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Income Tax Appellate Tribunal, CHANDIGARH BENCHES ‘A’ CHANDIGARH
Before: SMT. DIVA SINGH & DR. B.R.R. KUMAR
PER DR. B.R.R. KUMAR, A.M:
Both the above appeals have been filed by the Revenue against the
order of the Ld. CIT(A)-2, Jalandhar dt. 02/06/2017 & 28/06/2017.
Since the issues raised by the Revenue in both the appeals are common
therefore they are being disposed off together for the sake of convenience. We
shall deal with ITA No. 1309/CHD/2017 for A.Y. 2014-15 as a lead case.
That on the facts and circumstances of the case, the Ld. CIT(A) has erred in law in holding the assessee eligible for exemption u/s 11 whereas the assessee was not actual carrying on activities for the advancement of objects of general public utility. 2. That on the facts and circumstances of the case, the Ld. CIT(A) has erred in law in ignoring the true intent and purpose behind the amendment in section 2(15) brought in w.e.f. 01.04.2009 and which was also clearly explained in CBDT circular No. 11 dated 19.12.2008 by providing that "An assessee who claims that their object is 'Charitable purpose' within the meaning of s. 2(15) would be well advised to eschew any activity which is in the nature of trade, commerce or business or rendering of any service iri relation to any trade, commerce or business." 3. That on the facts and circumstances of the case, the Ld. CIT(A) has erred in law in ignoring the intent of amendment in 2(15) by relying on the objects of the assessee even when the said amendment had refocused the section's applicability based on the activities of entities. 4. That on the facts and circumstances of the case, the Ld. CIT(A) has erred in law in ignoring the stringent import of the proviso wherein even activities in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business have been specifically precluded from the ambit of exemption clauses. 5. That on the facts and circumstances of the case, the Ld. CIT(A) has erred in law in holding the assessee eligible for exemption u/s 11 by holding that business activities being carried on by the assessee were incidental to the attainment of objects which predominantly were for town improvement whereas the assessee had not been able to demonstrate during the course of proceedings that any such activity was carried on. 6. That on the facts and circumstances of the case, the Ld. CIT(A) has erred in law in holding the business activities as incidental even as the accounts of the entity reveal that this (sale/purchase of properties on commercial lines) has become the predominant activity to the detriment of the main mandate of the improvement Trusts namely town improvement. 7. That on the facts and circumstances of the case, the Ld. CIT(A) has erred in law in ignoring the intention and purpose behind the omission of section 10(20A) w.e.f. 04.04.2003 which earlier has expressly provided exemption to statuary authorities constituted for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, town and villages, or both. 8. That on the facts and circumstances of the case, the Ld. CIT(A) has erred in law in failing to consider the judgments in PUDA Vs. CIT and Jalandhar Development Authority Vs. CIT which have been followed by the Tribunal Amritsar Bench in Jammu Development Authority Vs. CIT reported as (2012) 52 SOT ASR which were upheld by Hon'ble J&K High Court (2012) 52 SOT ASR153 which was further upheld by Hon'ble Supreme Court of India in special Leave to Appeal(C) No. 4990 of 2014 vide its order dated 21.07.2014.
The brief facts of the case are that the AO has disallowed the claim of
exemption under section 11 of the Income Tax Act, 1961 holding as under:
In case of the assessee the main object of the assessee is to earn profit and bringing in money. Applications with certain amount are called for and after public draw/auction the flats/plots and commercial booths are sold. Income and expenditure account furnished by the assessee trust has intimated that the Improvement trust Kartarpur has launched various schemes, which has developed the land into shops and plots for sale. Income is earned from sale of forms, sale of shops/plots and fee is received for doing/managing the business activities just to earn profit. There is no activity of the trust which qualifies it as a charitable trust for claiming exemption u/s 11 of the Income Tax Act. On the basis of the activities
undertaken by the trust it cannot be .taken as a 'Charitable trust' within the meaning of section 2(15) of the I.T. Act, 1961. Therefore, the income earned by it cannot be treated as exempt. The purpose of the assessee trust by selling plots/ Shops on market rates is nothing, but to earn profit and therefore it cannot be treated as a charitable trust as its activities are not on no profit no loss basis. Therefore, the activities of the assessee trust cannot be treated as charitable under 'General Public utility'. Interpreting the definition of section 2(15) of the Act.
