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2015 (9) TMI 902 - ITAT AMRITSAR

2015 (9) TMI 902 - ITAT AMRITSAR - [2016] 45 ITR (Trib) 682 - Charitable activity to qualify for exemption under section 11 - CIT(A) upholding the addition made by the AO, by treating the surplus as profit at par with a normal builder - whether 'profit earning' was never the motive of the assessee trust? - retrospectivity of amendment - Held that:- On the admitted facts of this case, so far period prior to 1st April 2009 is concerned and for the reasons set out above, the benefit of Section 11 r .....

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be treated as clarificatory or retrospective in effect. In view of these discussions, even post insertion of proviso to Section 2(15) but before 1st April 2016, when business activities are carried by the assessee trust "in the course of actual carrying out of such advancement of any other object of general public utility", the benefit of Section 11 read with Section 2 (15) cannot be declined. Nothing, therefore, turns on the assessee carrying out, even if that be actually so, activities in the .....

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by the learned Departmental Representative on the fact that nothing, or very little, has been done by the trusts for the poor people but what this argument overlooks is that the assessee trust is not granted registration under section 2 (15) for implementing poverty alleviation programs or doing other acts of charity but it is granted registration because what it is pursuing, by following the State Government policies for planned development of city, is advancement of an object of general publ .....

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ayed by these agencies for public good in furtherance of advancement of objects of general public utility.

The inclusion for provision for unforeseen charges, in our understanding, is a fair and conservative approach to ensure that the costs incurred by the assessee trust are recovered from the end buyers of the residential units or land. The element of charity is not in giving away the residential units at subsidized or low prices but in pursing the object of advancement of object o .....

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xemption - Decided in favour of assessee. - I.T.A. Nos.: 496/Asr/ 2013 and 18/ Asr/ 2015, I.T.A. Nos.: 200/Asr/ 2010 and 336/ Asr/ 2014, I.T.A. No.: 760/Asr/14, I.T.A. No.: 417/Asr/13, I.T.A. No.: 402/Asr/14, I.T.A. Nos.: 476 and 477/Asr/ 2011, I.T.A. Nos.: 636 and 637/Asr/ 2013 - Dated:- 10-9-2015 - PRAMOD KUMAR AND A. D JAIN, JJ. For The Appearing Parties : Y.K. Sud, J.S. Bhasin, Salil Kapoor and Tarsem Lal ORDER Pramod Kumar, 1. These eleven appeals belong to six different assessees but the c .....

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icated in these appeals is whether the manner in which these assessees are conducting their activities is such that the very basic character of 'general public utility', as set out in Section 2(15) of the Income Tax Act, 1961, is lost. As a corollary to this hypothesis being tested, it is also required to be examined whether even if the assessees are held to be pursuing an object of 'general public utility', on the common facts of these cases, the work being done by the assessee .....

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with the consent of learned representatives appearing before us, considered it fit and proper to take up all these appeals together and begin by deciding this basic issue first, in the light of arguments advanced by the learned representatives representing different improvement trusts and by the learned departmental representative. We will, therefore, begin by taking up this common issue first and, after adjudicating upon the same, address ourselves to the issues raised in respective appeals. 2. .....

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controversy raised herein, as we perceive, relates to two issues. Firstly, whether the appellant-trust is an institution which carries on charitable activities within the meaning of section 2(15) of the Act and secondly in case the appellant trust is engaged in the activity of advancement of any other object of general public utility, can it be denied exemption in view of proviso to section 2(15) of the Act which was introduced with effect from April 1, 2009, whereby exception has been carved o .....

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l, i.e. before us, for fresh adjudication. In the judgment dated 6th August 2014, (in ITA No 100 of 2014; Amritsar Improvement Trust v. CIT), which was followed, vide judgments of even date, in the cases of other improvement trusts as well, Their Lordships had concluded as follows: After hearing learned counsel for the parties, in our opinion, the matter requires to be remitted to the Tribunal to adjudicate the issue regarding the nature of activities of the appellant trust whether they are in t .....

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y the learned counsel for the appellant after affording an opportunity of hearing to the parties in accordance with law. Needless to say, anything observed hereinbefore shall not be taken to be expression of opinion on the merits of the controversy. Sincere efforts shall be made to decide the matter expeditiously. As a result, all the appeals stand disposed of" 3. The background in which the above issue arises in these appeals can be appreciated from a look at the relevant material facts le .....

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f assessment under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act'), for the assessment year 2008-09. Grievances raised by the assessee are as follows: 1. That the learned CIT(A) has grossly erred misdirected himself, in law and on the facts of the case, to hold that the assessee trust is not involved in any charitable activity to qualify for exemption under section 11 of the Income Tax Act, 1961. 2. That the learned CIT(A) was not justified in upholding .....

