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2015 (6) TMI 458

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..... ivities are carried on for the public. Considering all these facts brought on record by the DIT(E), in our considered view, the assessee is not entitled for grant of registration u/s 12A of the Act. Being so, we do not find any infirmity in the order of the DITE) in refusing to grant registration u/s 12A to the assessee and accordingly, the order of the DIT(E) is hereby confirmed dismissing the appeal of the assessee. See Jammu Development Authority V/s. CIT [2012 (7) TMI 734 - ITAT AMRITSAR] - Decided against assessee. - ITA No. 110/Hyd/2008 - - - Dated:- 3-6-2015 - Shri P.M. Jagtap, and Shri Saktijit Dey,JJ. For the Petitioner : Shri A.V. Raghuram For the Respondent: Smt. G. Aparna Rao ORDER PER SAKTIJIT DEY, J.M.: This appeal filed by assessee is directed against the order dated 11/02/2005 passed by ld. DIT(E), Hyderabad rejecting assessee s application seeking registration u/s 12A of the Act. 2. Briefly stated, assessee is a Board constituted by the legislature under A.P. Housing Board Act, 1956. All along assessee had been filing its return of income treating itself as a local authority and claimed exemption u/s 10(20) of the Act. However, once a .....

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..... not be compared with private real estate developers/builders whose sole motto is to earn profit whereas assessee is not carrying on its activity only for profit motive. Contesting the reasoning of ld. DIT(E) on which registration was denied, ld. AR submitted, only because assessee earlier was claiming benefit u/s 10(20) as a local authority that cannot be a ground to hold that assessee is not entitled for exemption u/s 11, hence, not eligible for registration u/s 12A of the Act. Ld. AR submitted, the reasoning on which ld. DIT(E) denied registration to assessee are not at all relevant, hence, order of ld. DIT(E) deserves to be set aside. 5. Ld. DR, on the other hand, strongly relying upon the reasonings of ld. DIT(E) submitted before us, the nature of activities carried on by assessee would reveal no room for doubt that it is only engaged in selling houses to the general public at a price like any other builder/developer. Thus, there is no charity involved in such activity. Ld. DR submitted, while carrying out such activity, assessee is also deriving profit though at a lesser figure than the profit of builders/developers, but, that cannot take away from the basic fact that asses .....

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..... compared to the private builders/developers, profit ratio of assessee is at a lower level. However, that may be due to the reason that assessee being a statutory authority, gets some concessions from the Government on account of transfer of land and towards registration of the property in the name of buyers as far as stamp duty is concerned, as a result of which, the price charged for the housing unit to the prospective buyers is lesser than compared to the private builders/developers. However, that does not take away from the fact that assessee is principally engaged in a commercial activity wherein no charity is involved. As can be seen, ld. DIT(E) has denied registration to assessee basically for two reasons. Firstly, because assessee earlier was availing exemption as a local authority u/s 10(20), hence, it cannot make alternative claim u/s 11 of the Act for claiming exemption as trust or institution. The second reasoning is, the activity carried on by assessee being purely commercial nature, it cannot be considered as a charitable activity. As far as the first reasoning of ld. DIT(E) is concerned, we do not agree with the same. On careful reading of the relevant statutory prov .....

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..... ) clearly apply to assessee. In fact, ITAT, Hyderabad Bench while considering refusal of registration u/s 12A of the Act to AP Housing Corporation Ltd., which is more or less involved in similar activity as assessee, followed its own decision in case of Tirupathi Urban Development Authority and upheld the rejection of assessee s application for grant of registration u/s 12A of the Act. For better clarity, the finding of ITAT in case of AP State Housing Corporation Ltd. Vs. DIT(E) (supra) is extracted hereunder in its entirety. 10. We have heard both the parties, perused the record and gone through the order of the DIT(E). In this connection, we refer to the decision of the coordinate bench B , where the AM was the author of the order , in ITA No. 230/H/10 for AY 2003-04 in Tirupathi Urban Development Authority, Tirupathi order dated 28/03/2013 wherein the coordinate bench held as under : 10. We heard both sides and perused the impugned order of the Commissioner of Income-tax and other material on record. Admittedly, the assessee has been constituted by the Government of Andhra Pradesh under Andhra Pradesh Urban Areas (Development) Act, 1975. S.3 of the said Act enabling .....

