TMI Blog2014 (10) TMI 219X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee was not to earn profit. Held that:- the amendment made in Section 2(15) is effective from 2011-12 as clarified by the CBDT in its circular - in case where the predominant object of the activity is to carry out charitable purpose and not to earn profit, it does not lose its character of charitable purpose merely because some profit arises from such activities - money earned from business held under trust or otherwise, to feed the charity would not disentitle or negate the claim of engagement in charitable purpose defined u/s 2(15) of the Act - CBDT circular No. 11/2008 emphasized that 2008 amendment is only applicable to residual category, charitable entity when it carries on any activity in the nature of trade, commerce or business, on any activity and to determine whether such activity is commercial will be decided on its own facts and no generalization is possible. Keeping in view of the charitable activity test, it was held that business activity of the assessee is integral to its charitable purpose and question of requirement of separate books of account for the business activity seems redundant – Following the decision in M/s GS1 India Versus Director Gener ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r that purpose the functions of the Authority shall be:- (a) Urban planning including the preparation of Master Development Plan and Zonal Development Plans and Carrying out surveys for the purpose and also making alterations therein as may be deemed necessary. (b) Formulation and sanction of the projects and schemes for the development of the Jaipur Region or any part thereof. (c) Execution of projects and schemes directly by itself or through a local authority or any other agency. (d) To make recommendations to the State Government on any matter or proposal requiring action by the State Government, Central Government, any local authority or any other authority for overall development of the Jaipur Region. (e) Participation with any other authority for the development of the Jaipur Region. (f) Coordinating execution of projects or schemes for the development of the Jaipur Region. (g) Supervision or otherwise ensuring adequate supervision over the planning and execution of any project or scheme, the expenses of which, in whole or in part are to be met from the Jaipur Region Development Fund. (h) Preparing schemes and advising the concerned authorities depart ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tration on account of carrying out work of charitable purpose by way of advancement of any other object of general public utility as per prevailing provisions. However, in view of amendment in Section 2(15) of the Act by Finance Act, 2008 w.e.f. 01/4/2009, the advancement of any other object of general public utility shall not be a charitable purpose in certain circumstances. He reproduced the Section as under:- 2. Definitions- (15) Charitable purpose - includes relief of poor, education medical relief, [preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest,] and the advancement of any other objects or general public utility: Provided that the advancement of any other objects of general public utility shall not be a charitable purpose, if it involves the 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, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity 2.2 The memor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 3. The learned CIT had given details of various receipts for F.Y. 2008- 09, which includes receipt from sale of plot, receipts from built up properties, sewerage Inc., conversion charges, urban assessment (lease money), map release, transfer fee and penalties, rent, interest on FDR, misc. receipts. The learned CIT gave reasonable opportunity of being heard to the appellant. It was submitted by the institution that to meet the objective, JDA collect the development and other charges from the resident of the JDA region. The Government land in the JDA region vest to the JDA other than those which are held/transferred/allotted to the other agencies/board/department of the Government by the State Government. No amount is paid as cost of such lands transferred/vested by the State Government to JDA and therefore no stock of land is accounted for being no cost. It was further submitted that on sale of Government land, JDA has been directed to pay the 15% of the land sale amount to Jaipur Nagar Nigam, 20% to the State Government and remaining is with JDA for the development works. The JDA also collect the other charges like the urban assessment fee (ground rent) being known as lease mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee such as purchase and sale of land at commercial principles and rates, development of land and construction building and sale by auction or otherwise. There is no difference in any activity of the assessee and business man as both try to sell the property at the maximum rate which is evidenced by the act of assessee i.e. sell through open auction. If the assessee were not doing activities in the nature of business/commerce, it would have been selling the property at cost plus some reasonable percentage for maintenance and administrative expenses and not through open auction at the maximum price. If it were not doing activities in the nature of business, it would have been selling property at lesser rate to public charitable trust/institutions but this is not the case. In the auction, no concession is given considering the purpose of the purchaser, which may be charity or personal use or commercial. The same principal is followed by the business man then how the assessee can claim that its activities are not in the nature of trade, business or commerce. From the point to view of common man and general public the institution is doing same activity which is being done by a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... second proviso is for absolute restriction on any receipt of commercial nature for which a limit has been prescribed in second proviso. He further reproduced the Hon ble ITAT s order on page 17 and it has been concluded that after amendment made in Section 2(15), the assessee does not remain charitable institution. He also distinguished Hon'ble Supreme Court decision in the case of Addl. CIT Vs. Surat Silk Cloth Manufactures Association (1979) 2 Taxman 501/(1980) 121 ITR 1 (SC). The assessee s plea that registration U/s 12AA(3) can be withdrawn only in two conditions (i) the activities are not genuine or (2) the activities are not as per the objects of the assessee. Since none of these conditions is attracted in this case, registration cannot be withdrawn U/s 