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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: HONBLE KUL BHARAT & AND HONBLE MANISH BORAD
आदेश / O R D E R PER KUL BHARAT, J.M: This appeal of the assessee is directed against the order of the Commissioner of Income Tax (Exemption), Bhopal, M.P. dated 30.01.2015. The assessee has raised following revised grounds of appeal: “The present appeal is being filed inter alia on the following grounds: A.Because the impughned order if erroneious, unsustainable and on wholly illegal ground and hence liable to be rejected. B. Because registration cannot be denied on an erroneious ground that activities of the assessee are commercial in nature. For invoking section 12AA read with 2(15), Revenue has to show that activities are not in accordance with the objects of the association. C. Because the ld. CIT€ has not held that activities of the assessee are not genuine or that the activities are not being carried out in
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accordance with the objects of the assessee. The assesse is a non- profit organization and registered under section 25 of the Companies Act, 1956 and hence the assessee is a charitable organization and entitled for the benefit of registration under Section 12A of the Income Tax Act. D. Because the core activities of the assessee are not in the nature of trade, commerce or business. Mere charging of fees does not mean that the assessee is carrying out its activity in the nature of trade, commerce and business and thus the Proviso to 5.2(15) is not automatically attracted. E. Because it is settled position of Law that for achieving its main charitable object, if an Institution carries on some commercial activity and there is profit, it cannot be considered to be a business activity, with profit motive, so long as, the profit earned is utilized for the purpose of achieving the main charitable object. learned CIT (E) also overlooked the fact that as per Articles of Association of the appellant Company there is restriction to distribute any dividend and/or profit by the appellant hence the conclusi n drawn is wholly devoid of merits. Apart from this as per mai object of the appellant company as contained in the Memorandum of Association, the Appellant shall apply its profit, if any or other income in promoting its object and prohibit payment of any dividend to its members. F. That, the finding of the learned CIT (E) that if the contention of assessee is considered for the sake of arguments then similarly placed all public sector units which are owned and controlled by state should be out of the purview of taxation is wholly erroneous and outside the jurisdiction of learned CIT (E) while deciding the application of the assessee for registration under Section 12AA of the Income Tax Act. G. That, learned CIT (E) has decided the application of the assessee by relying on the order passed by learned ITAT, Jaipur in Appeal no. 17ITA182/JP/2012 (Jaipur Development Authority -V- CIT), Jammu Development Authority Vs. CIT, ITA no. 164/Jammu/2012 and judgment passed by learned ITAT Chandigarh in Punjab Urban Planning and Development Authority Vs. CIT in Appeal No. 764/Chandigarh/2003 which is based on the wrong interpretation of judgments while the appellant assessee is not a Housing Development Authority hence the facts on the basis of which reliance has been placed by learned CIT (E) is not applicable in the case of appellant. Hon'ble ITAT, Jaipur in ITA No. 182/JP/2012 (Jaipur Development Authority Vs. CIT) decided on 30.09.2014 has taken a 2
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different view while rejecting the decision passer: in ITA no. 164/Jammu/2012 & ITA no. 764/Chandigarh/2003 and on this sole ground the impugned order is liable to be set aside by allowing the present appeal. H. Because Ld. CIT (E) in para 7 of the impugned order has observed as under: That if the argument of assessee is analysed from the point of General Public Utility, still it can be said that commercial angled with profit motive is involved which has become predominant object of assessee. The said finding is wholly contrary to facts and materials on record. Admittedly the assessee company is a charitable and non-profitable organization registered under section 25 of Companies Act, 1956. On perusal of the object clause of Memorandum of Association of the assessee Company it is clear that object is for general public utility and there is no element of profit involved in the activity of assessee. I. Because the impugned order passed by Ld. CIT (E) is without considering the judgment passed by Hon'ble Apex Court in Commissioner of Income Tax Vs. Gujrat Maritime Board reported, in (2007) 14SCC 704 which hold a good law even after amendment in section 2(15) of the Income Tax Act and still followed by various High Courts as well as ITAT. J.Because impugned order is contrary to order passed by Hon'ble Gujrat High Court in Commissioner of Income Tax Vs. Kandla Port Trust reported in (2014) 364 ITR 164 (Guj), relying on the judgment passed by Hon'ble Apex Court in C.I.T. v. Andhra Chamber of Commerce reported in (1965) 55 ITR 722 (SC), (.I.T. v. Andhra Pradesh State Road Transport Corporation reported in (1986) 159 ITR 1 (SC), Surat Art Silk Cloth Manufacturers Association's case (1980) 120 ITR 1 (SC) and the Bar council of Maharashtra's case (1981) 130 ITR 28 (SC). K.Because Ld. CIT (E) has avoided himself to consider the most important and core issue raised in the application that in the similar circumstances CIT had already granted registration to two sister concerns namely MP Audyogik Kendra Vikas Nigam (Gwalior) Ltd and MP Audyogik Kendra Vikas Nigam (Jabalpur) Limited who were established under same circular and are hundred per cent State Government Entities and are subsidiaries of M P Trade and investment Facilitation corporation Limited, another wholly owned Government corporation: L. Because Ld CIT (E) has also overlook the fact that Hon'ble High Court of Madhya Pradesh has already held that activities of the MP Audyogik Kendra Vikas Nigam (Gwalior) Ltd is charitable purpose and the ratio of the said decisions is squarely covered in the present 3
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facts and circumstances of the case and the said judgment is attain finality and hence on this ground also the impugned order is liable to be set aside. M.That, as per Article 289 of the Constitution of India, the property and income of the state shall be exempt from Union Taxation. It is admitted position that the land is owned by state Government, the lease deed was executed for and on behalf of Governor of state and all the receipt belongs to the state government, the assessee/Appellant is acted as agent of the State hence the income/receipt is not taxable at all in the hands of Appellant. N. The Ld. CIT (E) has acted in excess of its powers in the narrow sense, he has abused its powers by acting in bad faith or for an inadmissible purpose or an irrelevant ground or without regards to relevant consideration or with gross unreasonableness.
