C I T vs. RAJ HOUSING BOARD JAIPUR

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ITA/568/2009HC RajasthanRJHC02054496200926 May 20176 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the issue is squarely covered by its previous decision in Commissioner of Income Tax Vs. Jodhpur Development Authority (2016) 287 CTR(Raj.) 473. In that judgment, the Court observed that statutory bodies like JDA and UIT, whose predominant objects are to secure integrated development and improvement of urban areas respectively, fall within the expression 'advancement of any other objects of general public utility' under Section 2(15). The Court further noted that even if these bodies earn income through ancillary or incidental activities, it does not cease to be charitable in character, provided the profit motive is not the primary object and the income is utilized for achieving the charitable object. The High Court found no infirmity in the ITAT's orders granting registration under Section 12AA. The Court also referred to another decision in CIT Vs. JDA, Jaipur, which accepted the view that for the applicability of the proviso to Section 2(15), the activities must be carried out on commercial lines with an intention to make a profit. If activities are non-commercial and no profit motive exists, earning some profits incidentally does not disqualify the trust. Therefore, the substantial question of law was not required to be entertained.

What were the facts?

These appeals by the Commissioner of Income Tax (CIT) challenge the orders of the Income Tax Appellate Tribunal (ITAT) that allowed the assessees' appeals. The assessees are Raj Housing Board Jaipur and Amber Development. The appeals were admitted by the High Court, which framed a substantial question of law concerning the ITAT's direction to grant registration under Section 12AA of the Income Tax Act, 1961. The core of the dispute is whether the assessees' work, allegedly conducted on commercial lines, qualifies as charitable within the meaning of Section 2(15) of the Act.

What were the issues?

1. Whether, in the facts and circumstances of the case, the ITAT acted illegally and perversely in directing to grant registration under Section 12AA of the Income Tax Act, irrespective of the fact that the work of the assessee cannot be termed as charitable within the meaning of Section 2(15) of the IT Act as the work was being done on commercial lines? Assessee's contentions: The judgment does not record specific contentions made by the assessee. Revenue's contentions: The revenue argued that the assessees' work was being done on commercial lines and therefore could not be termed as charitable within the meaning of Section 2(15) of the Income Tax Act, 1961. The revenue's argument implies that such commercial operations would disqualify the assessees from obtaining registration under Section 12AA.

Which sections of the Income-tax Act were involved?

Section 12AA,Section 2(15),Section 12A

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 568 / 2009 C I T ----Appellant Versus Raj Housing Board Jaipur ----Respondent D.B. Income Tax Appeal No. 241 / 2011 C I T ----Appellant Versus Amber Development ----Respondent _____________________________________________________ For Appellant(s) : Mr. R.B. Mathur For Respondent(s) : Mr. Sanjay Jhanwar _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE DR. JUSTICE VIRENDRA KUMAR MATHUR

Judgment 26/05/2017

1.

Both these appeals involve common questions of law and facts, hence are decided by this common judgment.

2.

By way of these appeals, the appellant has challenged the judgment and order of the Tribunal whereby the Tribunal has allowed the appeal filed by the assessee.

3.

While admitting the appeals, this Court has framed the substantial question of law:

(2 of 6) [ITA-568/2009]

Appeal No. 568/2009, admitted on 14th October, 2009 and Appeal No. 241/2011, admitted on 15th May, 2013 “Whether in the facts and circumstances of the case the ITAT has acted illegally and perversely in directing to grant registration u/s 12AA of the IT Act, irrespective of the fact that the work of the assessee cannot be termed as charitable within the meaning of section 2(15) of the IT Act as the work was being done on commercial lines?” 4. as under:

