BAGHPAT BARAUT KHEKRA VIKAS PRADHIKARAN,MEERUT vs. CIT, MEERUT

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: “A”, NEW DELHI BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER AND SHRI O.P. KANT, ACCOUNTANT MEMBER ITA No.3749/Del/2011 Assessment Year: Nil Baghpat Baraut Khekra Vs. CIT, Meerut Vikas Pradhikaran, Meerut PAN: AAALB0713B (Appellant) (Respondent) Appellant by Sh. Vinod Goel, Adv. Respondent by Sh. Sanjay Goyal, CIT(DR)

Date of hearing 28.02.2019 Date of pronouncement 27.03.2019

ORDER PER O.P. KANT, A.M.: This appeal by the assessee, is directed against order dated 24/05/2011 passed by the Ld. Commissioner of Income Tax, Meerut [hereinafter referred to as ‘the CIT’] under section 12AA(1)(b)(ii) of the Income-tax Act, 1961 (in short ‘the Act’) rejecting to grant registration under section 12A of the Act. The grounds of appeal raised by the assessee are reproduced as under: 1. The order of the learned Commissioner of Income Tax is erroneous, arbitrary, and bad in law and on facts. 2. The learned Commissioner of Income Tax erred in law as well as on facts while rejecting the registration of the assessee u/s 12AA.

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3 ITA No.3749/Del/2011 otherwise could not afford them. The assessee further submitted that it construct new houses for sale to minority groups with low and moderate income levels, who were unable to obtain adequate housing because of local administration and thus to help reduce racial ethnic imbalance in the community, the houses are sold by way of installment at lower cost. According to the assessee, since it provided an option to pay the installment to the buyers, so this activity cannot be treated as profitable venture. Further, assessee submitted that its activities were aimed towards promotion and development of the area according to plans and schemes formulated by them under the instruction of the State Government. The assessee also submitted that it is financed by mortgage money obtained under Union and State Programs. According to the assessee, it was not only covered by the definition of the charitable purpose of providing relief to the poor, but also covered by the object of the General Public Utility. 2.1 The Ld. CIT examined the object as well as the activities carried out by the assessee. According to the Ld. CIT, the activities of the assessee are not charitable and are for the purpose of earning profit, therefore, the assessee was not entitled for registration under section 12A of the Act. The reasons supported by the Ld. CIT are summarized as under: 1. Firstly, w.e.f. 01/04/2003 the income of the Local Authorities is no longer exempt under section 10(20A) of the Act and hence the assessee sought registration under section 12A of the Act. 2. Secondly, the object of forming the assessee authority under the UP Urban development act, 1973 was to ensure planned development of the given area and

4 ITA No.3749/Del/2011 nothing in the Constitution of the authority to suggest that it was found for any charitable purpose. 3. Thirdly- the assessee did not furnish any documentation or material in support of the contention that it could be termed as charitable institution or it has worked on the basis of no profit motive. 4. Fourthly- huge collection of the fees and profits accumulated in the form of fixed deposits clearly indicated that the main purpose of the society was to earn profit and profit was not incidental to any charitable activity. 2.2 The Ld. CIT relying on the judicial decisions cited in the order concluded that activity of the assessee was similar to private utility companies like BSE, Tata Power and Infrastructure Development Finance Corporation, IDFC etc. whose activities are not in the charitable nature. The Ld. CIT held that objective clause of the assessee are of nature of business with a view to earn profit in activities and are also not in the nature of the charitable or an advancement of general public utility within the meaning of section 2(25) of the Act, and accordingly, he rejected the application seeking registration under section 12A of the Act. 3. Before us, the Ld. counsel of the assessee relied on the order of the Hon’ble High Court of Allahabad in the case of Commissioner of Income Tax, Ghaziabad and Another Vs. Hapur Pilkhuwa Development Authority in Appeal No. 657 of 2007 along with other appeals of Ghaziabad Development Authority, Ghaziabad, Kanpur Development Authority, Kanpur, Aligarh Development Authority, Jhansi Development Authority etc., wherein the Hon’ble High Court relying on the order of the

5 ITA No.3749/Del/2011 division bench of the same High Court in the case of CIT Vs Lucknow Development Authority, 2014 (98) DTR (All) 183 upheld the finding of the Tribunal allowing registration under section 12A of the Act. The Ld. counsel submitted that the assessee is also an authority engaged in development of Urban Infrastructure, like, Lucknow Development Authority and there for activity of the assessee are charitable in nature and, therefore, the Ld. CIT should be directed to allow registration to the assessee under section 12A/12AA of the Act. 4. On the contrary, the Ld. DR submitted that Hon’ble High Court of the Jammu & Kashmir in the case of Jammu Development Authority versus CIT, in ITA No.164 of 2012 has upheld the finding of the Tribunal rejecting the registration under section 12A of the Act and Special Leave Petition filed against that has also been dismissed by the Hon’ble Supreme Court and thus, the issue of granting registration to various development authorities established by the State government are not eligible for registration under section 12A/12AA of the Act. The learned DR submitted that decision in the case of Jammu Development Authority (supra) has to be given preference over the decision of the Hon’ble Allahabad High Court as the decision in the case of Jammu Development Authority (supra) has been approved by the Hon’ble Supreme Court. 5. We have heard the rival submissions and perused the relevant material on record. The section 12AA prescribes that for granting registration, the Ld. CIT(A) may call for documents information or carry out enquiries to satisfy himself about the genuineness of the activities of the trust and after satisfying