The only effective ground in the appeal is against rejecting the application seeking for exemption u/s 12AA(1)(b) of the Income Tax Act, 1961 (hereinafter called as ‘the Act’). 3. The facts giving rise to present appeal are that the assessee had made an application seeking exemption u/s 12AA(1)(b) of the Act on 23.07.2014 in Form No.10A. In response to the notice of the Ld. CIT(E), the authorized representatives of the assessee appeared from time to time and furnished the details as called for, after considering explanation of the material on record. The ld. CIT(A) rejected the application however, the Ld. CIT(A) rejected the application by observing as under: All the case laws quoted by the Nigam in its various replies including the reply dated 27.01.2014 are prior to the amendment of section 2( 15) of the IT Act. 1961 (0 be precise prior to Finance Act,2008, through which the proviso has been added whereby any object of the general public utility has been redefined by bringing involvement of carrying on any trade, commerce or business. I have considered the submission made by the assessee and also perused the material available on record. In this case the only issue involved is to ascertain whether the activities carried out by the 4
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Nigam is in the nature of charitable activity as claimed by the company. Before discussing the main issue I would like to clarify that from the above mentioned gist of reply from the assessee, It is seen that assessee is a wholly owned Government Company, funded by the Govt. and working on behalf of it as an agent. The activities done primarily revolve around promotion of industrialization in the jurisdiction of the company. In other words it is one of the Infrastructure Development Agency of the state like Jammu Development Authority, Hyderabad Urban Development Authority, Punjab Urban Planning & Development Authority etc., I would also like to clarify that the assessee keeps on stressing the point about the ownership and management and control by the state Govt so the activities are argued to be Of General Public Utility, hence to be considered as Charity in terms of section 2(15) of the Income tax Act 1961. If the contention of the assessee is considered even for sake of argument then similarly, placed all public sector units which are owned and controlled by the state should be out of purview of the taxation But in reality that is not happening In the instant case, the company is an independent taxable entity having separate legal status and seal. Therefore the argument of the assessee that ownership, management and control being that of the state should render the activity of the Nigam as charitable is not acceptable. Having discussed above, now I proceed to discuss the main issue of activities carried on by the Nigam and their relevance in terms of amendment to section 2( 15) of IT Act. 5. Finance Act, 2008 has redefined the expression "charitable purpose" as defined u/s 2(15) of the LT. Act, 1961. Proviso to that section reads as under;- "Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature or use of application, or retention, of the income from such activity". 5.1 The reason for this change was explained in the Explanatory Memorandum thus" " ..... It has been noticed that a number of entities operating on commercial lines are claiming exemption on their income either under section 10(23C) or section 11 of the act on the ground that they are charitable institutions. This is based on the arguments that they are engaged in the 'advancement of an object of general public
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utility' as is included in the fourth limb of the current definition of 'charitable purpose'. Such a claim, when made in respect of an activity carried out on commercial line, is contrary to the intention of the provision. With the view to limiting the scope of the phrase { advancement of any other object of general public utility' it is proposed that the advancement of any other object of general public utility shall not be charitable purpose, if it involves the carrying on of a)Any activity in the nature of trade, commerce or business or, b)Any activity of rendering of any service in relation to any trade, commerce or business for cess or fee or any other consideration, irrespective of the nature of use or application or retention, of the income from such activity". Charitable purpose has been defined in section 2(15) has four kind of different objects (Purposes). These are (1) Relief to poor (2) education, (3) medical relief and (4) Advance of any other object of general public utility. It is only the last which will not be taken as charitable object, if it involves carrying on the activity of the nature of trade, commerce or business or rendering any service in relation thereto for a consideration. The object of advancement in general public utility is a charitable purposes but will not be so if - a. it involves the carrying on. b.of an activity c.in the nature of trade, commerce or business or the activity of rendering any service related thereto for a consideration. Advancement of any object of public utility is not to be taken as charitable purposes if it involves the carrying on any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business for cess or fee or any other consideration, irrespective of the nature of use or application or retention of income from such activity. In another case the assessee applied for registration uls 12A of the IT Act, which was allowed on the direction of Hon'ble IT AT, Jaipur bench w.e.f. 1982. Subsequently from 01.04.2009 amendment to Section 2(15) of the IT Act, 1961 changed the scenario of the authorities and definition of charitable activity in relation to any general public utility as discussed in a case decided by learned ITAT Jaipur having appeal No. 17 ITA 182/JP/2012 i.e. Jaipur Development Authority vs CIT in which charitable purposes had been limited for certain Trusts who were involved in carrying on any activity in nature of trade, commerce or business or any other
