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TMI Blog2025 (2) TMI 863X X X X Extracts X X X X X X X X Extracts X X X X ..... own and Country Planning Act, 1961. The assessee claims to be a local authority responsible for the administration, development, and monitoring of affairs in rural Magadi town, located in the Ramanagar district of Karnataka. 6. The appellant-assessee derives income by collecting certain charges or fees, such as betterment fees, lake development fees, and other cesses for specific purposes. Additionally, the assessee earned interest income from deposits of such charges or fees collected. Against this income earned or accrued, the assessee claimed exemption under Section 10(20) of the Act. Consequently, in the original return filed for the year under consideration, the assessee declared its taxable income as NIL. Subsequently, the assessment was reopened under Section 147 of the Act through the issuance of a notice under Section 148 of the Act, dated 18-03-2019. 7. The AO, during the assessment proceedings, observed that the assessee had filed an application for registration under Section 12AA of the Act, which was granted vide order dated 28-05-2019, under the last limb of charitable activity, namely, "Advancement of any other object of general public utility." Consequently, the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstrumentality of the state, created to serve public interests, and does not engage in any activity with a profit motive. Its primary objective is to undertake developmental works, such as water conservation, rejuvenation of water bodies, improvement of lakes, and planning for the town and adjacent areas. These activities aim to meet the drinking water and agricultural needs of Magadi town and its surrounding 223 villages. 9.1 The appellant argues that all its financial transactions, including its receipts and expenditures, are regulated by the State Government. The funds are deposited into a designated account called the Magadi Planning Authority Fund, with the annual budget being reviewed and approved by the Government. Furthermore, it is subject to annual audits conducted by Government agencies, and its operations are fully controlled by the Urban Development Ministry of Karnataka. 9.2 On dissolution, all its assets and liabilities vest with the Government, further reinforcing its status as a non-commercial, public body. The appellant highlights that the functions performed by it are statutory and public in nature, aimed at improving infrastructure and addressing the needs of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dged in the assessment order that the facts in the present case are identical to those involved in the case of the Bangalore Development Authority (BDA) (supra). The relevant finding of the AO is extracted as under: "6.2 The facts of eh case are exactly similar to that of Bangalroe Development Authority, the principle of taxation in the case of Bangalore Development Authority squarely apply to the Assessee's case as well." 13.2 We find that in the case of BDA, the coordinate bench of ITAT had categorically held that activities undertaken by a statutory authority in fulfilment of its public duties, even when they involve in the collection of fees, do not fall within the scope of trade, commerce, or business as per the proviso to Section 2(15) of the Act. The finding of the Tribunal in the case of BDA (supra) are extracted as under: 9. At the time of hearing of the appeal, it was agreed by both the parties that identical issue had come up for consideration in assessee's own case for asst. year 2012-13 in ITA No.1104/Bang/2017 and this tribunal vide its order dated 22/3/2019 held that the assessee is entitled to the benefit of sec. 11 of the Act and that its activities cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... poor does not necessarily mean giving something free of cost to the poor. It also includes providing them things at a concessional rate. The Tribunal also embarked upon an enquiry as to whether the word "poor" can mean only those who are below the official poverty line or does it include all those who are economically weaker, but not necessarily below the poverty line. The Tribunal concluded that it is not necessary that educational / medical assistance is to be given free only to those below the poverty line. It will suffice if education / medical assistance is provided at concessional rates. The Tribunal also held that the rules that govern the allotment of sites are so formed in order to facilitate the economically weaker sections of society to purchase these sites. In the case of construction of flats, it was clear from the very scheme and the name thereof, that these flats are meant only for the Economically Weaker Sections of society. 3. The Tribunal held that the complaint of the Revenue authorities that the assessee was not applying huge amount of profit generated from the activities towards any charitable activities such as relief of poor, education, medical relief and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, what the intent and purpose of starting such activity is. The tribunal found that BDA's embarkation of the activity of setting up of residential layouts, including the activity of sale of sites and flats, is definitely not with a view to earn profit, but to ensure planned urban development and also to accomplish a social objective of providing an opportunity to economically weaker sections of society to be able to own a residence on their own. The tribunal also held that the process of auctioning of corner sites by the BDA was only to ensure that officials do not use their discretion to allot corner sites and was therefore an activity which will ensure no loss to the public exchequer. 4. The Tribunal took note of the fact that the concerned Income Tax authorities have recognized the assessee as a public charitable organization by grant of registration under section 12A of the Act since 26.03.2003 and that the assessee's objects clause, i.e., section 14 of the BDA Act has not undergone any change or modification since its enactment; which is what must have prompted the Income Tax Department to take the view that it was charitable in nature. The tribunal took note of the fact t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anning and Development Authority (103 TTJ 98) (ITAT - Chandigarh); (iii) Indore Development Authority - ITA No.366/Ind/2008 (ITAT - Indore). (iv) Improvement Trust Vs. CIT, Bhatirda (41 Taxmann.com 403) (ITAT - Amritsar). 