12AA(3) of the Act. As per learned CIT, the activities of the assessee was not found charitable in view of Section 2(15) of the Act. He further applied Section 293(c) of the Act and held that if the registration cannot be withdrawn U/s 12AA, he has power U/s 293(c) of the Act to withdraw the registration. It is observed that total value of receipts of the assessee is much more than ₹ 10 lacs and in view of the specif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act is applied w.e.f. 01/6/2010 effective from A.Y. 2010-11 it means prospective. The objects are genuine and activities are carried out as per the objects. As the authority is a government authority, its object is to prove civil amenities and infrastructure and no trade or business, therefore, withdrawn of registration by the learned CIT was not justified. The second proviso to Section 2(15) of the Act is not applicable to the assessee even in those cases, where it is applicable, the new Section 13(8) was inserted in budget 2012 w.e.f. 01/4/2009 where also the withdrawn of registration is not required to be made. He further relied on the decision of Hon ble ITAT Mumbai Bench in case of Indian Plastic Association in ITA No. 308/Mum/2012 A.Y. 2009-10 wherein it has been held by the Hon ble Bench that insertion of first proviso to Section 2(15) is to cover those, which under the garb of general public utility carry on business on commercial activities to escape the liability under the Act gaining exemption U/s 11 of the Act. The Hon ble Madras High court in the case of Tamilnadu Cricket Association Vs. DIT exemption in Appeal No. 450 of 2013 dated 21/10/2013 has held that considerin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncelled by DIT(E) on the basis of amended provision of Section 2(15) of the Act was not justified as amended provision does not fall with the permissible limit of Section 12AA(3) of the Act. The Hon ble ITAT Agra Bench in case of Agra Development Authority Vs. CIT in ITA No. 166/Agr/2012 dated 11/01/2013 has held that the learned CIT cancelled registration U/s 12A w.e.f. 2009-10, which is the period prior to 01/6/2010, the CBDT has also clarified circular No. 762 dated 18/2/1989 that the amended provision U/s 12AA(3) of the Act is applicable on A.Y. 2011-12. No opinion has been expressed whether Agra Development Authority s works was charitable or not. He also relied on the following case laws: (i) The Institute of Chartered Accountants of India Vs. Director General of Income Tax (Exemption), 347 ITR 99 (Delhi) (ii) Director of Income Tax (Exemption) Vs. Sabarmati Ashram Gaushala Trust 362 ITR 539 (Guj). (iii) CIT Vs. Improvement Trust, 308 ITR 361 (P H) (iv) UIT Improvement Trust Vs. CIT, Sriganganagar, ITA No. 169/Jodh/2011. (v) Gujarat Industrial Development Corporation Vs.CIT ITA No. 175/Ahd/2011 order dated 13/1/2012. In case of Gujarat Industrial Development ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TAT Amritsar Bench had decided the Jammu Development Authority s case against the assessee and by upholding that amendment brought in section 2(15) by the Finance Act, 2008, that Jammu Development Authority is an authority established with the motive of profit constituted under Jammu Kashmir Development Act, 1970 and that the activities of such authority are hit by Section 2(15) of the Act. Therefore, he prayed to confirm the order of the learned CIT. 6. We have heard the rival contentions of both the parties and perused the material available on the record. The JDA was established in October, 1982 by JDA Act. Purpose of JDA is for planning, coordinating and supervising for proper, orderly and rapid development of the areas in Jaipur region, in which several government departments, local authorities and other organization are at present engaged within their own jurisdictions to provide also that such authroty be enabled either itself or through other authority to formulate and execute plans, projects and schemes for the development of Jaipur region. So that housing, community facilities, civic amenities and other infrastructure are properly created for the population of Jaipur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 11. The intention and manner of the assessee was not to earn profit. Further the amendment made in Section 2(15) is effective from 2011-12 as clarified by the CBDT in its circular mentioned above. The ITAT A Bench of Lucknow in the case of Uttar Pradesh Avas Evam Vikas Parishad Vs. CIT-1, Lucknow has held that as per Section 12AA that the CIT is satisfied that the activity of such Trust or Institution are not genuine or are not being carried out in accordance with the object of the Trust or Institution, as the case may be. The CIT shall pass an order in writing cancelling the registration of such Trust or Institution. It is essential that one of these two conditions must be satisfied that either the activities of such Trust are not genuine or the activities are not being carried out in accordance with the object of the Trust. The Bench did not find any condition in assessee s case. Therefore, the ITAT A Bench of Lucknow allowed the appeal in favour of the assessee. In our case, the conditions are not found by the CIT, he simply applied Section 2(15) of the Act for cancelling the registration of the institution. The Hon ble Delhi High Court in case of M/s GS1 India Vs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive of profit oriented intent. The Hon ble Delhi High Court held that when propelling motive is not to earn profit but general public good, the charitable entity will fail the business test and meet the touchstone of charity. The Hon ble Delhi High Court further held that charging fees on IPR sense profit motive does not amount to commercial exploitation. Moreover, when the fees charged is commensurate based on commercial or business principles, the charity activity test is fulfilled. The Hon ble Delhi High Court ruled as primary and predominant activity is charitable in nature. The nominal fees charged are important for covering operational cost of the petitioner. Thus, keeping in view of the charitable activity test, it was held that business activity of the petitioner is integral to its charitable purpose and question of requirement of separate books of account for the business activity seems redundant. The Hon ble Delhi High Court s findings is squarely applicable in the case of the appellant. Further proviso to Section 2(15) of the IT Act has held by the Hon ble ITAT, Mumbai Bench in the case of Indian Plastic Association (supra), is to cover those, which under the garb of gen ..... X X X X Extracts X X X X X X X X Extracts X X X X
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