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2015 (6) TMI 458 - ITAT HYDERABAD

2015 (6) TMI 458 - ITAT HYDERABAD - TMI - Registration u/s 12A rejected - DIT(E) held that assessee is merely engaged in construction of housing projects and selling them to prospective buyers, therefore, the activity of assessee is more or less like any other real estate developer/builder, hence, the activity/object of assessee cannot be considered to be a charitable in nature - Held that:- There is nothing in this case which provides services to the mankind on charity basis. The argument of th .....

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see 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 dismi .....

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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 assessee lost the benefit of exemption after amendment of section 10(20) w.e.f. 01/04/2003, assessee made an application in form No. 10A on 23/08/2004 seeking registration u/s 12A of the Act. In course of proceeding for gran .....

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ts and selling them to prospective buyers, therefore, the activity of assessee is more or less like any other real estate developer/builder, hence, the activity/object of assessee cannot be considered to be a charitable in nature. On the aforesaid basis, ld. DIT(E) held that assessee is not eligible for registration u/s 12A of the Act. 3. Being aggrieved of the aforesaid order of ld. DIT(E), assessee filed appeal before the ITAT. However, appeal was filed with a delay of 1013 days. Though, asses .....

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d the delay and directed ITAT to decide the appeal of assessee on merit. Thus, at the direction of the Hon ble A.P. High Court, the appeal is being reheard. 4. Ld. AR more or less reiterating the submissions made before ld. DIT(E) stated that assessee a statutory body has been created for providing housing facilities to different income groups and as such is doing a charitable activity of mitigating the housing problem of the general public. Ld. AR referring to the objects of assessee by taking .....

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cal 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 th .....

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in charitable activity or created for charitable purpose is not eligible for registration u/s 12A of the Act. In support of her contention, ld. DR relied on the following decisions: 1. Jalandhar Development Authority Vs. CIT [2009] 124 TTJ (Asr.) 598 2. Punjab Urban Planning and Development Authority Vs. CIT, [2006] 103 TTJ 988 3. AP State Housing Corporation Ltd. Vs. DIT(E), ITA No. 1845/H/12, dt. 19/04/2013. 6. In the rejoinder, ld. AR submitted, decisions relied upon by ld. DR are fully disti .....

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r Development Authority Vs. CIT, 145 TTJ (JD) 221 Further, ld. AR relying upon a decision of ITAT, Mumbai in case of City and Industrial Development Corporation of Maharashtra Ltd. Vs. ACIT, 2012, 138 ITD 381 (Mum.) submitted before us, housing board is actually carrying on the activity of building housing projects as an agent of the State Government, hence, it cannot be said that activities undertaken by assessee are of commercial nature. Thus, it was submitted by ld. AR, assessee , since, is c .....

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e Group (LIG), Middle Income Group (MIG) and Higher Income Group (HIG). It is also a fact on record that assessee does not sell housing units to the general public at cost-to-cost basis, but, certainly at a profit. Though, it may be a fact that 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 towar .....

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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 provisions we do not find any bar either u/s 12A or u/s 11 t .....

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ral public utility. In the present case, as held by ld. DIT(E) assessee is merely engaged in the activity of building housing projects and selling them to the prospective buyers having a different economic status. Thus, the activities of assessee is in no way different from the activities carried on by a private builder/developer engaged in similar activity of building housing projects and selling them to prospective customers. Though, it may be a fact that assessee is able to sell housing proje .....

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all can be considered to be for charitable purpose, it will come within the residuary clause advancement of any object of general public utility. However, the 1st proviso to section 2(15) debars advancement of any other object of general public utility from being considered to be a charitable purpose, if it involves carrying of any activity in the nature of trade, commerce or business or any activity in the nature of trade, commerce or business or any activity of rendering any service in relati .....

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s 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 t .....

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S.3 of the said Act enabling the constitution of an urban Development Authority, to the extent relevant for our purpose, reads as follows- 3. Constitution of urban development Authority:- (1) As soon as may be after an urban area or a group of urban area is declared to be a development area, under sub-section (1) of Section 13 the Government shall, by notification, constitute for the said development area, an Urban Development Authority with effect from such date as may be specified therein. (2) .....

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y shall be to promote and secure the development of all or any of the areas comprised in the development area concerned according to plan and for that purpose, the Authority shall have the power to acquire, by way of purchase or otherwise, hold, manage, plan, develop and mortgage or otherwise dispose of land and other property, to carry out by or on its behalf building, engineering, mining and other operations, to execute works in connection with supply of water and electricity, disposal of sewe .....