10. In view of the aforesaid decision of the Tribunal, we are of the view that the assessee's activities have to be regarded as charitable in nature. The facts and circumstances under which the Tribunal decided the aforesaid issue and the basis of the conclusions in AY 12-13 and the AY 13-14 & 14-15, which are the AYs in the present appeals, are identical. The conclusions of the Tribunal in AY 12-13 would therefore be equally applicable to AY 13-14 & 14-15 also. The assessee would be entitled to the benefits of sec. 11 of the Act for AY 13-14 & 14-15. We hold accordingly and allow ground No.5 in both the Assessment years. In view of the findings rendered as above, the other grounds/issues raised by the Assessee in these appeals and the grounds raised by the revenue in its appeal become academic in nature as these conclusions flow only on the basis that the Assessee does not exist for "Charitable Purpose", which conclusion has been held by us to be incorre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its reliance on the BDA case. The appellate authority failed to provide a reasoned explanation for dismissing the precedent, despite the AO's admission of factual similarity. 13.7 Given the admitted identical nature of the facts and the binding judicial precedent set by the Bangalore ITAT in the BDA case, we hold that the denial of exemptions under Sections 11 and 12 of the Act is unjustified. The assessee's activities are undeniably charitable, and the provisions of the Act support its exemption claim. The addition made by the AO and upheld by the learned CIT(A) is, therefore, quashed. 13.8 It is equally important to note that the Hon'ble Supreme Court in the case of ACIT Vs. Ahmedabad Urban Development Authority reported in 143 taxmann.com 278 involving identical facts and circumstances, has decided the issue on hand favouring assessee by holding as under: A.3. Generally, the charging of any amount towards consideration for such an activity (advancing general public utility), which is on cost-basis or nominally above cost, cannot be considered to be "trade, commerce, or business" or any services in relation thereto. It is only when the charges are markedly or significantly ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iled an appeal before us. 17.1 The learned AR before us among other contention argued that the appellant trust was granted registration under Section 12AA of the "Act" on 28th May 2019. At the time of granting registration, the proceedings for the relevant assessment year (A.Y. 2016-17) were pending before the learned CIT(A), therefore in accordance with the proviso to subsection (2) of Section 12A of the Act, the appellant trust should be entitled to the benefit of exemption under Section 11 of the Act for the year under consideration. The ld. AR argued appellate proceeding is continuance of assessment proceeding which was pending on the date of registration. Since the registration was granted before the completion of the assessment proceedings, the appellant is entitled to the exemptions available to a registered charitable trust under Section 11 of the Act. 18. On the other hand, the learned DR vehemently supported the order of the authorities below. 19. We have heard the rival contentions of both the parties and perused the materials available on record. From the record, we note that the assessee, for the year under consideration, originally claimed exemption under Section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s Shree Shyam Mandir Committee in Income Tax Appeal No. 234/2016. The Hon'ble Rajasthan High Court, in its order dated October 23, 2017, decided the issue in favor of the assessee, holding that an appeal is a continuation of assessment proceedings. Therefore, an appeal pending before the appellate authority should be deemed as assessment proceedings pending before the AO. The relevant observation is extracted below: 30. This brings us to the next question, i.e., whether the assessment proceeding "pending before the Assessing Officer," as stated in the first proviso to Section 12A(2) can be taken as "pending in appeal," or, in other words, whether proceedings pending in appeal can be taken as assessment proceedings pending before the Assessing Officer. This issue also stands answered in favor of the assessee by Shree Bhanushali Mitra Mandal Trust (supra), wherein it was held that appeal is a continuation of the original proceedings and assessment proceedings pending before an appellate authority should be deemed to be "assessment proceedings pending before the Assessing Officer" within the meaning of Section 12A. SNDP Yogam (supra), is to the same effect. Again, no contrary dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 08.06.2015, the benefit of Section 11 & 12 would be available for the following financial year in which application was made if the assessment proceedings for the relevant assessment year was pending till the date of registration. It cannot be for the assessment year 2011-12 due to pendency of the appeal before the Tribunal. If the benefit of Section 11 and 12 is extended for the assessment year 2011-12, despite submission of the application for registration on 15.12.2014, it would be in contravention of sub-section 2 of Section 12. By virtue of the interpretation taken by the Tribunal the main provision has been made redundant on the facts of the case, though not permissible. The proviso has to be read along with main proviso and not in isolation and contradiction. 19. The Tribunal even ignored the fact that proviso not only require registration of the Trust or the Institution while the assessment proceedings are pending, but it refers to assessment proceedings before the assessing authority and not elsewhere. In a common parlance, whenever matter is pending before the Tribunal in appeal, considered to be pendency of the assessment proceedings. The aforesaid principle would be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Officer and such cases also subsequent application for registration and acceptance would result to extend benefit of Section 11 and 12 creating anomalous position if not meant for. This was not the object sought to be achieved by the legislature. If for one or the other reason, the proceedings in reference to the assessment years 1998-99 remains pending and the application for registration under Section 12AA of the Act, 1961 is filed in the year 2014-15 followed by registration, if the proviso is applied, then benefit of Section 11 and 12 of the Act, 1961 would be given to the Trust or the Institution even for the year 1998- 99, though the legislatures have not provided such arrangement or to extend the benefit in such cases. The provision is candid to govern only those cases where the application for registration is submitted followed by registration, to extend the benefit to the assessee from the following financial year of the date of application. Taking aforesaid into mind, we find reasons to allow the appeal preferred by the revenue and the substantial questions of law framed herein above are answered in favour of the Revenue and thereby we set-aside the order passed by th ..... 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