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rities below, being contrary to the facts and law, are not sustainable. 6. This appeal was originally disposed of, vide order dated 28th November 2013, by this Tribunal. However, the order so passed was carried in appeal before Hon'ble jurisdictional High Court. Vide judgment dated 6th August 2014, and for the reasons set out earlier in this order, Their Lordships vacated the said order and remitted the matter to us for adjudication de novo. That is how we have come to be in seisin of the ma .....

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tion applied for, therefore, is granted to the aforesaid trust with effect from 01.4.2005 in terms of the provisions of Section 12AA(b)(i) of the Income Tax Act. The trust is entered at Sr No. 222 of the relevant register maintained in this office. The grant of registration shall not, by itself, confer on the trust any right to claim any part of its income as exempt, and the claim for exemption, if any, shall be examined by the AO on merits at the time of assessment for each year. 8. The assesse .....

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22 to 26 of the PTIA. The Assessing Officer, however, required the assessee to explain as to how the work done by the assessee trust, registered as pursuing objects of 'general public utility', qualifies to be eligible for exemption under section 2(15). It was explained by the assessee that the assessee trust is discharging the statutory duties, for development of the assigned area, under the PTIA and under the guidance, instructions and strict supervision of the State Government. It wa .....

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reservation for specified categories such as members of Scheduled Castes and Scheduled Tribes, army personnel, sports persons etc. It was also submitted that the assessee trust was "not any business entity doing business independently but was performing duties assigned to it by the State Government". It was also submitted that any surplus funds, generated by sale of properties, are used by the assessee trust for general development of the assigned area. It was also explained by the as .....

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ad, Hoshiarpur [estimated cost ₹ 48.36 lakhs]; (ii) construction of complete road in Kirti Nagar, Hoshiarpur at Dana Mandi Railway crossing [estimated cost ₹ 49.78 lakhs] and (iii) construction of approach road to Kaliyugi Mandir, Ward No. 3, Narain Nagar, Hoshiarpur [estimated cost: ₹ 46.94 lakhs]. It was then explained that the assessee trust does not have any ownership rights over the roads but yet it has to construct these roads for the development of the city. It was for t .....

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ubmissions, however, impressed the Assessing Officer. 10. The Assessing Officer was of the view that the aim of the assessee trust is "acquisition of land, to develop it and sell it in the shape of plots, flats and commercial booths, after calling the applications from public with some registration fees". He noted that these plots, shops and flats are sold at market rates. The Assessing Officer was of the view that these activities cannot be treated as advancement of any other object o .....

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at "the trust has so far implemented three residential colonies, namely scheme no. 10, 11 and 2, alongwith commercial booths, gardens, religious places for catering the needs of the respective colonies". He also noted that "the land for these colonies was compulsorily acquired by the State Government under the provisions of the Land Acquisition Act". He then referred to the proviso to Section 2(15) of the Act which provides that "the advancement of any other object of ge .....

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the assessee trust is doing trade and business of colonizer by development of the land in flats and commercial booths, and then selling it for earning profit. These trade items are being sold at market rates just to earn profit. The advancement of any object beneficial to public or a section of public would be an object of 'general public utility' which the assessee is not doing. It has done no work relating to charitable activities. The work done is solely to earn profit. 11. The Assess .....

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iew that he test which has been laid down by the Supreme Court for determining whether a particular activity of general public utility is covered by the definition of "charitable purpose" or not is : (a) Is the object of the assessee one of general public utility ? (b) Does the advancement of the object involve activities bringing in moneys ? (c) If so, are such activities undertaken, (i) for profit, or (ii) without profit ? He further observed that it was observed by the Supreme Court .....

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and bringing in money. Application with certain amounts are called for, and, after public draw/auction, the flats/plots and commercial booths are sold. Income and expenditure account furnished by the assessee show the complete picture of the activities undertaken by the trust. In its reply also, the assessee trust has intimated that the Hoshiarpur Improvement Trust has launched three schemes, viz. Scheme no. 2, Scheme no. 10 and Scheme no 11, which has developed the land into shops and plots for .....

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ritable trust within the meaning of Section 2(15) of the Income Tax Act. Therefore, the income earned by it cannot be treated as exempt. 12. Aggrieved by the stand so taken by the Assessing Officer, assessee carried the matter in appeal before the learned CIT(A) but without any success. Learned CIT(A) was of the view that when it comes to the activities of the assessee trust, "nothing is different from a normal builder except that the trust is controlled by the Government and this, by itsel .....

