2022 (8) TMI 1400 - HC - Income Tax

Exemption u/s 11 - exemption disallowed on the ground that registration u/s 12AA granted to the assessee stood cancelled - what s the charitable nature of activities carried out by assessee in terms of Section 2(15)? - Tribunal restored the registration of assessee u/s 12 AA considering the nature of activity of assessee is charitable and it is not hit by proviso of Section 2(15) - HELD THAT - Grant of registration u/s 12 AA to Development Authority like the present respondent assessee was considered in Hapur Pilkhuwa Development Authority 2016 (8) TMI 1305 - ALLAHABAD HIGH COURT as held 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 noncommercial 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). The proviso to Section 2(15) is not applicable to the facts and circumstances of the case and the assessee was entitled to exemption provided under Section 11 for the relevant assessment year. Another statutory body namely Krishi Utpadan Mandi Samiti constituted under U.P. Krishi Utpadan Mandi Adhiniyam 1964 was also registered under Section 12AA and the question whether amount transferred to Mandi Parishad would constitute application of income for charitable purpose under Section 11(1)(a) of Act 1961 has been decided against Revenue by Supreme Court in Commissioner of Income Tax Vs. Krishi Utpadan Mandi Samiti 2012 (10) TMI 26 - SUPREME COURT wherein Court has also confirmed this Court s judgment 2009 (12) TMI 14 - HIGH COURT OF ALLAHABAD No substantial question of law is involved in the impugned order of the Tribunal. Decided against revenue.

Summary

Issues Involved:
1. Cancellation and restoration of registration under Section 12AA of the Income Tax Act, 1961.
2. Allowability of exemption under Section 11 of the Income Tax Act, 1961.
3. Nature and taxability of the amount transferred to the Infrastructure Development Fund.

Issue-wise Detailed Analysis:

1. Cancellation and Restoration of Registration under Section 12AA:
The respondent-assessee, a Development Authority, had its registration under Section 12AA cancelled by the CIT, Ghaziabad. The Tribunal, however, restored the registration citing its earlier order dated 29.04.2019 in ITA No.2400/Del/2014. The Tribunal noted that the objects and activities of the assessee were charitable in nature as per Section 2(15) of the Act. The Tribunal emphasized that similar authorities, such as Moradabad Development Authority and Jaipur Development Authority, had been granted registration under Section 12AA. The Tribunal concluded that the assessee's activities were not hit by the proviso to Section 2(15), which excludes entities engaged in trade, commerce, or business from being considered charitable.

2. Allowability of Exemption under Section 11:
The Tribunal examined whether the activities of the Development Authority qualified for exemption under Section 11. It directed the Assessing Officer to scrutinize the activities of the assessee to ensure they align with its charitable objectives. The Tribunal highlighted that the assessee's activities, aimed at planned development, fell within the definition of charitable purposes. The Tribunal's decision was influenced by the Allahabad High Court's judgment in the case of Ghaziabad Development Authority, which confirmed that such authorities are eligible for registration under Section 12A even after considering the proviso to Section 2(15). The Tribunal instructed the Assessing Officer to allow the exemption under Section 11 if the activities were found to be in consonance with the charitable objectives.

3. Nature and Taxability of the Amount Transferred to the Infrastructure Development Fund:
The Tribunal addressed the taxability of the amount transferred to the Infrastructure Development Fund. It referred to its earlier decisions in the cases of Saharanpur Development Authority and Khurja Development Authority, where it was held that funds received under government orders for specific development projects were not taxable as income. The Tribunal noted that the assessee was required to use these funds as per the directions of a High Powered Committee and had no control over them. The Tribunal directed the Assessing Officer to re-examine this issue, considering the precedent set by the cases of Saharanpur and Khurja Development Authorities.

High Court's Conclusion:
The High Court upheld the Tribunal's order, noting that the Tribunal had correctly restored the registration under Section 12AA and directed the Assessing Officer to re-examine the activities of the Development Authority for exemption under Section 11. The High Court also supported the Tribunal's stance on the taxability of the Infrastructure Development Fund, referencing the Allahabad High Court's earlier judgments in similar cases. The High Court dismissed the appeals, stating that no substantial question of law was involved, and the controversy was resolved based on findings of fact and established legal precedents.