FIROZABAD SHIKOHABAD,FIROZABAD vs. C.I.T.-II, AGRA

PER, DR MITHA LAL MEENA, AM:

This appeal by the assessee is directed against the order of CIT-II, Agra dated 29.09.2014, rejecting application for registration u/s 12A of the Income Tax Act, 1961.

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“1. That the deponent is the Chartered Accountant & Tax Consultant of the Appellant. 2. That the Order of Comm of Income Tax rejecting the grant of Registration U/S 12AA dt. 29-09-2014 & was received by the Appellant on 05-10-2014. 3. That after getting the appeal singed by the Mr. Ravinder Kumar Mathad the Secretary of the Authority the appellant the office clerk of the appellant left the documents in the office of the deponent on 25-11-2014 4. That the deponent was occupied in the family function (Pooja in house for Marriage Anniversary) on that date. And the office clerk of the deponent Mr Rahul Sharma mixed-up the appeal documents with other papers in the office as the filing of Income Tax returns was also in the process in the office of deponent. 5. That after some time when the Mr. Ravinder Kumar Mathad Secretary of appellant Authority inquired about the status of the filing of appeal the deponent came to know that the papers for filing of appeal had been received in the office of the deponent and due to error of the office of deponent the appeal could not be filed. 6. That thereafter the deponent located the appeal papers in his office and could file the appeal on 1 1-02-2015 i.e. late by 70 days.

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“The objects of the Authority shall be to promote and secure the development of the development area according to plan and for that purpose and Authority shall have the power to acquire, hold, manage and dispose of land and other property, to curry out building, engineering, mining and oilier operations, to execute works in connection with the supply of water and electricity, to dispose of sewage and to provide and maintain other services and amenities and generally to do anything necessary or expedient for purposes of such development and for purposes incidental thereto:” 6. The CIT(A) has rejected the application u/s 12A on the basis of proviso inserted to Section 2(15) w.e.f. 01.04.2009 by observing as under:

“6. The position of law on definition of charitable purpose has changed considerably by insertion of the proviso to Section 2(15) by Finance Act. 2008 which has

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significantly restricted and limited the areas for exemption. The assessee has unsuccessfully claimed that advancement of any other object of general public utility tantamount to charitable purposes without any conditions. The assessee's objects include acquisition, development and auction of lands, charging development levies of various kind with definite motive of profit and there is no charitable purpose or any activity for public utility. Further, profit making by the assessee is not merely incidental or by-product of the activity of the assessee. There is no escape from conclusion that the assessee is carrying on activities of commercial nature with the motive to make profit and as such there is no reason to continue the registration granted under section 12AA of the Act. 7. From the facts discussed above, I am satisfied that the activities of the assessee are not genuine so far as they are no longer for “Charitable purpose” as per amended section 2(15) of the Income Tax Act, 1961. Therefore, the appellant, Firozabad Shikohabad Development Authority, is not entitled to registration u/s 12A or 12AA and accordingly the application for grant of registration u/s 12A is hereby rejected.” 7. The ld. counsel for the assessee submitted that the ld. CIT(A) has wrongly interpreted the proviso to Section 2(15) by Finance Act 2008. He has referred CBDT Circular No. 11/2008 dated 19.12.2008 in its synopsis dated 29.05.2017, the relevant portion is as follows:

“The section 2(15) was amended vide Finance Act, 2008 by adding a proviso which states that the 'advancement of any other object of general public utility' shall not be a charitable purpose if it involves the carrying on of—

