DCIT, C-1 (E), CHANDIGARH vs. M/S IMPROVEMENT TRUST, PATIALA

Since these appeals pertain to the same assessee and the Revenue has raised the common issue in all the three appeals, except in appeal pertaining to the Assessment year 2014-15, wherein the Revenue has challenged the action of the Ld. CIT(A) inter alia on the ground that the Ld. CIT(A) has erred in allowing the ground of appeal with respect to disallowance of donation expenditure of Rs. 4 crore, these appeals were clubbed, heard together and are being disposed of by this common order for the sake of convenience.

Brief facts of the lead case pertaining to the Assessment year 2013-14 are that the assessee society registered under section 12A of the Act, 1961 with the Ld. CIT-1, Amritsar vide No. CIT-I/ASR/2006-07/213 dated 24/04/2006 & vide order No. CIT-I/ASR/ITI(Tech)/07-08/PS-81, dt. 26/10/2007, subsequently withdrawn vide order F.No. CIT/PTA/Tech/12AA, dt. 13/10/2014, filed its return of income for the assessment year under consideration declaring nil income after claiming exemption u/s 11 of the Act. The AO noticed that during the year relevant to the assessment year under consideration the assessee carried on the business of sale and purchase of residential plots and commercial properties and earned huge net profit of Rs. 9,95,74,223/-, which does not fall within the ambit of the advancement of any other object of general public utility under section 2(15) of the Act. Accordingly, the AO asked the assessee to justify its claim and after hearing the assessee rejected the claim of the assessee. The AO rejected the claim of the of the assessee and after making addition on account of disallowance of donation amounting and disallowance of service Tax paid, passed Assessment Order u/s 143(3) of the Act, determined the total income of the assessee at Rs. 11,00,93,437/-

The assessee challenged the assessment order before the Ld. CIT(A). The Ld. CIT(A) relying on the decision of the ITAT Amritsar Bench in the case of

The Revenue has challenged the impugned order by raising the following effective grounds:

The only grievance of the Revenue is that the Ld. CIT (A) has wrongly held that the assessee is entitled for exemption u/s 11 of the Act. At the outset, the Ld. Counsel for the assessee submitted that the issue involved in the present appeal is covered in favour of the assessee by the order of the coordinate Bench in assessee’s own case in ITA No. 120/Chd/2017 for the A.Y. 2012-13. The Ld. Counsel further pointed out that the Tribunal has decided this issue in favour of the assessee by following the judgment of the Hon'ble Jurisdictional High Court in the case of Tribune Trust (2016) 76 taxmann.com 363 (P&H) in which the Hon'ble High Court has decided the issue of applicability of Section 2(15) of the Act in favour of the Improvement Trust, Moga.

Ld. Counsel further pointed out that the Hon'ble Jurisdictional High Court has confirmed the decision of the Tribunal and dismissed the Revenue’s appeal ITA No. 74/2018 in assessee’s own case, by following its earlier judgment rendered in the case of Tribune Trust Vs. CIT and anothers.

On the other hand the Ld. Departmental Representative (DR) fairly admitted that the issue involved in the present case is covered in favour of the assessee by the judgment of the Hon'ble Jurisdictional High Court, however, supported the order passed by the A.O. on the ground that the Department has filed SLP against the order of the Hon'ble High Court in the Hon'ble Supreme Court. The Ld. DR further admitted that the Hon’ble Supreme Court has not stayed the operation of the impugned order.

We have heard the rival submissions of the parties and gone through the material available on the record including the order of the coordinate Bench rendered in assessee’s own case pertaining to the assessment year 2012-13 as well as the judgment of the Hon’ble jurisdictional High Court delivered in assessee’s own case. As pointed out by the Ld. Counsel for the Assessee, the Coordinate Bench has decided the identical issue in favour of the assessee in assessee’s own case for the A.Y. 2012-13. The findings of the coordinate Bench read as under:

The Tribunal also rightly held that an object of general public utility does not necessarily require the 66 of 74 ITA-62-2015 and ITA 147-2016 - 67 - activities to be funded or subsidized by the State. So long as the objects fall within the ambit of the words "object of general public utility", it is sufficient. The achievements of those objects do not have to be as a result of State funding or State subsidy. The Tribunal accordingly rightly held that the authorities were not justified in denying the benefit of section 11 and holding that the assessee was not covered by the words "advancement of any other object of general public utility" in Section 2(15). The Tribunal, therefore, rightly directed the Assessing Officer to delete disallowance of exemption.

