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TMI Blog2017 (8) TMI 164X X X X Extracts X X X X X X X X Extracts X X X X ..... en the activity carried out by the assessee compared to activity carried out by any other private organization for profit. Therefore on reading the financials presented before us and the various projects demonstrated it is apparent that the activities of the assessee has "profit motive" and therefore it is carrying on the business. Order of High Court of Jammu and Kashmir in case of Jammu Development Authority Vs. CIT [2013 (11) TMI 1578 - JAMMU AND KASHMIR HIGH COURT] is the only decision of the High Court which deals with the provisions of section 2(15) amended w.e.f. 01.04.2009 applicable to the persons carrying on objects of general public utility. Therefore, we respectfully following the decision of the Hon‟ble Jammu and Kashmir High Court hold that the assessee M/s. Mussoorie Dehradun Development Authority is not formed for “charitable purposes” as defined u/s 2(15) of the Income Tax Act and hence is not entitled to registration u/s 12A (a) of the Act. - Decided against assessee. - ITA No.180/Del/2013 - - - Dated:- 2-1-2017 - SHRI S.K. YADAV, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER For The Assessee : Sh. Mahesh B. Chhibber, Adv For ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant was set up by the UP Govt. order dated 07.11.1984 issued under Uttar Pradesh Urban Planning Development Act No. 11 of 1973 with an objective of development of Mussorie and Deheradun. It is an organization set up by the Govt. of Uttar Pradesh wherein if any surplus arises, same are also used for the development of that particulars area. To govern the authority board of Management is constituted of Govt officers. It earns development fees, map fees, stamp duty and stacking fees as per the direction of the state govt. and it incurs expenditure on repair of roads, development of parks, plantation etc. The object of the trust are enshrined in clause 7 of the notification No. 2581 dated 7th November 1984 as under:- 7. Objects of the Authority:- The objects of the Authority shall be to promote and secure the development of the development area according to plans 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 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wherein also an identical circumstances application of the assessee was rejected. e. The ld CIT relied on the CBDT Circular No. 11/2008 dated 19.12.2008 which explained the amendment made by the Finance Act 2008 wherein advancement of any other object of general public utility was further explained. f. The ld CIT further noted that the assessee is earning following income for the year ended on 31.03.2009 which are as under:- SI.NO. Head Amount 1. Compounding fees 20609784/- 2. Development fee 6062 1 04/- 3. Eco charges 744993/- 4. Map Submission fees 2018566/- 5. Misc. Receipt/Income 9262656/- 6. Supervision fees 4175098/- 7. Land Conversion Charges 225935/- 8. Income u/s 62 3071899/- 9. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... radesh Planning Development Act, 1973 {hereinafter referred to as the Act } (ANNEXURE C; Page 36-48). Please note that the Uttar Pradesh Urban Planning Development Act has been adopted by the State of Uttaranchal vide notification dated November 2002 (ANNEXURE D; Page 49-50). 5. The objects of the Authority are contained in Section 7 of the Act. Section 7 is reproduced as under: 7. Objects of the Authority - 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 of the time being in force. 6. As per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nted exemption u/s 12Aof the Act. 11. The Allahabad High Court in the case of CIT Vs. Lucknow Development Authority (ITA No. 149/2009) and CIT Vs. UP Housing Development Board (ITA No. 114/2010) decided vide common order dated 16th September 2013, reported as (2013) 219 Taxman 162 (ANNEXURE A; Page 6-22) has been pleased to hold the activities of the assessee authorities as charitable in nature. The authorities in question before the Allahabad High Court were established in the State of UP under the provisions of the Uttar Pradesh Urban Planning Development Act, 1973. The appellant authority is similarly situated authority established under the same provisions of the Act and having the same objects as those of the authorities before the Allahabad High Court. The issue has been discussed at page no. 11 to 16 in the judgment and order dated 16.09.2013 passed by the Allahabad High Court. The same are highlighted in the judgment annexed as Annexure A. 12. Relying upon the aforesaid order and judgment, the Allahabad High Court vide common order dated 27.09.2013 (ANNEXURE E; Page 51-52) held that other development authorities set up under the provisions of the Uttar Prade ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vement Trust (2009) 308 ITR 361 (P H) 2. CIT Vs. Gujarat maritime Board (2007) 295 ITR 561 (SC) 3. CIT, Lucknow Vs. Krishi Utpadan Mandi Samiti (2010) 1 All LJ 817 4. Sabarmati Ashram Gaushala Trust Vs. ADIT (Exemption) ITA No. 671/Ahd/2013 order dated 01.02.2010 5. Pubjab Urban Planning Development Authority Vs. CIT (2006) 103 TTJ (Chd) 988. 6. Jalandhar Development Authority Vs. CIT (2009) 124 TTJ (Asr) 598 7. Haridwar Development Authority Vs. CIT ITA NO. 3056 3013/Del/2004 for AY 2006-07. 8. Kurja Development Authority Vs. CIT ITA No. 905/Del/2011 9 C IT Vs. Lucknow Development Authority and UP Housing and Development Board of Hon ble Allahabad High Court dated 16.09.2013 for Assessment Year 2003-04 to 2006-07. 7. In response to the argument of the ld AR the ld Departmental Representative Shri Vijay Verma, CIT DR vehemently defended the order of ld CIT and submitted as under:- 1. With reference to above, the undersigned would like to place the following written submissions on record, apart from the oral arguments which may be at the time of hearing. 