TMI Blog2014 (11) TMI 882X X X X Extracts X X X X X X X X Extracts X X X X ..... d not lose its charitable character - the similar activities are performed by big colonizers/developers who are earning a huge profit - If this income is exempted u/s. 11, then we will open a pandora box and anybody will claim the exemption from tax - If the activities of the assessee are analysed, it has turned into a huge profit-making agency for which it is taking money from the general public - no charity is involved and if any institution of public importance like schools, community centers are created/developed, the assessee is charging the cost of it from the public at large and the money is coming from the coffer of the Government - at best, the assessee can be said to be an authority created to help it to achieve certain objects. The assessee acquires land at nominal rates and after developing the same, the same land (is sold) on high profit which cannot be said to be a charitable activity - even just for argument sake, if registration is granted, then every private colonizer will claim charity - The facilities which are provided to the plot holders are incidental to the commercial activity carried out by the commercial developers/builders and if certain facilities like ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rges and receives a consideration. The Assessing officer has also pointed out that as part of the town planning schemes, several commercial centres are developed and rented out by the society and the society itself is responsible for the maintenance, upkeep and the provision of common facilities for these commercial establishments. Total receipts from such letting out and maintenance charges comes to ₹ 4,09,73,498/- as reflected in the return of income. The Assessing officer held that the activity of the letting out of the property, and provision of services constitute an activity in the nature of trade, commerce and business. In the development of the city, the commercial space developed by it is auctioned to the highest bidder which is a commercial activity in itself covered under the definition of any activity in the nature of trade, commerce and business. Accordingly he held that due to these activities undertaken by the society, which are in the nature of trade, commerce and business. According to the Assessing officer, in the development of the city, the commercial space developed by the assessee is auctioned to the highest bidder which is a commercial activity in it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... service in relation to any trade, commerce or business, for a fee or cess or any other consideration, irrespective of the nature of use or application of the income from such activity, or the retention of such income, by the concerned entity. 7. Accordingly, the assessee submitted that the question, therefore that needs consideration is whether GCDA is carrying on any activity on commercial line in the nature of trade, commerce or business or is involved in rendering any service in relation to any trade, commerce or business for a cess or fee or for any other consideration. The assessee submitted that the nature of activities undertaken by GCDA being for overall development of Greater Cochin area, the assessee is entitled for exemption u/s. 11 of the Act. 8. After going through the assessment order, submissions of the assessee and the case law, the CIT(A) stated that the provisions of section 2(15) as amended by Finance Act, 2008 specifically laid down as under: the advancement of any other object 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 rend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act since the assessee derived income from such activities being more than ₹ 25 lakhs and the activities also fall in the category of trade, commerce and business and also in the category of any activity of rendering any service in relation to any trade, commerce and business. Accordingly, the CIT(A) confirmed the addition made by the Assessing officer on this issue. Against this, the assessee is in appeal before us. 10. The Ld. AR submitted that the authorities below are not justified in applying the proviso to section 2(15) to the case of the appellant herein. The appellant is entitled to the benefit of exemption u/s. 11 to the Act on account of the application of the income for charitable purposes, which are its only activities. The term charitable purpose is defined by way of an inclusive definition u/s. 2(15) as under: (15) charitable purpose includes relief of the 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 object of general public utility: provided that the advancement of any ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid land and some buildings are also constructed thereupon. The said building is let out by the appellant and rent is also received therefrom. Similarly, some portion of the land has also been sold by the appellant. In this connection, it is to be noticed that the appellant is not engaged in real estate business as is highlighted by the authorities below. The activity of development of land, construction of buildings and letting out of the same on rental arrangements is not the main activity of the appellant herein. The assessee is only engaged in the advancement of general public utility which is the planned development of the Greater Cochin Area. The appellant has provided land to a total of about 125 recipients, selected from backward classes falling in the Greater Cochin Area. Similarly, it is also maintaining several monuments. So, all these activities are incidental to the main object Thus the proviso to section 2(15) will not apply to the facts of the present case. 14. According to the Ld. AR, the terms trade, commerce or business have been considered by various judgments of the Hon ble High Courts as well as the Apex Court and it has been laid down that it is only when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hence, I propose to amend the law to exclude the aforesaid cases. Genuine charitable organizations will not in any way be affected. Therefore the Parliament has clarified that the intention was never to assess genuine charitable organization like the appellant herein. So much so, the assessment proceedings are illegal on account of the above also. 17. Further, Ld. AR placed reliance on Circular No. 11/2008 dated 19- 12-2008 issued by the CBDT, which clarified the position as under: In the final analysis, however, whether the assessee has for its object the advancement of any other object of general public utility is a question of fact. If such assessee is engaged in any activity in the nature of trade, commerce or business or renders any service in relation to trade, commerce or business, it would not be entitled to claim that its object is charitable purpose. In such a case, the object of general public utility will be only a mask or a device to hide the true purpose which is trade, commerce or business or the rendering of any service in relation to trade, commerce or business. Each case would, therefore, be decided on its own facts and no generalization is possible. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons to whom these houses are allotted. Hence a transfer procedure is prescribed to ensure that GCDA is informed of all transfers. This cannot be considered as rendering service as business. The centage charges are part of the revenues of the local government bodies provided for the functioning of GCDA. They are not collection from the public or charges from any specific services rendered to any business. It may be appreciated that these are not collected at the whims and fancies of GCDA as an entity. GCDA has no liberty to fix these fees on its own. The essential feature for any business is to have the liberty to fix charges for goods or services. Where even that does not exist the question of the role of GCDA as engaging in business or service is not relevant at all. The nature of services provided by trade associations to its members (for example, certification for exports) should not be equated with the services provided by GCDA. It is those kinds of services that are intended to be taxed by the proviso. Thus GCDA will continue to be out of the purview of the amendment. 21. The Ld. AR submitted that the assessing authority is not justified in placing reliance on the judgment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ITAT Agra Bench. (iv) The decision of the Delhi High Court in the case of ICAI vs. Director General of Income Tax (2013) 35 Taxman.com 140 wherein the Hon ble Delhi High Court has found that when the dominant objective of ICAI was only to regulate the profession of Chartered Accountancy in India, it is a charitable institution and mere receipt of a fee for conducting coaching classes as well as campus placements cannot be a business activity under the proviso to section 2(15). (v) The judgment of the Delhi High Court in BIS vs. Director General of IT (2012) 27 Taxman.com 127 wherein the Bureau of Indian Standards is extended the benefit irrespective of the proviso to section 2(15). In the light of the above judgments, it is humbly submitted that the orders of the authorities below are illegal, arbitrary and unjustified. 24. The Ld. AR submitted that the depreciation claim of GCDA is disallowed stating it amounts to double deduction. In fact, depreciation is claimed on assets acquired prior to 2002, the year when GCDA is brought to the armpit of Income Tax Act, 1961. Thus the depreciation of GCDA is proper and is allowable. The authorities below have erred in denial of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Jodhpur Bench of ITAT in the case of Jodhpur Development Authority vs. CIT reported in (2012) 145 TTJ 221 wherein it was held that where the main object of the assessee was urban planning and traffic control and management including preparation of master development plans and zonal development plans which are in the nature of public utility, even though the assessee might be selling certain property at market rate through auction after developing that property, such an activity is incidental to the objects of the assessee and therefore, it is entitled to registration u/s. 12AA of the I.T. Act. 31. The Ld. AR also relied on the judgment of the Agra Bench of the ITAT in the case of Samarpan Samiti vs. CIT reported in 54 SOT 30 (Agra) wherein it was held that the trust having the object of providing medical relief was eligible for exemption u/s. 12AA of the Act even if the assessee incidentally carried on commercial activity. 32. He further relied on the judgment of the High Court of Delhi in the case of Institute of Chartered Accountants of India vs. Director General of Income-tax(Exemptions) reported in 260 CTR 1 (Del.) wherein it was held that holding interviews and conducti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... K Development Authority that the development activities carried out by such authorities is in the nature of trade, commerce and business . 35. In this connection the Ld. DR relied on the decision of the Hon ble High Court of Kerala in the case of INFOPARKS Kerala reported in 329 ITR 404, the relevant extract is reproduced hereunder: From the nature of activities being pursued by the petitioners, particularly as contained in the memorandum of association extracted by the respondent in the statement filed in WP(C) 6899/2009 (stated as more or less similar in the other case as well), it is very much evident that the derivation of income by the petitioner cannot be held as merely the income from property, so as to oust the involvement of trade , commerce or business or any service in connection with trade, commerce or business as contemplated under the statute, which requires to be exempted and appreciated in detail by the departmental authorities at the time of assessment. The Ld. DR contended that for the very same reason, the petitioners cannot have a short cut, to have an automatic declaration of exemption, by seeking for issuance of a Certificate u/s. 197(1); particul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r business pursued by the recipient to whom the service is rendered. 38. The Ld. DR submitted that in the case of Greater Cochin Development Authority, the assessee has sold land to private builders an others, and rented out commercial space on market rate which are today the Gateway Residency Hotel, the GCDA Shopping Complex, the Asoka Tarangini Apartments, the Bay Pride Mall, Kerala Trade Centre etc. hence, the submission of the assessee that this case law of Infoparks vs. CIT is not applicable to the facts of the case is not correct as the ratio of that case law is one of the main activity of treating the income from property in the nature of trade, commerce and business. 39. The Ld. DR placed further reliance on the Hon ble ITAT, Amritsar Bench decision in I.T.A. No. 30(Asr)/2011 in the case of M/s. Jammu Development Authority dated 14/06/2012 wherein the issue regarding refusal of grant of registration u/s. 12A by the Commissioner. The relevant paragraph is reproduced below: The assessee subsequently claimed that its objects falls under the provisions of section 2(15) of the Act and has complied with all the eligibility criteria for grant of registration u/s. 12A o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oned hereinabove and the Ld. CIT, Jammu, has rightly being satisfied held that the Jammu Development Authority is not entitled to registration and accordingly cancelled the registration so granted. We find no infirmity in the order of the Ld. CIT, Jammu and the same is upheld. Thus, all the grounds of the assessee are dismissed. 