TMI Blog2006 (10) TMI 256X X X X Extracts X X X X X X X X Extracts X X X X ..... entioned that the assessee applied for its registration under section 12AA of the Act on 1-10-2003. It is further mentioned that the assessee was established under and governed by the provisions of Punjab Town Improvement Act, 1982 (hereinafter called that Act ). The object of that Act was to create certain bodies, generally termed as "Town Improvement Trusts", empowered to deal with the development of towns and connected matters. The powers given to the Improvement Trusts were similar to the powers vested in Municipal Committees. Such trusts could transact only such business as was authorized under that Act. Generally such trusts are constituted of seven trustees including a chairman, which are appointed by the State Government. They hold office during the pleasure of the Government. They receive such salary or remuneration as sanctioned by the Government. The provisions of that Act were also made applicable in the State of Haryana. Thus, the trusts are in the nature of a "Local Authority". It is also mentioned that the income of such trusts was exempted under clause ( 20A ) of section 10 of the Act. However, this clause was omitted by Finance Act, 2002, with effect from 1-4-2003 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oses fall within the meaning of the charitable purpose. The view of the learned CIT was that improvement trusts discharge the functions of a State Government under the provi- sions of a statute. Therefore, such functions cannot be termed as charitable purposes. He was also of the view that the whole of the issue has to be examined from a wider perspective and even if some expenditure has been incurred in an isolated manner, then, the main purpose of the assessee cannot be termed as charitable purpose. It was pointed out by him in this connection that the main functions of the assessee are acquisition of land, sale of plots of land, providing basic amenities such as roads, light, water, sewerage etc. The provisions of such facilities are necessary for sale of plots of land for realizing higher prices and, therefore, provisions of such facilities are merely incidental to the main purpose of purchase and sale of land. 2.2 He also referred to the accounts of the assessee for financial year 2002-03, in which receipts of Rs. 39,74,493 were shown. As against the aforesaid receipts, the assessee had incurred expenditure of Rs. 3,53,276 only for the alleged public purposes. The expendit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... G may result in drawing up of donations. To continue the incentive to the donors, section 80G has been amended so as to provide that 50 per cent of the sum paid by an assessee to an authority constituted in India by or under any law enacted either for the purpose of dealing with and satisfying the needs for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, or both, shall be deducted from the total income of such assessees. His case was that if, in spite of omission of section 10( 20A ), donors cases can be covered under section 80G, the assessee s case can also be covered under other provision for seeking exemption, such as sections 11, 12 etc. 3.2 The learned counsel referred to pages 6, 7 and 8 of the paper book, which is nothing but scheme of Chapter IV of that Act, which identifies various types of schemes and the circumstances in which the schemes could be taken up by the assessee. For the sake of completeness of this order, the same are reproduced below : "Section 23 provide for street schemes and deferred street schemes; Section 24 provides for development and expansion schemes; Section 25 provides for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of proposed acquisition of land to the owner/occupier of any immovable property which is proposed to be acquired and for filing of objections by them within a period of sixty days from the service of the notice; Section 39 provides furnishing information available in municipal record; Section 40 provides ( i ) for the consideration of the objections raised under sections 36, 37 and 38 in respect of any scheme and then either to abandon the scheme or apply to the State Government to sanction it in its original form or in modified form; ( ii ) for the furnishing to the State Government along with its application with certain material to enable the Government to satisfy itself that the scheme had been duly framed by the Trust; and ( iii ) for the publishing of a notice for two consecutive weeks in the Official Gazette or in a newspaper or papers to the effect that the scheme had been submitted to the Government for sanction; Section 41 enables the Government either to sanction the scheme with or without modifications or reject it; Sub-section (1) of section 42 provides for the notification of its sanction of a given scheme; sub-section (2) of section 42 provides that a notif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... securing rapid and orderly establishment and organization of industries in the industrial area and industrial estate in the State of Gujarat is an object of general public utility and, therefore, the assessee was entitled to registration under section 12A of the Act. That assessee s income was also exempt under section 10( 20A ) of the Act, which was omitted with effect from 1-4-2003. It applied for registration on 14-5-2003. Seeking registration with effect from 1-4-2002. The Hon ble Tribunal pointed out that the amendment in law necessitated the assessee to file application for its registration and in such circumstances there was no justification for the CIT to refuse the condonation of delay. The case of the learned counsel was that the facts of that case and the facts of this case are in pari materia . The assessee also undertook activities which are in the nature of public utility and its application was also necessitated because of change in the statute. Therefore, it was argued that its application should have been allowed by registering it. 3.5 The reliance was also placed on the decision of Hon ble Supreme Court in the case of Gujarat Industrial Development Corpn. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee from seeking exemption under other sections, such as sections 11, 12 etc., provided conditions laid down in sections 11 to 13 are satisfied. It was also pointed out that the fact that Market Committee collects fees, fines, and their officers are public servants, does not detract from coming to the conclusion that market committees are charitable institutions if otherwise their objects and activities are charitable in nature. It was also pointed out that the dominant object of such committees was to save the agriculturists from exploitation by middlemen and to provide them with better storage and transportation facilities for foodgrains. These are the objects of general public utility. It was also pointed out that registration by itself does not lead to exemption of the whole income and it was always open to the authorities to examine the claim under section 11 subject to other conditions prescribed in sections 12 to 13. The learned counsel pointed out that the facts of his case are in pari materia to the facts in the case of Marketing Committee, except that its income was hitherto exempt under section 10( 20A ) and not under section 10( 20 ), as in the case of Market Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were not activities for profit and whether as the activities had no profit motive, the activities of the assessee were for charitable purpose if it fulfilled conditions for exemption under section 11 ? The Hon ble Tribunal held that if there was no motive to earn profit and the activities of the assessee were charitable in nature, its income could be exempted under section 11 of the Act. 3.9 Coming to the issue of delay, it was pointed out that the assessee had filed the application on 1-10-2003. If its application had been successful, it was entitled to get registration with effect from 1-4-2003. However, it required registration with effect from 1-4-2002. Thus, there was a delay of one year only. The delay occurred because of lack of knowledge on the part of the assessee that provisions of section 10( 20A ) were deleted and, therefore, it was required to be registered with the Commissioner for claiming exemption under section 11. 4. As against the aforesaid, the learned DR pointed out that the income of the assessee was earlier exempt under clause ( 20A ) of section 10, as it constituted an authority under a law, as contemplated under that clause. A local authority is al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the activities of the assessee, actually undertaken by it and enumerated on pages 46 to 48 of the paper book. It was his case that there was no clause which specified item-wise expenditure to be incurred by the assessee and in this connection wide discretionary powers were given to the Management Committee. Therefore, his case was that conditions of section 11(1)( a ) were not satisfied. 4.3 He also referred to pages 49 to 62 of the paper book, which is the Gazette Notification, framing rules for the functioning of the assessee. It was his view that clauses 3, 4, 5 and 6 permitted the assessee to carry on the business in immovable properties by way of sale, allotment, auction, lease, tender or otherwise. These activities involved profit element, profit motive and were not charitable in nature. 4.4 While referred to the accounts for the financial year 2002-03, it was pointed out that only a small amount of Rs. 3,65,500 was expended on development activities out of the total expenditure of Rs. 39,79,493. On the basis of the aforesaid, his case was that the activities of the assessee were not primarily charitable in nature. 4.5 Coming to the legal issue, he pointed out t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s connection, the ld. counsel had referred to the decision in the cases of Market Committee ( supra ) and Gujarat Industrial Development Corpn. ( supra ). The Market Committee was a local authority under section 10( 20 ), which constituted a person under section 2( 31 ) of the Act. That person was granted registration by the ITAT, Delhi Bench "A". Gujarat Industrial Development Corpn s. case ( supra ) was an entity registered under Gujarat Industrial Development Act, 1962, which was considered to be a person, being an artificial juridical person under section 2( 31 ) of the Act. The assessee is also an artificial juridical person created under the Punjab Town Improvement Act, 1982. Therefore, we do not find any difficulty in holding that the assessee is a person. The term "institution" has not been defined in the Act, but sub-section (26) of section 2 of the Act regarding the definition of the term "Indian companies" takes within its ambit a corporation established by a Central, State or Provincial Act. Even if reliance is not placed upon this sub-section, it is clear that the assessee is a person under clause ( vii ) of sub-section ( 31 ) of section 2. As pointed out earlie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... about the objects and genuineness of the activities, he shall pass an order in writing registering the trust or institution. On careful study of this section, it will be seen that the Commissioner has to examine two things before registering a trust or an institution. These are : ( a )Objects of the trust or the institution; and ( b )Genuineness of its activities. 6.3 We have already enumerated the objects of the trust in paragraph 3.2 of this order. It was placed before the learned CIT that as per preamble of Punjab Town Improvement Act, the dominant object of the applicant is for improvement and for expansion of Hansi town, and preamble of that Act was placed on the record of the CIT. Gist of section 23 to section 44 were also placed before him. These sections empower the assessee to provide for street schemes and deferred street schemes; development and expansion schemes; housing accommodation scheme; re-housing accommodation scheme and re-housing of displaced resident house owners etc. With a view to implement the aforesaid schemes, the assessee was enabled to acquire land by any mode, demolished buildings which are unfit and are causing obstruction or air and light; r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he incurring of expenditure on establishment does not lead to any inference that the activities of the assessee are not charitable. It is another matter to say that major portion of the expenditure was incurred not in connection with the objects of the assessee, but on the establishment. According to us, what is to be seen under this connection is whether the assessee was carrying on activities in accordance with the objects enumerated in instrument of its creation or the funds of the assessee were diverted for totally different purposes. We find that the assessee has incurred expenditure in pursuance of objects and certain other expenses have also been incurred on establishment. There is nothing in the activities of the assessee which could be said to be non-genuine in the sense of being non-existent or completely contrary to its objects. It may be clarified here that we are not giving a finding that expenses incurred otherwise than on development schemes amount to application of income under section 11(1)( a ). That is an issue to be decided in assessment. What we have to consider is whether the activities of the assessee are genuine, in the sense that it is carrying on the activ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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