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e Assessing Officer and declined to interfere in the matter. The assessee is not satisfied and is in further appeal before us. 13. 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. 14. Before we address ourselves to the facts of this case, let us analyse the relevant legal provisions. Section 2 (15), which defines 'charitable purposes' though in an inclusive rather than an exhaustive ma .....

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y: 15. Vide Finance Act, 2008, the words "preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest)", were added and, on a more relevant note, a new proviso (i.e. fist proviso) was added to this provision, carving out an exception in the cases of 'advancement of any other object of general utility', and, by the immediately following Finance Act 2009, there was yet another proviso .....

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ee or any other consideration, irrespective of nature of use or application or retention of the income from such activity. However, these provisions are not to apply when the activities are such a modest scale that the value of receipts in respect of the same are less than ₹ 25 lakhs. These two provisos, as they stand now, are as follows: 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 acti .....

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scope of these provisions, a coordinate bench of this Tribunal, in the case of Himachal Pradesh Environment Protection and Pollution Control Board v. CIT [(2010) 9 ITR Trib 204 (Chandigarh)], has observed as follows: 13. It is also important to bear in mind that the insertion of proviso to s. 2(15) does not mean that in case an assessee is to receive any payment for anything done for trade, commerce or business, the assessee will be hit by the said proviso. It may be recalled that elaborating th .....

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tivities. Whether such an entity is carrying on an activity in the nature of trade, commerce or business is a question of fact which will be decided based on the nature, scope, extent and frequency of activity. 3.1 There are industry and trade associations who claim exemption from tax under s. 11 or on the ground that their objects are for charitable purposes as these are covered under the 'any other object of public utility'. Under the principle of mutuality, if trading takes place betw .....

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e dealings with the non-members, their claim for charitable institution would now be governed by the additional conditions stipulated in proviso to s. 2(15). 3.2 In the final analysis, 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 connection to trade, commerce or business, it would not be entitl .....

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e well advised to eschew any activity which is in the nature of trade, commerce or business or rendering of any service in relation to any trade, commerce or business. 14. As the above CBDT circular, which is binding on the CIT under s. 119(1)(a) of the Act, aptly puts it, whether the assessee has, as its object, advancement of any other object of general public utility is essentially a question of to be decided on the facts of the assessee's own case and where object of general public activ .....

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n thereto, and where such services are being rendered as purely incidental to or as subservient to the main objective of 'general public utility', the carrying on of bona fide activities in furtherance of such objectives of 'general public utility' will also be hit by the proviso to s. 2(15). 15. As CBDT rightly puts it, sweeping 'generalizations are not possible' and 'each case will have to decided on its facts'. The question then arises whether on the present se .....

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of 'general public utility', the carrying on of bonafide activities in furtherance of such objectives of 'general public utility' cannot be hit by the proviso to s. 2(15). By the Finance Act 2015, these two provisos also stand substituted, with effect from 1st April 2016, a new proviso to Section 2(15). This new proviso is as follows: 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 a .....

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during the previous year, do not exceed twenty per cent. of the total receipts, of the trust or institution undertaking such activity or activities, of that previous year 18. It may be noted that while the earlier proviso simply stated that exclusion from 'charitable purposes' will come into play "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 ", .....

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re of trade, commerce or business etc is undertaken in the course of carrying out such advancement of any other object of general public utility". 19. This substitution of proviso to Section 2(15), in our considered view, may be viewed as representing a paradigm shift in the scope of the exclusion clause. 20. The paradigm shift is this. So far as the scope of earlier provisos is concerned, the CBDT itself has, dealing with an assessee pursing "the advancement of any object of general p .....

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e, commerce or business." The advancement of any objects of general public utility and engagement in trade, commerce and business etc. were thus seen as mutually exclusive in the sense that either the assessee was pursuing the objects of general public utility or pursuing trade, commerce or business etc. in the garb of pursing the objects of general public utility. As the CBDT circular itself demonstrates, there could not have been any situation in which the assessee was pursing the objects .....

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s year, do not exceed twenty per cent of the total receipts, of the trust or institution undertaking such activity or activities, of that previous year". In other words, even when the activities are in the course of advancement of any other object of general public utility, but in the nature of trade, commerce or business etc, the proviso seeks to exclude it only when the threshold level of activity is not satisfied. Whether such a statutory provision stands the legal scrutiny or not is ano .....

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ty", unless, of course, the activity level remains within the threshold limit i.e. receipts from such activities are less than twenty percent of total receipts of that year. 21. As the above provisions, which, in our humble understanding, seeks to restrict the scope of Section 2(15) is effective from the assessment year 2016-17, in our considered view, these provisions are only prospective in effect. As a corollary to this legal position, in our considered view, even if the activities in th .....