2. Since, the corresponding provisions of the Act have changed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch business, unlessjhe business is carried on in the course of the actual carrying out of a primary purpose of the trust or institution (D) The section 11(4) inserted w.e.f. 1-4-1979 provided as under For the purposes of this section property held under trust includes a business undertaking so_ held, and where a claim is made that income of any such undertaking shall not be included in the total income of the persons in receipt thereof, the Income-tax Officer shall have power to determine the income of such undertaking in accordance with the provisions of this Act relating to assessment; and where any income so determined is in excess of the income as shown in the accounts of the undertaking, such excess shall be deemed to be applied to purposes other than charitable or religious purpose (E) The words not involving the carrying on of any activity for profit in section 2(15) were omitted with effect from the 1st day of April 1984. It read as under, Charitable purpose includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility. Circular No. 395 [F, No. 181(5) 82/IT (A-l)], dated 24-9- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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. . (I) Circular No. 11/2008, F. No.134/34//2008-TPL, dated 19-12-2008 explained the above amendment w.e.f. 1-4-2009 as under :- i Section 2(15) of the Income Tax Act, 1961 ('Act') defines charitable purpose includes the following: - (i) Relief of the poor (ii) Education (iii) Medical relief, and (iv) the advancement of any other object of general public utility. An entity with a charitable object of the above nature was eligible for exemption from tax under section 11 or alternatively under section 10(23C) of the Act. However, it was seen that a number of entities who were engaged in commercial activities were also claiming exemption on the ground that such activities were for the advancement of objects of general public utility in terms of the fourth limb of the definition of 'charitable purpose . Therefore, section 2(15) was amended vide Finance Act, 2008 by adding a proviso which states that the 'advancement of any other object of general public u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctivity in the nature of trade, commerce or business is a question of fact which will be decided based on the nature, scope, extent and frequency of the activity. 3.1. In the final analysis, however, whether the assessee has for its object 'the advancement of any other object of general public utility' is a question of fact. If such assessee is engaged in any activity in the nature of trade, commerce or business or renders any service in relation to trade, commerce or business, it would, not be entitled to claim that its object is charitable purpose. In such a case, the object of 'general public utility' will be only a mask or a device to hide the true purpose which is trade, commerce or business or the rendering of any service in relation to trade, commerce or business Each case would, therefore, be decided on its own facts and no generalization is possible. Assessees, who claim that their object is 'charitable purpose' meaning of Section 2(15), would be well advised to eschew any activity which the nature of trade, commerce or business or the rendering of any relation to any trade, commerce or business. 3. In this background we need to examine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after. The charitable purpose as per the Indian Income Tax Act, 1922 included the advancement of any other object of general public utility . The restriction not involving the carrying on of any activity for profit was introduced in the Act of 1961. This restriction was omitted w.e.f. 1-4-1984 but section 11 (4A) introduced certain restrictions. With effect from 1-4-92, the section 11 (4A) was amended and income of any business undertaking was exempt if its income was applied for the objects of the trust. Thanthi Trust ETC ( 247 ITR 785 ( SC)} The Hon'ble Supreme Court in the case of Thanthi Trust did not allow exemption from 1979 -80 to 1991-92, but allowed the same for assessment year 1992-93 onwards due to amendment in section 11 (4A). This establishes that various decisions on the issue are to be examined in the light of the provisions in respect of which, the decisions have been given. It needs to be mentioned here that this decision in the case of Thanthi Trust has considered the decision in the case of Surat Art Silk Manufacturers Association, another decision relied upon by the appellant. Section 2 (15) has been amended w.e.f. 01.04.2009. The circular dated 19-12-2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... flict of decisions amongst different High Courts nor can this Court travel beyond the particular question of law referred to it by the Tribunal on account of conflict in the decisions of the High Courts. 2. (a) It is well settled that where the main or primary objects are distributive, each and every one of the objects must be charitable in order that the trust of institution may be upheld as a valid charity. But if the primary or dominant purpose of a trust is charitable another object which by itself may not be charitable but which is merely ancillary or incidental to the primary or dominant purpose would not prevent it from being valid charity. 