It cannot possibly be suggested that the Government of Punjab formed the trusts under the Punjab Town Improvement Act, 1922 because it wanted to carry on the business as colonizers or developers under the mask of the category "objects of general public utility".

Section 28(2)(iii) of the Punjab Town Improvement Act, 1922 permits a scheme under this Act to provide inter- alia for the disposal of the land vested in or acquired by the trust including by lease, sale and exchange thereof. This, however, is not the predominant activity or responsibility of the trust. Nor for this assessee is making profits from this activity its predominant motive.

The power of the assessee to dispose of land conferred by Section 28(2)(iii) is not an absolute or independent power. It is conferred upon the assessee in the discharge of its statutory duties imposed on it by the PTI Act of framing schemes. Sub section (1) of Section 28 entitles the assessee to combine the various schemes referred to in Chapter-IV. Sub section (2) stipulates that the scheme 67 of 74 ITA-62-2015 and ITA 147-2016 - 68 - under the Act may provide for a variety of things including the disposal of land belonging to the assessee. This power is, therefore, in furtherance of, connected with and in relation to a scheme in Chapter-IV. It is not an absolute power independent of and unconnected with the assessee's statutory functions under the PTI Act.

The predominant activity of and the purpose for the establishment of the assessee is summed up in two words "town improvement" in the title "Punjab Town Improvement Act, 1922". The preamble is titled "An Act for the improvement of Certain Areas". The preamble states "whereas it is expedient to make provision for the improvement and expansion of towns in Punjab". The Act in general and Chapter-IV thereof in particular indicates the reason for and the basis of the establishment of the trust. Almost every section in the Chapter indicates clearly that the trust is established for the purpose of "advancement of the object of general public utility". This is the predominant purpose of the trust.

The language of the provisions of the Act are self explanatory in this regard. The trust must deal with the buildings unfit for human habitation, the danger caused or likely to be caused to the health of the inhabitants of the area on account of the congested conditions of streets or buildings or want of light, air, ventilation or proper conveniences in an area and sanitary defects. The trust is required to frame the street schemes to lay out new streets, thoroughfares and open spaces or alter existing streets whenever it appears to the trust that it is necessary to do so for the purpose of providing building sites or remedying 68 of 74 ITA-62-2015 and ITA 147-2016 - 69 - defective ventilation or creating new or improving existing means of communication and facilities for traffic.

The trust must also prepare development schemes. This duty contained in Section 24 is not akin to that of a private developer or a colonizer as wrongly suggested by the Assessing Officer and confirmed by the CIT(A). The development scheme under section 24 is prepared for the purpose of development of a locality. Sub section (2) of Section 24 provides that the trust may if it is of the opinion that it is expedient and for the public advantage to promote and control the development of and to provide for the expansion of a municipality in any locality adjacent thereto within the local area of such trust prepare "an expansion scheme". The development scheme, therefore, is for the public purpose of development of any locality and an expansion scheme is also prepared when it is expedient and for the public advantage as opposed to a mere personal advantage as in the case of private developers or the colonizers. The two cannot possibly be compared. These schemes do not contemplate mere development of the plots and the construction of the premises for sale. The Trust must under the Act adopt a holistic approach for the betterment and advantage of the entire area within its jurisdiction.

Section 25 which provides for a housing accommodation scheme to be framed is similar. The trust is required to frame such a scheme if it is of the opinion that it is expedient and for the public advantage to provide housing accommodation for any class of inhabitants within its local area. The trust is, therefore, to be motivated not by personal but by public benefit. Such activities clearly fall 69 of 74 ITA-62-2015 and ITA 147-2016 - 70 - within the last category of cases in the proviso to Section 2(15) as it stood at the relevant time, namely, "advancement of an object of general public utility".

It can hardly be suggested that the Government of Punjab established the assessee's trust and conferred upon it public responsibilities and duties of the nature specified in the PTI Act as a camouflage for its commercial, trade and business ventures. The creation and incorporation of the trust under section 3 is for a public purpose. We have no doubt whatsoever that the activities of the trust fall within the meaning of the words "charitable purpose" in Section 2(15).