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the various rules guiding how legislation has to be interpreted, one established rule is that unless a contrary intention appears, legislation is presumed not to be intended to have a retrospective operation. The idea behind the rule is that a current law should govern current activities. Law passed today cannot apply to the events of the past. If we do something today, we do it keeping in view the law of today and in force and not tomorrow's backward adjustment of it. Our belief in the nat .....

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ed by legislation, the rule against a retrospective construction is different. ……………. 34. ………….. In the instant case, the proviso added to Section 113 of the Act is not beneficial to the assessee. On the contrary, it is a provision which is onerous to the assessee. Therefore, in a case like this, we have to proceed with the normal rule of presumption against retrospective operation. (Emphasis, by underlining, supplied by us now) 22. .....

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h the relevant developments. The CBDT instruction no. 1024 dated 7th November 1976 was issued in the light of the two Supreme Court rulings referred to above and it stated as follows: BOARD'S INSTRUCTION NO. 1024 DT. 7TH NOVEMBER, 1976 7th November 1976 Sec. 2(15) of the IT Act, 1961, defines "charitable purposes" as under: "Charitable purpose" includes relief of the poor, education, medical relief and the advancement of any other object of general public utility not invo .....

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ps, in the case of the Indian Chamber of Commerce v. CIT etc., observed : "Notwithstanding the possibility of obscurity and of dual meaning when the emphasis is shifted from 'advancement' to 'object' used in s. 2(15), we are clear in our minds that by the new definition the benefit of exclusion from total income is taken away where in accomplishing a charitable purpose the institution engages itself in activities for profit." The Supreme Court emphasised that if in the .....

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e indication to the contrary that the object of the trust involves the carrying on of any activity for profit..." 3. The test which has been laid down by the Supreme Court for determining whether a particular activity of general public utility is covered by the definition of "charitable purpose" or not is: (a) Is the object of the assessee one of general public utility? (b) Does the advancement of the object involve activities bringing in moneys? (c) If so, are such activities und .....

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officers working in your charge. You may also kindly direct them to carry out a review of the completed cases in the light of the pronouncement of the Supreme Court and take remedial action wherever called for and feasible. A report indicating the result of the review may please be sent to the Board by 1st Jan., 1977 without fail. 23. However, the judicial views relied upon in the above instructions (i.e. views expressed in Indian Chamber of Commerce decision and the majority views, expressed b .....

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tions made by this Court in Sole Trustee, Loka Shikshana Trust's case (supra) as well as Indian Chamber of Commerce's case (supra). It was said by Khanna J. in Sole Trustee, Loka Shikshana Trust's case : "...if the activity of a trust consists of carrying on a business and there are no restrictions on its making profit, the Court would be well justified in assuming in the absence of some indication to the contrary that the object of the trust involves the carrying on of an activ .....

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g surrounding circumstances indicative of anti-profit motivation such a condition will nullify for charitable purpose." Now, we entirely agree with the learned judges who decided these two cases that activity involved in carrying out the charitable purpose must not be motivated by a profit objective but it must be undertaken for the purpose of advancement or carrying out of the charitable purpose. But we find it difficult to accept their thesis that whenever an activity is carried on which .....

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o profit no loss basis or that profit shall be proscribed. Even if there is no such express provision, the nature of the charitable purpose, the manner in which the activity for advancing the charitable purpose is being carried on and the surrounding circumstances may clearly indicate that the activity is not propelled by a dominant profit motive. What is necessary to be considered is whether having regard to all the facts and circumstances of the case, the dominant object of the activity is pro .....

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the above discussions, the reliance placed by the authorities below on the CBDT instruction no. 1024 (supra) and on Hon'ble Supreme Court decisions in the cases of Indian Chamber of Commerce (supra) and Lok Shikshan Sansthan (supra) is devoid of any legally sustainable merits. These decisions are no longer good law, the relevant provision in the context of which the decisions were given does no longer exist on the statute, and the judicial precedent, which the CBDT instruction has interpret .....

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aced under section 11 itself. It was explained, in the aforesaid circular, as follows: Amendment of the definition of "charitable purpose"-Sec. 2(15) 8. Under s. 2(15) of the IT Act, "charitable purpose" includes relief of the poor, education, medical relief and the advancement of any other object of general public utility not involving the carrying on of any activity for profit. Sec. 3(a) of the Finance Act has omitted the words "not involving the carrying on of any act .....

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. yr. 1984-85 and subsequent years. 27. The corresponding amendment was insertion of Section 11(4A). This section, as it was originally introduced, is set out below, followed by CBDT circular's (supra) explanation about the nature of this amendment: Section 11 (4A)- as inserted by the Finance Act 1983 (4A) Sub-section (1) or sub-section (2) or sub-section (3) or sub-section (3A) shall not apply in relation to any income, being profits and gains of business, unless- (a) the business is carrie .....