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has set aside the matter to the file of the Commissioner of Income-tax for consideration of the assessee s application for registration under S.12AA of the Act afresh, in the light of the case-law in favour and against the assessee, brought to its notice, as in Gujarat Maritime Board (supra) and Adityapur Industrial Area Development Authority (supra). 11. In the fresh round of proceedings before him, after taking note of the above two decisions, the Commissioner of Income-tax followed the decis .....

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ollowed 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 .....

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ore coming to any conclusion, we are supposed to see the meaning of the word 'charitable purpose' which has been defined in Section 2(15) of the Act which includes relief to the poor, education, medical relief and advancement of any other object of general public utility. A strong contention was raised by the learned Counsel for the assessee that the assessee/PUDA is also executing the development of following works/infrastructures: (a) Development of rehri market (b) Water supply and se .....

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the assessee during argument took a strong plea that on identical facts registration under Section 12A of the Act was accorded to Patiala Urban Planning & Development Authority, Patiala, vide order under Section 12AA of the Act, dt. 28th Sept., 2005 by the CIT, Patiala, the objects of which are ' identical to the present assessee. If the Act under which the assessee was constituted is analysed, it includes the State of Punjab excluding Patiala. Shri Ajay Vohra contended that it can be sa .....

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come-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 b .....

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sm. 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 the same time, the 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 Punjab and al .....

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ally applying. It is not the case that the assessee is allotting houses to the poor masses free of cost. The Hon'ble apex Court in the case of Asstt. CIT v. Thanthi Trust (2001) 165 CTR (SC) 681 : (2001) 247 ITR 785 (SC) has deliberated upon the issue of charitable purposes wherein the founder of a daily newspaper created a trust in March, 1954 and the objects of the trust were originally to establish newspaper as an organ of educated public opinion for the Tamil reading public. In July, 195 .....

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), as it then stood, and was not entitled to exemption from tax. 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 ext .....

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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 th .....

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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 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. In such a situation, we are of the view that no charity is involved and if any institution of public importance like schools, community centers are created/developed, the assessee is c .....

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t, the assessee can be said to be an authority created to help it to achieve certain objects. It can be said that it is the duty of the Government to create/provide all these facilities to public at large, which is being done through his 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 both the le .....

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imes 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 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 Ar .....

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sessee 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 CIT v. Andhra Pradesh State Road Transport Corporation wherein the object of the assessee was development of roads, improving facilities for road transport and provid .....

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Council of Maharashtra (supra) 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 .....

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ree with the learned Counsel to the extent that equally important is the rule of consistency. We are of the view that consistency has to be seen in totality of circumstances which depends upon facts of each case in the light of primary object and real activities done by the assessee, so these judicial pronouncements in our humble opinion are not going to help the assessee. The Hon'ble High Court of Delhi in the case of Daulat Ram Public Trust v. CIT wherein on scrutiny of objects; of the ass .....

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d 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 .....

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be a charitable trust and consequently not entitled to exemption. Similar is the case in the present appeal of the assessee. During arguments, the learned Counsel for the assessee invited our attention to the case of Maharashtra Housing & Area Development Authority wherein registration was granted. The learned CIT-Departmental Representative contended that in the case of Market Committee, the ownership remains with the committee but in the case of the assessee it goes to individual and the l .....

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nt of general public utility, still it can be said that commercial angle with profit motive is involved which has become predominant object of the assessee. Even if this issue is analysed as contended by the learned Counsel for the assessee that application of income is not the criteria in the light of the decision of Hon'ble High Court of Allahabad in the case of Fifth Generation Education Society v. CIT , still we are of the view that if the objects and real situation is analysed, the obje .....

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s generating income, so no charity is involved. We agree with the conclusion of the learned GIT, as contended by learned CIT-Departmental Representative, that 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 act .....

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lities, 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 Dev .....

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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 am .....

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on of the assessee with regard to the charitable nature involved in its activities, and also taking into account the case-law cited before it in that behalf, held in conclusive portion of para 6.1 of its 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 .....

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aking 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 instit .....

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apply for the same and the hidden cost is already added, so no charity is involved. At best, the assessee can be said to be an authority created to help it to achieve certain objects. It can be said that it is the duty of the Government to create / provide all these facilities to public large, which is being done through is 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 public itself. The ob .....

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on, no charity is involved. Rather 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. The facilities which are provided to the plot holders are incidental to the commercial activity carried out by the assessee and if certain facilities like parks, community center, school are provided, it is not only basic requirement, rather a .....

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97) 224 ITR 757 (Pat) reline on : Addl. CIT Vs Surat Silk Cloth Manufacturers Association (1979) 13 CTR (SC) 378: (1980) 121 ITR 1 (SC), CIT Vs Andhra Pradesh State Road Transport Corporation (1986) 52 CTR (SC) 75: (1986) 159 ITR 1 (SC) and New Life in Christ Evangelistic Association (NLC) Vs CIT (2001) 165 CTR (Mad) 446: (2000) 246 ITR 532 (Mad) distinguished." The Tribunal, distinguishing among others, the decision of the Apex Court in the case of Gujarat Maritime Board (supra), the Tribu .....

