M/S. MUSSOORIE DEHRADUN DEVELOPMENT AUTHORITY,DEHRADUN vs. CIT, DEHRADUN

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INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “E”: NEW DELHI BEFORE SHRI S.K. YADAV, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA No.180/Del/2013 Assessment Year:

Mussoorie Dehradun CIT, Development Authority, Vs. Transport Nagar, Saharanpur Subhash Road, Road, Dehradun Dehradun PAN:AAAAM4651Q (Appellant) (Respondent)

Assessee by : Sh. Mahesh B. Chhibber, Adv Revenue by: Sh. Vijay Varma, CIT DR Date of Hearing 03/10/2016 Date of pronouncement 02/01/2017

O R D E R PER PRASHANT MAHARISHI, A. M. 1. This is an appeal filed by the assessee against the order u/s 12AA (1) (b) (ii) of The Income tax Act 1961 passed by the ld CIT, Dehradun dated 05.11.2012 where in the application of the assessee is rejected for registration u/s 12A (a) of the Income Tax Act. 2. The assessee has raised the following grounds of appeal:- “Ground No. 1: On the facts and circumstances of the case and in law, the learned CIT has grossly erred in rejecting the application of the appellant for grant of registration u/s 12A (a) of the Income Tax Act, 1961. Ground No. 2: On the facts and circumstances of the case and in law, the learned CIT has grossly erred in not appreciating the fact that the Appellant Authority has been created with the object of general public utility which is a charitable object within the meaning of Section 2(15) of the Income Tax Act 1961. Musssoorie Dehradun Development Authority V CIT, Dehradun ITA No 180/Del/2013

Page 2 of 30 Ground No. 3: On the facts and circumstances of the case and in law, the learned CIT has grossly ignored to take into account the directions contained in order dated 14.07.2011 passed by the Hon'ble Income Tax-Appellate tribunal wherein the CIT was directed to take into account various case law before deciding the application u/s 12A(a) of the appellant. In the impugned order, the Ld. CIT has failed to take into account the case Law as directed by the Hon'ble Tribunal. Ground No. 4: On the facts and circumstances of the case and in law, the learned CIT has grossly erred in concluding that the activities of advancement of the object of general public utility by the Appellant Authority are undertaken/carried on in a totally commercial nature and hence the Authority is not entitled to registration u/s 12A (a) of the Income Tax Act, 1961. Ground No.5: On the facts and circumstances of the case and in law, the learned CIT has grossly erred in ignoring the fact that in the case of nearby Hardwar Development Authority, on an application for exemption u/s I2A (a) of the Income Tax Act, the CIT has granted exemption. The facts of the Appellant's case are on all fours with those of the Hardwar Development Authority; but this issue has been totally ignored by the Ld. CIT in the impugned order.‖

Page 3 of 30 Provided that save as provided in this Act nothing contained in this Act shall be construed as authorizing the disregard by the authority of any law for the time being in force.‖ 4. Until AY 2002-03 its income was exempt under the provisions of section 10(20A) of Income Tax Act. That section was omitted by The Finance Act 2002 w.e.f. 1st April 2003 and therefore it applied for registration u/s 12AA on 05.05.2010 contending that it is falling under the phraseology of “objects of other general public utility” falling into the definition of charitable purposes u/s 2(15) of the Income Tax Act and thereby, eligible to claim exemption u/s 11 to 13 of the Income Tax Act. This application was rejected by CIT Dehradun vide order dated 26.11.2010. This order was challenged before the coordinate bench in Appeal No. 271/Del/2011. This appeal was heard by the coordinate bench and set aside the order of the ld CIT with a direction to decide the issue de novo and in accordance with various decisions of coordinate benches of ITAT on this issue. Consequent to that ld CIT, Dehradun rejected the registration application of assessee made u/s 12A (a) of the Income Tax Act by order dated 05.11.2012. The main reasons for rejection were as under:- a. That the decisions mentioned in the order of coordinate bench were related to the period before the amendment in Finance Act 2008 w.e.f 01.04.2009 where the definition of „charitable purposes‟ was amended. b. On enquiry into the objects of the assessee whether they are charitable or not for the purpose of granting registration it was noted by ld CIT that merely because the organization is set up by the Govt. it cannot be said to be set for „charitable purposes‟. c. It was further noted that the objects of the assessee are similar to the objects of Punjab Urban Planning Development Authority whose issue is decided by coordinate bench in 103 TTJ 988 wherein the order of rejection of application for registration u/s 12AA was upheld. It was held that the activities and objects are more of commercialized nature and no charity involved in it.

Musssoorie Dehradun Development Authority V CIT, Dehradun ITA No 180/Del/2013

Page 4 of 30 d. The ld CIT further relied on the decision of Amritsar Bench dated 12.06.2009 in case of Jalandhar Development Authority Vs. CIT 124 TTJ 598, wherein also an identical circumstances application of the assessee was rejected. e. The ld CIT relied on the CBDT Circular No. 11/2008 dated 19.12.2008 which explained the amendment made by the Finance Act 2008 wherein advancement of any other object of general public utility was further explained. f. The ld CIT further noted that the assessee is earning following income for the year ended on 31.03.2009 which are as under:-

SI.N Head Amount O. 1. Compounding fees 20609784/ - 2. Development fee 6062 1 04/- 3. Eco charges 744993/- 4. Map Submission fees 2018566/- 5. Misc. Receipt/Income 9262656/- 6. Supervision fees 4175098/- 7. Land Conversion Charges 225935/- 8. Income u/s 62 3071899/- 9. Survey fees 63906/- 10. Rajpur Park 366187/- 11. R.F.CPark 247610/- 12-, Income on housing scheme 6105163/- 13. Baker Hill Parking 156705/- 14. Library Parking 295560/-

g. Ld CIT further held that the objects of the appellant are purely commercial in nature as it involved profit motive in that because the appellant acquires land, develops it and sales it at market rate and earns profit thereon. It sales property on auction allots property at market rates and charges interest for belated payments of the installments by the buyers.

Musssoorie Dehradun Development Authority V CIT, Dehradun ITA No 180/Del/2013

Page 5 of 30 h. It was further stated that it is also not registered under the Registration of Trust Act. 5. The assessee aggrieved by the order has preferred appeal before us and submitted written submission as under:- ―1. By way of present appeal, the appellant is challenging CIT's order dated 05.11.2012 by which the Ld. CIT has rejected the appellant's application for registration u/s 12A(a) of the Income Tax Act. 2. The impugned order passed by the Ld CIT is liable to be set aside since the CIT has neither considered the objects of the appellant authority nor has she been able to comprehend the definition of "Charitable Purpose" as enshrined in Section 2(15) of the Act. 3. It is respectfully submitted that the appellant is entitled to registration u/s 12A of the Income Tax Act as its case is covered by the judgment of the Hon'ble Allahabad High Court in the case of "CIT Vs. Lucknow Development Authority" (ITA No. 149/2009) and "CIT Vs. UP Housing & Development Board" (ITA No. 114/2010) decided vide common order dated 16th September 2013 reported as (2013) 219 Taxman 162 (ANNEXURE A; Page 6-22). The aforesaid judgment of the Allahabad High Court has been followed by co-ordinate bench of this Hon'ble Tribunal in the case of "Khurja Development Authority Vs. CIT" (ITA No. 905/DEL/2011) (ANNEXURE B; Page 23-35). 4. The appellant, Mussoorie Dehradun Development Authority is a "Statutory Authority" established in the State of Uttaranchal. The Authority has been established under the provisions of the Uttar Pradesh Planning & Development Act, 1973 {hereinafter referred to as "the Act"} (ANNEXURE C; Page 36-48). Please note that the Uttar Pradesh Urban Planning & Development Act has been adopted by the State of Uttaranchal vide notification dated November 2002 (ANNEXURE D; Page 49-50). 5. The objects of the Authority are contained in Section 7 of the Act. Section 7 is reproduced as under: "7. Objects of the Authority - The objects of the Authority shall be to promote and secure the development of the development area according to plan and for that purpose the Authority shall have the power to acquire, hold, manage and dispose of land and other property, to carry out building, engineering, mining and other 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:

Musssoorie Dehradun Development Authority V CIT, Dehradun ITA No 180/Del/2013

Page 6 of 30 Provided that save as provided in this Act nothing contained in this Act shall be construed as authorizing the disregard by the authority of any law of the time being in force." 6. As per Section 58 of the Act, in case of dissolution of the Authority, the entire assets will be vested with the State Government. So, no profit of interest is involved. 7. Upto the A.Y 2002-03, the appellant was enjoying exemption from income tax u/s 10(20A) of the Income Tax Act. Following the deletion of Section 10(20A) and insertion of Explanation in Section 10(20) by the Finance Act 2002, applicable with effect from 01.04.2003, the appellant was advised to seek registration u/s 12A of the Act. 8. The appellant applied for exemption under Section 12AA on 05.05.2010 before the CIT, Dehradun, but the said application was rejected by the Ld. CIT by order dated 26.11.2010. Against the order of rejection, the Appellant Authority filed appeal no. 271/Del-2011 before this Hon'ble Tribunal. Vide order dated 14.07.2011, this Hon'ble Tribunal set aside the order of the CIT with directions to the CIT to decide the issue de novo and in accordance with various decisions of co-ordinate benches of ITAT on this issue. 9. When the matter came up for consideration before the CIT in pursuance to the directions given by this Hon'ble Tribunal, the first and the main issue before the C.I.T was that the Appellant Authority was created with the object of general public utility which is a charitable object within the meaning of Section 2(15) of the IT Act. In the impugned order, Ld CIT has failed to comprehend the definition of "Charitable Purpose" as enshrined in sub- section 15 of Section 2 of the Income Tax Act, 1961. The definition includes the Advancement of any other object of general Public Utility [Emphasis Supplied]. He has failed to appreciate that the definition is wide and all pervasive and further miserably failed to appreciate that development of the District by providing housing i.e. shelter to the homeless people, roads, development and maintenance of parks (boost to environment), providing sewage system (clean and healthy environment) are all objects for the welfare of the people of the District, as also these are objects of general public utility. SUBMISSIONS: 10. The impugned order passed by the Ld. CIT is erroneous both on facts and in Law and against the basic principal of justice and equity. There are many similar Authorities functioning in the States of Uttar Pradesh, Uttaranchal and other states of India which have been granted exemption u/s 12Aof the Act. 11. The Allahabad High Court in the case of CIT Vs. Lucknow Development Authority (ITA No. 149/2009) and CIT Vs. UP Housing & Development Board (ITA No. 114/2010) decided vide common order dated 16th September 2013, reported as (2013) 219 Taxman 162 (ANNEXURE A; Page 6-22) has been pleased to hold the activities of Musssoorie Dehradun Development Authority V CIT, Dehradun ITA No 180/Del/2013

Page 7 of 30 the assessee authorities as charitable in nature. The authorities in question before the Allahabad High Court were established in the State of UP under the provisions of the Uttar Pradesh Urban Planning & Development Act, 1973. The appellant authority is similarly situated authority established under the same provisions of the Act and having the same objects as those of the authorities before the Allahabad High Court. The issue has been discussed at page no. 11 to 16 in the judgment and order dated 16.09.2013 passed by the Allahabad High Court. The same are highlighted in the judgment annexed as Annexure A. 12. Relying upon the aforesaid order and judgment, the Allahabad High Court vide common order dated 27.09.2013 (ANNEXURE E; Page 51-52) held that other development authorities set up under the provisions of the Uttar Pradesh Urban Planning and Development Act 1973 i.e. Ayodhya Faizabad Development Authority and Uttar Pradesh Awas Evam Vikas Parishad, Lucknow are entitled to the benefit of Section 12AA of the Income Tax Act. 13. The order and judgment dated 16.09.2013 passed by the Allahabad High Court has been followed by co-ordinate bench of this Tribunal in the case of "Khurja Development Authority Vs. CIT" (ITA No. 905/DEL/2011) (ANNEXURE B; Page 23-35) wherein this Hon'ble Tribunal directed the Ld. CIT to restore registration u/s 12AA to Khurja Development Authority - an Authority created under the provisions of Uttar Pradesh Urban Planning and Development Act 1973. 14. In view of the aforesaid decisions of the Allahabad High Court as well as this Hon'ble Tribunal, it is respectfully submitted that the case of the appellant is squarely covered in favour of the appellant authority. The appellant Authority is also a "statutory authority" established under the provisions of the Uttar Pradesh Planning & Development Act, 1973. Its objects are identical to the - objects of Lucknow Development Authority; UP Housing and Development Board and Khurja Development Authority. 15. It may be noted that the decisions relied upon by the revenue in the instant appeal - cases of Jammu Development Authority; Jalandhar Development Authority and Punjab Urban Planning & Development Authority as well as CBDT Circular No. 11/2008 were also relied upon by the revenue in the case of "Khurja Development Authority Vs. CIT", but were rejected by this Hon'ble Tribunal and reliance was placed on the order and judgment dated 16.09.2013 of the Allahabad High Court since the said judgment pertains to authorities situated in the State of UP and established under the provisions of the Uttar Pradesh Urban Planning and Development Act. PRAYER: Musssoorie Dehradun Development Authority V CIT, Dehradun ITA No 180/Del/2013