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spect of such business CBDT Circular dated 8th December 1983 explaining the above amendment in law- Business income of charitable and religious trusts and institutions 19.1 The Finance Act has inserted a new sub-s. (4A) in s. 11 of the IT Act to provide that the provisions of sub-s. (1) of that section relating to exemption of income derived from property held under trust for charitable or religious purposes; or of sub-s. (2) thereof relating to accumulation of setting apart of such income for a .....

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ness is carried on by a trust wholly for public religious purposes and the business consists of printing and publication of books or publication of books or the business is of a kind notified by the Central Government in this behalf in the Official Gazette; (b) the business is carried on by an institution wholly for charitable purposes and the work in connection with the business is mainly carried on by the beneficiaries of the institution. 19.2 The exceptions mentioned under (a) and (b) above w .....

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rust or institution) has been omitted. 19.3 It is relevant to note that the provisions of new sub-s. (4A) of s.11 do not override the provisions of s. 10 of the IT Act, and as such, profits derived by any trust, institution, association, etc. referred to in cls. (21), (22), (22A), (23), (23A), (23B) (23BB)and (23BC) will continue to be exempt from income tax. 19.4 The Finance act has also amended s. 164 of the IT Act to clarify that profits and gains of business which are not exempt under s. 11 .....

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ing of the CBDT, as reflected in the above circular, inasmuch as this limitation did not, as per Hon'ble Madras High Court in the case of Thanthi Trust v. CBDT [(1995) 213 ITR 639 (Mad)], apply to the income derived from property held under the trust for charitable purposes. To that extent, paragraph 13.1 of the above circular was held to inconsistent with Section 11(4A). This uncertainty did not last long as there was yet another amendment in Section 11, and the new sub section 4A with effe .....

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f such business. 29. Explaining this amendment in law, the CBDT circular no. 621 dated 19th December 1991 [(1992 195 ITR (St) 154], read with circular no 642 dated 15th December 1992 [(1993) 199 ITR (St) 7] stated as follows: CBDT circular no. 621 dated 19th December 1991 [(1992 195 ITR (St) 154 @165] 15.8 In order to bring exemption of charitable or religious trusts in line with the corresponding provisions in section 10(23C)(iv) or (v) of sub-section (4A) of section 11 has been amended to perm .....

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F. No. 133/389/91-TPL, it is clarified that according to the provisions of section 11(4A) of the Income-tax Act, as amended through the Finance (No. 2) Act, 1991, with effect from 1st April, 1992, profits and gains of business in the case of a trust or institution will not be liable to tax if the business is incidental to the attainment of the objectives of the trust or institution, as the case may be. In addition, separate books of account are to be maintained by the trust or institution in res .....

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s no substantive change in law vis-à-vis the law prevailing as at the point of time in the context of which Hon'ble Supreme Court's five judge bench had delivered the judgment in the case CIT v. Surat Art Silk Clothes Manufacturers Association (supra). In the said case, Their Lordships had, inter alia, held, by majority view, that "What is necessary to be considered is whether having regard to all the facts and circumstances of the case, the dominant object of the activity is .....

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uot;was articulated in the said order but that was part of the minority view stated by Justice A P Sen, as he then was. His Lordship did proceed to observe, as is the stand taken by the authorities below, as follows: "With respect, I venture to say that if an object of general public utility is engaged in an activity for profit, it ceases to be a charitable purpose and, therefore, the income is not exempt under s. 11(1)(a). In case of a trust falling under any of the first three heads of ch .....

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sing home owned and run by the trust will be exempt under s. 11(4), because the business is carried on by the trust in the course of the actual carrying out of the primary purpose of the trust. The concept of "profits to feed the charity", therefore, is applicable only to the first three heads of charity and not the fourth. It would be illogical and, indeed, difficult to apply the same consideration to institutions which are established for charitable purposes of any object of general .....

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ntal to the Revenue. 31. Clearly, therefore, so far as pre insertion of Explanations to Section 2 (15), i.e. prior to 1st April 2009, is concerned, the stand taken by the authorities below cannot be sustained in law. Assuming that all the allegations of the Assessing Officer, with respect to presence to profit motive in activities of the assessee are correct, since these activities were carried out with the larger and predominant objective of general public utility. It is only when, to use the w .....

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the case of revenue authorities that the activities of the trusts do not serve the objects of the general public utility but the case is confined to the stand that these activities have been carried out in such a manner as to make profit and no activities directly of any general public utility are carried out. The registration granted to the assessee evidences that the objects of the assessee trust were advancement of objects of general public utility, and there is nothing to demonstrate any pa .....