2 (b) The test which has to be applied is whether the object which is said to be non-charitable is the main or primary object of the trust or institution or it ancillary or incidental to the dominant or primary object which is charitable. In the instant case the income and property of the assessee are held under a legal obligation for the purpose of advancement of an object of genera! public utility within the meaning of s. 2(15) of the Act. The dominant or primary purpose of the assessee is to promote commerce and trade in ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofit. 7. If the argument of the Revenue that if the means to achieve the object of general public utility involve the carrying on of any activity for profit, the purpose of the trust though falling within the description any other object of general public utility would not be a charitable purpose and the income from business would not be exempt from tax it right it would not be possible for a charitable trust whose purpose is promotion of an object of general public utility to carry on any activity for profit at all. 8. The consequence would be that even if a business is carried on by a trust or institution for the purpose of accomplishing or carrying out an object of general public utility and the income from such business is applicable only for achieving that object, the purpose of the trust would cease to be charitable and not only income from such business but also income derived from other sources would lose the exemption. Such a far-reaching consequence was not intended to be brought about by the legislature when it introduced the words not involving the carrying on of any activity for profit in s. 2(15). 9. What is inhibited by the words not involving ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing and effect to the other Provisions of the enactment rather than that which will none. 13. If a business is held under trust or legal obligation to apply its income for promotion of an object of genera! public utility or it is carried on for the purpose of earning profit to be utilised exclusively for carrying out such charitable purpose, the last concluding words in section 2(15) would have no application and they would not deprive the trust or institution of its charitable character. What these last concluding words require is not that the trust or institution whose purpose is advancement of an object of general public utility should not carry on- any activity for profit at all but that the purpose of the trust or institution should not involve the carrying on of any activity for profit. So long as the purpose does not involve the carrying on of any activity for profit, the requirement of the definition would be met and it is immaterial how the monies for achieving or implementing such purpose are found, whether by carrying on an activity for profit or not. 14. It has therefore to be seen whether the purpose of the trust or institution in fact involves the carrying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would be satisfied if profit making is not the real object. 19. (a) The observations in Lok Shikshana Trust and Indian Chamber of Commerce that activity involved in carrying out the charitable purpose must not be motivated by a profit objective but it must be undertaken for the purpose of advancement or carrying out of the charitable purpose are correct. But the further observation that whenever an activity is carried on which yields profit, the inference must necessarily be drawn, in the absence of some indication to the contrary, that the activity is for profit and the charitable purpose involves the carrying on of an activity for profit is not correct. (b) It is not necessary that there must be a provision in the constitution of the trust or institution that the activity shall be carried on a no profit no loss basis or that the profit shall 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 motive What is necessary to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ose no longer applies if the object involves the prohibited activities. The decision in the case of Thanthi Trust ( supra ) confirms the view that applicability of decisions is to be seen with respect to provisions for which, a decision was rendered. The decision upon was based on the redundancy of section 11 (4), if the prohibition u/s 13(1 )(bb) is extended to the fourth category of Charitable Objects i.e. any other object of general public; utility Moreover, the facts in the case of Surat Art Silk Cloth Manufacturers Association were different from facts in the case of appellant. The nature; and range of activities and objects are also different. In the case of Surat Art Silk Cloth (supra) receipts pertained to rental income, annual subscription from members and commission from members In the case of appellant, wide range of commercial activities including housing of various events/ exhibitions/ functions, hiring for commercial purpose, etc, are undertaken. 4. In the case of appellant, the facts are similar to the following case which are against the appellant (a) Jammu Development Authority- 52 SOT 153 (b) Punjab Urban Planning Development Authority- 10..T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 2 (15) of the income tax act. It is now as under :- (15) charitable purpose includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility : 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 retention, of the income from such activity ; (underline supplied by us) 11. In the present case claim of the assessee is that it is an urban development authority engaged in the object of advancement of any other object of general public utility‟. Therefore in view of the amendment it is important to decide the issue that whether the activities of the assessee was the carrying on of any activity in the nature of the commerce of business or any activity of rendering any service in relation to any trade, business purposes for fee or any other consideration irrespectiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e or manufacture or any adventure or concern in the nature of trade, commerce or manufacture.' The word 'business' is a word of large and indefinite