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activity rendering any service in relation to any trade, commerce or business for a cess or fees or any other consideration, irrespective of the nature of use i.e. application or retention, of the income from such activity. There was also a limit prescribed by second proviso of this section i.e 100acs later on 25 lacs in previous year. The learned CIT, n that case thoroughly discussed various aspects of section 2(15) of the IT Act and also cited various case laws and made it clear that JDA was not a charitable institution but earning money like a builder or like any business man, which can be concluded on the basis of objects and function of the institution. The details of receipts of different nature were elaborately mentioned in the order referred above- and did not include charitable activity, for which it relied upon the decision in the case of Punjab Urban planning and development Authority vs. CIT(ITAT, Chd.) by the Ld. ITAT Chandigarh B Bench I.T.A.T. appeal No.764/Chandigarh/2003 order dated 01.06.2006 wherein identical issue had been decided by the Bench by affirming that development authority is not a charitable institution and learned in ITANO.164/Jammu/2012 the Hon'ble Jummu High Court also had not found any question of law against the order of I.T.A.T. Amritsar Bench in Appeal No.of ITANo.30/Asr/ 2011 in which 12A registration was refused. Further, in the instant case on perusal ofP & L statement for the year ended 31.03.2013, it is seen that the Nigam receives income from two sources broadly. One, revenue from operations like sale of services which include permission fees, land processing fees, rent from Gumtees/shops etc. water charges with connection charges, royalty charges, maintenance charges, interest on maintenance charges and interest on lease rent and Premium from allotted land for Industrial Units under growth centre, Fund sanctioned from Govt. of India! State Govt. Deposit / Aside works allotted by Government, Secondly, income from other sources like interest on Fixed Deposit Receipt etc. The Nigam is earning a substantial profit of Rs. 3,94,11,460/-(which represents 21.78% of the gross receipt for the current year) Similarly, the verification of expenses shows that the Nigam has claimed a substantial amount ofRs. 85,50,476/- towards advertisement and publicity which clearly indicates that it is involved in commercial activities to earn further profit and not of charitable in nature. 7. If the argument of the assessee is analyzed from the point of general public utility, still it can be said that commercial angle with profit motive is involved which has become predominant object of
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the assessee . Even if this issue is analyzed as contended by the assessee that application of income for further development of industrial infrastructure, is not the criteria even then the objects are not of charitable nature in the light of decision of Hon'ble High Court of Allahabad in the case of Fifth Generation Education society vs. CIT(l990 ) 185 ITR 634 (All.) where their lordships were of the view that if the object and real situation is analyzed, the object are not found to be of charitable nature. "Almost in every activity there is sent of commercialization/profit motive but in the charitable institution no profit motive is involved and the service is done mainly with the intent of sociaVreligious upliftment of masses in general." Admirably, the assessee is doing some activity like infrastructure development and the ' public is also benefited but for the same the assessee has been charging in the form of charges, cess, royalty, fees and other hidden costs. Rather the assessee is generating income, so no charity is involved. A charitable institution should provide services for charitable purposes free of cost and for no gain and are for the benefit of public at large. As it was discussed in preceeding paras the assessee is allotted land by the Govt. and after developing the same, it is given to the entrepreneurs/industrialists with premium which cannot be said to be a charitable activity. Even if for the sake of arguments, under the present facts, registration is granted, then every private infrastructure developer may claim charity. The facilities which are provided to the industrial unit are incidental to the commercial activity carried out by the Nigam and if certain facilities like sewerage, water supply, community center, school, Park etc. are provided, they are not only basic requirements, rather a tool of attracting the investors, the hidden cost of the same ( facilities) being already incl ded in the service charges etc. being charged by the Nigam. In the absence of these facilities normally any industrialist may not show the interest to invest.