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ctivities being in the nature of 'profit making activities' a little later, but, suffice to say, that on the admitted facts of this case, so far period prior to 1st April 2009 is concerned and for the reasons set out above, the benefit of Section 11 read with Section 2(15) could not have been declined at all. 32. Turning once again to the amendments brought on the statue with effect from 1st April 2009, we have to understand that there are the two mutually exclusive situations in which b .....

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of actual carrying out of such advancement of any other object of general public utility", [insertion of new proviso to replace first and second proviso to section 2(15)- effective 1st April 2016 i.e. assessment year 2016-17]. As for the first category, post 1st April 2009 amendment, this category cannot be treated as covered by Section 2(15) but then that's not the case before us. It is not, and it cannot be, the case that the Government formed these trusts by legislating the Punjab To .....

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carried out for advancement of objects of general public utility. This situation at best falls in the second category. However, these cases, for the detailed reasons set out above, the exclusion of these cases from Section 2(15) is only effective 1st April 2016, i.e. assessment year 2016-17. The law is well settled by a five judge bench of Hon'ble Supreme Court, in the case of Vatika Township Pvt Ltd. (supra), that, following the maxim lex prospicit non respici, the law, particularly with r .....

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other object of general public utility", the benefit of Section 11 read with Section 2 (15) cannot be declined. Nothing, therefore, turns on the assessee carrying out, even if that be actually so, activities in the nature of trade, commerce or business etc as long as these activities are carried out in the course of actual carrying out of advancement of any other object of general public utility. The planned development of cities and towns is an object of general public utility, and that i .....

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als. As we deal with this aspect of the matter, we may reproduce the following written submissions filed by learned Departmental Representatives: A: In all improvement trust cases It is submitted that the learned counsel namely Shri Y.K. Sood, CA and Shri J.S. Bhashi, Advocate have argued these appeals . My counter-submissions are as under :- It is submitted that there are two situations i.e. (a) Where the assessee's are rendering general public utility services and in rendering such service .....

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iness or rendering any service in relation to any trade and then apply such income to the charitable objects. Whereas in the former situation, registration under section 12AA would be allowable and also the exemption under section 11 & 12 but for the latter situation, no such privilege would be allowed as doing of trade, commerce or business or rendering any service in relation to trade commerce or business not treated as charitable activities with the insertion of proviso to section 2(15) o .....

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ional Tribunal's order in the case of Jammu Development Authority which has been confirmed by the J&K High Court and the SLP filed by the assessee has also been dismissed by the Hon'ble Supreme Court. It is pertinent to mention here in the case of India Trade Promotion vs. DGIT (Exemptions), it has been expressly mentioned: "45. To be clear, of any activity in the nature of trade, commerce or business is carried on and it generates income, the fact that such income is applied fo .....

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h reading has been contemplated in the context of section 10(23C)(iv) of the Income Tax at, 1961 and when read in its totality, the judgement support the case of the revenue as it squarely supports a case where the intention is to do charity by activities which may embark upon any trade commerce or business or rendering any service in the nature of trade, commerce or business and not that income accrues due to the exigency of undertaking general public utility activities. It is further submitted .....

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also, the said judgment is not applicable to this case. It is further submitted that the trusts do not get any grant in aid from the state government. The Trusts have to first do business like a builder to earn money i.e. it purchases (acquires) property and divides the same into plot or build the same and sells the plot or the buildings which it raises both by way of reserve price (residential buildings or plots) and commercial plots or commercial buildings by auction. There is absolutely no d .....

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er acre. (b) Provisions for unforeseen charges @ 15% per cent of total reserve price a computed as per the said annexure. This clearly shows that even the reserve price at which residential plots or buildings are sold, there is huge element of profit in the garb of conservancy charges for five years @ 10% of the total reserve price and also provision for unforeseen charges @ 15% of the reserve price so determined. It is pertinent to mention here that all the unforeseen charges have already been .....

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gets no grant from the Government. Trust gets its income from sale of plots/shops/commercial sites only. Other than this, the Trust has no other additional source of income. The Trust spends the income generated out of the said activities on the public utility services." It clearly shows that there is admission that the Trust with the intention of providing public utility services first does business of purchase and sale of landed property like a builder and after earning as huge profit s p .....

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. It may further be mentioned that trusts are not agent of the State as if it were so, there would not have been any provision as section 70 in the Act which empowers the state government to attach the rents and other income of the trust. Ait is submitted that the factum of the trusts making exorbitant profit is best elucidated from the way the Improvement Trust Pathankot has sold a plot of land to Income Tax Department. The price it had informed to the department in 2011 was ₹ 5,03,30,800 .....

