BHUBANESWAR DEVELOPMENT AUTHORITY,BHUBANESWAR vs. CIT, BHUBANESWAR

IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK

BEFORE S/SHRI N.S SAINI, ACCOUNTANT MEMBER AND PAVAN KUMAR GADALE, JUDICIAL MEMBER

ITA No.329/CTK/2013 Bhubaneswar Development Vs. CIT, Bhubaneswar. Authority, Akash shova Building, Sachivalaya Marg, Bhubaneswar. PAN/GIR No. AAALB 0073 G (Appellant) .. ( Respondent)

Assessee by : Shri G.Naik/R.K.Kar, AR Revenue by : Shri A.K.Mohapatra, CIT DR

Date of Hearing : 22/05/ 2017 Date of Pronouncement : 26 /05/ 2017

O R D E R Per N.S.Saini, AM This is an appeal filed by the assessee against the order of CIT,

Bhubaneswar, dated 8.3.2013.

8.3.2013 while rejecting the application for grant of registration u/s.12AA

of the Act, has discussed the issue at length and observed as follows:

“Bhubaneswar Development Authority (called hereinafter the BDA) applied for grant of registration u/s 12AA of the Act in May'2008 which was rejected by the CIT, Bhubaneswar vide his order dated 28.11.2008 on the ground that the activities of the institution are not charitable in nature. It was also held therein that whereas the stated objects of the BDA were claimed to be coming under the purview of the "advancement of any other object for general public utility" as per inclusive definition of "charitable purpose" given in Sec. 2(15) of the Act, and whereas the same were found involving activities in nature of commerce and business or

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rendering any service in relation to any trade, commerce and business, registration was denied for its activities not being for "charitable purpose" in consequence to the amendment made to that section by inserting provisos vide Finance Act, 2008 w.e.f. 01.04.2009. The applicant challenged the aforesaid order of the CIT before the Hon'ble 1TAT, Cuttack and the Hon'ble Tribunal restored the matter for reconsideration of the application in the light of the provisions contained in the "Odisha Development Authorities Act, 1982"(called herein after the ODA Act), and more particularly to the provisions of the Sec.77 thereof and analyzing the financial statements of the assessee in the light of those provisions in the said Act. The applicant assessee was also allowed therein to file necessary petition for condonation of delay in filing application for grant of registration u/s 12A of the Act with a direction to CIT to consider the same. Accordingly, the case was heard from time to time represented by Mr. G.N. Nayak, Ld. Advocate on behalf of the assessee.

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"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." The proviso very clearly uses the languages "activity in the nature of trade, commerce or business". Any activity will be construed to be in the nature of trade, commerce or business only if same is carried on with the intention to earn profit. Section 2(13) of the Act defines the term "business" to include "any trade, commerce or manufacture or any adventure or a concern in the nature of trade, commerce or manufacture." The term "business" has come up for consideration before the Courts in a large number of cases. In substance the view of the Courts is that it is an activity carried on in a systematic manner with a view to earn profit. Accordingly, in order to hold whether the activity is in the nature of trade, commerce or business, there should be profit motive. Whether such an activity is in the nature of trade, commerce or business is a question of fact, which has to be decided based on the nature, scope, extent and frequency of the activity. The main objects and activities of the BDA have always been to do infrastructure developments in urban planning and also developing housing projects in the manner of commercial expediency. The financial statements, for example, reflect most of its activities having financial implications under three categories viz. i) Capital works, its own activities in the field of housing & infrastructure projects in the housing sector, ii). Deposit works, the contract works awarded by various Govt, or other Govt, bodies and hi) Miscellaneous works and other supervisory works on behalf of BMC. On the outlay o\ expenditure on the above projects, BDA in practice charges 15% on ''capital works" and 10% on "deposit works" as administrative charges which in turn inter-alia. are being reflected as "income" in the l&E Accounts. Since there is no practice of furnishing receipts and payments accounts with the audited financial statements and all the receipts and payments are being directly capitalized for years together, it is difficult to ascertain the huge accumulation of fund remaining in various forms of capital assets. These funds being generated by the BDA through its various activities are being ploughed back, to fulfill the financial requirement for its future projects and schemes and the activities are aimed for earning profit only.

