15) of the Act. Section 2(15) of the Act has defined the words charitable purposes . The section also includes object of general public ut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neness of the purpose tested by the obligation created to spend the money exclusively or essentially on charity. The restrictive condition that the purpose should not involve the carrying on of any activity for profit would be satisfied if profit-making is not the real object. It is not at all necessary that there must be a provision in the constitution of the trust or institution that the activity shall be carried on no profit no loss basis or that profit shall be proscribed. Even if there is no such express provision, the nature of the charitable purpose, the manner in which the activity for advancing the charitable purpose is being carried on and the surrounding circumstances may clearly indicate that the activity is not propelled by a dominant profit motived. 37. Keeping in view the ratio laid down by the Hon ble Supreme Court in the above cases, we have examined the object of the assessees before us. 38. From the perusal of the objects of the Parishad, we find that the objects of the Parishad were to frame and execute the housing and improvement schemes and other projects: to plan and coordinate various housing activities in the State and to ensure expeditious and efficient im ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 11 of the Act. The institution, may be registered under section 12AA of the Act still they may not be eligible for exemption under section 11. While disposing off the application under section 12A, the ld. CIT has to examine only two aspects namely, genuineness of the activities of the trust or institution and object of the institution . From the perusal of various documents on record, there is no dispute that the activities of the assessees before us were genuine and object of the assessees was in consonance with its creation. Even on these two grounds, the ld. CIT was not justified in refusing registration under section 12A of the Act. The ld. CIT could not take shelter of any other outer source for refusing registration under section 12A of the Act. The Delhi Bench of the Tribunal in the case of Market Community (supra) has observed as under : 16 The provisions of section 12AA quoted above are relevant and important. As per the above provision, the learned CIT on the basis of information placed by the assessee or other information gathered by him has to record his satisfaction about the genuineness of activities of the Trust or Institution (in the present case, boa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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