TMI Blog2015 (1) TMI 518X X X X Extracts X X X X X X X X Extracts X X X X ..... med to be charitable, but actually are of purely commercial nature where profit motive is involved. In view of the above discussion, we are inclined to hold that the CIT(A) is justified in rejecting the claim of exemption u/s. 11 of the I.T. Act. The CIT(A) ought to have noted that capital expenditure has not been debited to the Income and Expenditure AI c. for the year of the appellant at all and if for any reason it is ultimately held that the appellant is not entitled to exemption ss] S.ll and 12 of the Act, the addition I disallowance of the capital expenditure should have been directed to be deleted. For the above and other grounds that may be adduced at the time of hearing, the order of the CIT(A) may be modified to the extent prayed for as above. Since the issues raised by the assessee are not adjudicated by the CIT(A) for the reasons that the main claim of exemption u/s 11 has been allowed. Since we have reversed the order of the CIT(A) upholding the exemption u/s 11, the grounds raised by the assessee in the Cross Objection would go back to the file of the CIT(A) for fresh adjudication. - Decided in favour of revenue whereas the Cross Objection of the assessee is al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le purpose and as the 4th limb of the definition i.e the proviso for the 'advancement of any other object of general public utility,' shall not be charitable purpose, if it involves the carrying on any activity in the nature of trade, commerce or business or any activities of rendering any service in relation to any trade, commerce or business, for a cess or a fee or any other consideration, irrespective of the nature of use or application or retention, of the income from such activity. With the amendment brought on the statute, the Assessing Officer has examined the 'advancement of any other object of general public utility', in view of the fact, whether the assessee's income included income from trade or letting of land and building, lease rent and interest, and whether it is in the nature of trade, commerce and business. The Assessing Officer held that the assessee's income should be treated as business income and as such it should not be entitled for claim of exemption u/s 11 of Act. Accordingly, the income from business has been computed by the AO under the normal provisions of Section 15 to 59, and the total income assessed at net profit as per profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure of trade, business etc., the same has to be established at the strength of analysis of its financials. Accordingly, the CIT(A) observed that in the instant case, the Assessing Officer has disallowed the assessee s claim without making a clear case established on facts. On analyzing the activities of the assessee Corporation and accordingly, it has been held that it is a deserving case for claiming exemption u/s 11 of the Act and their nature of activities are nothing but for charitable purpose. Accordingly, the CIT(A) deleted the addition made by the AO. Aggrieved, the revenue is in appeal before us. The other issues raised by the assessee was not dealt by the CIT(A) and dismissed that grounds as infructuous, against which the assessee has filed Cross objection. 5 The ld DR relied on the order of the coordinate Bench of this Tribunal in the case of the Greater Cochin Development Authority in ITA Nos 792 793/Coch/2013 vide order dated 8th Aug 2014. 5.1 On the other hand, the ld AR of the assessee submitted that the respondent is a statutory corporation established under Kerala Industrial Infrastructure Development Act, 1993 (KIID act 1993). The ld AR invited our attentio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... astructure at any cost. Hence land is being acquired at rates fixed by revenue authorities at fair prices and developed into industrial parks by investing in external / internal infrastructure and offered to public for long lease of 90 years at subsidised rates utilizing the government grants. This by no stretch of imagination can be termed as carrying on activities of trade, industry or commerce and services in relations to trade industry or commerce as provided in the proviso to Sec.2( 15) of the Income-tax Act, 1961. The respondent corporation is only undertaking sub sovereign functions on behalf of the State government as its agent as per objectives spelt out in the KIID Act, 1993 . 5.3 The ld AR explained the preamble to the KIID Act, 1993 and establishment / functional objectives as detailed in Section 4 of the Act clearly throws light on the main objective of setting up the respondent corporation which is reproduced below: Preamble WHEREAS it is expedient to provide the establishment of industrial areas and for the organization of industrial growth centres in the state of Kerala and for setting up infrastructure facilities for industries and for that purpose to cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave heard the rival submission and perused the relevant material on record. In this case the assessee has been constituted by the Govt of Kerala to provide for the establishment of Industrial areas and for the organization of industrial growth centers in the state of Kerala and for setting up infrastructure facilities for industries. The arguments of the ld AR is that the assessee was established for the purpose of carrying out charitable activity as defined in sec. 2(15) of the I T Act which includes relief to the poor, education, medical relief and advancement of any other object of general public utility. In support of his contention, the ld AR relied various judgments as mentioned above. Further, he submitted that the assessee has been granted with registration u/s 12AA of the Act vide order dated 31.10.2005 of the CIT and the registration has not been cancelled till the date. In other words, the registration is effective in this assessment year also. The grant of registration is not an empty formality as it has to be granted after satisfying that the objects are charitable in nature. Since the registration has effect for the assessment under consideration also, the object of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9,33,41,419 Net surplus as per P L A/c. for the F.Y.2011-12 10,09,32,464 Net surplus as per P L A/c. for the F.Y.2012-13 2,10,26,135 6.8 According to the ld AR, the interest income partakes the nature of grant as surplus fund is out of grant of State Government only. The very fact that Govt. of Kerala has transferred 240 acres of prime land in the industrial belt of Kalamassery having market value of crores of rupees makes it clear that Corporation is only an extended arm / wing of the Govt. of Kerala and that by no stretch of imagination it is a commercial entity. 7 Thus, the ld AR pleaded that the activity has been undertaken in pursuance of the main object and there is no motive to make profit and the activity cannot be said to be business activity. In support of his contention, the ld AR relied on various judgments as mentioned above. 