The contention of the Nigam is that institutions having similar objectives have been granted registration u/s 12A of IT Act, 1961 and placed reliance on the decision of the Hon'ble High Court of MP Judicature Jabalpur with bench at Gwalior in the case of MP Audhoyogik Kendra Vikas Nigam Limited in MA IT 18/06 dated 14.03.2007 which was decided in favour of assessee. However this decision was delivered by the Hon'ble High Court of M.P, before the above discussed amendment to the section 2(15) of IT Act and 8
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where in it confirmed the decision of Ld. ITA T saying that it was question of facts and where was no involvement of any question of law. Subsequently, on similar grounds, earlier discussed the Hon'ble High Court of Jammu & Kashmir Vs. Union of India Amritsar, in ITA No. 164 of 2012 dated 07.11.2013 has dismissed the appeal of the assessee. 9. It will not be out of place to mention that Hon'ble apex court way back in a case of Indian chamber of commerce vs CIT(SC) as reported in 101 ITR 796 clearly observed and which is applicable to the facts of the present case as well that "If the institution runs certain specific types of services and charges remuneration, it is undoubtedly an activity which, if carried on by private agency, would be taxable- assessee cannot be granted exemption for making income by methods which in the hands of other people would have been eligible to tax-Denial of exemption u/s 11 upheld.” Thus following the latest pronouncements of the Hon'ble High Court of the Jammu & Kashmir which is after the amendment to the section 2(15) of IT Act. and other pronouncements of Tribunals and with due respect and without prejudice to the decision of jurisdictional High Court, favoring the assessee which is prior to the amendment, and in view of above detailed discussion of facts and circumstances of this case, the activities of the assessee is not held as charitable. Hence the registration U/S 12A cannot be granted to the Nigam. In view of the above, I am therefore, of the considered opinion that the activities of the applicant are not charitable. Consequently, the application filed under section 12A of the Act is hereby rejected and registration sought by the applicant under section 12AA of the Act is refused.” 4. Ld. counsel for the assessee vehemently argued that the action of the Ld. CIT(E) is unjustified, he submitted that the assessee is registered u/s 25 of the Companies Act, 1956. He further submitted under the identical facts, registration has been granted to MP Audyogik Kendra Vikas Nigam Gwalior & Jabalpur respectively. He further submitted that the reasoning of the Ld. CIT(E) that the assessee is earning a substantial profit and subsequent amount of Rs.85,50,476/- has been incurred towards advertisement and 9
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publicity which clearly indicates that it is involved in commercial activities to earn further profit and not of charitable in nature. 5. Ld. counsel submitted that this reasoning of the Ld. CIT(E) is contrary to various judicial pronouncements of various Hon'ble High Courts. He placed reliance on the judgment of Hon'ble High Court of Rajasthan rendered in the case of CIT vs. Jaipur Development Authority. He also submitted that in two other similar situations, assessees have been granted registration u/s 12AA of the Act. It is also further submitted that Hon'ble Jurisdictional High Court in the case of MPAKVN Gwalior held that the activities are charitable. 6. Per contra Ld. Departmental Representative(DR) opposed the submissions and supported the order of the Ld. CIT(E). Ld. DR relied on the decision of this Bench rendered in the case of MPAKVN in ITANo.347 to 351/Ind/2013 to buttress the argument that the activities of the assessee are held to be activity of a contractor. Ld. DR submitted that the activities are ex-facia commercial in terms of section 2(15) of the registration has been rightly declined. 7. We have heard the rival contentions, perused the material available on record and gone through the order of the authorities below. The revenue has not disputed the fact that MPAKVN, Jabalpur & Gwalior have been granted registration by the concerned authorities. It is stated by the Ld. counsel for the assessee that the objectives of the assesse and other sister concerns are same and similar. However, objectives of these two sister concern have not been placed before us. Under these facts, we deem
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it proper to restore the issue of registration u/s 12AA of the Act to the file of Ld. CIT(E) for decision afresh. He may grant registration after verifying whether MPAKVN, Gwalior and Jabalpur have been granted registration u/s 12AA of the Act and further the objectives of these two entities, and considering the case laws as relied by the ld. counsel for the assessee and the reason for granting registration to other entities if facts are similar. In our view it is not justifiable on the part of Revenue to have a different view point on the same issue. Thus, ground of the assessee is allowed for statistical purposes. 8. In the result, appeal of the Assessee in ITANo.217/Ind/2015 is allowed for statistical purposes.
Order was pronounced in the open court on 22 .01.2019.
Sd/- Sd/- (MANISH BORAD) (KUL BHARAT) ACCOUNTANT MEMBER JUDICIAL MEMBER Indore; �दनांक Dated : 22/01/2019 ctàxÄ? P.S/.�न.स.
Copy to: Assessee/AO/Pr. CIT/ CIT (A)/ITAT (DR)/Guard file. By order Assistant Registrar, Indore