MAHARASHTRA HOUSING & AREA DEVELOPMENT AUTHORITY,MUMBAI vs. ASST CIT (E) 2(1), MUMBAI

This is an appeal preferred by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals)-01, Mumbai dated 28.06.2017 for assessment year 2013-14.

The grounds of appeal

Ground nos. 1 and 2 are against the order of the Ld. CIT(A) upholding the action of the AO whereby the AO has denied the exemption claimed by the assessee u/s 11 of the Income Tax Act, 1961 (hereinafter “the Act”) on the ground that proviso to Section 2(15) of the Act is applicable to the assessee.

At the outset, the Ld. Counsel for the assessee submitted that the aforesaid issue is covered by the decision of the Co-ordinate Bench of the Tribunal in assessee’s own case in [ITA. No. 6678/Mum/2013 for AY. 2010-11 order dated 04.06.2019, for AY. 2012-13 and ITA. No.895/Mum/2018 for AY. 2014-15 order dated 23.11.2020] wherein the issue has been decided in favour of the assessee. According to the counsel for the assessee, since there is no change in facts and circumstances in the relevant assessment year (AY. 2013-14) the same may be allowed in favour of the assessee.

Per contra, the Ld. DR relied on the action taken by the AO/CIT(A) and could not point out any change in facts or law vis-à- vis the earlier year AY. 2010-11, AY. 2012-13 & AY. 2014-15.

