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TMI Blog2021 (11) TMI 307X X X X Extracts X X X X X X X X Extracts X X X X ..... profit motive in the same manner in which a private builder would conduct his business. It can t be said that such activities are incidental to the main object of the trust. The activity of construction and sale of immovable property cannot be the object but only a mean to achieve the object of development of area in accordance with the plan. Therefore, while the object in a given case may be a charitable purpose, not involving profit, the activities undertaken by assessee in pursuance of the object, attained the colour of business. Each individual receipt from disposal of the property cannot be said to be income of the assessee available for charitable purpose because expenditure has to be incurred and has been incurred in acquiring land and construction thereon - only the surplus from this activity can be said to be the income derived from property held under trust. There is yet another angle, namely, that some meaning has to be placed on the content of sub-section (4A) of section 11 and especially on the words unless the business is incidental to attainment of the objective of the trust . The legislature postulates that a charitable institution may have to carry on incid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11 of the Act ? 2. Assessee is a Board established under section 3 of Karnataka Housing Board Act,1962( hereinafter referred to as KHB Act) as a successor of Mysore Housing Board which was constituted in the year 1956. The said Act was amended from time to time. The State Government of Karnataka, passed the KHB Act, with a view to satisfy the need of housing accommodation in the state of Karnataka. The Ld.AO observed that as per the annual report for year 2008 and 2009, the primary objective of KHB is to make such schemes and to carry out such works as are necessary for the purpose of dealing with and satisfying the need of housing accommodation. The KHB Act also says that, it endeavors in providing housing to people of Karnataka at affordable cost. The KHB was availing benefit of Section 10(20A) of the Act from its inception upto financial year 2001-02. Section 10(20A) was omitted by Finance Act with effect from 1/04/2003. Thereafter the Board obtained registration under section 12A of the Act on 03/02/2004. 3. It is submitted by the Ld.AR that the Director of Income tax (Exemptions), Bangalore vide order dated 28/10/2011 cancelled the registration under section 12A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar 2010-11: Particulars Schedule As on 31.3.2010 Income Rs. Sales 13 174,80,22,502 Interest income 14 3,29,09,724 Rent lease rent 15 4,43,40,223 Other income from schemes 16 17,08,77,530 Profit on sale of fixed assets 63,000 199,62,12,979 Expenditure Financial charges 17 98,93,548 Cost of works sold (sales) 17A 161,87,55,286 Administration other expenses 18 11,47,83,323 Depreciation 5 68,12,869 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that merely because the organization is set up by the State Govt., it cannot be said to be set up for charitable purposes . It was further noted that the objects of the assessee are similar to the objects of Punjab Urban Planning Development Authority whose issue is decided by coordinate bench reported in 103 TTJ 988. It was held therein that the activities and objects are more of commercialized nature and no charity involved in it. The Ld.CIT(A) relied on the decision of Hon ble in case of Adityapur Industrial Area Development Authority vs UOI reported in 283 ITR 97 (2006) , wherein in identical circumstances application under section 12A was rejected. 10. The Ld.CIT(A) 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. The Ld.CIT(A) further held that the objects of the assessee are purely commercial in nature as it involved profit motive and that because the assessee acquires land, develops it and sales it at market rate and earns profit thereon. The Ld.CIT(A) observed that assessee sells property on auction, al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficial Juridical Person'. 1.3. The Karnataka High Court in CIT v Children's Education Society [2013] 358 ITR 373 (Kar) held that the status of a society incorporated under the Societies Registration Act, 1860 is an 'Artificial Juridical Person' and not 'Association of Persons'. 