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(a) any activity in the nature of trade, commerce or business; or (b) 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 of use or application, or retention of the income from such activity. 3.2. In the final analysis, however, whether the assesses has for its object 'the advancement of any other object of general public utility' is a question of fact. If such assesses is engaged in any activity in the nature of trade, commerce or business or renders any service in relation to trade, commerce or business, it would not be entitled to claim that its object is charitable purpose. In such a case, the object of 'general public utility' will be only a mask or a device to hide the true purpose which is trade, commerce or business or the rendering of any service in relation to trade, commerce or business. Each case would, therefore, be decided on its own facts and no generalization is possible. Assesses, who claim that their object is 'charitable purpose' within the meaning of section 2(15), would be well advised to eschew any activity which is in the nature of trade, commerce or business or the rendering of any service in relation to any trade, commerce or business. Thus, as clarified by the CBDT merely by charging the fees or other consideration the Proviso to Sec 2(15) are not invoked. Same become applicable only when there is activity in nature of Trade & Commerce. Similar view is also confirmed by Honbe'l Delhi High Court in case of India Trade Promotion V/S Dir. General of Income Tax (2015) 374 ITR 0333 (Del). In Para 57 & 58 57. Ultimately, in the context of the factual matrix of that case, this court held that "charging a nominal fee to use the coding system and to avail the advantages and benefits

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therein is neither reflective of the business aptitude nor indicative of the profit-oriented intent". The court further observed: - "Thus, the contention of the revenue that the petitioner charges fee and, therefore, is carrying on business, has to be rejected. The intention behind the entire activity is philanthropic and not to recoup or reimburse in monetary terms what is given to the beneficiaries. Element of give and take is missing, but decisive element of bequeathing is present. In the absence of “profit motive” and charity being the primary and sole purpose behind the activities of the petitioner is perspicuously discernible and perceptible.” 7.1 He relied on various judicial pronouncements to support his case which is listed below:

decision of Srinagar Development Authority vs. CIT (J&K) in ITA No.

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444/A/2010. He submitted that the activities of the assessee authority, are prima facie in the nature of commerce or business or rendering service in relation to trade, commerce or business and, therefore, fall under the exclusion provided in first proviso to section 2(15), i.e. its activities are not for charitable purpose. If the activities of any assessee are not for “charitable purpose”, it is not eligible to claim exemption u/s 11 and 12 of the Act and therefore ld. CIT, Agra was right in cancelling the application for grant of registration 12A of the Act. 9. We have heard the rival contentions and perused the facts of the case. The assessee authority is corporate body constituted under U.P. Urban Planning and Development Act, 1973 [hereinafter referred to as “UPUDA Act, 1973”]. It applies for granting registration u/s 12AA of the Act. The CIT-II, Agra rejected application observing that the assessee authority is not an institution working for charitable purpose, since it was carrying on activities of commercial nature with the motive to make profit. Further its activities are also not charitable, per se as its object includes acquisition, development and auction of land,

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charging development levies of various kind with definite of profit and there is no charitable purpose for any activity for public utility.

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The term “Charitable purpose” is defined in Section 2(15) of 12.

Act, 1961 and before Finance Act, 2008 whereby it was substituted

with effect from 01.04.2009 and has been made much detailed, it

read as under:

"(15) "charitable purpose" includes relief of the poor, education, medical relief, preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historical interest and the advancement of any other object of general public utility: Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on 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 of use or application, or retention, of the income from such activity; Provided further that first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is twenty-five lakh rupees or less in the previous year." 13. "Advancement of any other object of general public utility" is

a term of very wide connotation. In order to consider whether

creation of the assessee authority is for advancement of general

public utility we have to look into the objects and purposes of U.P.

Act, 1973 and also the purpose of acquisition of land by assessee

authority, which is only for public purpose and not personal one.

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"21. We have heard learned counsel for the parties and gone through the material available on record. It is undisputed fact that the assesses is a "statutory authority" which was established under the provisions of the Uttar Pradesh Planning and Development Act, 1973. In the instant case, prior to 1st April, 2003, the assessee was enjoying exemption under Section 10(20A)