7.1 To grant deduction u/s 11, the assessee is required to fulfill the necessary conditions mentioned in the provisions. In this connection, the provision contained in section 11(4A) assumes importance, which is to the effect that the provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mbay [1961-62] 20 FJR 113 ; AIR 1962 SC 29). In Smith v. Anderson [1880] 15 Ch. D. 247, 258 (CA), Jessel M.R., after citing definitions of business from several dictionaries, said, anything which occupies the time and attention and labour of a man for the purpose of profit is business. Further on, he remarks (at page 260) : There are many things which in common colloquial English would not be called a business, even when carried on by a single person, which would be so called when carried on by a number of persons. For instance, a man who is the owner of a house divided into several floors and used for commercial purposes, e.g., offices, would not be said to carry on a business because he let the offices as such. But, suppose a company was formed for the purpose of buying a building, or leasing a house, to be divided into offices and to be divide into offices and to be let out - should not we say, if that was the object of the company, that the company was carrying on business for the purpose of letting offices? The same observation may be made as regards a single individual buying or selling land, with this addition, that he may make it a business, and then it is a question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manner with a set purpose. The question is only regarding the profit motive. It is clear from the accounts that this activity has been undertaken with a view to earning profit so as to use the profit for the object of the authority. Thus, the assessee has consistently earned substantial profit. Therefore, the activity has been carried on with profit motive and in the same manner in which a private builder of large township will conduct his business. 8 In view of the above discussion, in our opinion, the issue raised in the revenue s appeal is squarely covered by the order of the coordinate Bench of this Tribunal in the case of The Greater Cochin Development Authority in ITA No 792 793/Coch.2013 vide order dated 8th Aug 2014 wherein it has been held as under: 43. We heard both sides and perused the impugned order of the Commissioner of Income-tax(A) and other material on record. Admittedly, the assessee has been constituted by the Government of Kerala. There is also no dispute that the assessee was constituted under the Act of the Government for making better planning and regulating development and use of land in planning areas delineated for the purpose, preparation of regi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e public interest demands that the previous decision be reviewed and reconsidered. The doctrine of stare decises should not deter the Court from overruling an earlier decision, if it is satisfied that such decision is manifestly wrong or precedes upon a mistaken assumption in regard to the existence or continuation of a statutory provision or is contrary to another decision of the Court. However, two views reasonably may be possible. Perpetuation of error is not a heroism. However, we make it clear that this observation of ours should not be treated to bear any effect in the case of other assessees. At the same time, order passed by a lower authority is not binding on the Tribunal. However, it may be a good arguable point by the parties. This issue requires deliberation from a different angle whether the assessee was constituted to provide any charity to the public at large or to satisfy the needs for housing accommodation for the people of Kerala and also planning and development of the cities, towns and villages or whether the development in such a way is of charitable nature. A plea was raised by the learned Counsel for the assessee that funds are provided by the Kerala Governm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y by making it a non-tax payable organization. In the cases of Addl. CIT v. Surat Silk Cloth Manufacturers Association (121 ITR 1) and CIT v. Bar Council of Maharashtra, 22 CTR (SC) 106, it was held that what is predominant object of the activity- whether, it is to carry out a charitable purpose and not to earn profit-the purpose should be that it should not lose its charitable character. 48. The major thrust of the learned Counsel for the assessee is that the assessee is of general public utility as it satisfies the need for housing accommodation for the section of the people of State of Kerala, specifically Cochin and is also doing planning and development of the cities, towns and villages. We are not agreeable with the argument of the learned Counsel because a charitable institution provides services for charitable purposes either at free of cost or on cost to cost basis and not for profit. In the present scenario, 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 ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urpose of the assessee was to promote commerce and trade in art silk yarn, raw silk, cotton yarn, art silk cloth, silk cloth and cotton cloth as set out in Clause (a) and the object specified in cls. (b) to (e) and the object was found to be public utility not involving the carrying on of any activity for profit within the meaning of Section 2(15), the assessee was held to be entitled for exemption under Section 11(1)(a) of the Act. However, in the present case there is a profit motive of the assessee, so it will not help in any manner. 50. The Hon'ble Apex Court in the case of CIT v. Bar Council of Maharashtra, 22 CTR (SC) 106 where the prime dominant purpose was for the advancement of object of public utility, it was held to be entitled to exemption. The learned Counsel for the assessee, during argument raised a plea that totality of circumstances has to be seen specially that all money goes with the State Government and not in private hands, the prices are fixed and the assessee is not a commercial organization and the predominant activity of the assessee is to develop infrastructure and contended that rule of consistency has to be seen. We are of the view that principles ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion Education Society v. CIT , still we are of the view that if the objects and real situation is analysed, the objects are not of charitable nature, Almost in every activity there is a scent of commercialization/profit motive but in the charitable institution no profit motive is involved and the service is done mainly with the intent of social/religious upliftment of the masses in general. Admittedly, the assessee is doing some activities like housing/infrastructure development and the public is also benefited but for the same the assessee has already charged in the form of hidden cost. Rather the assessee is generating income, so no charity is involved. A charitable institution provides services for charitable purposes free of cost and for no gain and are for the benefit of public at large. As we have discussed in the preceding para, 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, under the present facts, if registration is granted, then every private colonizer will claim charity. The facilities which are provided to the plot holders ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... behalf, held in conclusive portion of para 6.1 of that order as follows- It is a well known fact that in some of the situations the provisions of law are 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. No activity can be carried on efficiently, properly unless and until it is carried out on business principle but it does not mean that the provision is misused in any manner under the grab of charity and any institution be allowed to become richer and richer under the grab of charity by making it a non-tax payable organization. A charitable institution provides services for charitable purposes free of cost and not for a gain. In the present scenario, similar activities are performed by big colonizers/developers who are earning a huge profit. If this registration is granted, then anybody will claim the exemption from tax. If the acco ..... X X X X Extracts X X X X X X X X Extracts X X X X
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