1.4. In the following cases, it has been held that assessment made under a different status is bad in law. CWT v Ridhkaran [1972] 84 ITR 705 (Raj) CIT v Adinarayana Murthy K [1967] 65 ITR 607 (SC) CIT v Associated Cement and Steel Agencies [1984] 147 ITR 776 (Boni) CWT v Jagdish Puri [1987] 163 ITR 458 (Raj) CIT v Sobhagmal Mishrilal Semlavada [1997] 223 ITR 554 (MP) CWT v Srivastava (J.K.) and Sons [1983] 142 ITR 183 (All ) CIT v Suresh Chandra Gupta [1988] 173 ITR 407 (Raj) Sri Nath Suresh Chand Ram Naresh v. CIT [2006] 280 ITR 396 (All) CIT v Ram Das Deokinandan Prasad (HUF) [2005] 277 ITR 197 (All) Karamshibhai M Thumar (HUF) v ITO 12 DTR 534 (Ahd 'Tri) Suraj Mal (HUF) v ITO (2007) 110 TTJ 834 (Del TM) 1.5 In view of the above, the order passed under section 143(3) is bad in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ernment. 2.5 The Board does not have the power to carry on activities according to its will and wish. The exercise of powers and performance of functions by the Chief engineer and Secretary are subject to general or special order of the State Government [section 10]. The execution of housing schemes, land development schemes and incurring of expenditure in relation thereto are subject to the control of the State Government and provisions of KHB Act [section 17]. The Board cannot enter into a contract involving an expenditure of ₹ 50 lakhs and more without the previous sanction of the State Government [section 15]. Approval by State Government is mandatory in respect of purchase of land worth more than ₹ 10 lalchs or a lease of more than 5 years [section 33]. The sale of land, building or any property by the Board is subject to the rules made by the State Government under the KHB Act [section 38]. 2.6 As per section 24 of KHB Act, the State Government can acquire land for the purpose of development, and pay compensation for such compulsory acquisition. The Board cannot decide what land to acquire and how much to compensate the land owners. It is only when t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oard and Annual statement of receipts and expenditure. The appellant Board is thus a projection of the State Government. The State Government acts through the instrumentality or agency of the Board. 2.7 The Appellant is not engaged in buying and selling of goods or providing of services for profit. The activities of the Appellant are driven by commitment to public welfare. An activity' which generates surplus funds without any underlying profit motive cannot be termed as business, trade or commerce. As per section 32(2) of the Karnataka Housing Board Act, 1962, the appellant is not competent to carry on any trading or financing activity for profit, whether in the execution of any scheme undertaken by, or entrusted to it or otherwise. The characteristics of trade, commerce and business are not evident in the Appellant. The objects, structure, activities, functions, powers and conduct of the Appellant indicate that it is not involved in the activities of business, commerce or trade. The financial results of the appellant as depicted hereunder also demonstrates that it is not engaged in business. Total Sales for the year ending 31St March 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .2015 at page 24 held that there can be no profit element in earning the interest income. 2.8.The appellant carries on various housing schemes as decided by the Karnataka State Government. For instance, the programme of '100 Housing Projects' was launched during 2002 to provide 15,000 sites and 13,500 houses as per the State Government order. Out of these 61 schemes at a project cost of ₹ 25,794.23 crores have been completed. For the year, 2445 houses, 11525 sites have been developed / constructed. Further 39 schemes at a project cost of ₹ 60,472.49 crores have been under various stages of completion/progress to develop 13,745 sites and construct 3,854 houses. 2.9. The appellant has taken up 50 housing schemes at various places under Suvarna Karnataka Programme at a cost of ₹ 1,406.48 crores. Apart from the projects sanctioned under 100 housing schemes and Suvarna Karnataka Programme, the appellant has also taken up housing schemes at various places in Karnataka for development of sites and houses. 2.10. The appellant undertakes rehabilitatation of slum dwellers and improve their quality of life by providing basic infrastructure like d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 254 452 67 773 SITES LIG MIG HIG 2259 1837 978 5038 2.16 The allotment to Economically Weaker Sections (EWS) of the society is made at half of allotment rate to other sections. For instance, if rate per square feet for the other categories is ₹ 400, the allotment rate for EWS category would be ₹ 200 per sq.ft. As per rule 2 of the Karnataka Housing Board Regulations, 1983, income limits of economically weaker section group and low income group, middle income group and higher income group is as under. Sl. No Group Income limit 1 Economically weaker section group and low income group Class of persons whose annual income does not exceed ₹ 7,200 or such annual income as may be fixed by the Government from time to time. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Profit on sale of Fixed Assets ₹ 63,000 Other income from schemes ₹ 17,08,77,530 ₹ 24,81,90,477 Loss Rs. (22,22,524) 22,22,524 (Loss) ------------------ x 100 = -0.13%. This is ignoring ₹ 11.09 crores of administration expenses being capitalized. 174,80,22,502 (Sales) The appellant carries on various housing schemes as decided by the Karnataka State Government like 100 Housing Projects, Suvarna Karnataka Housing Projects and Other Housing Projects of the Board. The allotment process in 20 places ready for allotment has been completed at a cost of 234.06 Crores. 67 schemes approved by the Government, at the cost of ₹ 888.77 Crores are under implementation to develop 23204 sites and construct 2340 houses. 16 projects are in the different stages o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nded over to Sub-Registrar Department. The UGD works Shikaripur at Shimoga district at the cost of ₹ 21.42 crores and Jog Falls development works at the cost of ₹ 4.99 crores was under progress. The rehabilitation Project for land loosers to the Shivamogga Airport at Shivamogga was approved by the Government, and the tender invited by the Board. The Infrastructure department had entrusted to develop the Airstrips in 12 places in the State vide its letter dated 18.12.2008. The detailed project report of the construction of Air strip at Raichur Chickmagalur had been submitted to Government for the approval. The preparations of the scheme for other Airstrips were under progress. The development works at the cost of ₹ 54 crores, to develop 32 acres of land near Devanahalli Air Port at Gangamuthanahalli for the construction of residential quarters to different Government departments had been taken up by the Board. The proposed Construction of Engineering Colleges in 2 places at the cost of ₹ 35.00 crores (@ ₹ 17.50 crores for each) and construction of polytechnic buildings in 6 places at the cost of ₹ 48.00 crores (each polytechnic at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14 1492 1153 714 3373 SHOPS TOTAL SHOPS EWS LIG MIG HIG 4 137 325 71 537 GRAND TOTAL 72 1959 1696 793 4520 The allotment to Economically Weaker Sections (EWS) of the society is made at half of allotment rate to other sections. For instance, if rate per square feet for the other categories is ₹ 400, the allotment rate for EWS category would be ₹ 200 per sq.ft. As per rule 2 of the Karnataka Housing Board Regulations, 1983, income limits of economically weaker section group and low income group, middle income group and higher income group is as under. SI. No Group Income limit 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on is existing for making profit. The predominant object test must be applied. The AO must verify the activities of the institution from year to year. It was observed: Where profit making is the predominant object ofthe activity, the purpose, though an object of general public utility, would cease to be a charitable purpose. But where the predominant object of the activity is to carry out the charitable purpose and not to earn profit, it would not lose its character ofa charitable purpose merely because some profit arises from the activity. The exclusionary clause does not require that the activity must be carried on in such a manner that it does not result in any profit. 2.20 The Delhi High Court in ICAI v DGIT(E) [2013] 358 ITR 91 held that functions performed which are in the genre of public welfare and not for any private gain or profit cannot be said to be involved in carrying on any business, trade or commerce. 2.21 The appellant Board was established under the Karnataka Housing Board Act, 1962 for carrying out the state functions and fulfilling the housing needs. The activities of the appellant Board are carried on as per the KHB Act, Rules and Regulat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT v Gujarat Industrial Development Corporation [2017] 83 taxmann.com 366 (Gujarat), it was held that assessee corporation having been constituted under Gujarat Industrial Development Act, 1962, for purpose of securing and assisting rapid and orderly establishment and organization of industrial areas and industrial estates in State of Gujarat, and for purpose of establishing commercial centers in connection with establishment and organization of such industries, entitled to exemption under section 11. It was held that considering the object and purpose for which the assessee has been established under the provisions of the Act and the activities carried out by the assessee, it cannot be said that the activities carried out by the assessee can be said to be either in the nature of trade, commerce or business, or rendering any services in relation to any trade, commerce or business for a Cess or Fee or any other consideration so