Page 8 of 30 In view of the aforesaid facts and submissions, it is most respectfully prayed that the present appeal be allowed and registration u/s 12AA of the Income Tax Act be granted to the appellant Authority.‖ 6. He further filed a paper book wherein he submitted the audited accounts of the assessee for AY 2009-10 along with copy of notification as well as the show cause notice issued by ld CIT and reply of the assessee. Over and above, he also filed copy of decisions of various courts and Tribunals as under- 1. CIT Vs. Improvement Trust (2009) 308 ITR 361 (P&H) 2. CIT Vs. Gujarat maritime Board (2007) 295 ITR 561 (SC) 3. CIT, Lucknow Vs. Krishi Utpadan Mandi Samiti (2010) 1 All LJ 817 4. Sabarmati Ashram Gaushala Trust Vs. ADIT (Exemption) ITA No. 671/Ahd/2013 order dated 01.02.2010 5. Pubjab Urban Planning & Development Authority Vs. CIT (2006) 103 TTJ (Chd) 988. 6. Jalandhar Development Authority Vs. CIT (2009) 124 TTJ (Asr) 598 7. Haridwar Development Authority Vs. CIT ITA NO. 3056 & 3013/Del/2004 for AY 2006-07. 8. Kurja Development Authority Vs. CIT ITA No. 905/Del/2011 9 C IT Vs. Lucknow Development Authority and UP Housing and Development Board of Hon‟ble Allahabad High Court dated 16.09.2013 for Assessment Year 2003-04 to 2006-07. 7. In response to the argument of the ld AR the ld Departmental Representative Shri Vijay Verma, CIT DR vehemently defended the order of ld CIT and submitted as under:- ―1. With reference to above, the undersigned would like to place the following written submissions on record, apart from the oral arguments which may be at the time of hearing. 2. Since, the corresponding provisions of the Act have changed considerably, over time, we need to examine some of the major changes in the Act over time. (A) Section 4(3) of the Indian Income Tax Act, 1922

Musssoorie Dehradun Development Authority V CIT, Dehradun ITA No 180/Del/2013

Page 9 of 30 "Any income, profits or gains falling within the following classes shall not be included in the total income of the person receiving them: (i) Subject to the provisions of clause (c) of sub-section (1) of section 16. any income derived from property held under trust or other legal obligation wholly for religious or charitable purposes, in so far as such income is applied or accumulated for application to such religious or charitable purposes as relate to anything done within the taxable territories, and in the case of property so held in part only for such purposes, the income applied or finally set apart for application thereto: Provided that such income shall be included in the total income (b) in the case of income derived from business carried on behalf of a religious or charitable institution, unless the income is applied wholly for the purposes of the institution and either— (i) the business is carried on in the course of the actual carrying out of a primary purpose of the institution, or (ii) the work in connection with the business is mainly carried on by beneficiaries of the institution; (c) if it is applied to purposes other than religious or charitable purposes or ceases to be accumulated or set apart for application thereto in which case it shall be deemed to be the income of the year in which it is so applied or ceases to be so accumulated or set apart. In this sub-section "charitable purpose" includes relief of the poor, education, medical relief and the advancement of any other object of general public utility, (B) Section 2(15) of the Income Tax Act 1961 "Charitable purpose includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility not involving the carrying on of any activity for profit." (C } Clause 13{bb) inserted w.e.f. 1-4-1977 provided as under; "Nothing contained in section 11 or section 12 shall operate so as to exclude from the total income of the previous year of the person in receipt thereto (bb) in the case of a charitable trust or institution for the relief of the poor, education or medical relief, which carries on any business, any income derived from such business, unlessjhe business is carried on in the course of the actual carrying out of a primary purpose of the trust or institution" (D) The section 11(4) inserted w.e.f. 1-4-1979 provided as under Musssoorie Dehradun Development Authority V CIT, Dehradun ITA No 180/Del/2013

Page 10 of 30 "For the purposes of this section "property held under trust" includes a business undertaking so_ held, and where a claim is made that income of any such undertaking shall not be included in the total income of the persons in receipt thereof, the Income- tax Officer shall have power to determine the income of such undertaking in accordance with the provisions of this Act relating to assessment; and where any income so determined is in excess of the income as shown in the accounts of the undertaking, such excess shall be deemed to be applied to purposes other than charitable or religious purpose" (E) The words "not involving the carrying on of any activity for profit" in section 2(15) were omitted with effect from the 1st day of April 1984. It read as under ,

"Charitable purpose includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility." Circular No. 395 [F, No. 181(5) 82/IT (A-l)], dated 24-9-1984 explained the amendment under :- "——————advancement of any object beneficial to the public or section of the public distinguished from an individual or group of individuals would be an object of general public utility as (F) Section 13(1) bb was also omitted w.e.f. 1-4-1984 but section 11 (4A) was introduced which stated as under 1 "(4A) Sub-section (1) or sub-section 2 or sub-section (3) or sub-section (3A) shall not apply in relation to any income, being profits and gains of business, unless— (a) the business is carried on by a trust wholly for public religious purposes and the business consists of printing and publication of books or publication of books or is of a kind notified by the Central Government in this behalf in the Official Gazette, or . (b) the business is carried on by an institution wholly for charitable purposes and the work in connection with the business is mainly carried on by the beneficiaries of the institution, and separate books of account are maintained by the trust or institution in respect of such business (G) Section (4A) was amended w.e.f. 01-04-1992 and provided as under. "Sub-section (1) or sub-section (2) or sub-section (3) or sub- section (3A) shall not apply in relation to any income of a trust or Musssoorie Dehradun Development Authority V CIT, Dehradun ITA No 180/Del/2013

Page 11 of 30 an institution, being profits and gains of business, unless the business is incidental to the attainment of the objectives of the trust or, as the case may be institution, and separate books of account are maintained by such trust or institution in respect of such business." (H) With effect from A.Y. 2009-10, section 2(15) provided as under "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 historic 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 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.". (I) Circular No. 11/2008, F. No.134/34//2008-TPL, dated 19-12- 2008 explained the above amendment w.e.f. 1-4-2009 as under :- i "Section 2(15) of the Income Tax Act, 1961 ('Act') defines "charitable purpose includes the following: - (i) Relief of the poor (ii) Education (iii) Medical relief, and (iv) the advancement of any other object of general public utility. An entity with a charitable object of the above nature was eligible for exemption from tax under section 11 or alternatively under section 10(23C) of the Act. However, it was seen that a number of entities who were engaged in commercial activities were also claiming exemption on the ground that such activities were for the advancement of objects of general public utility in terms of the fourth limb of the definition of 'charitable purpose‘. Therefore, 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 (ho carrying on of-

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Page 12 of 30 (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 01 application, or retention of the income from such activity. 2. The following implications arise from this amendment – 2.1 The newly inserted proviso to section 2(15) will not apply in respect of the first three limbs of section 2(15), i.e., relief of the poor, education or medical relief Consequently, "where the purpose of a trust or institution is relief of the poor, education or medical relief, it will constitute 'charitable purpose ‗even if it incidentally involves the carrying on of commercial activities. 2.2. 'Relief of the poor' encompasses a wide range of objects for the welfare of the economically and socially disadvantaged or needy. It will, therefore, include within its ambit purposes such as relief to destitute, orphans or the handicapped, disadvantaged women or children, small and marginal farmers, indigent artisans or senior citizens in need of aid. Entities who have these objects will continue to be eligible for exemption even if they incidentally carry on a commercial activity, subject, however, to the conditions stipulated under section 11(4A) or the seventh proviso to section 10(23) which are that : (i) the business should be incidental to the attainment of the objectives of the entity, and (ii) separate books of account should be maintained in respect of such business. Similarly, entities whose object is 'education' or 'medical relief would also continue to be eligible for exemption as charitable institutions even if they incidentally carry on a commercial activity subject to the conditions mentioned above. 3. The newly inserted proviso to section 2(15) will apply only to entities whose purpose is 'advancement of any other object of general public utility' i.e. the fourth limb of the definition of 'charitable purpose' contained in section 2(15). Hence, such entities will not be eligible for exemption under section 11 or under section 10(23C) of the Act if they carry on commercial activities. Whether such an entity is carrying on an activity in the nature of trade, commerce or business is a question of fact which will be decided based on the nature, scope, extent and frequency of the activity. 3.1. In the final analysis, however, whether the assessee has for its object 'the advancement of any other object of general public Musssoorie Dehradun Development Authority V CIT, Dehradun ITA No 180/Del/2013

