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Kapurthala Improvement Trust Versus Commissioner of Income Tax, Jalandhar

Registration of the trust granted u/s. 12AA withdrawn - Held that:- If the status of registration is to be declined to an assessee only on the ground that some of the objects may be hit by the first proviso to Section 2(15) but the assessee's receipts from such activities donot exceed specified threshold in a particular assessment year, the assessee will be subjected to undue hardship in the sense that while the assessee will be disentitled to exemption under section 11 due to denial of registra .....

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assessee will not be eligible for exemption under section 11 in respect of such income. It is only elementary that a statutory provision is to be interpreted ut res magis valeat quam pereat, i.e., to make it workable rather than redundant.

The considerations about the possibilities of the first proviso to Section 2(15) coming into play affecting the grant, decline or withdrawal of registration under section 12AA will thus lead to wholly avoidable undue hardships to the assessee, will .....

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this reason also, the action of the learned Commissioner is wholly devoid of any legally sustainable merits. - Decided in favour of assessee. - ITA No. 732 (Asr) of 2013 - Dated:- 11-6-2015 - Pramod Kumar, AM And A. D. Jain, JM,JJ. For the Appellant : Y K Sud For the Respondent : Tarsem Lal ORDER Per: Pramod Kumar: 1. By way of this appeal, the assessee has challenged correctness of the learned Commissioner's order dated 18th November 2013 withdrawing registration under section 12AA(3) of th .....

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oved and declared the objects of the Improvement Trusts in Punjab as char9table and of General Public utility in the case of Moga Improvement Trust. The CIT failed to appreciate that the order of the High Court was binding tooth and nail. 4. That the CIT has failed to record his satisfaction on the two conditions prescribed in section 12AA(3) regarding its violation and has clearly exceeded his powers in the cancellation of the registration. 5. That the CIT failed to appreciate the amendment in .....

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Act, 1922. On 22nd September 2005, the assessee filed an application seeking registration under section 12AA of the Act but the same was rejected by the then Commissioner vide order dated 18th May 2007. When the order so declining the registration was carried in appeal before this Tribunal, grievance of the assessee was upheld and he became entitled to the benefit of registration. This decision of the Tribunal was challenged before Hon'ble Punjab & Haryana High Court but Their Lordships .....

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the assessee trust applied for grant of registration under section 12AA of Income Tax Act, 1961 which was rejected by my predecessor on the ground that the activities of the trust as spelt out in Punjab Town Improvement Act 1922 are clearly in the nature of commercial activities, intended to earn profit and not of charitable nature. In appeal, the ITAT, Amritsar, decided in the favour of the trust and allowed the registration to the trust. Against the order of Ld. ITAT, the Hon'ble Punjab &a .....

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cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity." 3.1 Further, recently, the Hon'ble ITAT, Amritsar vide its order dated 23.07.2013 in ITA No. 274(Asr)/2013 in the case of Improvement Trust, Phagwara, decided the case in favour of revenue upholding the order passed by my predecessor vide which registration u/s 12AA was withdrawn. It is held by the Hon'ble ITAT in the above referred order that t .....

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: (2001) 247 ITR 785 (SC) in the case of Asst. CIT vs. Thanthi Trust Aims/objects and activities of your trust are same as are in the case of Improvement Trust, Phagwara. 3. Keeping in view the above facts and amendment made to section 2(15) of the Income Tax Act, 1961 w.e.f. 01.04.2009 it is proposed to review registration granted to the trust u/s 12AA of the I.T. Act. You are therefore, afforded an opportunity to show cause as to why action suggested above may not be taken." 6. So far as .....

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ied". Without dealing with this contention of the assessee but holding that that, on merits, the assessee did not deserve registration under section 12AA, learned Commissioner withdrew the registration. While doing so, learned Commissioner observed as follows: "9. As per amended definition of charitable purpose u/s. 2(15) of the Act with effect from 01.04.2009, the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying o .....

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s as stated above will not affect its character as such since the proviso provides that the advancement of any other object of general public utility shall not be regarded as charitable purpose if it involves the carrying on any activity in the nature of trade, commerce or business or rendering any service in relation to any trade, commerce or business for a cress or fee or any other consideration irrespective of the nature of use or application, or retention, of the income from such activity. T .....