as to attract proviso to Section 2 (15) of the IT Act. 2.25 Similarly, the Gujarat High Court in Ahmedabad Urban Development Authority v ACIT (Exemptions) [2017] 83 taxmann.com 78 (Gujarat) [Page 530 to 558 of case law compilation] held that the prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant society are not in the nature of commercial, or business. When the main objects of the appellant society are not business, the incidental activity, which is pursued for attainment of the main objects, cannot be called business , merely because the appellant society renders services against payment as fees or cess, even if resulting in profit. [Para 15] 2.29 Where assessee institution, established under control of Irrigation Department of State Government, was imparting training to Government officials in field of water and land management, since said activity had direct connection with preservation of environment, it was held by the High Court of Judicature at Hyderabad in the case of CIT(E) v Water and Land Management Training and Research Institute [2017] 83 taxmann.com 234 (Hyderabad) that it was not a fit case for invoking first proviso to section 2(15), even though assessee was providing guidance to farmers and rendering consultancy services to various other organizations as well by charging certain fee. 2.30 Following are the list of other decisions wherein it was held that proviso to section 2(15) would not be applicable and consequently exemptio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, the Hon'ble Bench relied on the decision of the High Court of Jammu Kashmir in the case of Jammu Development Authority v CIT ITA No. 164/2012 dt. 7.11.2013. However, the aforesaid decision of the High Court of Jammu Kashmir has been distinguished in the following cases. (a) CIT v Jodhpur Development Authority [2017] 79 taxmann.com 361 (Rajasthan)/[2016] 287 CTR 473 (Rajasthan) (b) Tribune Trust v CIT [2016] 76 taxmann.com 363 (Punjab Haryana)/[2017] 247 Taxman 36 (Punjab Haryana)/[2017] 390 ITR 547 (Punjab Haryana)/[2017] 291 CTR 352 (Punjab Haryana) (c) Jaipur Development Authority v CIT [2014] 52 taxmann.com 25 (Jaipur - Trib.)/[2015] 67 SOT 1 (Jaipur - Trib.) (d) Vanita Samaj v DIT(E) [2014] 45 taxmann.com 303 (Mumbai - Trib.)/[2014] 63 SOT 267 (Mumbai - Trib.) (e) Rajasthan Cricket Association v Ad.CIT [2017] 79 taxmann.com 464 (Jaipur -Trib.)/[2017] 164 ITD 212 (Jaipur - Trib.) (f) ITO v Moradabad Development Authority [2016] 71 taxmann.com 339 (Delhi -Trib.)/[2016] 49 ITR(T) 270 (Delhi - Trib.)/[2016] 159 ITD 971 (Delhi -Trib.)/[2017] 183 TTJ 278 (Delhi - Trib.) 2.32 Relevant extracts from the above decisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not carrying on any activities for making profit and therefore, its income is eligible for exemption u/s 11 of the I.T. Act. For this purpose the assessee is relying on the fact that it is established by a State Legislation with the State Government and therefore, the assessee is totally accountable to the State Government and there are no Members, share holders or Partners etc. However, it is to be noted that KHB is a separate Board by Legislative House, it is not a Government and it is having an independent body to control its affairs. A perusal of the Profit Lose Account shows that the assessee is mainly dealing in lands and is making huge profits on sale of lands. This aspect has been brought in very clearly in the assessment order. Various Courts have held that the charitable organisations can have incidental profit, but in this case, looking at the sale value of the land, which is at the prevalent market rate and looking at the surplus earned by the assessee it can be never said that the assessee id doing any charitable activities. Therefore, the A.O. had correctly denied benefit of Section 11 of the I.T. Act to the assessee. II. THE CASE OF APPELLANT IS COVERED BY ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2008-09 Trust No Scrutiny assessment 5. 2009-10 Trust AOP (Trust) 6. 2010-11 Trust AOP (Trust) 7. 2011-12 AOP(Trust) AOP 8. 2012-13 Trust AOP 9. 2013-14 AOP (Trust) AOP 10. 2014-15 AOP (Trust) NA 11. 2015-16 AOP (Trust) NA 12. 2016-17 AOP (Trust) NA 13. 2017-18 AOP(Trust) NA III. DECISION OF HON'BLE ITAT OF HYDERABAD IN THE CASE OF IDRBT Vs AD ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should be a desire or wish to make profit. Rather, the question to be looked into is whether the activity has actually produced an income. 5 Bharat Development Pvt. Ltd. Vs CIT 4 Taxman 58 (Delhi) The Hon'ble Apex Court clarified that by use of the expression `profit motive'. It is not intended that profit must, in fact, be earned. It predicates a motivewhich pervades the whole series of transactions effected by a person in the course of the activity. 