Page 13 of 30 utility' is a question of fact. If such assessee 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. Assessees, who claim that their object is 'charitable purpose' meaning of Section 2(15), would be well advised to eschew any activity which the nature of trade, commerce or business or the rendering of any relation to any trade, commerce or business. 3. In this background we need to examine the two leading decisions of the Apex Court 3.1 Andhra Chamber Of Commerce , 1965 AIR 1281, Dated 01/10/1964, (3 Member Bench) In this case the section involved was section 4(3} of the Indian Income Tax Act, 1922 The company owned a building where it had its offices, and those parts of it not in the company's own use were let out to tenants. In income-tax proceedings the company claimed exemption in respect of the rental income. The Revenue contended that the property was not held by the company for a charitable purpose, that the objects of the company were vague, that the benefit contemplated by the 'Memorandum of Association' was not to the public generally but to the members of the company only, and that the objects of the company were political it being open to it to appropriate the entire income for political purposes. The Hon'ble Court held that ( From the Head Note) I. The term charitable purpose included objects of general public utility The object of the assessee company- promotion of trade and commerce in the country-was an object of general public utility, as not only the trading class but the whole country would benefit by it. II. There was nothing vague about the company objects of general public utility such as promotion, protection, aiding and stimulation of trade and commerce, specify the modus or the steps by which the objects may be achieved or secured. III. The argument that it was only for the benefit stand scrutiny of the trading classes only did not. It cannot be said that a purpose would cease to be charitable even if public welfare is intended to be secured thereby if it Musssoorie Dehradun Development Authority V CIT, Dehradun ITA No 180/Del/2013

Page 14 of 30 includes the taking to steps to urge or oppose legislation affecting commerce, trade or manufacture. : If the primary purpose is advancement of objects of general public utility, it would remain charitable even if an incidental entry into the political domain for achieving that purpose e.g. promotion of or opposition to legislation concerning that purpose is contemplated. The object mentioned in the Memorandum of Association' was that the assessee may take steps to urge or oppose legislative pr other measures affecting trade, commerce, or manufacture. Such an ; object must be regarded as purely ancillary or subsidiary and not the primary object. 3.1.1 Analysis. This decision will not apply in AY 2009-10 and after. The "charitable purpose" as per the Indian Income Tax Act, 1922 included "the advancement of any other object of general public utility". The restriction "not involving the carrying on of any activity for profit" was introduced in the Act of 1961. This restriction was omitted w.e.f. 1-4-1984 but section 11 (4A) introduced certain restrictions. With effect from 1-4-92, the section 11 (4A) was amended and income of any business undertaking was exempt if its income was applied for the objects of the trust. Thanthi Trust ETC ( 247 ITR 785 ( SC)} The Hon'ble Supreme Court in the case of Thanthi Trust did not allow exemption from 1979 -80 to 1991-92 , but allowed the same for assessment year 1992-93 onwards due to amendment in section 11 (4A). This establishes that various decisions on the issue are to be examined in the light of the provisions in respect of which, the decisions have been given. It needs to be mentioned here that this decision in the case of Thanthi Trust has considered the decision in the case of Surat Art Silk Manufacturers Association, another decision relied upon by the appellant. Section 2 (15) has been amended w.e.f. 01.04.2009. The circular dated 19-12-2008 clarifies that the amendment has been specially made for who claim exemption from tax u/s 11 on the ground that their objects are for charitable purpose as these are covered under 'any other object of general public utility. Moreover, the issue involved in the case of Andhra Chamber of Commerce was regarding rental income from property. The income in the case of the appellant are from various organized activities prohibited under newly inserted proviso to section 2(15). 3.2 Surat Art Silk Cloth, 1980 AIR 19/11/1979 (5 Member Bench- Majority Decision In this case the sections involved were sections 2 (15), 11 and 13(l)(bb) of Income-tax Act 1961. The assessee carried on various activities for promotion of commerce and trade in art silk yarn, art silk cloth and silk cloth. Its other objects were to obtain licenses for import of raw material needed by its members, to obtain Musssoorie Dehradun Development Authority V CIT, Dehradun ITA No 180/Del/2013

Page 15 of 30 licenses for export of cloth manufactured by its members and to do all other lawful things as are incidental or conducive to the attainment of the objects. The assessee received income by way of annual subscription from its members and commission on the basis of certain percentage of the value of licenses for import of foreign yarn and quotas for the purchase of indigenous yam. The assessee constructed a building out of the amounts received and the rent received from the tenants was an additional source of its income. It was contended on behalf of the revenue that it the means to achieve or carry out the object of general public utility involve the carrying on of any activity for profit, the purpose of the trust, though falling within the description "any other object of general public utility", would not be a charitable purpose and the income from business would not be exempt from tax. The Hon'ble Court (Per Majority 4: 1) ) held that: (From the Head 1. The contention that the objects of the assessee did not fall within the category of "advancement of any other object of general public utility" and were not charitable within the meaning of section 2(15) in that its members wore merely specified individuals who did not constitute a section of the public cannot be allowed to be raised in this reference. In a reference under s. 257 of the income Tax, Act, 1961 the Tribunal is not competent to refer to this Court a question in respect of which there is no conflict of decisions amongst different High Courts nor can this Court travel beyond the particular question of law referred to it by the Tribunal on account of conflict in the decisions of the High Courts. 2. (a) It is well settled that where the main or primary objects are distributive, each and every one of the objects must be charitable in order that the trust of institution may be upheld as a valid charity. But if the primary or dominant purpose of a trust is charitable another object which by itself may not be charitable but which is merely ancillary or incidental to the primary or dominant purpose would not prevent it from being valid charity. 2 (b) The test which has to be applied is whether the object which is said to be non-charitable is the main or primary object of the trust or institution or it ancillary or incidental to the dominant or primary object which is charitable. In the instant case the income and property of the assessee are held under a legal obligation for the purpose of advancement of an object of genera! public utility within the meaning of s. 2(15) of the Act. The dominant or primary purpose of the assessee is to promote commerce and trade in art silk yam etc., which is charitable and the other objects are in the nature of powers conferred upon the assessee for the purpose of securing fulfillment of the dominant or primary purpose. They would no doubt benefit the members of the Musssoorie Dehradun Development Authority V CIT, Dehradun ITA No 180/Del/2013