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..... after taking note of the above two decisions, the Commissioner of Income-tax followed the decision of Punjab Urban Planning and Development Authority V/s. CIT (supra), in which case also, the assessee was an urban development authority constituted under Punjab Regional and Town Planning and Development Act, 1995, which is analogous to Andhra Pradesh Urban Areas (Development) Act, 1975 under which the assessee before us was constituted, and declined to grant registration to the assessee, vide order dated 16.12.2009. In that case of Punjab Urban Planning and Development Authority (supra), followed by the Commissioner of Income-tax in the impugned order, the Chandigarh Bench of the Tribunal has held as follows- 4. In the present appeal there is no dispute to the fact that the assessee moved application in Form No. 10A and furnished relevant information to the learned. Asstt. CIT, 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 regional plans/master plans and implementation thereof and also for guiding and di .....

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..... the assessee. 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 Patiala authority 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 the case of Distributors (Baroda) (P) Ltd. v. Union of India and Ors. wherein the Hon'ble apex Court held that it is almost as important that the law should be settled permanently as that it should be settled correctly but there may be circumstances where 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 Patiala authority. At th .....

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..... ere 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 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 garb of charity and any institution be allowed to become richer and richer under the garb of charity by making it a non-tax payable organization. In the cases of Addl. CIT v. Surat Silk Cloth Manufacturers Association and CIT v. Bar Council of Maharashtra , 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- The major thrust of the learned Counsel for the assessee is that PUDA is of general public utility as it satisfies the need for housing accommodation for the section of the people of State of Punjab and is also doing planning and development of t .....

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..... ther the assessee has converted itself into a big businessman. Similar development/infrastructure/facilities are also provided by private developers these days, then they will also claim the status of a charitable institution. During argument, the learned Counsel relied upon the decision of the Hon'ble apex Court pronounced in the case of Addl. CIT v. Surat Art Silk Cloth Manufactures Association (supra) where the assessee was incorporated under the Companies Act wherein the dominant or the primary purpose 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, Hon'ble Justice Sen passed a dissenting order but in the present case there is a profit motive of the assessee, so will not help in any manner. Reliance was also placed on the decision of the Hon'ble apex Court pronounced in the case of .....

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..... airman of the trust to spend the funds of the trust for the purchase of immovable property and since no part of the income of the trust was applied on any specific charitable purposes, the exemption under Section 11 of the Act was denied. The Hon'ble Court relied upon various judicial pronouncements which are available at p. 515 of the said order and then came to a particular conclusion. 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 aforesaid 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 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 res .....

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..... ara, 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 are incidental to the commercial activity carried out by the PUDA and if certain facilities like parks, community center, school are provided is not only basic requirement, rather a tool of attracting the investors wherein the hidden cost of these facilities is already included. In the absence of these facilities, normally the purchaser may not invest and the prices may be less. In view of these facts and judicial pronouncements, we are of the view that the application of the assessee has been rightly rejected by learned CIT. The stand of the learned CIT is upheld. Appeal of the assessee is, therefore, dismissed. 12. The coordinate Bench of the Tribunal at Amritsar, following the decision in the case of Punjab Urban Planning and Area Development Authority(supra), held, in the case of Jalandhar Development Authority V/s.CIT .....

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..... 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 accounts of the assessee are analysed, it has turned into a huge profit-making agency for which it is taking money from the general public. 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. It can be said that objects/activities of the assessee are more of commercialized nature and no charity is involved in it. At the time, if these facilities are not provided, then nobody will purchase a plot. It can be said that it is a means of attracting the people so that maximum people may apply for the same and the hidden cost is already added, so no charity is involved. At best, the assessee can be said .....

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..... ed in para 6.4 of its order as follows- 6 .4 The major trust of the learned counsel for the assessee is that JDA is a general public utility as it satisfies the need for housing accommodation. For the section (section) of the people of State of Punjab 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 free of cost and not for a gain. In the present scenario, the similar activities are performed, by big colonizers/developers who are earning a huge profit. If this registration is granted, then we will open a Pandora box and anybody will claim the exemption from tax. If the objects of the assessee are analysed, it has turned into a huge profit making agency for which it is taking money from the general public. In such a situation, we are of the view that no charity is involved and if any institution of public importance like schools, community centres are crated/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. It can be said that objec .....