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t 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 pub .....

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ly for the same and the hidden cost is already added. So no charity is involved. At best, the assessee can be said to be an authority crated to help it to achieve certain objects. It can be said that it is the duty of the Government to create/provide all these facilities to public at large, which is being done through his 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 form the public itself, so wh .....

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ee 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 businessman. Similar development /infrastructure/- facilities are also provided by private developers these days, then they will also claim the status of a charitable institution. For the above reasons, among others, discussed at leng .....

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the Amritsar Bench of the Tribunal, vide its order dated 14.6.2012, the Tribunal considered the legality and 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 .....

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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 advancement of any other object of general public utility. It is also not disputed that the Ld. CIT while granting registration u/s 12AA(3) of the act to the assessee had observed that he is .....

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service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use of application, or retention, of the income from such activity." 7.1. Further, as per Finance Act, 2010, after first proviso, second proviso has been added w.e.f. 01.04.2009, which is read as under: "Provided further that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is ten lakh rupees .....

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roda) P. Ltd. vs. Union of India & Ors. reported in 155 ITR120 (SC), wherein it has been held to perpetuate an error is no heroism. To rectify it is the compulsion of the judicial conscience. In this, we derived comfort and strength from the wise and inspiring words of Justice Bronson in Pierce v. Delameter (A.M.Y at page 18). Therefore, the Ld. CIT in view of the decision of the Hon'ble Supreme Court in the case of A Distributors (Baroda) P. Ltd. vs. Union of India & Ors.(supra) is .....

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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 .....

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the present case are identical to the facts as in the case of Jalandhar Development Authority. As regards the first proviso inserted in section 2(15) of the Act, we have given our views hereinabove that the Ld. CIT had not considered the first proviso to section 2(15) as well as the second proviso to section 2(15) while making the order for grant of registration on 30.09.2009. Therefore, the Ld. CIT is well within his power to decide the issue by his order in view of the decision of the Hon' .....

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hat prior to insertion of these provisos i.e. first and second proviso to section 2(15) of the Act, certain bodies were treated as 'charitable' on the ground of advancement of object of general public utility. However, after the insertion of the above proviso, the advancement of any other object of general public utility shall not be a 'charitable purposes' if it involves the carrying on of :- a) Any activity in the nature of trade, commerce or business; b) Any activity of render .....

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be eligible to continue with registration u/s 12A and the same is required to be withdrawn. 7.5. The main objects of the assessee's institution has been mentioned in Para 4.1. of Ld. CIT's order, as mentioned hereinabove. It has rightly been mentioned by the Ld. CIT in para 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 t .....

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es 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 include .....

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tion 2(15) of the Act and has complied with all the eligibility criteria for grant of registration under section 12A of the Act, which was allowed vide order dated 30.09.2009. It is at this juncture that the first proviso and second proviso were added by the Finance Act, 2008 w.e.f. 01.04.2009, as mentioned hereinabove. Therefore, after insertion of the said proviso, any institution carrying on of any activity in the nature of trade, commerce or business etc. as mentioned hereinabove, shall not .....

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assessee and there is no spending of the income exclusively for the purpose of charitable activities and profits of the assessee are not used for charitable purpose under the terms of the object and there is no obligation on the part of the assessee to spend on 'charitable purpose' only. Also as per clause 53 of the Jammu & Kashmir Development Act, on dissolution of all properties and funds to vest in the Government and for the purpose of realizing properties, the function of the Au .....

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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 constitute .....

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ntitled to registration and accordingly cancelled the registration so granted. 15. In the light of the foregoing discussion, following the consistent view taken by the various Benches of the Tribunal in the cases of various other Urban Development Authorities constituted under analogous statutes, we uphold the action of the Commissioner of Income-tax in rejecting the assessee s application for registration under S.12AA of the Act, as the primary objects of assessee are of profit motive as consid .....

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ssee before us, the object of the assessee cannot be said that it is in the nature of general public utility and the objects stated therein make the assessee a commercial organisation and there is no stipulation on utilization of income only for the purpose of charitable activities. The assessee being a commercial organisation just like any business entity engaged in the real estate business. The surplus funds generated by the assessee throughout various activities could be distributed as divide .....

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in this case which provides services to the mankind on charity basis. The argument of the learned counsel is not tenable because a charitable institution provides services for charitable purposes free of cost and not for gain. The object of the assessee is similar to activities performed by big developers, who are earning profit . If the registration is granted to the assessee u/s 12A of the Act , then, it will open pandora s box and everybody will claim exemption from tax, who are incidentally .....

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