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at a higher price or greater profit. On examination of its activities vis-a-vis the financial statements, it is seen that the assessee has been charging fees and fines from the sale of Forms, building plan fees, transfer fees, fine & penalties etc. leaving apart it's core commercial activities in the housing schemes and land plotting schemes. Similarly, no element of charity is found in the activity of constructing market complexes by way of selling it at prevalent market price or by way of bidding process to the general public and it is not understood how BDA is generating "Self-employment opportunities" as claimed by it. In this regard, it may be stated that substantial income is being reflected in the financial statements from year to year on letting out these properties. Such are not the way of being charitable. It is pertinent to mention here that the applicant assessee have been undertaking various contractual works as reflected in the financial statements under the head of "Deposit Works" and 10% on the outlay of expenditure in a year under this head is being taken to I&E A/c as "income" and the balance receipts & payments of that head are being directly capitalized, making it difficult to work out true profit of the same. Likewise, the applicant assessee has also undertaken many activities on Public Private Partnership(PPP) method viz. NICCO Park. BDA City Centre Ltd., Ocean Park Pvt. Ltd. etc. Hence, in these facts and circumstances, the activities of the BDA are to be held as not for charitable purpose but for business purpose only like any other colonizer. Apart from the above, the applicant hasn't so far undertaken any activity for doing charity in true sense by providing shelter or meeting the housing requirements of poor people living in its periphery. Contrary to it, the applicant has engaged in carrying out its main objects constantly & systematically with profit motive. Hence, the charges, fees or profit in whatever form being charged or received by BDA are only attributable to the outcome of its business activities. In these facts and more specifically in view of the amendment made to Section 2(15) of the Act for defining "charitable purpose" under the limb of "advancement of any other object of general public utility", the application filed for grant of registration u/s 12AA is squarely liable for rejection. It is to be added further that not withstanding the fact that the applicant is required to adhere to the provisions as contemplated under the ODA Act. 1982 and the rules framed thereunder, it has to meet the tenets of "charitable purpose" as defined in the Income Tax Act, 1961, if at all to be eligible for getting exemption from tax.

(i) The accounts of PUDA revealed that it had turned into a huge profit making agency for which it was taking money from the general public, (ii) It was clear that PUDA didn't engage itself in any charity and if it developed any institutions of public importance such as schools, community centres, it recouped their costs from the public at large,

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(iii) The objects / activities of PUDA were commercial in nature and they did not involve any charity. (iv) Providing various facilities was a means of attracting people so that maximum people might apply for its schemes. The hidden cost was already added, so no charity was involved, (v) A new trend had also emerged that PUDA had started auctioning the plots at the market rate and charged interest on belated payments. This did not involve charity. Rather PUDA had converted itself into a big business entity, (vi) Similar development / infrastructure / facilities are provided by private developers these days, (vii) Further, almost in every activity of PUDA, there was a scent of commercialization / profit motive.

Similar view was also held subsequently by the Hon'ble ITAT, Amritsar Bench in the case of Jalandhar Development Authority v. Commissioner of Income-tax in IT appeal No. 562(ARS) 2008 on the basis of aforesaid decision. Here, it is very pertinent to quote hereunder the objects of the BDA as envisaged in Sec.7 of ODA Act'1982 which are pari materia to the objects as envisaged under section 28(1) of the Punjab Regional and Town Planning and Development Act, 1995(PUDA); as under:

"The object of the Authority shall be to promote and secure the development of all or any of the area comprised in the development area concerned according to plan and for that purpose the Authority shall have 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 supply of water and electricity, disposal of sewage and other services and amenities and generally to do anything (including controlling development and coordinating developmental programmes of related agencies) necessary or expedient for purposes of such development and for purposes incidental thereto "(ODA Act, 1982)

"The objects of the authority shall be to promote and secure better planning and development of any area of the state and for that purpose the authority shall have the powers to acquire by way of purchase transfer, exchange or gift or to hold, manage, plan develop and mortgage of otherwise dispose of land or other property or to carry out itself or in collaboration with any other agency or through any other agency on its behalf, building, engineering, mining and other operations to execute works in connection with supply of water, disposal of sewerage, control of pollution and other services and amenities and generally to do anything with the prior approval or on direction of the Stale Government, for carrying out the purpose of the Act". (Punjab Regional and Town Planning and Development Act, 1995)

"We have heard the rival contentions and perused the material available with us as well as decisions cited by Ld. Counsel for the assessee along with other documentary evidences filed by him. As per impugned order and submissions of the assessee, the main activities of the assessee trust at that to purchase land, to enhance and develop the land by cutting it into plots etc.. to advertise for sale of

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plots in the developed land and to sell off the land through auction, meaning thereby that the assessee trust was buying undeveloped land at a low price and developed it and provides the some basic facilities i.e. leveling and clearing the land, cutting it into plots, providing access roads, electricity, providing water and sewerage facilities etc. the assessee trust enhanced cost of land from cost of purchase by it. The assessee-trust is also charging fees and fines from selling of Forms., land enhancement fees, building plan fees, road cutting fees, transfer fees, fine and penalties and non-construction charges and thus earning huge profits, which is contrary to the provisions of Section 2(15) of the Act, amended w.e.f. 01.04.2009."