Further, reliance has also been placed on the order of Hon'ble ITAT, Amritsar in the case of The Improvement Trust, Bathinda Vs. CIT, Bathinda, where in the Hon'ble ITAT in its appeal ITA No.366(Asr)/2012 upheld the order of CIT, Bathinda who had held that the Trust does not qualify to be treated as a charitable institution. During the assessment proceedings the document filed by the assessee show that it has done no charitable work of general public utility. It has done the business of sale of shops/Plots and commercial booths with the sole aim to earn profit. It has not done any charitable work which qualifies it as a charitable trust within the meaning of section 2(15) of the Act. There are various case laws in favour of department on the same facts & grounds e.g. PUDA vs. CIT and Jalandhar Development Authority vs. CIT have been followed by Tribunal of Amritsar Bench in Jammu Development Authority vs. CIT reported as (2012) 52 SOT ASR 153 and uphelp the order of CIT in which section 2(15) of the Act w.r.t. "business, trade and commerce" has been interpreted, which judgment in jammu development Authority has been upheld firstly by Hon'ble J&K High Court in ITA No. 164of 2012 vide its order dated 07.11.2013 and also by Hon'ble Supreme Court in Special Leave to Appeal (C)No. 4990 of 2014vide its order dated 21.07.2014.
The Hon'ble ITAT, Ahmedabad has also recently decided the appeal in favour of Revenue in the case of Ahmedabad Urban Development v. Assessee on 19th April 2016 vide ITA No. 712 and 711/Ahd/2013 dated 19.04.2016 after referring to and discussing the above mentioned case laws in its order.
The Ld. CIT(A) held that the claim of exemption of income u/s 11 of the IT
Act has been disallowed by the AO on the ground that nature of activities
carried out by the trust are in the nature of business activities. It is stated by the
AO that the trust is engaged in sale and purchase of plots, houses and buildings
and is earning profits from these activities.
4.1 Ld. CIT(A) held that in the case of the assessee for A.Y. 2012-13 wherein
the addition made by the AO was deleted. Further the appeal filed by the
department against the order passed by the CIT(A) has also been dismissed
vide order dated 22.06.2016.
4.2 Ld. CIT(A) Having considered the submissions made in this regard and
material available on records found that this issue has already been considered
in the case of the assessee in A.Y. 2012-13 vide order dated 21.09.2015 the claim
of the assessee was allowed. Further the Ld. CIT(A) relied on order passed by the
Hon'ble ITAT Amritsar Bench in ITA No. 644 to 647/Asr/2015 dated 22.06.2016 and
find that the claim of exemption of income u/s 1 1 of the IT Act made by the
assessee has been upheld.
Before us, the Ld. DR relied on the order of the Assessing Officer and the
Ld. AR supported the order of the Ld. CIT(A).
We have gone through the facts before us. The similar matter has been
dealt in the case of M/s Improvement Trust, Moga following the decision of
Hon'ble High Court of Punjab & Haryana High Court vide order dt. 23/12/2016
wherein it has been held as under:
The Tribunal also rightly held that an object of general public utility does not necessarily require the 66 of 74 ITA-62-2015 and ITA 147-2016 - 67 - activities to be funded or subsidized by the State. So long as the objects fall within the ambit of the words "object of general public utility", it is sufficient. The achievements of those objects do not have to be as a result of State funding or State subsidy. The Tribunal accordingly rightly held that the authorities were not justified in denying the benefit of section 11 and holding that the assessee was not covered by the words "advancement of any other object of general public utility" in Section 2(15). The Tribunal, therefore, rightly directed the Assessing Officer to delete disallowance of exemption. 74. It cannot possibly be suggested that the Government of Punjab formed the trusts under the Punjab Town Improvement Act, 1922 because it wanted to carry on the business as colonizers or developers under the mask of the category "objects of general public utility". 75. Section 28(2)(iii) of the Punjab Town Improvement Act, 1922 permits a scheme under this Act to provide inter- alia for the disposal of the land vested in or acquired by the trust including by lease, sale and exchange thereof. This, however, is not the predominant activity or responsibility of the trust. Nor for this assessee is making profits from this activity its predominant motive. 76. The power of the assessee to dispose of land conferred by Section 28(2)(iii) is not an absolute or independent power. It is conferred upon the assessee in the discharge of its statutory duties imposed on it by the PTI Act of framing schemes. Sub section (1) of Section 28 entitles the assessee to combine the various schemes referred to in Chapter-IV. Sub section (2) stipulates that the scheme 67 of 74 ITA-62-2015 and ITA 147-2016 - 68 - under the Act may provide for a variety of things including the disposal of land belonging to the assessee. This power is,
therefore, in furtherance of, connected with and in relation to a scheme in Chapter-IV. It is not an absolute power independent of and unconnected with the assessee's statutory functions under the PTI Act. 77. The predominant activity of and the purpose for the establishment of the assessee is summed up in two words "town improvement" in the title "Punjab Town Improvement Act, 1922". The preamble is titled "An Act for the improvement of Certain Areas". The preamble states "whereas it is expedient to make provision for the improvement and expansion of towns in Punjab". The Act in general and Chapter-IV thereof in particular indicates the reason for and the basis of the establishment of the trust. Almost every section in the Chapter indicates clearly that the trust is established for the purpose of "advancement of the object of general public utility". This is the predominant purpose of the trust. 78. The language of the provisions of the Act are self explanatory in this regard. The trust must deal with the buildings unfit for human habitation, the danger caused or likely to be caused to the health of the inhabitants of the area on account of the congested conditions of streets or buildings or want of light, air, ventilation or proper conveniences in an area and sanitary defects. The trust is required to frame the street schemes to lay out new streets, thoroughfares and open spaces or alter existing streets whenever it appears to the trust that it is necessary to do so for the purpose of providing building sites or remedying 68 of 74 ITA-62-2015 and ITA 147-2016 - 69 - defective ventilation or creating new or improving existing means of communication and facilities for traffic. 79. The trust must also prepare development schemes. This duty contained in Section 24 is not akin to that of a private developer or a colonizer as wrongly suggested by the Assessing Officer and confirmed by the CIT(A). The development scheme under section 24 is prepared for the purpose of development of a locality. Sub section (2) of Section 24 provides that the trust may if it is of the opinion that it is expedient and for the public advantage to promote and control the development of and to provide for the expansion of a municipality in any locality adjacent thereto within the local area of such trust prepare "an expansion scheme". The development scheme, therefore, is for the public purpose of development of any locality and an expansion scheme is also prepared when it is expedient and for the public advantage as opposed to a mere personal advantage as in the case of private developers or the colonizers. The two cannot possibly be compared. These schemes do not contemplate mere development of the plots and the construction of the premises for sale. The Trust must under the Act adopt a holistic approach for the betterment and advantage of the entire area within its jurisdiction. 80. Section 25 which provides for a housing accommodation scheme to be framed is similar. The trust is required to frame such a scheme if it is of the opinion that it is expedient and for the public advantage to provide housing accommodation for any class of inhabitants within its local area. The trust is, therefore, to be motivated not by personal but by public benefit. Such activities clearly fall 69 of 74 ITA-62-2015 and ITA 147-2016 - 70 - within the last category of cases in the proviso to Section 2(15) as it stood at the relevant time, namely, "advancement of an object of general public utility". 81. It can hardly be suggested that the Government of Punjab established the assessee's trust and conferred upon it public responsibilities and duties of the nature specified in the PTI Act as a camouflage for its commercial, trade and business ventures. The creation and incorporation of the trust under section 3 is for a public purpose. We have no doubt whatsoever that the activities of the trust fall within the meaning of the words "charitable purpose" in Section 2(15). 82. Whether the mandate of the Act is followed by such a trust is a different matter. The facts in that regard are relevant in examining whether the activities of the trust of a given year entitled it to the benefit of the Income Tax Act. Mere profit making on account of certain incidental or ancillary activities of the trust do
not disentitle it to the exemptions. The Trust constituted under the PTI Act is likely to make profit on account of its commercial or business activities such as when it acts pursuant to the power under section 28(2)(iii) by disposing off its lands. That, however, does not take it out of the definition of 'charitable purpose' in Section 2(15). As we held earlier, trade, commerce and business in Section 2(15) must be such as to involve an element of profit. Profit, however, is not the predominant motive of such trusts. In our view considering the nature of the Act, selling of plots and premises by the trust is only incidental and ancillary to its main purpose which at the cost of repetition is "town improvement" in 70 of 74 ITA-62-2015 and ITA 147- 2016 - 71 -almost every respect. Even where the plots are developed and premises are constructed and sold at the market price, the activity is not commercial or business venture per se but one necessitated on account of the implementation of the provisions of the trust through statutory schemes. The main purpose of such schemes is driven by public requirements and not as a commercial venture per se. They are incidental to the main object of the trust. 83. In the present case, the Assessing Officer has not indicated any facts which indicate that the assessee deviated from this principle. He has merely referred the extent of profit making activities without correlating the same to the other activities of the trust. In our view, therefore, the order of the Tribunal must be upheld. 84. Mr. Goel relied upon the judgment of the High Court of Jammu & Kashmir in Jammu Development Authority v. Union of India and another ITA No. 164 of 2012. The Division Bench dismissed the appeal with the following order:- "1. The instant appeal under section 260-A of the Income Tax Act, 1961 (for brevity, the Act) is directed against order dated 14.06.2012 passed by the Income Tax Appellate Tribunal, Amritsar, upholding the order withdrawing the status of Charitable Institution given to the appellant- assessee under Section 12AA(1)(b)(i)of the Act. The Tribunal has reached a categorical conclusion that the assessee-Jammu Development Authority cannot be regarded as an institution or trust which may have been set up to achieve the objects enumerated under Section 2 of the Act particularly in view of the addition of first and second proviso made by the Finance Act, 2008 w.e.f. 01.04.2009 to Section 12AA of the Act. There are findings of fact that the assessee-appellant has not been acting to advance any of the object concerning general public utility. Even otherwise the proviso which has been added by the Finance Act, 2008 w.e.f. 01.04.2009 stipulates that the advancement of any other object of the general public utility shall not be a charitable purpose, if it involves carrying on of any activity in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business or a cess or fee of any other consideration.
We find that no question of law much less a substantial question of law would emerge from the impugned order of the Income Tax Appellate Tribunal warranting admission of the appeal. The appeal is wholly without merit and is thus liable to be dismissed. 3. For the reasons aforementioned, this appeal fails and same is dismissed alongwith connected application(s)." The judgment is of no assistance to the appellant for the Division Bench observed that there were findings of fact that the assessee/appellant had in that case not been acting to advance any object concerning general public utility. The judgment was, therefore, based on the facts of this case. It is obviously for this reason that the Division Bench held that no question of law much less a substantial question of law emerged from the order of the Tribunal. It is difficult to understand how this order can possibly be relied upon as laying down any law when Court itself records that the order impugned therein is based on the facts of that case. The dismissal of the Special Leave Petition filed against that order is, therefore, of no assistance to the Revenue either.
The assessee, namely, Moga Improvement Trust is undoubtedly an authority constituted in India. It is also constituted by or under a law, namely, the Punjab Town Improvement Act, 1922. Further, it is engaged for the purpose of dealing with and satisfying the need for housing accommodation. It is also constituted for the purpose of planning, development of improvement of cities, towns and villages or for both as is evident from Sections 22 to 28 of the PTI Act quoted above. The appellants, would, therefore, undoubtedly have been entitled to the benefit of Section 10(20A). The assessee would not have been entitled to the benefit of Section 10(20A) upon its omission by the Finance Act, 2002 with effect from 01.04.2003. Section 10(20A) of the Act did not contain any other requirement. It was wider than Section 2(15). However, Section 2(15) and the corresponding sections including Sections 11, 12, 12A and 12AA are independent of Section 10(20A) of the Act. Upon the omission of Section 10(20A), the provisions of the other sections were not affected. They remained intact. An assessee could have been entitled to the provisions of Section 10(20A) and the other provisions simultaneously. The omission of one, however, does not affect the validity or the existence of the others. The two provisions are distinct and independent of each other. Thus the omission of Section 10(20A) did not affect the rights of the parties claiming the benefit of Sections 2(15), 11, 12, 12A and 12AA of the Act.
Since the order of the Ld. CIT(A) is based on the order of the Coordinate
Bench of ITAT, Amritsar and following the same ratio, we hereby uphold the
order of the Ld. CIT(A).
As a result, the appeals of the Revenue are hereby dismissed.
Order pronounced in the open court. Sd/- Sd/- (DIVA SINGH) (B.R.R.KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated : 14/03/2018 AG Copy to: The Appellant, The Respondent, The CIT, The CIT(A), The DR