Page 16 of 30 assessee but this benefit would be incidental in carrying out the main or primary purpose of the assessee. If therefore me dominant or primary purpose of the assessee was charitable the subsidiary objects would not militate against its charitable character and the purpose of the assessee would not be any the less charitable. 3. It is settled law that the words "advancement of any other object of general public utility" would exclude objects of private gain; but this requirement is also satisfied in the present case because the object of private profit is eliminated by the, recognition of the assesse under s. 25 of the Companies Act. 7956 and the objects set out in clauses 5 and 10 of its Memorandum of Association 4. Where the purpose of a trust or institution is relief of the poor, education or medical relief, the requirement of the definition of "charitable purpose" would be fully satisfied even if an activity for profit is carried on in the course of the actual carrying out of the primary purpose of the trust or institution. But if the purpose of the trust or institution is such That it cannot be regarded as covered by the heads of "relief of the poor, education and medical relief but its claim to be a charitable purpose rests only on the last head "advancement of any other object of general public utility" then it requires, for its applicability, fulfillment of two conditions, namely, (i) the purpose of the trust or institution must be advancement of an object of general public utility; and (ii) the purpose must not involve the carrying on of any activity for profit' 5. The words not involving the carrying on of any activity for profit" qualify OF govern only the last head of charitable purpose and not the earlier three heads. 6. The meaning of the words "not involving the carrying on of any activity for profit" added in s. 2(15) of the 1961 Act is that when the purpose of a trust or institution is the advancement of an object of general public utility it is that object of general public utility and not its accomplishment which must not involve the carrying on of any activity for profit. 7. If the argument of the Revenue that if the means to achieve the object of general public utility involve the carrying on of any activity for profit, the purpose of the trust though falling within the description "any other object of general public utility" would not be a charitable purpose and the income from business would not be exempt from tax it right it would not be possible for a Musssoorie Dehradun Development Authority V CIT, Dehradun ITA No 180/Del/2013

Page 17 of 30 charitable trust whose purpose is promotion of an object of general public utility to carry on any activity for profit at all. 8. The consequence would be that even if a business is carried on by a trust or institution for the purpose of accomplishing or carrying out an object of general public utility and the income from such business is applicable only for achieving that object, the purpose of the trust would cease to be charitable and not only income from such business but also income derived from other sources would lose the exemption. Such a far-reaching consequence was not intended to be brought about by the legislature when it introduced the words "not involving the carrying on of any activity for profit" in s. 2(15). 9. What is inhibited by the words "not involving the carrying on of any activity for profit" is the linking of an activity for profit with the object of general-public utility and not its linking with the accomplishment or carrying out of the object It is not necessary that the accomplishment of the object or the means to carry out the object should not involve an activity for profit. That is not the mandate of the newly added words. What these words require is that the object should not involve the1 carrying on of any activity for profit. The emphasis is on the object of general public utility and not on its accomplishment or attainment. 10. If the intention of the legislature were to prohibit trusts of this nature from carrying on any activity for profit it would have made such a provision in the clearest terms that no such trust or institution shall carryon any activity for profit. . 11. Section 13(1)(bb) introduced in the Act with effect from April 1, 1977 provides that in the case of a charitable trust for the relief of the poor, education or medical relief which carries on any business, income derived from such business would not be exempt from tax unless the business is carried on in the course of the actual carrying out of a primary purpose of the trust or institution Where, therefore, a charitable trust falling within any of the first three categories of charitable purpose set out in section 2(15) carries on business which is held in trust for the charitable purpose, income from such business would not be exempt by reason of section 13(1 )(bb) and section 11(4) would, therefore, have no application in the case of a charitable trust falling within any of the first three-heads of charitable purpose Similarly, on the construction contended for by the Revenue it would have no applicability in the case of a charitable trust falling under the last head of charitable purpose, because in such a case income from business would not be exempt since the purpose would cease to be charitable. The construction contended for by Revenue would have the effect of rendering Musssoorie Dehradun Development Authority V CIT, Dehradun ITA No 180/Del/2013

Page 18 of 30 Section 11(4) totally redundant after the enactment of section 13(1) (bb). A construction which renders a provision of the Act superfluous and reduces it to silence cannot be accepted. 12. If the language of a statutory provision is ambiguous and is capable of two constructions that construction must be adopted which will give meaning and effect to the other Provisions of the enactment rather than that which will none. 13. If a business is held under trust or legal obligation to apply its income for promotion of an object of genera! public utility or it is carried on for the purpose of earning profit to be utilised exclusively for carrying out such charitable purpose, the last concluding words in section 2(15) would have no application and they would not deprive the trust or institution of its charitable character. What these last concluding words require is not that the trust or institution whose purpose is advancement of an object of general public utility should not carry on- any activity for profit at all but that the purpose of the trust or institution should not involve the carrying on of any activity for profit. So long as the purpose does not involve the carrying on of any activity for profit, the requirement of the definition would be met and it is immaterial how the monies for achieving or implementing such purpose are found, whether by carrying on an activity for profit or not. 14. It has therefore to be seen whether the purpose of the trust or institution in fact involves the carrying on of an activity for profit or in other words whether an activity for profit is actually carried on as an integral part of the purpose "as a matter of advancement of the purpose". There must be an activity for profit and it must be involved in carrying out the purpose of the trust or institution that is, it must be carrying on in order to advance the purpose or in the course of carrying out the purpose of the trust or institution. lt is then that the inhibition of the exclusionary clause would be attracted. 15. Every trust or institution must have a purpose for which it is established- and every purpose must for its accomplishment involve the carrying on of an activity The activity must be for profit in order to attract the exclusionary clause, 16. The preposition "for" in the phrase "activity for profit" has many shades of meaning but when used with the active principle of a verb it means "for the purpose of" and connotes the end with reference to which something is done. 17. Where an activity is not pervaded by profit motive but is carried on primarily for serving the charitable purpose, it would not be Musssoorie Dehradun Development Authority V CIT, Dehradun ITA No 180/Del/2013

Page 19 of 30 collect to describe it as an activity for profit. But where an activity is carried on with the predominant object of earning profit, it would be an activity for profit, though it may be carried on in advancement of the charitable purpose of the trust or institution. Where an activity is earned on as a matter of advancement of the charitable purpose, it would not be incorrect to say as a matter of plain English grammar that the charitable purpose involves the carrying on such activity, but the predominant object of such activity must be to sub serve the charitable purpose and not to earn profit. 18. The test to be applied is whether the predominant object of the activity involved in carrying out the object of general public utility is to sub serve the charitable purpose or to earn profit. Where the predominant object of the activity is to carry out the charitable purpose and not to earn profit, it would not lose its character of a charitable purpose m-rely because some profit arises from the activity The exclusionary clause does not require that the activity must be carried on in such manner that it does not result in any profit. The restrictive condition that the purpose should not involve the carrying on of any activity for profit would be satisfied if profit making is not the real object. 19. (a) The observations in Lok Shikshana Trust and Indian Chamber of Commerce that activity involved in carrying out the charitable purpose must not be motivated by a profit objective but it must be undertaken for the purpose of advancement or carrying out of the charitable purpose are correct. But the further observation that whenever an activity is carried on which yields profit, the inference must necessarily be drawn, in the absence of some indication to the contrary, that the activity is for profit and the charitable purpose involves the carrying on of an activity for profit is not correct. (b) It is not necessary that there must be a provision in the constitution of the trust or institution that the activity shall be carried on a "no profit no loss" basis or that the profit shall proscribed. Even if there is no such express provision, the nature of the charitable purpose, the manner in which the activity for advancing the charitable purpose is being carried on, and the surrounding circumstances may clearly indicate that the activity is not propelled by a dominant profit motive What is necessary to be considered is whether having regard to all the facts and circumstances of the case, the dominant object of the activity is profit making or carrying out a charitable purpose. If it is the former the purpose would not then a charitable purpose but if it is the latter the charitable character of the purpose would not be lost. In the instant case, the activity of obtaining licenses for import of foreign yarn and quotas for purchase of indigenous Musssoorie Dehradun Development Authority V CIT, Dehradun ITA No 180/Del/2013