6 ITA No.3749/Del/2011 himself about the object of the trust or genuineness of its activities he may decide either to grant or reject the registration. In view of the provisions of the law, it is clear that the registration can be refused if the objects are not charitable in nature or the activities of the trust are not genuine or the activities are not in accordance with the object of the trust. When the trust has yet not started its activities, than only option with the CIT is to examine the objects of the trust, but where the assessee has carried out its activities, the CIT can examine the activities also as to whether the same are genuine or in accordance with the object of the trust. In the instant case also the Ld. CIT has examined the activities of the assessee and from the said activities, the Ld. CIT has found that the activities being run on commercial lines and profit motive, same do not fall within ambit of charitable nature. 6. Before us, the Ld. counsel has referred to the decision of the Hon’ble High Court of Allahabad in the case of Hapur Pilkhuwa Development Authority (supra) to support its case, whereas the Ld. DR has supported the order of the Ld. CIT and relied on the decision of the Hon’ble High Court of Jammu in the case of Jammu Development Authority (supra), the SLP filed against which has been dismissed by the Hon’ble Supreme Court. In the case of Jammu Development Authority, the Amritsar bench of the Income Tax Appellate Tribunal in I.T.A. No. 30(Asr)/2011 upheld the action of the CIT withdrawing the registration granted under section 12A of the Act. The fact of the case have been summarised by the Tribunal as under:

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“4.2. The fact of the present case as observed by the Ld. CIT in para 4.1. are that Jammu Development Authority was established vide Jammu & Kashmir Development Act, 1970 and it came into effect from 31.10.1970. As per the said Act, the object of the Authority is to promote and secure the development of the local area for which it is constituted according to plan and for that purpose the Authority shall have the power to acquire hold, manage and dispose off land and other property, to carrying out building, engineering and other operations, to execute works in connection with supply of water and electricity, disposal of sewerage and other services and amenities and generally to do anything necessary or expedient for purposes such development and for the purposes incidental thereto. The Authority is a body corporate having perpetual succession and a common seal with power to acquire, hold and dispose of properties, both movable and immovable to contract, and by the said name sue or to be sued. The Authority consists of a Chairman, Vice Chairman and seven other members appointed by the State Government. The Authority is responsible for the planned development of the city including preparation of the Master Plan of the area. The State Government is authorized to entrust the Authority from time to time with any work connected with planned development and matters connected thereto. Section 19(Chapter-VII) of the Jammu & Kashmir Development Act, 1970 obliges the Authority to maintain its own fund to which shall be credited moneys received by the Authority from the Central or State Government by way of grants, loans, advances or otherwise, all fees, rents, charges, levies and fines received by the authority under the Act, all moneys received by the Authority from disposal of its movable and immovable assets and all moneys received by the Authority by way of loan from financial and other institutions and debentures floated for the execution of a scheme or schemes of the Authority duly approved by the State Government. Unless the State Government otherwise, directs all moneys received by the Authority shall be credited to its funds which shall be kept with the Jammu& Kashmir Bank or any other bank approved by the State Government.”

“7. We have heard the rival contentions and perused the facts of the case, including section 12AA(3) of the Act, where Trust or Institution has been granted registration and subsequently the Commissioner is