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and Section 10(29). When these provisions were amended w.e.f. 1st April, 2003, then the necessity arose to register these institutions under Section 12A, in view of the objects, there is no good reason for holding that statutory bodies could not be treated as "charitable" within the meaning of Section 2(15). The object of the "Authority" is to provide shelter to the homeless people, therefore, there is no objectionable material to treat these institutions as non-charitable. The registration under Section 12A is mandatory to claim exemption under Sections 11 & 13, but registration alone cannot be treated as conclusive. It is always open to Revenue Authorities, while processing return of income of these assessees, to examine the claim of the assessees under Sections 11 & 13 and give such treatment to these institutions as is warranted by the facts of the case. Revenue Authorities are always at liberty to cancel the registration under Section 12AA(3). Moreover, it may be mentioned that the benefit of Section 11 is not absolute or conclusive. It is subject to control of Sections 60 to 63. If it is found by keeping in view the provisions of Sections 60 to 63 that it is not so includible then such income does not qualify for any relief." "25. Further, it may be mentioned that Section 12AA of the Act lays down the procedure for registration in relation to the conditions for applicability of Sections 11 & 12 as provided in Section 12A. Therefore, once the. procedure is complete as provided in sub-section (1) of Section 12AA and a certificate is issued granting registration to' the trust or institution the certificate is a document evidencing satisfaction about (i) the genuineness of the activities of the trust or institution, and (ii) about the objects of the trust or institution. Section 12A stipulates that the provisions of Sections 11 & 12 shall not apply in relation to income of a trust or an institution unless the conditions stipulated therein are fulfilled. Thus, granting of registration under Section 12AA denotes that the conditions laid down in Section 12A stand fulfilled.

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they incidentally carry on a commercial activity, subject, however, to the conditions stipulated under Section 11 (4A) or the seventh proviso to Section 10(23C), which are that- (i) the business should be incidental to the attainment of the objectives of the entity, and (ii). separate books of accounts should be maintained in respect of such business." 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 non-commercial lines with no motive to earn profits, for fulfillment of its aims and objectives, which are charitable in nature and in the process earn some profits, the same would not be hit by proviso to sect/on 2(15). The aims and objects of the assessee-trust are admittedly charitable in nature. 30. 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). 31. There is no material/evidence brought on record by the revenue which may suggest that the assessee was conducting its affairs on commercial lines with motive to earn profit or has deviated from its objects as detailed in

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the ‘trust deed' of the assessee. In these facts and circumstances of the case, the proviso to Section 2(15) is not applicable to the facts and circumstances of the case, and the assessee was entitled to exemption provided under Section 11 for the relevant assessment year. 32. From the record, it also appears that the "authority" had been maintaining infrastructure, development and reserve fund IDRF as per the notification dated 15!ri January, 1998, the money transferred to this funds is to be utilized for the purpose of project as specified by the committed having constituted by the State Government under the said notification and the same could not be treated to be belonging to the "authority" or the receipt of taxable nature in its hands. For this reason, also, it appears that the funds are utilized for general utility." 19. The findings and observations in the aforesaid judgment are squarely applicable in the case in hand also. Following the decision of the Hon’ble Allahabad High Court 16. in the case of Lucknow Development Authority (Supra) on identical facts, therefore, we accept the grievance of the assessee authority as justified. The decision cited by ld. DR is distinguishable on facts because the activities of that authority were carried out with profit motive but not with the pre-dominant object of welfare of the people at large within the meaning of

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newly introduced proviso to section 2(15) of the Act., hence not

applicable to the present case i.e. the assessee authority.

been created with the object of general public utility which is a

charitable object within the meaning of Section 2(15) and the

proviso to Section 2(15) is not applicable because assessee

authority is not carrying out activities with any profit motive but the

pre-dominant object is welfare of the people at large. Therefore,

the CIT is directed to grant registration u/s 12AA of the Act to the

assessee authority.

Order pronounced in the open court on 07/02/2018

Sd/- Sd/- (A.D. Jain) (Dr. Mitha Lal Meena) Judicial member Accountant Member

Dated: 07.02.2018 Aks/-DOC Copy of order forwarded to: (1) The appellant (2) The respondent (3) Commissioner (4) CIT(A) (5) Departmental Representative (6) Guard File By order

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Assistant Registrar Income Tax Appellate Tribunal Agra Bench, Agra

Date 1. Draft dictated / DOC 05.02.2018 PS 2. Draft placed before author 07.02.2018 PS 3. Draft proposed & placed before the second member JM/AM 4. Draft discussed/approved by Second Member. JM/AM 5. Approved Draft comes to the Sr.PS/PS PS/PS 6. Kept for pronouncement on PS 7. File sent to the Bench Clerk PS 8. Date on which file goes to the AR 9. Date on which file goes to the Head Clerk. 10. Date of dispatch of Order.