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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 ..... 's invocation of Section 13(8) of the Act, citing that the assessee's fee-earning activities constitute trade or business, lacks sufficient merit. The activities cited by the AO - such as layout plan approvals, betterment fees, and lake conservation fees are intrinsic to the assessee's statutory responsibilities and do not exhibit the characteristics of a profit-driven enterprise. These fees are charged to ensure accountability and fund public welfare initiatives, not to generate profit. As such, the AO's interpretation of the assessee's activities as trade or commerce is inconsistent with the intent and purpose of Sections 11 and 12 of the Act. CIT(A) further erred in concurring with the AO without adequately addressing the assessee's submissions, including 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. Given the admitted identical nature of the facts and the binding judicial precedent set by the Bangalore ITAT in the BDA case [2019 (6) TMI 429 - ITAT BANGALORE] we hold that the denial of exemptions under Sections 11 and 12 of the Act is unjustified ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 issue of eligibility for deduction under Section 10(20) of the Act became redundant. 7.1 The AO noted that while the Assessee was involved in activities aimed at advancing general public utility, it also engaged in significant commercial activities, such as earning income from scrutiny, supervision, layout plan approvals, betterment charges, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nking 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 the local population, and thus do not fall within the purview of "business activity." Therefore, the activities carried out by it ( the assessee) are entirely charitable, lacking any trade or commerce aspects, as they are focused on fulfilling the basic needs of the community. 9.3 The appellant also challenges the interpretation of the AO, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se 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 said to fall within the ambit of proviso to sec. 2(15) of the Act. The conclusions of the Tribunal can be summed up as follows:- 1. In Paragraph 5.8.1, the Tribunal extracted the objects of the Assessee as per Section 14 of the BDA Act, 1976, which is as under: "14. Objects of Authority:-The objects of the authority shall be to promot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arily 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 other objects of advancement of general public utility and such surplus is being invested in fixed deposits in order to earn interest income was also not correct in as much as the Assessee was constructing grade separators, PRR Bridges on Flyovers, carrying out renovation and remodeling works, Maintenance of BBMP facilities, Development of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iding 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 that after the introduction of the proviso to section 2(15) of the Act the Income Tax Department took a view that the activity of 'BDA' was in the nature of trade, commerce or business and cancelled the registration, granted under section 12A of the Act, vide order dated 08.11.2011. The assessee's registration under section 12A of the Act how ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 incorrect. The AO will therefore compute total income on the basis that the Assessee is entitled to the benefits of Sec.11 of the Act and if done so there would be no income which can be brought to tax. 13.3 Despite admitting the factual similarity, the AO chose to dismiss the assessee's reliance on the ITAT's decision in the BDA case, citing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns 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 above the cost incurred by the assessee in question, that they would fall within the mischief of "cess, or fee, or any other consideration" towards "trade, commerce or business". In this regard, the Court has clarified through illustrations what kind of services or goods provided on cost or nominal basis would normally be excluded from the mis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore 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 10(20) of the Act by treating itself as a local authority. However, the exemption claimed under Section 10(20) of the Act was denied by the AO in the assessment order passed under Section 143(3) of the Act, dated October 30, 2018. 19.1 Subsequent to the assessment order, the assessee applied for registration as a charitable trust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 decision has been brought to our notice. Accordingly, it is held that the appellate proceedings before the appellate authorities are deemed to be assessment proceedings pending before the Assessing Officer. 19.7 Before concluding, it is important to note that an identical issue was also considered by the Hon'ble Allahabad High Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 applicable in the instant case is another question because proviso qualifies not only pendency of the assessment proceedings, but should before the Assessing Officer not else where, if in the proviso words "pendency of the assessment proceedings", would have been used then pendency of the appeal against the assessment could have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ears 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 the Tribunal. 19.8 Thus, there are contrary views taken by two different non- jurisdictional High Courts on the issue of whether assessment proceedings can be considered pending as on the date of approval of registration under Section 12AA of the Act, for the purpose of extending the benefit of exemption under Sections 11 or 12 o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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