6 Adityapur Industrial Area Development Authority Vs Union of India Ors. 153 taxman 107 (SC) wherein the Hon'ble Supreme Court held that by virtue of deletion of section 10(20A) and insertion of meaning of local authority by way of explanation below section 10(20) by the Finance Act 2002 w.e.f 01.04.2003 i.e A.Y.2003- 04 onwards, the income of the assesse i.e. Adityapur Industrial Area Development Authority was not exempt from taxation and also the provisions of article 289(1) are not attracted. 7 ITO(E), Madurai Vs Kalanjiam Development Finan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r section 12A has been granted w.e.f. 01.04.2003. In other words, the registration is effective for this year. The grant of registration is not an empty formality as it has to be granted after satisfying that the objects are charitable in nature. Since the registration has effect for this year also, the object of the assessee will have to be taken as charitable in nature. Therefore, it follows that the assessee will be entitled to deduction u/s 11 subject to fulfillment of necessary conditions mentioned in this provision. The submission of the revenue is that the activities carried out by the assessee are in no way different from the activities carried out by a builder developing a large colony. The submission of the Ld.AR is that there is no profit motive and the activities were carried out in pursuance of the objects of assessee. 12.6 In this connection, the provision contained in section 11(4A) assumes importance, which is to the effect that the provisions contained in sub-section (1), sub-section (2), subsection (3) or sub-section (3A) shall not apply in relation to any income of a trust or an institution being profits and gains of business, unless the business is i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f. use 01 application, or retention of the income from such activity. 12.8 The newly inserted proviso to section 2(15) will not apply in respect of the first three limbs of section 2(15), i.e., relief of the poor, education or medical relief. It would also imply that, where the purpose of a trust or institution is relief of the poor, education or medical relief, it will constitute 'charitable purpose , even if it incidentally involves the carrying on of commercial activities. 'Relief of the poor' encompasses a wide range of objects for the welfare of the economically and socially disadvantaged or needy. It will, therefore, include within its ambit purposes such as relief to destitute, orphans or the handicapped, disadvantaged women or children, small and marginal farmers, indigent artisans or senior citizens in need of aid. 12.9 Similarly, entities whose objects continue to be eligible for exemption as charitable institutions, even if they incidentally carry on a commercial activity , subject to following conditions stipulated under section 11(4A) or the seventh proviso to section 10(23) as under: (i) the business should be incidental to the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e said decision stands upheld by Hon ble Supreme Court in 130 taxman.com 408. The Ld.AR also relied on the decision of Hon ble Allahabad High Court in the case of CIT Vs. Lucknow Development Authority and CIT Vs. UP Housing Development Board reported in (2013) 219 Taxman 162 wherein it is held that the activities of such authorities as charitable in nature. The authorities in question before Hon ble Allahabad High Court were established in the State of UP under the provisions of the Uttar Pradesh Urban Planning Development Act, 1973. 12.15 In the present facts, 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. It is therefore to be seen whether the purpose of the trust or institution in present facts involves carrying on of an activity for profit , or in other words, whether an activity for profit is actually carried on as an integral part of the purpose as a matter of advancement of the purpose . 12.16 The activity must be for profit in order to attract the exclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut charitable purpose. 13. The Ld.AR placed before us the KHB Act. As per section 3 of the said Act, the assessee is a body corporate having perpetual succession and a common seal and to sue and be sued in its corporate name. Further as per section 3 of the said Act, the assessee is competent to acquire, hold and dispose of property movable and immovable and to contract and to do all things necessary for the purpose of this Act. Chapter III of the Act deals with Housing Schemes and Land Development Schemes. Sections 17 to 32-A are found in Chapter-III. The relevant sections Sections 17, 18, 18-A, 19, 20, 21, 22, 23, 24 and 32, which are extracted as under: Section 17 of the KHB Act reads as follows: 17. Duty of the world to undertake housing schemes and land