Page 20 of 30 yarn was not an activity for profit. The predominant object of the activity was the promotion of commerce and trade in those commodities which was clearly an object of general public utility and profit was merely a by-product which resulted incidentally in the process of carrying out charitable purpose. The assessee's profit could be utilized only for feeding this charitable purpose The dominant and real object of the activity being the advancement of the charitable purpose the mere fact, that the activity yielded profit did not alter the charitable character of the assessee: 3.2.] Analysis: This decision is in respect of old provisions and holds that the theory of the dominant or primary object of the trust u/s 31 (1) bb cc not be projected into the fourth head of charity, namely advancement of any other object of general public utility' so as to prohibit the carrying on of .any business activity merely ancillary or incidental to the main object. The ' Apex Court held that section 13(l)bb prohibits business only in respect of relief of the poor, education or medical relief and therefore, section 11(4) has no application in such cases. If business is not allowed in respect of " any other object of general public utility " as well, section 11(4) will become redundant and an interpretation, which makes a provision redundant cannot be The decision interpreted the scope of words ' not involving / carrying on of any activity for profit v read with section 13(l)(bb) and section 11(4). These words were omitted w.e.f. 01.041984. In the present appeal we are concerned with the first proviso to section 2(15) which was introduced w.e.f. 1-4-2009 and explained by the circular dated 19-12-2008. The use of words 'Irrespective of the nature of use or application, or retention, of the income from such activity' means the application of such receipts for charitable purpose and the theory of dominant purpose no longer applies if the object involves the prohibited activities. The decision in the case of Thanthi Trust ( supra ) confirms the view that applicability of decisions is to be seen with respect to provisions for which, a decision was rendered. The decision upon was based on the redundancy of section 11 (4), if the prohibition u/s 13(1 )(bb) is extended to the fourth category of Charitable Objects i.e. any other object of general public; utility " Moreover, the facts in the case of Surat Art Silk Cloth Manufacturers Association were different from facts in the case of appellant. The nature; and range of activities and objects are also different. In the case of Surat Art Silk Cloth (supra) receipts pertained to rental income, annual subscription from members and commission from members In the case of appellant, wide range of commercial activities including housing of various events/ exhibitions/ functions, hiring for commercial purpose, etc, are undertaken.

Musssoorie Dehradun Development Authority V CIT, Dehradun ITA No 180/Del/2013

Page 21 of 30 4. In the case of appellant, the facts are similar to the following case which are against the appellant (a) Jammu Development Authority- 52 SOT 153 (b) Punjab Urban Planning & Development Authority- 10..TTJ 988 (c) Jalandhar Development Authority -124TTJ 598 (d) Greater Cochin Development Authority- 792 & 793/ Coch/2013 dated 27-06-2014 4.1 Hon'ble J&K High Court dismissed the appeal against the decision of Hon'ble ITAT in the case of Jammu Development Authority- 52 SOT 153 4.2 Vide order dated 12.11.2013 in ITA No. 164/2012. in the case of Khurja Development Authority, ITA No 905/Del/2011, the Hon'ble ITAT has followed the decision of Hon'ble Allahabad High Court in the case of U.P. Housing and Development Board besides the decision of Hon'ble Delhi Tribunal in the case of Meerut Development Authority. However, in the case of U.P. Housing Development Board, the facts were slightly different in the sense that it was not a development authority but was as housing board and the said housing board was running schemes for weaker sections as well. The Hon'ble ITAT in the case of Khurja Development Authority (supra) also relied on the decision of the Apex Court in the case of Surat Art Silk Cloth Manufacturers Association, however, the said decision has already been discussed and distinguished above. 5. The nature of receipts mentioned on page 11 of the order "under appeal establish that the activities of the appellant are in the nature of Trade, Commerce or Business. In the case of Jalandhar Development Authority (supra), the Hon'ble ITAT observed that the activities of development authority are similar to that, performed by big colonizers and developers is in this context that the CIT in the order under appeal on 12, observed that if exemption/registration is granted in respect of the activities of the authority, similar registration/exemption would have to be granted to every builder or colonizer establishing large townships.

Page 22 of 30 9. We have carefully considered the rival contentions and perused the relevant submissions put before us and judicial precedents relied upon. 10. Firstly we refer to the changes in law w.e.f. 01/04/2009 in provisions of section 2 (15) of the income tax act. It is now as under :-

(15) "charitable purpose" includes relief of the poor, education, medical relief, 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 ; (underline supplied by us) 11. In the present case claim of the assessee is that it is an urban development authority engaged in the object of „advancement of any other object of general public utility‟. Therefore in view of the amendment it is important to decide the issue that whether the activities of the assessee was the carrying on of any activity in the nature of the commerce of business or any activity of rendering any service in relation to any trade, business purposes for fee or any other consideration irrespective of the nature of use or application or retention of the income from such activity. If it is so, then activity of the assessee is falling out of the definition of the „charitable purposes‟. It is important to note from the said provisions of the Act that the application of income earned out of business activity pertaining to advancement of any other object of general public utility is not relevant. The entire stress has been, laid on the fact that the income pertaining to advancement of any other object of general public utility should not be business income. Now it is important to note what is the meaning of the term “Business, trade or commerce”. Hon‟ble Delhi high court has occasion to consider the meaning of this in its decision GSI India v. Director General Musssoorie Dehradun Development Authority V CIT, Dehradun ITA No 180/Del/2013

Page 23 of 30 of Income-Tax (exemption) and another, 360 ITR 138, wherein it held as under:-

“Scope of "trade, commerce or business" 16. The key words, namely ; trade, commerce and business were enumerate and elucidate in Institute of Chartered Accountants of India v. Director- General of Income-tax (Exemptions) [2012] 347 ITR 99 (Delhi) as under (page 113) : "Trade, as per the Webster's New Twentieth Century Dictionary (2nd edition), means, amongst others, 'a means of earning one's living, occupation or work'. In Black's Law Dictionary, 'trade' means a business which a person has learnt or he carries on for procuring subsistence or profit ; occupation or employment, etc. The meaning of 'commerce' as given by the Concise Oxford Dictionary is 'exchange of merchandise, specially on large scale'. In ordinary parlance, trade, and commerce carry with them the idea of purchase and sale with a view to make profit. If a person buys goods with a view to sell them for profit, it is an ordinary case of trade. If the transactions are on a large scale it is called commerce. Nobody can define the volume, which would convert a trade into commerce. For the purpose of the first proviso to section 2(15), trade is sufficient, therefore, this aspect is not required to be examined in detail. The word 'business' is the broadest term and is encompasses trade, commerce and other activities. Section 2(13) of the Income- tax Act defines the term 'business' as under :