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In view of above, it is prayed that the appeals of the assessee be dismissed B: In the case of Amritsar Improvement Trust It is submitted the above appeals have been restored by the Hon'ble Punjab & Haryana High Court to the tribunal vide its order in ITA No.100 of 2014 (O&M) dated 06.08.2014 as per the directions contained in para 8 of the order. It is submitted that though the Hon'ble Punjab & Haryana High Court has directed the Tribunal to adjudicate the issue regarding th .....

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chases landed properties including plots and sells the plot in two categories i.e. residential and commercial. The residential plots are sold at reserve price which is fixed by including abnormal profits in the garb of : (a) Conservancy charges for 5 years @ 10% per month per acre (b) Provisions of unforeseen charges @ 15% per cent of total reserve price is computed as per the Annexure to the Punjab Town improvement (Utilisation of Land and Allotment of Plots) Rules, 1983 (copy already submitted .....

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bid beyond the reserve price, the auction is cancelled. Thus, it is clear that in this activity also no charity is involved. Reliance in this regard is placed on the judgement of the Hon'ble Andhra Pradesh High Court in the case of Andhra Pradesh State Seed Certification Agency v. Chief Commissioner of Income Tax & Others report 83 DTR 0023 (Copy enclosed for kind perusal). In this judgement, the Hon'ble Court has held :- "that the petitioner was engaged in certifying the variet .....

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public utility. Functioning of the petitioner was akin to a corporate profit earning service provider." The Trust also sells plots and building for commercial purposes to persons who do business for their own gain and likewise the Trust cannot be said to be doing any activity of charitable name as its activities fall, struco sensu, in the same domain as the activities of the Andhra Pradesh State Seed Certificate Agency (supra) fall. Its activity of selling plot and building for residence to .....

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ly, storm water drainage, street lighting and local distribution system and unjustified cost as per rough cost estimate of Punjab State Electricity Board and also provision for landscaping and further increased by overhead charges as mentioned at para 2 & 3 of the Annexure. Thus, it is clear that the trust provides no amenity which is the sole claim of the assessee Trust. It may be submitted that this Annexure has already been brought to the notice of the Hon'ble Bench in the case of Jal .....

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utility as whatever public utility service it is providing, it first recovers its cost from the buyers as discussed above. Further, it is submitted that the decision in the case of ITO v. Trilok Tirath Vidyavati Chuttani Charitable Trust of Chandigarh 'B' Bench reported at 90 ITD 569 does not hold good for two reasons: The Hon'ble Punjab & Haryana High Court in the above order had restored the issue to the Bench being well aware of the fact that the Trust had been granted registr .....

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o pressed into service in these appeals. In view of the above submissions, it is prayed that the issue may kindly be decided in favour of the revenue." 35. While dealing with the profit motive allegation of the revenue authorities, it is essential to appreciate the difference that profit on sale does not essentially and necessarily imply profit motive in activities of the assessee trust. What is important is the motive or predominant object of the activities. As we do so, we may only make a .....

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s. No activity, by itself, could be charitable in nature when it is dominated and triggered by economic greed. There is no difference in what a soldier and a mercenary does, both use bullets to defend their interests, but while a soldier does it out of patriotism, a mercenary does it for monetary gain. The action is the same, and yet motivation for the actions are so materially different that the character of activity is altogether changed. Clearly, underlying motive and trigger for doing what a .....

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plots and units are auctioned off which shows that the idea is to make maximum profits but what he clearly overlooks is the fact that since it is not a desirable state of affairs for the State to subsidize businesses, and to ensure highest degree of transparency in maximising returns from public assets, competitive bidding for commercial units is a safe option, and that the use of bidding process is justified for the larger causes. The bidding process ensures transparency in functioning of the .....

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such units, must also benefit. The denial of any advantage, at the cost of general public, to the business entities buying the commercial areas, in our considered view, does not amount to an defeating an object of general public utility. In this context, it is important to understand the benefit from developing commercial areas, which is for public good, and benefit to the business persons in buying these units from the assessee trust, which can only be for the good of benefit of these entrepren .....

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total reserve price. Firstly, even if this allegation about presence of the two elements only to maximize the profit be taken as correct, it is important to bear in mind the fact that this is not the presence of profit element in the activities which vitiates charitable character of the activities but it is the absence of restrictions on making profits which vitiates the charitable character of the activities. In the Indian Chamber of Commerce (supra), which has been relied upon by the Assessing .....