Whether the mandate of the Act is followed by such a trust is a different matter. The facts in that regard are relevant in examining whether the activities of the trust of a given year entitled it to the benefit of the Income Tax Act. Mere profit making on account of certain incidental or ancillary activities of the trust do not disentitle it to the exemptions. The Trust constituted under the PTI Act is likely to make profit on account of its commercial or business activities such as when it acts pursuant to the power under section 28(2)(iii) by disposing off its lands. That,

In the present case, the Assessing Officer has not indicated any facts which indicate that the assessee deviated from this principle. He has merely referred the extent of profit making activities without correlating the same to the other activities of the trust. In our view, therefore, the order of the Tribunal must be upheld.

Mr. Goel relied upon the judgment of the High Court of Jammu & Kashmir in Jammu Development Authority v. Union of India and another ITA No. 164 of 2012. The Division Bench dismissed the appeal with the following order:-

We find that no question of law much less a substantial question of law would emerge from the impugned order of the Income Tax Appellate Tribunal warranting admission of the appeal. The appeal is wholly without merit and is thus liable to be dismissed.

For the reasons aforementioned, this appeal fails and same is dismissed alongwith connected application(s)." The judgment is of no assistance to the appellant for the Division Bench observed that there were findings of fact that the assessee/appellant had in that case not been acting to advance any object concerning general public utility. The

The assessee, namely, Moga Improvement Trust is undoubtedly an authority constituted in India. It is also constituted by or under a law, namely, the Punjab Town Improvement Act, 1922. Further, it is engaged for the purpose of dealing with and satisfying the need for housing accommodation. It is also constituted for the purpose of planning, development of improvement of cities, towns and villages or for both as is evident from Sections 22 to 28 of the PTI Act quoted above. The appellants, would, therefore, undoubtedly have been entitled to the benefit of Section 10(20A). The assessee would not have been entitled to the benefit of Section 10(20A) upon its omission by the Finance Act, 2002 with effect from 01.04.2003. Section 10(20A) of the Act did not contain any other requirement. It was wider than Section 2(15).

Following the same we do not find any infirmity in the order of the Ld. CIT(A) and deciding the identical issue in favour of the assessee the departmental appeal stands dismissed.”

Further, as pointed out by the Ld. Counsel for the assessee, the Hon’ble jurisdictional High Court has dismissed the Revenue’s appeal ITA No. 74 of 2018 filed against order dated 13.07 2017 rendered by the Tribunal in assessee’s appeal pertaining g to the assessment year 2013-14 and confirmed the same. Admittedly, the Hon’ble Supreme Court has not stayed the operation of the impugned order dated 11. 07. 2018 passed by the Hon’ble jurisdictional High Court. Under these circumstances we deem it appropriate to dispose of this appeal by following the decision of the Hon’ble High Court rendered in assessee’s case.

In our considered view, since the order passed by of the Ld. CIT(A) is in accordance with the judgment of the Hon’ble jurisdictional High Court, we do not find

We have heard the rival submissions and perused the material on record. Vide ground No. I to vi, the Revenue has challenge the action of the Ld. CIT (A) in holding the assessee eligible for claiming exemption u/s 11of the Act. Since we have decided the identical issue in favour of the assessee in Revenue’s appeal ITA No. 468/chd/2018, pertaining to the Assessment year 2013-14 by following the judgment of the Hon’ble jurisdictional High Court discussed above, consistent with our findings in the said case we uphold the findings of the Ld. CIT (A) and dismiss ground No 1 to vi of the Revenue’s appeal.

So for as the issue raised by the Revenue vide ground No (vii) is concerned, as pointed out by the Ld. DR, the Ld. CIT(A) has not discussed this issue separately in its order as to whether the donation in question is related to the objects of the assessee society so as to allow the same. In our considered opinion, there is merit in the contention of the Ld. DR that the Ld. CIT(A) ought to have discussed and decided the issue before allowing the claim of the assessee. The Ld. Counsel for the assessee also admitted that the Ld. CIT (A) has not dealt with this issue separately. Therefore, in our considered view, this issue requires adjudication by the first appellate authority. Hence, in all fairness, we set aside this issue to the file of the Ld. CIT (A) for deciding the same after affording a reasonable opportunity of being heard to the assessee.