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..... validity of the action of the Commissioner of Income-tax in withdrawing the registration granted in favour of the assessee, by invoking the provisions of S.12AA(3) of the Act. The Tribunal, besides following the coordinate Bench decision in the case of Jalandhar Development Authority (supra), considered at length the various contentions urged before it in the light of the case law relied upon by the parties, and ultimately upheld the action of the Commissioner of Income-tax in withdrawing the registration. Relevant portion of the order of the Tribunal dated 14.6.2012 in that case is reproduced below- 7. We have heard the rival contentions and perused the facts of the case, including section 12AA(3) of the Act, where Trust or Institution has been granted registration and subsequently the Commissioner is satisfied that the activities of such trust or institution are not genuine or are not being carried out in accordance with the objects of the trust or institution of such trust or institution, as the case may be , he shall, pass an order in writing cancelling the registration of such trust or institution. Section 2(15) of the Act defines charitable purpose to include the advan .....

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..... value of the receipts in the present assessee are ₹ 10 lakhs. Also on the principle of consistency, we concur with the views of the ld. CIT relying upon the decisions of various courts of law that an erroneous view in law could not be allowed to be perpetuated on the ground of consistency. Therefore, in the facts and circumstances of the present case, the Ld. Counsel for the assessee was put a question by the Bench how the facts in the present case are different from the facts in the case of M/s. Jalandhar Development Authority. The ld. counsel for the assessee argued and replied that the difference in the facts and circumstances of the present case with M/s. Jalandhar Development Authority is not there except that the registration had been granted in the case of M/s. Jalandhar Development Authority whereas in the present case, registration having been granted cannot be cancelled. Since the order of the CIT dated 30.09.2009 in the present case is after amendment to section 2(15) i.e. introduction of the first proviso was well before the Ld. CIT. 7.3. Considering the arguments of the ld. counsel for the assessee and on perusal of the facts of the present case with the fa .....

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..... 4.2 mentioned hereinabove that till the financial year 2002-03, the income of such Authorities were exempt u/s 10(20A) of the Act. However, in view of omission of section 10(20A) of the Act, an Explanation was added to section 10(20), which has been mentioned hereinabove. The income of Local Authority is chargeable under the head 'Income from House property', 'Capital gains' or Income from other sources or from a trade or business carried on by it was earlier excluded in computing the total income of the Authority of a previous year. However, in view of the amendment, with effect from 01.04.2003, the Explanation Local Authority was defined to include only the Authorities enumerated in the Explanation to include Panchayat, Municipal Committee and District Board and Cantonment Board as referred in the said Explanation. 7.6. Also, at the same time, section 10(20A) which related to income of and Authority constituted in India by or under any law enacted for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages which before the amendment was not inc .....

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..... ven on dissolution or winding up by not having any restriction on application of asset for charitable purpose, the objects pursued by the assessee cannot be said to be a charitable in nature. 7.7 As regards the reliance on the decisions of various courts of law by the Ld. CIT, most of the decisions have been dealt by the Tribunal in the case of M/s. Jalandhar Development Authority vs. ITO (supra). In the facts and circumstances of the present case, we concur with the views of the ld. CIT that Jammu Development Authority is an Authority established with the motive of profit constituted under the Jammu Kashmir Development Act, 1970 and that the activities of such Authority are hit by section 2(15) of the Act read with first and second proviso and are not in line with the objects of the Authority/Trust so far as the activities relating to purchase and sale of properties, as mentioned hereinabove. Hence, the activities are not genuine to the extent, mentioned 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. 15. In the light of th .....

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..... tally doing some charitable activities in providing parks or roads. The activities of the assessee is nothing but prof it making activities for which it is taking money from general public and no charity activities are carried on for the public. Considering all these facts brought on record by the DIT(E), in our considered view, the assessee is not entitled for grant of registration u/s 12A of the Act. Being so, we do not find any infirmity in the order of the DITE) in refusing to grant registration u/s 12A to the assessee and accordingly, the order of the DIT(E) is hereby confirmed dismissing the appeal of the assessee. The principles laid down by the coordinate bench as aforesaid, clearly apply to the facts of the present case. As far as the decisions relied upon by ld. AR are concerned, on careful examination of the same, we find them to be factually distinguishable, hence, will not be of any help to assessee. In case of Rajasthan Housing Board Vs. CIT (supra), registration u/s 12A was granted to assessee earlier. After insertion of first proviso to section 2(15) when registration was cancelled, Tribunal held if to be invalid on the reasoning that finding the object of ass .....

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