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TMI Blog2014 (5) TMI 1172X X X X Extracts X X X X X X X X Extracts X X X X ..... chkula dated 30.09.2004 against the order passed under section 12AA of the Income-tax Act, 1961 ('the Act' for short). 2. The assessee has raised the following grounds of appeal: 1. That on the facts and In the circumstances of the case the Learned CIT Panchkula has erred both In law and on facts in deriving the registration under section 12AA of the Income Tax Act, 1961 and rejecting the application under section 12A(a) of the Income Tax Act, 1961. 2. That on the facts and in the circumstances of the case the Learned CIT Panchkula has erred both in law and on facts the registration under Section 12AA has been denying without citing any specific Issue on merit, 3. That the appellant was a Local Authority and was exempt from Income tax u/s. 10(20A) of the Income Tax Act, 1961. The Section 10(20A) was deleted w.e.f. 01.04.2002 relevant for assessment year 2003-04. The registration as a Charitable Institution was required for this purpose. 4. That the appellant craves leave for any addition, deletion or in the grounds of appeal on or before the disposal-of the same. 3. The present appeal was instituted by the assessee on 09.12.2009 and the appeal was adjourne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commissioner of Income Tax after considering the activities carried on by the assessee which are reproduced at pages 4 to 6 of the order of Commissioner of Income Tax and after considering the various case laws relied upon by the assessee, examined the objects and activities of the authority. 6. After examining the aims and objectives of the Haryana Housing Board, activities undertaken by it and the provisions of law, the CIT, Panchkula had refused registration on several grounds as under: (i) The assessee was required to file application for registration before the expiry of one year from the date of creation/establishment of Board but the application was filed late. The inordinate delay in filing application for registration in absence of sufficient reasons was not condoned. (ii) Clauses (a) and (b) of Section 21 of the 'Haryana Housing Board Act' empowered the Board to acquire any property or land by way of purchase, exchange or otherwise; division of the land into plots and sale thereof either before or after any further development of land without any restriction on the powers of the Board which intractably involved built-in profit motive. (iii) Under sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nforeseen charges @5%, the Board was charging compulsory profit (o)10% and 5% from allottees of HIG and MIG categories, respectively, though no compulsory profit was charged from the allottees of LIG and EWS categories. (xi) The assessee Board was engaged in undertaking various housing schemes on commercial principles and was predominantly a profit making body. 7. The Commissioner of Income Tax on the perusal of the accounts for the year ending 31.03.2004 noted the following : (i) Schedule 8 forming parts of the Balance sheet in the form of 'Notes On Accounts' shows that as per sl. no. 5 Profit/loss on sale of houses depicts the difference between expenditure booked in accounts and sale price of the completed houses. ii) Under sl. No. 10 of schedule 8, it is-stated that unsold houses have been valued at cost. 8. The Commissioner of Income Tax further observed that the Board was treating its houses as stock in trade clearly on commercial principles and than the resultant profit/loss was accounted for. 9. The Commissioner of Income Tax, on the perusal of the Income Expenditure account for the year ending 31.03.2004 noted that, excess of income over e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it cannot be accepted that all its activities are being undertaken on the principle of no profit, no loss. It cannot be Board's case that there is loss to the Board on account of sale of houses under the EWS and LIG scheme since, it is operating on no profit no loss basis. However, from the sale of all other category of plots, huge profits are being made year after year. The houses/booths sold through auction understandably reap higher profits. It has been seen that the Board is also enjoying interest income on various deposits/fixed deposits with the bank the money for which is sourced from its profits. In this way, the end result of its activities put together is that the Board is making huge profits and it is clearly enabled in this pursuit of making profits by the various provisions of the Act which has been discussed at length hereinbefore. 11. Thereafter, the Commissioner of Income Tax at pages 17 and 18 had elaborately considered the construction schemes floated by the assessee and the huge profits earned by the assessee from year to year from the so called charitable projects of construction houses. The Commissioner of Income Tax thus held that the assessee board was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... available in the file, the provisions of Haryana Housing Board Act, the order of Commissioner of Income Tax and the pleadings raised by the assessee by way of written submissions and the ld. DR for the revenue, we proceed to decide the present issue of claim of registration under section 12AA of the Act, which was rejected by the Commissioner of Income Tax. 14. The assessee is constituted under the Haryana Housing Board Act, 1971 and the copy of the said act is available at pages 22-41 alongwith Form No. 36. Section 3(2) provides that the Board shall be a body corporate besides a local authority under the Land Acquisition Act under section 3(3) (refer page 26). The relevant section relating to framing and undertaking housing schemes, acquisition and purchase of land and allotment of accommodation to any class of inhabitant [section 20, 21(b), 21(c), 21(d) and 21(m) at page 29], acquisition and disposal of land [section 39(1) at page 32], Betterment charges, recovery and power to dispose land [section 40(1), 43 and 44 at page 33], application of Housing Board Fund [section 57 at page 36] and dissolution of Board [section 80 at page 41] are as per the provisions of Haryana Housin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sections 23 to 26 of the said Act provided for street schemes, development and expansion scheme, housing accommodation schemes and re-housing scheme. The objects of the trust are to provide benefit to the public within its local limits rather than to itself. 19. The Hon'ble High Court of Punjab and Haryana in the case of Improvement Trust, Moga (308 ITR 361) held that, where principal object of assessee-trust was to bring about improvement in town by providing streets, housing facilities or making provision for drinking water, etc., its activities being charitable it was entitled to registration . Therefore, the predominant objects in the case of Improvement Trusts are general improvement of the towns by providing basic amenities and the housing schemes were ancillary and incidental to attainment of such aims and objectives. 20. Now coming to the facts of the present case, the exemption would be available in all such cases where business carried on by the assessee is incidental to the attainment of charitable purpose from objects of general public utility. But where the assessee is engaged in carrying on commercial activities which is reflected in the huge profits/surplu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same and the hidden cost was already added, so no charity was involved. At best, the assessee could be said to be an authority created to help it to achieve certain objects. It could be said that it is the duty of the Government to create/provide all these facilities to public at large, which is being done through the agency in a particular area. At the same time, the funds which were provided to the assessee by the Government was again a public money or generated from the public itself, so where was the charity? Thus, it could be said that the objects of the assessee, though claimed to be charitable, actually were of purely commercial nature, where profit motive was involved. It was known fact that the assessee was acquiring the land at very low prices and selling the same land on very higher rates and was earning a profit therefrom. A new trend had also emerged that the PUDA, i.e., the assessee, had 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 was involved. Rather the assessee had converted itself into a big businessman. Similar development/infrastruct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee could not claim any benefit under those provisions after 1-4-2003. The assessee claimed that its objects fall under the provisions of section 2(15) and has complied with all the eligibility criteria for grant of registration under section 12A, which was allowed vide order dated 30-9-2009. It is at this juncture that the first proviso was added in section 2(15) by the Finance Act, 2008, with effect from 1-4-2009. Therefore, after insertion of the said proviso, any institution carrying on of any activity in the nature of trade, commerce or business, etc. shall not be a charitable purpose. The main object of the assessee is to promote and secure the development of local area and there is no charitable purpose or any activity for general public utility. The activities of the assessee are aimed at earning profit. Further profit making by the assessee is not mere incidental or by product of the assessee. There is no obligation on the part of the assessee to spend the income on 'charitable purpose' only. Also on dissolution of assessee all properties and funds will vest in the Government. There is no restriction, how the same are to be utilized by the Government. There a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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