“27. In the backdrop of settled position of law discussed hereinabove, adverting to the facts of the present case, indubitably, JDA is a statutory body constituted and established under the provisions of Section 3 of JDA Act with a main object to secure the integrated development of Jodhpur Region and for that purpose to discharge inter alia the functions of Urban Planning including preparation of Master Development Plan and Zonal Development Plans; formulation and sanction of the projects and schemes for the development of Jodhpur Region or any part thereof; execution of the project and schemes directly by itself or through a local authority or other agency; coordinating execution of projects or schemes for the development of Jodhpur Region supervision or otherwise ensuring adequate supervision over the planning and execution of any project or scheme the expenses of which in whole or in part are to be met from Jodhpur Region Development Funds; preparing schemes and advising the concerned authorities, department and agencies in formulating and undertaking schemes for development of agriculture horticulture, forestry, dairy development, transport, communication, schooling, cultural activities, sports, medicine, tourism and similar other activities; to prepare Master Plan for traffic control and management; devise policy and programmes of action for smooth flow of traffic and matters connected therewith; undertaking housing activity in Jodhpur Region etc., are essentially the functions, which promote the welfare of the general public. Of course,

(3 of 6) [ITA-568/2009]

while discharging the said functions, the JDA also discharges function to acquire, hold, manage and dispose of property movable or immovable as may be deemed necessary and also enters into contract, agreements or arrangements with any person or organization may deem necessary for performing its function and in this process, it might be earning income but the primary object of the JDA certainly does not involve any profit motive whatsoever. It is pertinent to note that as per the provisions of Section 51 of the JDA Act, for the purpose of discharging the statutory

functions,

"The Jodhpur

Region Development Fund" is created to which all money received by the authority is credited including amount of contribution to be made by the State Government, such other money as may be paid to the authority by the State Government, Central Government or any other authority or agency by way of grant, loans advances or otherwise, income derived from premium on second and subsequent sale of vacant land, income from levy on vacant land, all fees, costs and charges received by the JDA under the JDA Act or any other law for time being in force, all money received by the JDA from the disposal of land buildings and other property movable and immovable and other transactions including lease money, urban assessment development charges and other similar charges and all money received by way of rents and profits or in any other manner or from any other source. A fortiori, as per the mandate of Section 54 of the JDA Act, all property funds and other assets vesting in the JDA shall be held and applied by it for the purposes and subject to the provisions of the Act. Suffice it to say that the entire funds of the JDA is mandatorily required to be utilized for discharging the functions to achieve the object of integrated development of Jodhpur Region. Thus, predominant object of the JDA being to secure the integrated development of the Jodhpur Region which is undoubtedly falls within the expression 'advancement of any other objects of general public utility' within the definition of Section 2(15) of the Act of 1961 and therefore, on account of profit being earned by it through some of the activities, undertaken by it, which are ancillary or incidental to the main object of general public utility, it does not cease to be charitable in character so as to render it ineligible to claim registration under Section 12A read with Section 12AA of the Act of 1961. As a matter of fact, it is not even the case of the Revenue that the object of general public utility sought to be achieved by constitution and establishment of the JDA as such, involve carrying on of any activity for profit

(4 of 6) [ITA-568/2009]

and therefore, it is immaterial if some income is earned by ancillary and incidental activities, which as per the mandate of the relevant statute, is used for achieving or implementing such object. The genuineness of the activities of the JDA, which are regulated by the provisions of the JDA Act and the Rules made thereunder, cannot be doubted. Thus, the order passed by the ITAT holding the JDA, Jodhpur entitled for registration under Section 12A read with Section 12AA of the Act of 1961, does not suffer from any infirmity or illegality.

28.

Coming to the question of entitlement of UIT, Sri Ganganagar, for registration under Section 12A of the Act of 1961, as noticed above, the UIT, Sri Ganganagar, a statutory body, has been constituted and established under Section 8 of UIT Act for the purpose of carrying out improvement of urban area of Sri Ganganagar. It is to be noticed that for achieving the object as mandated by Section 29 of the UIT Act, the UIT frames schemes for improvement of the specified urban area, which inter alia may provide for the acquisition of any land or other property necessary or effected by the execution of the scheme; the re-laying out of any land comprised in the scheme; the construction and re-construction of the buildings; the formation, construction and alteration of streets; the closure or demolition of dwellings or portion of the dwellings unfit for human habitation; the draining, water supply and lighting of the streets; the forming of open spaces for the benefits of the area comprised in the scheme or any adjoining area; all or any of the sanitary arrangements required for the area comprised in the scheme; the establishment and construction of the markets and other places of public requirement and convenience; the division of any land into plots for the erection of buildings for residential purposes; the provision of facilities for communication; the reclamation or reservation of the land for garden, afforestation and provision of fuel and grass supply and other needs of population; the planting and preservation of trees and plantation and any other matter for which in the opinion of the State Government it is expedient to make provisions with a view to improvement of the area comprised in scheme or the general efficiency thereof etc.. Undoubtedly, the aforesaid statutory functions which are being discharged by the UIT, are the activities undertaken for welfare of the public at large and certainly, fall within the expression of 'any other object of general public utility', as used in Section 2(15) of the Act of 1961. It is true that while discharging aforesaid functions to achieve its predominant object of (5 of 6) [ITA-568/2009]

