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TMI Blog2015 (12) TMI 1745X X X X Extracts X X X X X X X X Extracts X X X X ..... on 164(2) states that where income is derived from property held under trust wholly for charitable or religious purposes, tax shall be charged on the taxable income if any in the status of AOP. In case of discretionary trust which are not covered u/s 164(2), the income is to be assessed in the status of individual. Thus we hold that the assessee trust be assessed in the status of “AOP” and not “Artificial Judicial Person”. - ITA No. 987/Chd/2014 - - - Dated:- 14-12-2015 - Shri H.L. Karwa And Ms. Annapurna Mehrotra, JJ. Appellant By : Sh. Y.K. Sud Respondent By : Ms. Rajinder Kaur ORDER Annapurna Mehrotra, This appeal has been filed by the assessee against the order of Hon ble CIT(A), Patiala, dated 26-08-14. The assessee has taken the following grounds of appeals:- 1. That the CIT was not justified in upholding the action of the AO in denying the exemption to the trust u/s 11. both of them failed to appreciate that after granting of the Registration to the trust u/s 12AA by the CIT, assessment could only be framed in the status of Registered Charitable Trust and not Artificial Jurisdictional Person. 2. That both CIT and AO failed to appreciate that a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rust. We therefore condone the delay in filing the appeal. 3. Brief facts relating to the case are that the assesee is a trust created by the State Government under the Punjab Town Improvement Act, 1922, for the purpose of Planning, Development and Improvement of Cities. The trust had been granted registration u/s 12A of the Income Tax Act, 1961. During the course of assessment proceeding the AO found that the assessee was carrying on business of sale and purchase of residential houses, multi storied houses and commercial plots by way of auction in a systematic manner and had earned huge profits. The AO, asked the assessee to explain how the amended provision of section 2(15) would not apply in the present case to deny exemption u/s 11 to the assessee. The assessee submitted that its primary object is improvement of towns, which is an object of general public utility and not making profit. The AO rejected the contention of the assessee and held that since the assessee was selling residential plots by auction at high rates and not by draw of lots, contrary to the Rule prescribed by the Punjab Town Improvement Rules 1983 and the assessee had earned huge interest income and was als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TA No. 496/ASR/2013 relied upon by the assessee, the assessee was an Improvement Trust constituted under the Punjab Town Improvement Act (PTIA), 1922, by the Government of Punjab with the principal objective of bringing about improvement in towns by the means set out under section 22 to 26 of the PITA. The Hon ble Amritsar Bench in the impugned case dealt with the issue whether the manner in which the assessee trust was conducting its activities constituted advancement of general public utility as set out in section 2(15) and further whether the work ceased to be for charitable purpose due to the first proviso to Section 2(15) which lays down 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, irrespective of the nature of use or application, or retention of the income from such activity. As a corollary the Hon ble Bench adjudicated upon the issue whether the assessee trust was entitled to claim exemption u/s 11 read with section 2(15) of the Income Tax Act. Since in the present case the assessee trust is also an improvement trust f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... blic utility. It is only when, to use the words of the CBDT circular cited earlier in this order and the beneficial impact of which has the binding force on the field authorities under section 119 of the Act, the Assessing Officer finds that the income is income of any other business which is not incidental to the attainment of the objectives of the trust or institution that the such an income will not be exempt from tax . There is no finding to that effect by any of the authority below. In any case, it is not even the case of revenue authorities that the activities of the trusts do not serve the objects of the general public utility but the case is confined to the stand that these activities have been carried out in such a manner as to make profit and no activities directly of any general public utility are carried out. The registration granted to the assessee evidences that the objects of the assessee trust were advancement of objects of general public utility, and there is nothing to demonstrate any paradigm shift from this fundamental position. The allegation is only of the profit making but that does not obliterate the overall objects of general public utility. As regards t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gory. However, these cases, for the detailed reasons set out above, the exclusion of these cases from Section 2(15) is only effective 1st April 2016, i.e. assessment year 2016-17. The law is well settled by a five judge bench of Hon ble Supreme Court, in the case of Vatika Township Pvt Ltd (supra), that, following the maxim lex prospicit non respici, the law, particularly with respect to a requirement which is more onerous on the assessee, cannot be treated as retrospective in effect unless it is specifically legislated to be so. In our considered view, therefore, this amendment cannot be treated as clarificatory or retrospective in effect. In view of these discussions, even post insertion of proviso to Section2(15) but before 1st April 2016, when business activities are carried by the assessee trust in the course of actual carrying out of such advancement of any other object of general public utility , the benefit of Section 11 read with Section 2 (15) cannot be declined. Nothing, therefore, turns on the assessee carrying out, even if that be actually so, activities in the nature of trade, commerce or business etc as long as these activities are carried out in the course of actua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es. 36. Learned Departmental Representative has pointed out that the commercial plots and units are auctioned off which shows that the idea is to make maximum profits but what he clearly overlooks is the fact that since it is not a desirable state of affairs for the State to subsidize businesses, and to ensure highest degree of transparency in maximising returns from public assets, competitive bidding for commercial units is a safe option, and that the use of bidding process is justified for the larger causes. The bidding process ensures transparency in functioning of the improvement trusts and that, by itself, does not make the functioning of the improvement trust a commercial venture. It is also important that this use of bidding process is only in the context of commercial units etc. The development of commercial areas is in the interest of planned growth of an area and when such commercial areas develop, all the stakeholders in the development of that area benefit. In order of this benefit to the common cause, it is not necessary that the businessmen, buying such units, must also benefit. The denial of any advantage, at the cost of general public, to the business entities b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in planned development of the are in accordance with the policies of the State Government. Thereafter the Hon ble Bench concluded at para 40 of the order that the assessee trust was entitled to claim exemption u/s 11 read with section 2(15) of the Act, as follows : 40. For the reasons set out above, we are of the considered view that the authorities below were not justified in declining the benefit of section 11 read with section 2(15) to the assessee, and in holding that the assessee trust was not covered by advancement of any object of general public utility. We, therefore, direct the Assessing Officer to delete the disallowance of exemption of ₹ 65,20,690. The assesse gets the relief accordingly. Grievances of the assessee are upheld. Since as stated above the facts in the present case are identcial to that in the case of Hoshiarpur Improvement Trust (supra), respectfully following the same we hold that the assessee trust is carrying out charitable activity of advancement of public utility and the business activity carried out by it are incidental to the attainment of its main object and thus the proviso to section 2(15) is not attracted in the assessees case. W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vate trust dealt with by sub-s. (1) of s. 164. Sec. 164(1) only lays down the rate of tax applicable to a discretionary trust. It is not concerned with the manner of computation of total income. In fact, this section comes into play only after the income has been computed in accordance with the other provisions of the IT Act, 1961. Since the determination of the status of an assessee is a part of the process of computation of income, it is necessary to look into the general principles for determining whether the status of the trustees of a discretionary trust can be taken to be as `an AOP or an `individual'. It is now well settled that the word `individual' does not necessarily and invariably always refer to a single natural person. A group of individuals may as well come in for treatment as an individual under the tax laws if the context so requires. The word `association' means `to join in any purpose' or `to join in action'. Therefore, `AOP' as used in s. 2(31)(v) of the IT Act, 1961 means an association in which two or more persons join in a common purpose or common action. The association must be one the object of which is to produce income, profits or ..... X X X X Extracts X X X X X X X X Extracts X X X X
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