development schemes - subject to the provisions of this act and subject to the control of the State Government, the board may incur expenditure and undertake works in any area for the framing an executive of such housing schemes and land development schemes as it may consider necessary from time to time as may be entrusted to it by the State Government. Section 18 of the KHB Act reads as fol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may within the limits of the area comprised in the scheme, provide for all or any of the following matters, namely:-- (a) the acquisition by purchase, exchange or otherwise, of any land which in the opinion of the Board will be necessary for or affected by the execution of scheme; (b) laying or re-laying of all or any land comprised in the scheme and formation and alteration of streets; (c) drainage, water supply and electricity and carrying out by the Board in the area included in the scheme, drainage sewerage and water supply works; (d) the distribution or redistribution of sites comprised in the scheme; (e) raising the level of any land which the Board may consider expedient to raise to facilitate better drainage; (f) forming open space for the better ventilation of the area comprised in the scheme or any adjoining area; (g) sanitary arrangements required; (h) sites for Parks, Playgrounds, Stadium, recreation grounds, School buildings, Markets, Motor Vehicle Stands, Theatres, Police Stations, Post Offices, Co-operative Societies, Public Urinals and Latrines, Petrol Service Stations, Hospitals, Dispensaries, Banks, Burial a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Provided that no such variation shall be made if it involves an expenditure in excess of twenty per cent of the amount as originally sanctioned for the execution of any housing scheme or land development scheme included in such programme or affects its scope or purpose. Section 24 of the KHB Act reads as follows: 24. Sanctioned housing schemes and land development schemes to be executed- (1) after the program has been sanctioned and published by the state government under section 20 and 21, the board shall, subject to the provisions of section 23, proceeded to executive the housing scheme, the land development scheme or labour housing scheme included in the program. (2) the board shall not execute any housing scheme, land development scheme or labour housing scheme unless the same has been sanctioned by the state government. Section 32 of the KHB Act reads as follows: 32. Schemes entrusted to Board by Government, etc.- (1) The provisions of sections 18 to 24 (both inclusive) shall not be applicable to any housing scheme, land development scheme or labour housing scheme entrusted to the Board by the State Government except to such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar and the programme shall contain the particulars of the housing schemes, land developments schemes and labour housing schemes which the Board proposes to execute, whether in part or whole, during the next year as may be prescribed, and such other particulars as may be prescribed. The State Government may sanction the programme, the budget and the schedule of the staff of officers and servants forwarded to it with such modifications as it deems fit. 13.2 The State Government has to then publish the programmes sanctioned by it under Section 20 in the Official Gazette. A supplementary programme and budget may also be sought by the Board and the State Government may sanction such a supplementary programme. The Board can vary any programme or any part of it, even after the sanction made by the State Government, provided that no such variation shall be made if it involves an expenditure in excess of 20% of the amount as originally sanctioned for execution of any housing scheme or land development scheme included in such programme or affects its scope or purpose. 13.3 After the programme has been sanctioned and published by the State Government under Sections 20 and 21, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion (2) of Section 24 of the Act is juxtaposed with Section 32 of the Act. The latter Section states that the provisions of Sections 18 to 24 (both inclusive) shall not be applicable to any housing schemes, land development schemes or labour housing schemes, entrusted to the Board by the State. This is because such a scheme would emanate from the State Government and it being aware that such a scheme would entail acquisition of land, it is not necessary for the very State Government to once again sanction such a scheme, which in the first place has emanated from the State Government itself. On the other hand, when such a scheme is initiated from the Housing Board, it is necessary that not only Sections 18 to 23, but also Section 24 is complied with. 13.7 The reason being, that the Board, which intends to execute a scheme must keep the State Government informed about the programme to execute such a scheme in terms of Sections 18 to 23 and further under Section 24 of the Act. On such schemes being sanctioned by the State Government, it is necessary that the State Government also sanctions housing scheme, land development scheme or labour housing scheme. The reason as already ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the joint-venture partner or partners contribute to the investment of capital in a joint-venture project approved by the government. 14.1 The above regulation is inserted keeping in view the projects entered into by assessee privately. Further, we also observed that assessee has to prepare and submit the annual Housing program, housing scheme, budget and establishment schedule to the State government in Form 1. On perusal of Form 1, we note that the projects undertaken by assessee are bifurcated into 2 parts. In the 1st part, assessee has to give details of projects undertaken on behalf of State government and in part be the details of such projects undertaken by itself. It is clear from the above that assessee undertakes projects/schemes on behalf of the State government and also through private negotiations. 14.2 Post 01/04/2009, the Courts have held that the predominant intention of assessee needs to be established before invoking the proviso to section 2 (15) of the Act. If the predominant object of the activity was the promotion of commerce and trade in those commodities which was clearly an object of general public utility and profit was merely a by-p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 50: Board s Fund (1) the board shall have a fund because the Housing Board funds. (2) the board may accept grants, subventions, donations and gifts from the central government and state government or local authority or any individual or body, whether Incorporated does not warrant any or all of the purposes of this act. (3) xxxx (4) all monies received by all on behalf of the board by virtue of this act, all proceeds of land or any other kind of property sold by the board, all drenched and all interests, profits and any other monies accruing to the board, shall constitute the Housing Board fund. (5) except as otherwise directed by the state government, all monies and receipts specified in the foregoing provision and forming part of the fund of the board shall be deposited in reserve Bank of India remain a scheduled banger invested in such securities as may be approved by the state government. 14.7 From the above it is clear that the state government do not have any control over the funds of assessee. Further from income and expenditure account it is clear that assessee had income from sales, interest income, rent and lease ren ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 01. EWS (economically weaker sections ) 10 23 72 02. LIG (Low income group) 2473 2712 1959 03. MIG (Middle income group) 2142 2699 1696 04. HIG (High Income group) 818 1124 793 Total 5443 6558 4520 ORS houses LCS sites Total Sales Cost Sales Cost Sales Cost 47080000 43521608 12980000 11998948 60060000 55520556 15. It is very much clear from the above that, the main source of revenue generated by assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Expenditure account of KIADB showed the main component of income was in the form of interest of Fixed deposits. As we have already observed that in the facts of present assessee before us, the main component of income is out of Outright sale of houses, Auction sale of sites, lease cum sale and Outright sale of other sites. 15.3 At this juncture, we refer to the decisions relied by the Ld.DR vide written submissions dated 26/02/2018, reproduced hereunder: 4.25 It is well settled legal position that, the requirement of profit motive is not essential n, conduct the activities which are in the nature of trade, commerce or business. Further, it is not correct to assess the nature of the activities carried on by the assessee solely on the basis of earning profit or loss. As such, the nature of the activities of the assessee should be judged purely on the basis of activities carried on by the assessee rather than on the basis of earning profit or not. This particular view point has been upheld by the Hon'ble Supreme court in various decisions. For example, the gist of some of the decisions is given below for ready reference: (i) The Hon'ble Supreme Court in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ority by way of explanation below section 10(20) by the Finance Act, 2002 w.e.f. 01.04.2003 i.e. A.Y. 2003-04 onwards, the income of the assessee i.e., Adityapur Industrial Area Development Authority was not exempt from taxation and also the