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he terms of the object and there is no obligation on the part of the assessee to spend on 'charitable purpose' only. 10. It is now pertinent to refer to the observations of the Hon'ble Income Tax Appellate Tribunal Chandigarh vide their judgment dated 01.06.2006 in the case of PUDA Vs. CIT (2006) 103 TTJ Chd 988 with regard to the provisions of section 2(15) of the Income Tax Act, 1961. It is held in the said order that this issue requires deliberation from a different angle whether .....

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iring lands, developing them and selling the plots to the general public who apply for the same. Even the economically weaker strata of the society is generally applying. It is not the case that the assessee is allotting houses to the poor masses free of cost. While delivering the judgment in the case of PUDA, the Hon'ble Chandigarh Bench of Income-tax Appellate Tribunal has also referred to a case adjudicated by Hon'ble apex Court in the case of Asst. CIT v. Thanthi Trust (2001) 165 CTR .....

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n'ble ITAT, Amritsar Bench, Amritsar contained in their order dated 18.12.2012 passed in ITA No. 366(ASR)/2012 in the case of the Improvement Trust, Bathinda vs. CIT, Bathinda, wherein the order passed by the CIT, Bathinda u/s. 12AA(3) of the Act on 20.7.2012 has been upheld. In the order dated 20.7.2012 the CIT, Bathinda had withdrawn the exemption allowed to the Improvement Trust, Bathinda u/s 12AA of the Act on the exactly similar set of facts and circumstances of the case as brought out .....

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ll a electronic media so as to attract a large number of customers/clients from all the general public including the financially sound persons from the public. 7.3. It is a matter of record that the assessee-trust sells off all these plots by organizing a public auction, where through the bidding process and the competition generated in it, the prices of their land keep escalating and finally, the land is sold off to the highest bidder. The surplus income which is generated through the sale of l .....

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ess because no plots are reserved for any socio-economically lower society, there is no element of donation or support to any cause, none of the land is earmarked to be sold at no profit, no loss basis to any person whatsoever, which clearly establish that the element of charity is clearly absent from the activities of the trust, which is contrary to the provisions of section 2(15) of the Act amended w.e.f. 01.04.2009 and the Ld. CIT Bathinda has rightly issued show cause notice to the assessee .....

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not genuine and not being carried out in accordance with the objects of the assessee-trust, as discussed above." 12. Further, recently, the Hon'ble ITAT, Amritsar vide its order dated 23.07.2013 in ITA No. 274(ASR)/2013 in the case of Improvement Trust, Phagwara, decided the case in favour of revenue upholding the order passed by Commissioner of Income Tax, Jalandhar-II, Jalandhar vide which registration u/s 12AA has been withdrawn. It is held by the Hon'ble ITAT in the above refer .....

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of general public utility is a question of fact and whether an entity is carrying on an activity in the nature of trade, commerce or business is a question of fact which will be decided on the nature, scope, extent and frequency of the activity. In para 3.2 of this circular it is further mentioned that each case would, therefore, be decided on is own facts and no generalization is possible. Thus this circular's context is not applicable in this case, since it is clearly mentioned that no ge .....

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has to be treated as a taxable entity, as it is nowhere brought on records that in any of the A.Y.s its receipts are below ₹ 25 Lacs. In any case when after amendments as referred above and in view of the decisions of Hon'ble ITAT, Amritsar (supra) the benefit of exemption u/s. 12AA of I.T. Act is not available to assessee. 14. In view of the above stated facts and circumstances of the case, I am satisfied that the activities of the applicant authority are not charitable in nature with .....

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of ITAT, Amritsar Bench, Amritsar in the case of Improvement Trust Phagwara dated 23.07.2013, the registration of the trust u/s 12AA of Income Tax Act, 1961 is hereby cancelled w.e.f. 01.04.2009." 7. The assessee is aggrieved and is in appeal before us. 8. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. 9. We find that, as learned counsel rightly points out, the scope of powers of the C .....