8 ITA No.3749/Del/2011 satisfied that the activities of such trust or institution are not genuine or are not being carried out in accordance with the objects of the trust or institution of such trust or institution, as the case may be , he shall, pass an order in writing canceling the registration of such trust or institution. Section 2(15) of the Act defines "charitable purpose" to include the advancement of any other object of general public utility. It is also not disputed that the Ld. CIT while granting registration u/s 12AA(3) of the act to the assessee had observed that he is satisfied that instrument does not exist in any trade, commerce or business. The order is dated 30.09.2009 whereas the amendment by Finance Act, 2008 is w.e.f. 01.04.2009, where as per Finance Act, 2008, following proviso had been added w.e.f. 01.04.2009: "Provided that the advancement of any other object of generally 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 of application, or retention, of the income from such activity." 7.1. Further, as per Finance Act, 2010, after first proviso, second proviso has been added w.e.f. 01.04.2009, which is read as under: "Provided further that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is ten lakh rupees or less in the previous year". 7.2 As a matter of fact from the perusal of the order of the Ld. CIT, it appears that first proviso so inserted by the Finance Act, 2008 w.e.f. 01.04.2009 was not taken into consideration while granting registration vide order dated 30.09.2009. Therefore, in the facts and circumstances of the case, we concur with the views of the Ld. CIT, who had placed reliance on the decision of five Member Bench of Hon'ble Supreme Court in the case of A Distributors (Baroda) P. Ltd. vs. Union of India & Ors. reported in 155 ITR120 (SC), wherein it has been held to perpetuate an error is no heroism. To rectify it is the compulsion of the judicial conscience. In this, we derived comfort and strength from the wise and inspiring words of Justice Bronson in Pierce v. Delameter (A.M.Y at page 18). Therefore, the Ld. CIT in view of the decision of the Hon'ble Supreme Court in the case of A Distributors (Baroda) P. Ltd. vs. Union of India & Ors.(supra) is within his power to decide the issue as per insertion of the first proviso by the Finance Act, 2008 w.e.f. 01.04.2009 and also the second proviso inserted by the Finance Act, 2010 w.e.f. 01.04.2009 whereas the aggregate value of the receipts in the present assessee are Rs. 10 lakhs. Also on the principle of consistency, we concur with the views of the ld. CIT relying upon the decisions of various courts of law that an erroneous view in law could not be allowed to

9 ITA No.3749/Del/2011 be perpetuated on the ground of consistency. Therefore, in the facts and circumstances of the present case, the Ld. counsel for the assessee was put a question by the Bench how the facts in the present case are different from the facts in the case of M/s. Jalandhar Development Authority. The ld. counsel for the assessee argued and replied that the difference in the facts and circumstances of the present case with M/s. Jalandhar Development Authority is not there except that the registration had been granted in the case of M/s. Jalandhar Development Authority whereas in the present case, registration having been granted cannot be cancelled. Since the order of the CIT dated 30.09.2009 in the present case is after amendment to section 2(15) i.e. introduction of the first proviso was well before the Ld. CIT. 7.3. Considering the arguments of the ld. counsel for the assessee and on perusal of the facts of the present case with the facts in M/s. Jalandhar Development Authority (supra), we are of the view that facts in the present case are identical to the facts as in the case of Jalandhar Development Authority. As regards the first proviso inserted in section 2(15) of the Act, we have given our views hereinabove that the Ld. CIT had not considered the first proviso to section 2(15) as well as the second proviso to section 2(15) while making the order for grant of registration on 30.09.2009. Therefore, the Ld. CIT is well within his power to decide the issue by his order in view of the decision of the Hon'ble Supreme Court in the case of A. Distributors (Baroda) P. Ltd. vs. Union of India and Ors. 155 ITR 120 (SC). Therefore, in the facts and circumstances of the present case and following our order in the case of M/s. Jalandhar Development Authority (supra) being on identical facts, the registration u/s 12AA cannot be granted to the assessee and the Ld. CIT has rightly cancelled the registration so granted. 7.4. Also, we concur with the views of the Ld. CIT(A) vide para 3.2 to 6.2 of his order that prior to insertion of these provisos i.e. first and second proviso to section 2(15) of the Act, certain bodies were treated as 'charitable' on the ground of advancement of object of general public utility. However, after the insertion of the above proviso, the advancement of any other object of general public utility shall not be a 'charitable purposes' if it involves the carrying on of :- a) Any activity in the nature of trade, commerce or business; b) Any activity of rendering any service in relation to any trade, commerce or business. d) For a cess or fee or any other consideration, irrespective of the nature of use or application or retention of income from such activity. 7.4.1. Therefore, the Institutions/Trusts/Societies which are involved in the activities in (a)(, (b) & (c) mentioned hereinabove and aggregate value of the receipt of the activities referred to in the first