'2. Definitions.—. . . (13) "business"' includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture.' The word 'business' is a word of large and indefinite import. Section 2(13) defines business to include any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture. The intention of the Legislature is to make the definition extensive as the term 'inclusive' has been used. The Legislature has deliberately departed from giving a definite import to the term 'business' but made reference to several other general terms like 'trade', 'commerce', 'manufacture' and 'adventure or concern in the nature of trade, commerce and manufacture'. In Black's Law Dictionary, sixth edition, the word 'business' has been defined as under : Musssoorie Dehradun Development Authority V CIT, Dehradun ITA No 180/Del/2013

Page 24 of 30

'Employment, occupation, profession or commercial activity engaged in for gain or livelihood. Activity or enterprise for gain, benefit, advantage or livelihood. Union League Club v. Johnson 18 Cal 2d 275. Enterprise in which person engaged shows willingness to invest time and capital on future outcome. Doggett v. Burnet 62 App DC 103 65 F. 2D 191. That which habitually busies or occupies or engages the time, attention, labour and effort of persons as a principal serious concern or interest or for livelihood or profit.' According to Sampath Iyengar's Law of Income Tax (9th edition), a business activity has four essential characteristics. Firstly, a business must be a continuous and systematic exercise of activity. Business is defined as an active occupation continuously carried on. Business vocation connotes some real, substantive and systematic course of activity or conduct with a set purpose. The second essential characteristic is profit motive or capable of producing profit. To regard an activity as business, there must be a course of dealings continued, or contemplated to be continued, normally with an object of making profit and not for sport or pleasure (Bharat Development P. Ltd. v. CIT [1982] 133 ITR 470 (Delhi)). The third essential characteristic is that a business transaction must be between two persons. Business is not a unilateral act. It is brought about by a transaction between two or more persons. and, lastly, the business activity usually involves a twin activity. There is usually an element of reciprocity involved in a business transaction.' 17. In the said case, reliance and reference was made to State of Punjab v. Bajaj Electricals Ltd. [1968] 70 ITR 730 (SC) ; [1968] 2 SCR 536, Khoday Distilleries Ltd. v. State of Karnataka [1995] 1 SCC 574, Bharat Development P. Ltd. v. CIT [1982] 133 ITR 470 (Delhi), Barendra Prasad Ray v. ITO [1981] 129 ITR 295 (SC), State of Andhra Pradesh v. H. Abdul Bakshi and Bros. 15 STC 664 (SC), State of Gujarat v. Raipur Manufacturing Co. Ltd. 19 STC 1 (SC), Director of Supplies and Disposal v. Member, Board of Revenue 20 STC 398 (SC) and Mrs. Sarojini Rajah v. CIT [1969] 71 ITR 504 (Mad) to explain the terms "trade, commerce or business". 18. Referring to the concept and principle of "economic activity" that has gained some acceptability in European Union and England it was explained that the said principle is applicable to sales tax, value added tax, excise duty, etc., because these are not taxes on income but the taxable event occurs because of the "economic activity" involved. Even if a person/ organization is carrying on trading/business on "no loss no profit" principle, it may be liable to pay taxes or comply with the statute when the charge, or incident of tax, is on the "economic activity". The words Musssoorie Dehradun Development Authority V CIT, Dehradun ITA No 180/Del/2013

Page 25 of 30 "trade, commerce and business" are etymological chameleon and suit their meanings to the context in which they are found. Five tests propounded in Customs and Excise Commissioners v. Lord Fisher [1981] STC 238 and the decision in CST v. Sai Publication Fund [2002] 258 ITR 70 (SC) ; [2002] 4 SCC 57 was quoted. 19. The final and determining factors, it was observed was consequential profit motive or purpose behind the activity and when an activity is trade, commerce or business was elucidated in Institute of Chartered Accountants of India v. Director-General of Income-tax (Exemptions) [2012] 347 ITR 99 (Delhi) in the following words (page 123) : "Section 2(15) defines the term 'charitable purpose'. Therefore, while construing the term 'business' for the said section, the object and purpose of the section has to be kept in mind. We do not think that a very broad and extended definition of the term 'business' is intended for the purpose of interpreting and applying the first proviso to section 2(15) of the Act to include any transaction for a fee or money. An activity would be considered 'business' if it is undertaken with a profit motive, but in some cases this may not be determinative. Normally, the profit motive test should be satisfied but in a given case activity may be regarded as business even when profit motive cannot be established/proved. In such cases, there should be evidence and material to show that the activity has continued on sound and recognized business principles, and pursued with reasonable continuity. There should be facts and other circumstances which justify and show that the activity undertaken is infect in the nature of business. The test as prescribe in Raipur Manufacturing Co. (supra) and Sai Publication Fund (supra) can be applied. The six indicia stipulated in Lord Fisher (supra) are also relevant. Each case, therefore, has to be examined on its own facts." 20. Recently in another decision in WP(C) No. 1755 of 2012 titled Bureau of Indian Standards v. Director-General of Income-tax (Exemptions) [2013] 358 ITR 78 (Delhi) dated September 27, 2012, it was held that Bureau of Indian Standards (BIS) was carrying on charitable activities as described within the ambit of section 2(15) and was entitled to registration/notification under section 10(23C)(iv). We, however, note that there is one distinction between the present petitioner and BIS. BIS is a statutory authority created by the legislation and, therefore, their case and claim stands on a better footing but this does not imply that only statutory bodies can be treated as established for charitable purpose under section 2(15) of the Act. Such contention has not been raised and cannot be sustained/accepted.”

Musssoorie Dehradun Development Authority V CIT, Dehradun ITA No 180/Del/2013

Page 26 of 30 12. The Hon‟ble high court further referred to circular No. 11 of 2008 issued by the Central board of direct taxes as under :-

“Circular No. 11 of 2008 by the Central Board of Direct Taxes 21. It may be relevant to reproduce extract from Circular No. 11 of 2008, dated December 19, 2008, issued by the Central Board of Direct Taxes explaining the amendments to section 2(15) of the Act. The relevant portion of the circular reads as under (see [2009] 308 ITR (St.) 5 ) : "Section 2(15) of the Income-tax Act, 1961 ('Act') defines 'charitable purpose' to include the following : (i) relief of the poor (ii) education (iii) medical relief, and (iv) the advancement of any other object of general public utility. 2. An entity with a charitable object of the above nature was eligible for exemption from tax under section 11 or alternatively under section 10(23C) of the Act. However, it was seen that a number of entities who were engaged in commercial activities were also claiming exemption on the ground that such activities were for the advancement of objects of general public utility in terms of the fourth limb of the definition of 'charitable purpose'. Therefore, section 2(15) was amended vide Finance Act, 2008, by adding a proviso . . . 3. The newly inserted proviso to section 2(15) will apply only to entities whose purpose is 'advancement of any other object of general public utility', i.e., the fourth limb of the definition of 'charitable purpose' contained in section 2(15). Hence, such entities will not be eligible for exemption under section 11 or under section 10(23C) of the Act if they carry on commercial activities. Whether such an entity is carrying on an activity in the nature of trade, commerce or business is a question of fact which will be decided based on the nature, scope, extent and frequency of the activity . . . 3.2. In the final analysis, however, whether the assessee has for its object 'the advancement of any other object of general public utility' is a question of fact. If such assessee 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 Musssoorie Dehradun Development Authority V CIT, Dehradun ITA No 180/Del/2013

