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2021 (11) TMI 307 - AT - Income TaxDenial of exemption u/s 11 - treatment of assessee as AO - proof of profit motive - CIT(A) held that assessee has lost its charitable character and the income has been rightly taxed in the status of an AOP as per law - Whether the activities carried on by the assessee are commercial in nature with the motive to earn profits? - as argued assessee has been created with the object of general public utility which is a charitable object within the meaning of Section 2(15), and is eligible for exemption under section 11 - whether, the activity of construction and sale of immovable property constitutes "business"? - HELD THAT:- Assessee undertakes projects/schemes on behalf of the State government and also through private negotiations. Activity of assessee was to construct housing projects on land provided by State Government or acquired by it and sell it to people belonging to different income groups. Thus, the assessee has consistently earned substantial profit in this activity. Therefore, the activity has been carried on with profit motive in the same manner in which a private builder would conduct his business. It can’t be said that such activities are incidental to the main object of the trust. The activity of construction and sale of immovable property cannot be the object but only a mean to achieve the object of development of area in accordance with the plan. Therefore, while the object in a given case may be a charitable purpose, not involving profit, the activities undertaken by assessee in pursuance of the object, attained the colour of business. Each individual receipt from disposal of the property cannot be said to be income of the assessee available for charitable purpose because expenditure has to be incurred and has been incurred in acquiring land and construction thereon - only the surplus from this activity can be said to be the income derived from property held under trust. There is yet another angle, namely, that some meaning has to be placed on the content of sub-section (4A) of section 11 and especially on the words "unless the business is incidental to attainment of the objective of the trust". The legislature postulates that a charitable institution may have to carry on incidental business for attainment of objective. If the argument of the Ld.AR is that, there is no profit motive in so far as the development authority is concerned and, therefore, there is no question of carrying on any business, then no meaning can be placed on the contents of this provision. As mentioned earlier that the assessee has carried on systematic activities in a regular manner for construction of Building as per plan, which have led to profit, and such activity is not incidental to the main object of town planning, therefore, it is clear that the assessee has carried on a business which is not incidental to attainment of objects of the authority. Subsection (4A) provides that no deduction shall be allowed under subsections (1), (2), (3) or (3A) from such profit. However, the incidence of taxation is lifted provided that-(i) the business is incidental to the attainment of the objective, and (ii) separate books of account are maintained in respect of such business. It is not the case of assessee that assessee maintained separate books of accounts as per section 11(4A). Being so, assessee can’t be granted exemption under sec. 11 of the Act for both the assessment years. Grounds raised by assessee stands allowed for statistical purposes.
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