10 ITA No.3749/Del/2011 and second proviso is more than Rs. ten lakhs in the previous year, they shall not be eligible to continue with registration u/s 12A and the same is required to be withdrawn. 7.5. The main objects of the assessee's institution has been mentioned in Para 4.1. of Ld. CIT's order, as mentioned hereinabove. It has rightly been mentioned by the Ld. CIT in para 4.2 mentioned hereinabove that till the financial year 2002-03, the income of such Authorities were exempt u/s 10(20A) of the Act. However, in view of omission of section 10(20A) of the Act, an Explanation was added to section 10(20), which has been mentioned hereinabove. The income of Local Authority is chargeable under the head 'Income from House property', 'Capital gains' or "Income from other sources" or from a trade or business carried on by it was earlier excluded in computing the total income of the Authority of a previous year. However, in view of the amendment, with effect from 01.04.2003, the Explanation "Local Authority" was defined to include only the Authorities enumerated in the Explanation to include Panchayat, Municipal Committee and District Board and Cantonment Board as referred in the said Explanation. 7.6. Also, at the same time, section 10(20A) which related to income of and Authority constituted in India by or under any law enacted for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages which before the amendment was not included in computing the total income, was omitted. Consequently, the benefit conferred by clause (20A) on such an Authority was taken away. Thus, in view of the fact that section 10(20A) was omitted and an Explanation was added to section 10(20) of the Act, enumerating the "Local Authorities" contemplated by section 10(20), the assessee could not claim any benefit under those provisions after April 1, 2003. The assessee subsequently claimed that its objects falls under the provisions of section 2(15) of the Act and has complied with all the eligibility criteria for grant of registration under section 12A of the Act, which was allowed vide order dated 30.09.2009. It is at this juncture that the first proviso and second proviso were added by the Finance Act, 2008 w.e.f. 01.04.2009, as mentioned hereinabove. Therefore, after insertion of the said proviso, any institution carrying on of any activity in the nature of trade, commerce or business etc. as mentioned hereinabove, shall not be a charitable purpose. As per objects of the assessee, it is observed that the main object of the assessee is to promote and secure the development of local area and there is no charitable purpose or any activity for general public utility. The activities of the assessee are aimed at earning profit as it is carrying on activity in the nature of trade, commerce or business. Further profit making by the assessee is not mere incidental or by product of the assessee. There is no real object of the assessee and there is no spending of the income exclusively for the purpose of charitable activities and profits of the assessee are not used for charitable purpose under the terms of the object and there is no obligation on the part of the assesse to spend on 'charitable purpose'

11 ITA No.3749/Del/2011 only. Also as per clause 53 of the Jammu & Kashmir Development Act, on dissolution of all properties and funds to vest in the Government and for the purpose of realizing properties, the function of the Authority shall be discharged by the Government. We concur with the views of the Ld. CIT on transfer of the properties, funds and dues and liabilities etc. will vest in the Govt. There is no restriction, how the same are to be utilized by the Government. There are other objects like sale and purchase, which makes the Authority a commercial organization. Therefore, in the facts and circumstances of the case, even on dissolution or winding up by not having any restriction on application of asset for charitable purpose, the objects pursued by the assessee cannot be said to be a charitable in nature. 7.7 As regards the reliance on the decisions of various courts of law by the Ld. CIT, most of the decisions have been dealt by the Tribunal in the case of M/s. Jalandhar Development Authority vs. ITO (supra). In the facts and circumstances of the present case, we concur with the views of the ld. CIT that Jammu Development Authority is an Authority established with the motive of profit constituted under the Jammu & Kashmir Development Act, 1970 and that the activities of such Authority are hit by section 2(15) of the Act read with first and second proviso and are not in line with the objects of the Authority/Trust so far as the activities relating to purchase and sale of properties, as mentioned hereinabove. Hence, the activities are not genuine to the extent, mentioned hereinabove and the Ld. CIT, Jammu, has rightly being satisfied held that the Jammu Development Authority is not entitled to registration and accordingly cancelled the registration so granted. We find no infirmity in the order of the Ld. CIT, Jammu and the same is upheld. Thus, all the grounds of the assessee are dismissed. 8. In the result, the appeal filed by the assessee in ITA No.30(Asr)/2011 is dismissed.”

“1. The instant appeal under Section 260-A of the Income Tax Act, 1961 (for brevity, the Act) is directed against order dated 14.06.2012 passed by the Income Tax Appellate Tribunal, Amritsar, upholding the order withdrawing the status of Charitable Institution given to the appellant-assessee under Section 12AA(1)(b)(i) of the Act. The Tribunal has reached a categorical conclusion that the assessee- Jammu Development Authority cannot be regarded as an institution

12 ITA No.3749/Del/2011 or trust which may have been set up to achieve the objects enumerated under Section 2 of the Act particularly in view of the addition of first and second proviso made by the Finance Act, 2008 w.e.f. 01.04.2009 to Section 12 AA of the Act. There are findings of fact that the assessee-appellant has not been acting to advance any of the object concerning general public utility. Even otherwise the proviso which has been added by the Finance Act, 2008 w.e.f. 01.04.2009 stipulates that the advancement of any other object of the general public utility shall not be a charitable purpose, if it involves 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 or a cess or fee or any other consideration. 2. 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.”

13 ITA No.3749/Del/2011 finding of the Hon’ble High Court, which is approved by the Hon’ble Supreme Court, we uphold the finding of the Ld. CIT(A) in denying registration under section 12A of the Act.

Order pronounced in the open court on 27th March, 2019.

Sd/- Sd/- [H.S. SIDHU] [O.P. KANT] JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 27th March, 2019. RK/-[d.t.d.s] Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi