2013 (9) TMI 570 - ALLAHABAD HIGH COURT

Charitable activity u/s 2(15) - applicability of proviso of ection 2(15) - Exempted Income u/s 11 - Registration u/s 12AA - denial of exemption on the ground of commercial transactions - According to revenue The assessee is engaged in the activity of acquiring land, development of plots and construction residential as well as commercial places and sale thereof. The sales are also undertaken through auction process and sold to the highest bidder to earn more and more profits. The said activities are "trade" in nature and liable to tax.

Held that:- For the applicability of proviso to Section 2(15), the activities of the trust should be carried out on commercial lines with intention to make profit. Where the trust is carrying out its activities on non-commercial lines with no motive to earn profits, for fulfillment of its aims and objectives, which are charitable in nature and in the process earn some profits, the same would not be hit by proviso to section 2(15). The aims and objects of the assessee-trust are admittedly charitable in nature.

Mere selling some product at a profit will not ipso facto hit assessee by applying proviso to Section 2(15) and deny exemption available under Section 11. The intention of the trustees and the manner in which the activities of the charitable trust institution are undertaken are highly relevant to decide the issue of applicability of proviso to Section 2(15).

Registration u/s 12AA - Held that:- The effect of such a certificate of registration under Section 12AAA cannot be ignored or wished away by the Assessing Officer by adopting a stand that the trust or institution was not fulfilling the conditions for applicability of Sections 11 & 12.

Proceedings u/s 143(2) - Whether the ITAT was correct in law in holding that without exhausting the provisions contained in section 143(2) of the Act the proceedings initiated by the Assessing Officer by issuing notice u/s 148 of the Act were not valid - Held that:- The Assessing Officer had not given any defective in computation of income as per Section 11 as submitted in Form-XB, but observed that the activities of the assessee were not charitable - The activities of the assessees were genuine – Following CIT vs. Andhra Pradesh State Road Transport Corporation [1986 (3) TMI 1 - SUPREME Court].

Exemption allowed - Decided in favour of Assessee.