It was further held by the Hon'ble ITAT in the said order as under:

"Therefore, the activities of the assessee trust clearly constitute activities in the nature of trade, commerce or business because no plots are reserved for any socio- economically lower society, there is no element of donation or support to any cause, none of the land is earmarked to be sold at no profit, no loss basis to any person whatsoever, which clearly establish that the element of charity is clearly absent from the activities of the trust, which is contrary to the provision of section 2(15) of the Act amended w.e.f 01.04.2009 and the Ld. CIT, Bathinda has rightly issued show cause notice to the assessee-trust for cancelling the registration already granted to the assessee-trust which the Ld. CIT, Bathinda has the power under section 12AA(3) of the Act.

passed in ITA No.366/Asr/2012 dated 18,12,2012 was appealed before the

Hon’ble P&H High Court and Their Lordships were pleased to restore the

order to the file of the Tribunal by observing as under:

"5. Learned counsel for the appellant submitted that in view of the provisions of 1922 Act, the matter is required to be remanded to the Tribunal to adjudicate whether the activities of the appellant trust were covered within the meaning of charitable in nature or not even after the insertion of the proviso to Section 2(15) of the Act w.e.f. 1.4.2009 i.e. in respect of assessment years 2009-10 onwards. No serious objection was raised by the learned counsel for the revenue to the aforesaid submission.

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shall be made to decide the matter expeditiously. As a result, all the appeals stand disposed of."

passed in ITA No.366/Asr/2012 upheld the grievance of the assessee and

quashed the impugned order cancelling the registration granted to the

assessee. Thus, the registration of the assessee was restored. Therefore,

the reliance placed by the CIT on the order of the Amritsar Bench of the

Tribunal in the case of Improvement Trust Bothinda vs CIT, order dated

18.12.2012 no longer holds good. Further, he submitted that Hon’ble

Allahabad High Court in the case of CIT vs. Lucknow Industrial Development

Authority in Income Tax Appeal No.156 of 2008 held as under:

“Brief facts of the case are that the assessee authority was set up under the U.P. Industrial Area Development Act, 1976. For this purpose a gazette notification was issued on 28th July, 2005. The assessee has applied for registration under section 12 A of the Income Tax but CIT vide its order dated 22.9.2007 refused the registration on the ground that the authority was being run on commercial line. Against the CIT's order, the assessee preferred appeal before the ITAT.By the impugned order, the Tribunal directed the CIT to grant registration to the assessee. The ITAT mentioned in its order that in the similar circumstances registration was already granted to the M/s Bhadoi Industrial development Authority and others which were also set up under the U.P. Industrial Area Development Act, 1976 with the same objects and functions. So there was no reason to deny the registration to the assessee. Therefore, being aggrieved, the department has filed the present appeal.

With this back ground, we have heard Sri D.D.Chopra learned counsel for appellant and Sri Amit Shukla, learned counsel for assessee and perused the record.

After considering the totality of the facts and circumstances of the case, it appears that the assesse is a statutory authority which was established under the U.P. Industrial Area Development Act, 1976. Other authorities which were established under the same Act were granted registration under section 12 A of the Act but the same was denied to the assessee. On the basis of parity , we are of the view that the assessee is also entitled for the registration. It makes no difference that the assessee has not yet started

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functioning being charitable institution. Registration is required before starting business as per the ratio laid down in the case of M/s Bihar State Forest Development Corporation vs.CIT,224ITR,757 S.C.

In view of above, we see no reason to interfere with the impugned order passed by the Tribunal who has rightly directed CIT to grant registration to the assessee. The same is hereby sustained. No substantial question of law emerges. The appeal is dismissed in limine.”