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are not being carried out in accordance with the objects of the trust or institution, as the case may be, he shall pass an order in writing cancelling the registration of such trust or institution". It is not even the case of the CIT that the activities of the assessee trust are "not genuine" or that the "activities of the assessee are not being carried out in accordance with the objects" of the assessee trust. The case of the CIT rests on the first proviso to Section 2 .....

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ental a reason for the assessee succeeding in this appeal. In our considered view, the considerations with respect to the first proviso to Section 2(15) coming into the play and, for that reason, the objects of an assessee trust or institution being held to be not covered by the definition of 'charitable purposes', have no role to play in the matters relating to registration of a trust or institution under section 12A or 12AA- whether in respect of granting or declining of a registration .....

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dlife) 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 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 rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, i .....

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me into play on year to year basis and not in absolute terms. The same activity can be hit by this rider in one year and thus the assessee trust or institution may not qualify to be existing for 'charitable purposes', and that very activity of the assessee trust or institution may remain unaffected by the same disabling provision for another year. The reason is that it is not only the nature of the activity but also the level of activity which, taken together, determine whether this disa .....

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hellip;. (8) Nothing contained in section 11 or section 12 shall operate so as to exclude any income from the total income of the previous year of the person in receipt thereof if the provisions of the first proviso to clause (15) of section 2 become applicable in the case of such person in the said previous year". 13. While introducing this amendment, Explanatory Memorandum to the Finance Bill 2012 (http://indiabudget.nic.in/budget2012-2013/ub2012-13/mem/mem1.pdf) explained the reasons and .....

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ther object of general public utility" as charitable purpose provided that it does not involve carrying on of any activity in the nature of trade, commerce or business. 2nd proviso to said section provides that in case where the activity of any trust or institution is of the nature of advancement of any other object of general public utility, and it involves carrying on of any activity in the nature of trade, commerce or business; but the aggregate value of receipts from the commercial acti .....

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e in law that no exemption would be available for a previous year, to a trust or institution to which first proviso of subsection 2(15) become applicable for that particular previous year. However, this temporary excess in one year may not be treated as altering the very nature of the trust or institution so as to lead to cancellation of registration or withdrawal of approval or rescinding of notification issued in respect of trust or institution. Therefore, there is need to ensure that if the p .....

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ration or a notification being rescinded. It is, therefore, proposed to amend ……. section 13…….. of the Act to ensure that such organization does not get benefit of tax exemption in the year in which it's receipts from commercial activities exceed the threshold whether or not the registration or approval granted or notification issued is cancelled, withdrawn or rescinded. This amendment will take effect retrospectively from 1st April, 2009 and will, accordingly, a .....

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to this legal position, the fact that the objects of the assessee may be hit by the proviso to section 2(15) cannot have any bearing on the grant, denial or withdrawal of the registration under section 12AA. 15. It is also important to bear in mind the fact that in terms of the second proviso to Section 2(15), which was introduced by the Finance Act 2010 with retrospective effect from 1st April 2009, the legal prescription set out in first proviso to section 2(15) cannot come into play "if .....

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h activities must exceed a specified limit. The second limb of this disability clause needs to be satisfied with respect to each assessment year. Obviously, therefore, this aspect of the matter cannot be examined at the stage of the grant or withdrawal of registration since the registration exercise is a one time exercise and not something which must be done for each assessment year separately. That is precisely the reason, as noted in the Explanatory Memorandum, as to why the remedy for the act .....

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ee arises from the activities hit by the first proviso to Section 2(15) in any assessment year, the assessee will be disentitled for exemption under section 11 to that extent. It is also important to bear in mind the fact that the disentitlement for exemption under section 11, as a result of the activities of an assessee being held to be not for charitable purposes under section 2(15) read with provisos thereto, is in respect of entire income of the assessee trust or institution but only for the .....

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due to denial of registration under section 12 A or 12AA which is sine qua non for admissibility of exemption under section 11. On the other hand, if the status of registration is granted to the assessee even when some of the objects may be hit by the first proviso to Section 2(15) and the assessee's receipts from such activities do exceed specified threshold, no prejudice will be caused to the legitimate interests of the revenue because, notwithstanding the status of registration and by th .....

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