import. Section 2(13) defines business to include any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture. The intention of the Legislature is to make the definition extensive as the term 'inclusive' has been used. The Legislature has deliberately departed from giving a definite import to the term 'business' but made reference to several other general terms like 'trade', 'commerce', 'manufacture' and 'adventure or concern in the nature of trade, commerce and manufacture'. In Black's Law Dictionary, sixth edition, the word 'business' has been defined as under : 'Employment, occupation, profession or commercial activity engaged in for gain or livelihood. Activity or enterprise for gain, benefit, advantage or livelihood. Union League Club v. Johnson 18 Cal 2d 275. Enterprise in which person engaged shows willingness to invest time and capital on future outcome. Doggett v. Burnet 62 App DC 103 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omply with the statute when the charge, or incident of tax, is on the economic activity . The words trade, commerce and business are etymological chameleon and suit their meanings to the context in which they are found. Five tests propounded in Customs and Excise Commissioners v. Lord Fisher [1981] STC 238 and the decision in CST v. Sai Publication Fund [2002] 258 ITR 70 (SC) ; [2002] 4 SCC 57 was quoted. 19. The final and determining factors, it was observed was consequential profit motive or purpose behind the activity and when an activity is trade, commerce or business was elucidated in Institute of Chartered Accountants of India v. Director-General of Income-tax (Exemptions) [2012] 347 ITR 99 (Delhi) in the following words (page 123) : Section 2(15) defines the term 'charitable purpose'. Therefore, while construing the term 'business' for the said section, the object and purpose of the section has to be kept in mind. We do not think that a very broad and extended definition of the term 'business' is intended for the purpose of interpreting and applying the first proviso to section 2(15) of the Act to include any transaction for a fee or m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement of any other object of general public utility. 2. An entity with a charitable object of the above nature was eligible for exemption from tax under section 11 or alternatively under section 10(23C) of the Act. However, it was seen that a number of entities who were engaged in commercial activities were also claiming exemption on the ground that such activities were for the advancement of objects of general public utility in terms of the fourth limb of the definition of 'charitable purpose'. Therefore, section 2(15) was amended vide Finance Act, 2008, by adding a proviso 3. The newly inserted proviso to section 2(15) will apply only to entities whose purpose is 'advancement of any other object of general public utility', i.e., the fourth limb of the definition of 'charitable purpose' contained in section 2(15). Hence, such entities will not be eligible for exemption under section 11 or under section 10(23C) of the Act if they carry on commercial activities. Whether such an entity is carrying on an activity in the nature of trade, commerce or business is a question of fact which will be decided based on the nature, scope, extent and frequency ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It has also capital projects under higher purchase schemes amounting to ₹ 452352101/-. It has also fixed deposit receipts with the bank amounting to ₹ 282894604/-. this facts shows that lands is also purchased at Market rates and it also finance the projects on commercial basis under hire purchase scheme as any other ordinary business entity. c. On analysis of the income and expenditure account it has earned compounding fees, development fees, land conversion charges income from housing schemes, supervisions fees totaling in all to ₹ 119163186/-. It has also incurred an expenditure of ₹ 61913661/- resulting into profit of ₹ 57249524/- titled as excess of income over expenditure. This shows that its income is from sale of projects predominantly which is at market rates to the bidders who succeeds in auction proceedings. It is apparent that it has earned used huge profits therefore it is working for profit. d. While filing the return of income for AY 2009-10 it itself has classified as income falling under the head of income from business and profession. The computation of total income placed at Page 3 of the paper book shows that it has inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee on the same is misplaced. Further, the decision of the coordinate bench in case of Kurja Development Authority does not also apply as that decision was rendered relying on the decision of the Hon‟ble Allahabad High Court rendered for different assessment years. Further, the reliance upon the decision Ayodhaya Faisabad Development Authority rendered by Hon‟ble Allahabad High Court has also not considered the amendment w.e.f. 01.04.2009 but has followed its earlier decision. The above decision also does not come to help of the assessee as same is also pertaining to appeal of 2006. 16. Against that the revenue has relied upon the decision of Hon‟ble Jammu and Kashmir High Court in ITA No. 164/2012 in case of Jammu Development Authority Vs. CIT wherein the Hon'ble High Court has confirmed the order of the coordinate bench in ITA No. 30(ASR)2011 rejecting the appeal of assessee against not granting registration u/s 12AA of the Income Tax Act. The coordinate bench has considered the amendment made w.e.f. 01.04.2009 in provisions of section 2(15) of the Income Tax Act. Further, against the above decision, the Hon'ble Supreme Court has dismissed SLP of the J ..... X X X X Extracts X X X X X X X X Extracts X X X X
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