improvement of the urban area specified, the UIT, Sri Ganganagar is also engaged in sale, letting or exchange of any property or land comprised in the scheme and it is also empowered to levy betterment charges in terms of Section 62 of the UIT Act, but then, such activities undertaken by the UIT are apparently incidental and ancillary to its main object of improvement of specified urban area. It is pertinent to note that as per the mandate of Section 61 of the UIT Act, the UIT is under an obligation to constitute a fund to be called 'Improvement Fund' and as per the mandate of sub-section (2) (iii) and (v), all rents, profits and sale proceeds of lands, buildings and other property vested or vesting in or acquired by the trust under the said Act and all fees and charges payable to or received by the trust under the said Act are credited to the said Fund, which is utilised for the achievement of the predominant object of improvement of the urban area. Thus, for the parity of the reasons indicated above, while arriving at the conclusion regarding the entitlement of JDA, Jodhpur for registration under Section 12A read with Section 12AA of the Act of 1961, the order passed by the ITAT, holding the UIT, Sri Ganganagar entitled for registration under Section 12A read with Section 12AA of the Act of 1961, also cannot be faulted with.”

5.

Jaipur, In D.B. Income Tax Appeal No. 46/2015, decided on 18th October, 2016, wherein in para 4 and 5, it has been held as under.

“4. In our view, the view taken by Rajasthan High Court at Principal Seat Jodhpur more particularly in paragraph 25 and 26 where the view taken by the Lucknow Development Authority and Jammu & Kashmir both these are taken into consideration which reads as under:- “25. In Lucknow Development Authority's case (supra), while examining the question regarding applicability of proviso to Section 2(15), Allahabad High Court observed:

“29. For the applicability of proviso to Section 2(15), the activities of the trust should be carried out on commercial lines with intention to make profit. Where the trust is carrying out its activities on noncommercial lines with no motive to earn profits, for fulfillment of its aims and objectives, which are charitable in nature and in the process

(6 of 6) [ITA-568/2009]

earn some profits, the same would not be hit by proviso to section 2(15). The aims and objects of the Mere selling some product at a profit will not ipso facto hit assessee by applying proviso to Section 2(15) and deny exemption available under Section 11. The intention of the trustees and the manner in which the activities of the charitable trust institution are undertaken are highly relevant to decide the issue of applicability of proviso to Section 2(15)”.

26.

Coming to the decision of Jammu & Kashmir High Court in Jammu Development Authority's case (supra), relied upon by learned counsel for the Revenue, reveals that the appeal preferred by the Jammu Development Authority was dismissed by the court observing that there are findings of facts that the assessee-appellant has not been acting to advance any of the object concerning general public utility. Further while referring to first proviso to Section 2(15), the court has observed that “we find that no substantial question of law much less a substantial question of law would emerge from the impugned order of Income Tax Appellate Tribunal warranting admission of the appeal.” A bare perusal of the order reveals that the catena of decisions of the Hon'ble Supreme Court referred to hereinabove, interpreting the effect of first proviso in context of the main provision of Section 2(15), which defines 'charitable purpose', were not brought to the notice of the court and therefore, the said order passed by the court by merely recording its ipse dixit does not help the Revenue in any manner.”

5.

In our view, the view taken by the Principal Seat Jodhpur is required to be accepted. In that view of the matter, substantial question of law is not required to be entertained.”

7.

In view of the above, the issue is answered in favour of assessee and against the department.

8.

The appeals stand dismissed.

9.

A copy of this judgment be placed in connected file. (VIRENDRA KUMAR MATHUR),J. (K.S. JHAVERI),J. B.M. Gandhi/56-57

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