40. In view of the above facts, the Ld. DR reiterated that the Assessing officer and the Ld. CIT(A) are right in holding that the assessee is covered by the amendment to section 2(15). The activities carried out by the assessee may be of general public utility but in view of the sum derived from such activities being more than ₹ 25.00 lakhs and the activities falling in the nature of trade, commerce and business also in the category of any activity of rendering any services in relation to any trade, commerce and business and even cess and fee is charged in the advancement of such activities, therefore, they cannot be treated as for charitable purposes. 41. The Ld. DR also drew our attention to the observation made by the Assessing officer in para 4 of the assessment order for assessment year 2009-10: The primary issue to be decided is wheth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (b) Water supply and sewerage (c) Development of sports complexes (d) Bridges (e) Bus queue shelters (f) Bus stands (g) Swimming pools (h) Community centres (i) Public toilets (h) Development of parks (i) Cremation grounds (j) Construction of schools, etc. 45. The learned Counsel during argument took a strong plea that on identical facts registration under Section 12A of the Act was accorded to Lucknow Development Authority and Jodhpur Development Authority wherein the objects are identical to the present assessee. According to the Ld. AR if the Act under which the assessee was constituted is analysed, it is the same as in the above cases and when registration has been granted to those authorities, then no two yardsticks should be adopted. 46. At the outset, we are of the view that we are not agreeable with the contention of the learned Counsel. At the same time, res judicata is not applicable in income-tax proceedings. We do not want to comment as to why and how the registration was granted to these authorities as the same is not pending before us for adjudication. Reliance can be placed upon the decision pronounced by the Hon'ble Apex Court in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. The question before the Hon'ble Court was whether the income of the trust was exempt from incometax during the relevant period, The Hon'ble Apex Court while coming to a particular conclusion reversed the decision of the Hon'ble High Court of Madras and held that the trust did not fall within the provisions of Section 11(4A), as it then stood, and was not entitled to exemption from tax. 47. The Hon'ble Apex Court also considered various judicial pronouncements which were referred to it by the respective counsel as are available in the said order specially at p. 787. However, there is a major shift in the law with regard to institutions who are claiming charities. It is a well known fact that in some of the situations the provisions of law is misused in the names of charities. If an expanded/broader latitude is extended to the word charity, then there are so many institutions/Departments who will try to come under the umbrella of this provision to misuse the provision. Therefore, for the broad development of the nation/society a strict and positive vigil is required so that the provision can be saved from its misuse in any manner. We are aware that no activity c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... create/provide all these facilities to public at large, which is being done through this agency in a particular area. At the same time, the funds which are provided to the assessee by the Government is again a public money or generated from the public itself, so where is the charity? If the activities of the assessee and the arguments of the learned Counsel are put in a juxtaposition, it can be said that the objects of the assessee, though claimed to be charitable, but actually are of purely commercial nature where profit motive is involved. It is a known fact that the assessee is acquiring the land at very low prices and selling the same land on very higher rates and is earning a profit therefrom. A new trend has also emerged that the assessee has started auctioning the plots by way of bidding at the market rate and sometimes more than that and charging interest on belated payments. In such a situation, we are of the view that no charity is involved. Rather the assessee has converted itself into a big business house. Similar development/infrastructure/facilities are also provided by private developers these days, then they will also claim the status of a charitable institution. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act was denied. In view of these facts and judicial pronouncements, we are supposed to see the predominant object of the assessee. If all the objects and activities actually carried out by the assessee are analysed and kept in juxtaposition with the various judicial pronouncements, we are of the view that activities of the assessee are more of commercial nature with profit-oriented intent, so no leniency should be shown to the assessee. The Department may also get support from the decision of the Hon'ble Patna High Court as pronounced in the case of Bihar State Forest Development Corporation v. CIT, 224 ITR 757 where the Government company was formed for promotion and development of forestry. The assessee- corporation was permitted under memorandum of association to engage in commercial activities and there was no restriction on application of money, the corporation was not held to be a charitable trust and consequently not entitled to exemption. Similar is the case in the present appeal of the assessee. However, if the argument of the assessee is analysed on point of general public utility, still it can be said that commercial angle with profit motive is involved which ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch one of us, viz. author member, is a party, that denial of registration under S.12AA(a) of the Act to that assessee, which was also constituted under Punjab Regional And Town Planning and Development Act, 1995, was justified. The objects of the Authority in that case as noted by the Tribunal in para 3 of its order reads as follows: The objects of the authority shall be to promote and secure better planning and development of any area of the State and for that purpose the authority shall have the powers to acquire by way of purchase transfer, exchange or gift or to hold, manage, plan, develop and mortgagee or otherwise dispose of land or other property or to carry out itself or in collaboration with any other agency or through any other agency on its behalf, building, engineering, mining and other operations to execute works in connection with supply of water, disposal of sewerage, control of pollution and other services and amenities and generally to do anything with the prior approval or on direction of the State Government, for carrying out the purposes of the Act. 53. At this juncture, it may be observed that the above objects noted by the Amritsar Bench of the Tribuna ..... 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