We have heard both the parties and perused the records and the decision cited in the assessee’s own case for AY. 2010-11, AY. 2012- 13 & AY. 2014-15. We note that the assessee is a statutory authority which came into existence under the “Maharashtra Housing Area ITA Ns. 5597/Mum/2017 A.Ys. 2013-14 Maharashtra Housing Area Development. Development Act, 1976” (MHAD Act, 1976) on 05.12.1977. Right from its inception till AY. 2002-03, the assessee enjoyed exemption u/s 10(20A) of the Act and accordingly, the assessee was not required to file its income tax return. However by Finance Act, 2002, sub- section 20(A) of Section 10 was omitted from the statute w.e.f. 01.04.2003 and so the assessee applied for registration u/s 12A of the Act as it was carrying out its statutory obligations for providing housing to poor/needy sections of the society which it reckons falls under the ambit of “charitable purposes” as defined u/s 2(15) of the Act. And assessee was granted registration u/s 12A of the Act w.e.f. AY. 2003-04 and accordingly its surplus income over expenditure was subject to exemption in the manner laid down in Section 11 to 13 of the Act. But in AY. 2009-10, proviso to Section 2(15) of the Act was inserted w.e.f 01.04.2009, whereby a restriction has been imposed on the trusts/assessee carrying out general public utility. Citing this proviso, Ld. DIT(Exemption) withdrew the certificate granting registration u/s 12A of the Act vide order dated 22.12.2011. The assessee preferred an appeal before this Tribunal (ITA. No.435/Mum/2012) and the Tribunal vide order dated 22.03.2013 was pleased to restore the registration u/s 12A of the Act. This action of Tribunal was challenged by the Revenue before the Hon’ble High Court which was dismissed vide order dated 18.04.2016 in Income Tax Appeal No. 2174 of 2013. Meanwhile, the AO while passing the assessment order for AY. 2010-11 for taking note of the cancellation/withdrawal of the registration u/s 12A of the Act, denied exemption u/s 11 of the Act. It was challenged by the assessee before ITA Ns. 5597/Mum/2017 A.Ys. 2013-14 Maharashtra Housing Area Development. the Ld. CIT(A) and thereafter before this Tribunal (ITA. No.6678/Mum/2012). And by order dated 04.06.2019, this Tribunal was pleased to allow the exemption claimed by the assessee u/s 11 of the Act. Thereafter, the AO while framing the assessment order have been following their predecessor’s orders of denying exemption to the surplus income of the assessee which have been challenged before this Tribunal and as noted (supra), Tribunal has been consistently allowing the claim of the assessee u/s 11 of the Act from AY. 2010-11, AY, 2012-13 & AY. 2014-15 as well as AY. 2015-16 (ITA. No.4133/Mum/2019) vide order dated 13.10.2021. The operative part of the Tribunal decision in for AY. 2012-13 and in ITA. No.895/Mum/2018 for AY. 2014-15 dated 23.112.2020 reads as under: - “9. The ground No.2 and 3 of the appeal are taken up together as both these grounds are interconnected. The assessee has been claiming the benefit of registration under section 12A of the Act. The Assessing Officer denied the exemption available to the assessee under section 11 of the Act on the ground that the activities of the assessee fall within the meaning of ‘advancement of any other object of general public utility’ as specified in proviso to section 2(15) of the Act. We find that for the identical reason benefit under section 11 of the Act was denied to the assessee in assessment year 2010-11. The assessee carried the matter in appeal before the Tribunal in ITA No.6678/Mum/2013. The Tribunal vide order dated 04/06/2019 examined the issue of assessee’s eligibility to claim the benefit of exemption under section 11 threadbare. In a detailed order, after considering various judicial pronouncements and different facets of the arguments raised by rival sides, the Tribunal concluded that the activities carried out by the ITA Ns. 5597/Mum/2017 A.Ys. 2013-14 Maharashtra Housing Area Development. assessee fall within the ambit of ‘charitable purpose’ under section 2(15) of the Act and the proviso to said section does not get attracted. For the sake of brevity the entire detailed findings of the Tribunal are not reproduced, however, the relevant findings and operative part of the order is quoted herein below:- “36. From the aforesaid discussion and the rebuttal made by Ld. Sr. Counsel, we do not find that the reasons cited by the Ld. Special Counsel in any way, diminishes the assessee’s claim or its entitlement to claim benefit u/s. 11; or persuade us to come to a conclusion that the assessee’s activities are done purely for a profit motive. Whether an activity construes business or is in the nature of business is largely dependent upon the factor, whether such activity is actuated by profit motive or not. Merely because MHADA builds tenements and sells them does not lead to any inference that MHADA’s activities are in the nature of trade, commerce or business. We have already discussed in detail that assessee’s activity is no way can be held for the profit motive or for carrying out systematic business, albeit all its policy as well as conduct is to provide shelter to the needy and poor people in line with the mandate of Constitution of India. Xxxxx Xxxx xxxx 44. The aforesaid decision clearly clinches the entire issue not only to the nature and scope of definition of ‘charitable purposes’ in section 2(15) but also the scope of restriction provided in proviso to section 2(15). If the principle laid down by Hon’ble High Court is applied here in this case, then ostensibly under the facts and circumstances of the case the assessee as discussed above, would not only be held as an institution carrying out ‘charitable purposes’ but its activities clearly are beyond the scope of restrictive provisions of the proviso. The most ITA Ns. 5597/Mum/2017 A.Ys. 2013-14 Maharashtra Housing Area Development. crucial test and the findings which needs to be seen specifically if the proviso to section 2(15) is to be applied in the cases like assessee is to see, whether their activities can be reckoned as in the nature of trade, commerce and business. Some of the tests of applicability of proviso in cases like that of assessee which are statutory bodies providing housing needs to the needy and poor people can be short listed in the following manner: i) Is the Institution supported/promoted by the state? ii) Is it constituted under an Act of the Legislature? iii) Has the Institution been incorporated for implementing the directive principles enunciated in the Constitution of India? iv) Are the activities of the institution closely regulated and controlled by the state? v) Has the institution been conferred with powers which a businessman would never enjoy, say, eviction of a tenants or closure of roads etc.? vi) Is the institution required to carry out activities like repairs to building, demolition of dangerous structures etc. which would not be the duties of a businessman carrying on building activities? vii) Does the institution look after the elementary needs of a citizen by providing basic housing? viii) Does the state subsidize the activities of the Institution? ix) Is the Institution managed by Government servants or private businessmen? x) Is there a restriction placed on who can purchase the properties? That is, income criteria has to be met, the applicant or his family member should not already be in possession of a housing unit? xi) Are the prices at which the Institution is to sell its properties closely regulated and monitored?

Further, the issues raised in ground No.3 will become purely academic in view of our finding given above that the assessee is entitled for benefit u/s.11 and accordingly, its income and expenditure have to be computed in terms of section 11 to section 13.”

Since the Ld. DR could not point out any change in facts or law respectfully following the decision of the Co-ordinate Bench of this Tribunal as decided in AY. 2012-13 and AY. 2014-15, we set aside the order of the Ld. CIT(A) and direct the AO to allow the exemption u/s 11 of the Act to the assessee.

Coming to the other issue raised in ground nos. 3 to 8, the Ld. AR fairly submitted that the Ld. CIT(A) has not decided these issues so we restore the same back to the file of the Ld. CIT(A) with the direction to decide the same after giving reasonable opportunity to the assessee. The ground nos. 3 to 8 are allowed for statistical purposes.