provisions of article 289(1) are not attracted. The facts of the case and the gist of the decision of the Hon'ble Supreme Court in this regard are reproduced below for ready reference: FACTS The assessee an Industrial Area Development Authority was a body corporate constituted under the Bihar Industrial Area Development Authority Act. 1974 to provide .for planned development of industrial area, for promotion of industries and matters appurtenant thereto. By the Finance Act, 2002, section 10(20,4) was omitted and an Explanation was added to section 10(20) with effect from 1-4-2003. In view of the amendment, a notice was issued by the Commissioner to the Manager of the Bank to deduct income-tax at source from the interest accrued on fixed deposit receipts of the assessee-authority. The assessee-authority filed a writ petition challenging the notice of the Commissioner on the ground that its income was not liable to be assessed u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e which is earned by means of trade or business of any kind carried by or on behalf of the Stale Government. [Para 8] Clause (2) of article 289 presupposes that the income sought to be taxed by the Union is the income of the State, but the question to be answered at the threshold is whether in terms of clause I) of article 289, the income of the assessee was the income of the State. Having regard to the provisions of the Bihar Industrial Areas Development Authority Act, 1974, particularly section 17 thereof, the income of the assessee constituted under the said Act was its own income and that the assessee used to manage its own finds. It had its own assets and liabilities. It could sue or be sued in its own name. Even though, it did not carry on any trade or business within the contemplation of clause (2) of article 289, it still was an Authority constituted under an Act of the Legislature of the State having a distinct legal personality, being a body corporate, as distinct .from the State. Section 17 further clarifies that only upon its dissolution its assets, funds and liabilities devolve upon the State Government. Necessarily, therefore, before its dissolution, its assets ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial rulings mentioned above, it is amply clear that the assessee cannot claim that its activities are not in the nature of trade, commerce or business on the ground that there is no profit motive in conducting its activities and therefore, its income is not subject to income tax. 4.28 For augment sake, if it is considered but not admitted that there is no profit motive in executing the activities of the assessee, but, it is an undisputed fact that ultimately the activities of the assessee has resulted in generation of huge amount of profits year after year for a considerable period of time. Further, the assessee has carried out the activities/ rendered the services to the industrialists/ entrepreneurs in lieu of which collected/ received consideration towards sale of industrial sites and fee for various services rendered thereof. 4.29 Further, the provisions of article 289(1) of the Constitution of India are also not applicable to keep the income of the assessee outside the purview of the income tax inasmuch as the assessee, though a body corporate constituted under 10-113 Act, 1962, is a distinct legal entity and its income could not be said to be income of the state ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 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 7 Kashmir Development Act, 1970 and that the activities of such Authority are hit by section 2(15) of the Act read with first and second proviso and are not in line with the objects of the Authority/Trust so far as the activities relating to purchase and sale of properties, as mentioned hereinabove. Hen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame, the same land (is sold) on high profit which cannot be said to be 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 investing wherein the hidden cost of these facilities is already included. In the absence of these facilities, normally the purchaser may not invest and the prices may be less. In view of these facts and judicial pronouncements; we are of the view that the application of the assessee has been rightly rejected by learned CIT. The stand of the learned CIT is upheld. Appeal of the assessee is therefore, dismissed . 4. The decision of the Indore bench of ITAT in the case of Indore Development Authority reported in ITA No:366 Ind.2008(2010) dated 6th July 2010, wherein the Hon ble ITAT has up-held the order of the CIT rejecting the application for registration u/s.12A of I.T. Act by relying on various decis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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