Page 27 of 30 case, the object of 'general public utility' will be only a mask or a device to hide the true or the comparable are reasonable Delhi: 4 years and 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." (emphasis supplied) 22. It is, evident from Circular No. 11 of 2008 that the new proviso of section 2(15) of the Act is applicable to the assesses who are engaged in commercial activities, i. e., carrying on business, trade or commerce, in the garb of "public utility" to avoid tax liability as it was noticed that the object of "general public utility" was sometimes only a mask or device to hide the true purpose which was "trade, commerce or business." 13. Now in the above context we analyze the objects of the assessee and the actual affairs of the assessee demonstrated in its annual account submitted before us. a. Firstly we analyze the accounts of the appellant placed before us for the year ended 31.03.2009. On perusal of the balance sheet it is noted that it has obtained seed capital or loan from UP Govt. Rs. 175073,000/- and has a infrastructure fund amounting to Rs. 268365207/-. It has also received advanced from customers of Rs. 637464659/-. It has also advanced against sale of land received from Doordarshan of Rs. 60 lakhs. According to the rules framed it received money for the land at the market rates from the customers for sale of properties. b. Its assets are mainly purchases of land being 11 properties amounting to in all to Rs. 122905629/-. It has also capital projects under higher purchase schemes amounting to Rs. 452352101/-. It has also fixed deposit receipts with the bank amounting to Rs. 282894604/- . this facts shows that lands is also purchased at Market rates and it also finance the projects on commercial basis under hire purchase scheme as any other ordinary business entity.

Musssoorie Dehradun Development Authority V CIT, Dehradun ITA No 180/Del/2013

Page 28 of 30 c. On analysis of the income and expenditure account it has earned compounding fees, development fees, land conversion charges income from housing schemes, supervisions fees totaling in all to Rs. 119163186/-. It has also incurred an expenditure of Rs. 61913661/- resulting into profit of Rs. 57249524/- titled as excess of income over expenditure. This shows that its income is from sale of projects predominantly which is at market rates to the bidders who succeeds in auction proceedings. It is apparent that it has earned used huge profits therefore it is working for profit. d. While filing the return of income for AY 2009-10 it itself has classified as income falling under the head of income from business and profession. The computation of total income placed at Page 3 of the paper book shows that it has income from business and profession of Rs. 34047309/- and income from other sources in the form of interest in FDRs etc of Rs. 23202215/- making gross total income of Rs. 57249524/-. This amount of income was adjusted by the losses of earlier year and nil total income was shown. The assessee itself has offered its income under the head “ business or profession” and it takes benefit of carry forward and set off losses of earlier years. e. It also got its account audited under section 44AB vide audit report dated 22nd September 2009 wherein it is mentioned that it values its closing stock at cost at market value. It is important to note here that provisions of section 44AB of the Income Tax Act applies to every person who is carrying on the business or profession if his gross receipt exceeds specified amount. 14. Now the assessee placed before us list of various work which has been done by the assessee most of them are with respect to development of roads, lighting and sewage etc. It has also submitted the details of various area development and guidelines. At page 79 of the paper book it is submitted certain basic principles of charging price of the property which is based on market rate. It has also specified at page No. 80 of its paper book regarding acquisition of land which is also at prevailing circle rate. Therefore it shows that it acquires the land for development at market rate and also sales the Musssoorie Dehradun Development Authority V CIT, Dehradun ITA No 180/Del/2013

Page 29 of 30 same after development at market rate. In fact it is doing similar objects which an infrastructure company does by acquiring the land in similar fashion. Therefore, there is no difference between the activity carried out by the assessee compared to activity carried out by any other private organization for profit. Therefore on reading the financials presented before us and the various projects demonstrated it is apparent that the activities of the assessee has „ profit motive‟ and therefore it is carrying on the business. 15. Coming to the decision cited by the ld Authorised Representative of the Hon‟ble Allahabad High Court in case of Lucknow Development Authority does not come to the rescue of the assessee as it does deal with the amendment to section 2(15) of the Act w.e.f 01.04.2009. Precisely the Hon‟ble Allahabad High Court was dealing with the Assessment Year 2003- 04 to 2006-07. Therefore, reliance by the assessee on the same is misplaced. Further, the decision of the coordinate bench in case of Kurja Development Authority does not also apply as that decision was rendered relying on the decision of the Hon‟ble Allahabad High Court rendered for different assessment years. Further, the reliance upon the decision Ayodhaya Faisabad Development Authority rendered by Hon‟ble Allahabad High Court has also not considered the amendment w.e.f. 01.04.2009 but has followed its earlier decision. The above decision also does not come to help of the assessee as same is also pertaining to appeal of 2006. 16. Against that the revenue has relied upon the decision of Hon‟ble Jammu and Kashmir High Court in ITA No. 164/2012 in case of Jammu Development Authority Vs. CIT wherein the Hon'ble High Court has confirmed the order of the coordinate bench in ITA No. 30(ASR)2011 rejecting the appeal of assessee against not granting registration u/s 12AA of the Income Tax Act. The coordinate bench has considered the amendment made w.e.f. 01.04.2009 in provisions of section 2(15) of the Income Tax Act. Further, against the above decision, the Hon'ble Supreme Court has dismissed SLP of the Jammu Development Authority vide order dated 21st July 2014 in Special Leave to Appeal No. 4990/2014. Therefore, the order of High Court of Jammu and Kashmir is the only decision of the High Court Musssoorie Dehradun Development Authority V CIT, Dehradun ITA No 180/Del/2013

Page 30 of 30 which deals with the provisions of section 2(15) amended w.e.f. 01.04.2009 applicable to the persons carrying on objects of general public utility. Therefore, we respectfully following the decision of the Hon‟ble Jammu and Kashmir High Court hold that the assessee M/s. Mussoorie Dehradun Development Authority is not formed for “charitable purposes” as defined u/s 2(15) of the Income Tax Act and hence is not entitled to registration u/s 12A (a) of the Act. Hence, we do not find any infirmity in the order of the ld CIT, Dehradun in rejecting the application of the assessee for registration u/s 12A(a) of the Income Tax Act. 17. In the result we dismiss the appeal of the assessee. Order pronounced in the open court on 02/01/2017. -Sd/- -Sd/- (S.K. YADAV) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 02/01/2017 A K Keot Copy forwarded to 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi

Musssoorie Dehradun Development Authority V CIT, Dehradun ITA No 180/Del/2013