Court was followed in the case of CIT vs. Lucknow Development Authority,

265 CTR (All) 433, wherein, it was held that “where the trust is carrying

out its activities on non-commercial lines with no motive to earn profits, for

fulfilment of its aims and objectives, which are charitable in nature and in

the process earn some profits, the same would not be hit by proviso to

section 2(15).”

with the case of Lucknow Industrial Development Authority and Lucknow

Development Authority(supra). Therefore, following the same, the

registration should be granted to the assessee.

which is quoted hereinabove.

record, we find that the objects of the Bhubaneswar Development Authority

as per the Odisha Development Authorities Act, 1982 (hereinafter called

the ÓDA’ Act) are as under:

“ Objects of the Authority-The objects of the Authority shall be to promote and secure the development of all or any of the area comprised in the development area concerned according to plan 2[by itself or through a Special Purpose Vehicle constituted for the purpose or through an agency or a Developer Entity] and for that purpose the Authority shall have power

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to acquire, hold, manage and dispose of land and other property, to carry out building, engineering, mining and other operations, to execute works a connection with supply of water and electricity, disposal of sewage, a other services and amenities and generally to do anything (including controlling development and coordinating developmental programmes of related agency necessary or expedient for purposes of such development and for purpose incidental thereto”

Development Authority on the ground that on examination of financial

statement, it is seen that the assessee was charging fees and fines from

the sale of Forms, building plan fees, transfer fees, fine & penalties, etc

leaving apart it’s core commercial activities in the housing schemes and

land plotting schemes. No element of charity is found in the activity of

constructing market complexes by way of selling it at prevalent market

price or by way of bidding process to the general public. The assessee was

undertaking various contractual works as reflected in the financial

statement under the head “Deposit Works” and 10% on the outlay of

expenditure in a year under this head is being taken to I&E Account as

income and the balance receipts & payments of that head are being directly

capitalised. The assessee has not undertaken the activity of charity in true

sense by providing shelter or meeting the housing requirements of poor

people living in its periphery. Contrary to this, the assessee was engaged

in carrying out its main objects constantly & systematically with profit

motive. Hence, the charges, fees or profit in whatever form being charged

or received by the BDA are only attributable to the outcome of its business

activity. In view of the amendment made to section 2(15) of the Act

defining “charitable purpose” under the limb of “advancement of any other

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object of general public utility” the application filed for grant of registration

u/s.12AA is to be rejected.

facts and circumstances of the case of the present assessee are similar that

were before the Amritsar Bench of the Tribunal in the case of Improvement

Trust of Bathinda (supra). Therefore, following the order of the Tribunal

dated 18.12.2012, he dismissed the application for registration u/s.12AA

of the Act to the assessee.

No.336/Asr/2012 of the Amritsar Bench of the Tribunal in the case of

Improvement Trust Bathinda (supra), wherein, the Tribunal has granted

registration u/s.12AA to Improvement Trust Bathinda. Therefore, in our

considered view, since the CIT had rejected the registration following the

decision of the Amritsar Bench of the Tribunal in the case of Improvement

Trust Bathinda (supra), and the Tribunal on remand by the Hon’ble P&H

High Court has restored the registration u/s.12AA of the Act the

Bhubaneswar Development Authority should also be granted registration

u/s.12AA of the Act. Further, we find that Hon’ble Allahabad High Court in

the case of Lucknow Industrial Development Authority (supra)has granted

registration u/s.12AA of the Act on similar facts.

good reason to not to follow the order of the Amritsar Bench of the Tribunal

in the case of Improvement Trust Bathinda(supra) and Hon’ble Allahabad

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High Court in the case of Lucknow Industrial Development (supra).

Therefore, respectfully following the above decision, we set aside the order

of the CIT and direct him to grant registration u/s.12AA of the Act.

Order pronounced in the open court on 26 /05/2017 in the presence of parties. Sd/- sd/- (Pavan Kumar Gadale) (N.S Saini) JUDICIALMEMBER ACCOUNTANT MEMBER Cuttack; Dated 26 /05/2017 B.K.Parida, SPS Copy of the Order forwarded to : 1. The Appellant : Bhubaneswar Development Authority, Akash shova Building, Sachivalaya Marg, Bhubaneswar 2. The Respondent. CIT, Bhubaneswar. 3. The CIT(A) 4. Pr.CIT, 5. DR, ITAT, Cuttack 6. Guard file. BY ORDER, //True Copy//

SR.PRIVATE SECRETARY ITAT, Cuttack