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two items does not show that the underlying object of including these two items in the formula was profit maximisation. The inclusion for provision for unforeseen charges, in our understanding, is a fair and conservative approach to ensure that the costs incurred by the assessee trust are recovered from the end buyers of the residential units or land. The element of charity is not in giving away the residential units at subsidized or low prices but in pursing the object of advancement of object .....

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ion because what it is pursuing, by following the State Government policies for planned development of city, is advancement of an object of general public utility. Pursuing an object of general public utility does not necessarily involve more noticeable direct acts of charity driven by compassion and benevolence. There is so much to be done by the Government agencies, as these assessee trusts are perceived to be, that no matter what these agencies do, there is still lot left to be done. Just bec .....

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ses stated. It is for this reason, according to the learned Departmental Representative, that the assessee trust cannot be said to be anything other than a business simplicitor. On the contrary, according to the learned Departmental Representative, it is like robbing Peter to pay Paul. We are unable to share these perceptions of the learned Departmental Representative. An object of general public utility does not necessarily require that the activities or the beneficiaries must be funded or subs .....

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we are unable to comment upon the same as full facts relating thereto are not on record. That aspect, however, for the detailed reasons set out above, does not affect our conclusion anyway. 39. As for the decision of the coordinate bench in the case of the Punjab Urban Development Authority v. CIT [(2006) 103 TTJ 988 (Chandigarh)] , it is a case in which there is no mention about selling the residential units and plots at the price on the basis of a formulae laid down by the statute. In the pres .....

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arned Departmental Representative, it is already set aside by Hon'ble jurisdictional High Court. As a matter of fact, in the course of proceedings before Hon'ble High Court in the cases of other improvement trusts, learned counsel for the revenue has fairly accepted that the decisions of the Tribunal, following the aforesaid decision, are required to be sent back to the Tribunal for fresh determination on the scope of provisions of Section 2 (15). The revenue, thus, derives no advantage .....

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the assessee are upheld. 41. In the result, ITA No. 496/Asr/ 2013 is thus allowed in the terms indicated above. 42. We now move to ITA No. 18/Asr/2015 filed by the same assessee i.e. Hoshiarpur Improvement Trust. 43. This appeal is directed against the order dated 13th March 2014 passed by the CIT(A) in the matter of assessment under section 143(3) of the Income Tax Act, 1961, for the assessment year 2011-12. Grievance of the assessee, in short, is that, on the facts and in the circumstances of .....

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s well and delete the impugned disallowance of ₹ 3,28,23,979. The assessee gets the relief accordingly. 45. In the result, ITA No. 18/Asr/2015 is also allowed in the terms indicated above. 46 We now take up the appeals filed by Amritsar Improvement Trust. 47. In ITA No. 476/ Asr/2011, the Assessing Officer has challenged correctness of the order dated 20th June 2011 in the matter of assessment under section 143(3) of the Income Tax Act, 1961 for the assessment year 2006-07. In ITA No 477/ .....

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8377; 5,39,12,792 for the assessment year 2007-08. 49. Learned representatives fairly agree that whatever we decide in the ITA No. 496/Asr/ 2013 will apply mutatis mutandis on these appeals as well. As we have decided that appeal in favour of the assessee, we see no reasons to take any other view of the matter in this case. Respectfully following our decision in the said case, we reject the grievance of the Assessing Officer in this case and hold that the assessee was indeed eligible for exempti .....

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e have decided the core issue of eligibility for tax exemption under section 11 r.w.s. 2(15) in favour of the assessee, in assesse's own case for the other assessment years above, and as no other issue was raised before us, we uphold the grievances of the assessee on this issue. The other issues raised in the appeal, in the light of this conclusion, are rendered academic and infructuous. Grievance of the assessee is upheld in these terms. 52. In the result, ITA Nos 636 and 637/Asr/2013 are a .....

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covered by Section 2(15) and accordingly not eligible for exemption under section 11 of the Act. This matter was also remitted to us by Hon'ble High Court for fresh decision on the scope of section 2(15) and 11 as referred to earlier. In view of our findings above in the cases of similarly placed trusts, set up under the same statue, this issue is now decided in favour of the assessee. The very foundation of the impugned revision order thus ceases to hold good in law. We uphold the grievance .....

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xemption under section 11 as the assessee was not covered by the provisions of Section 2(15). 58. Learned representatives fairly agree that whatever we decide in the ITA No. 496/Asr/ 2013 will apply mutatis mutandis on this appeal as well. As we have decided that appeal in favour of the assessee, we see no reasons to take any other view of the matter in this case. Respectfully following our decision in the said case, we uphold the grievance of the assessee in this case as well and direct the Ass .....

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sessee has challenged correctness of the order dated 19th March 2013 passed by the CIT(A) in the matter of assessment under section 143(3) of the Act for the assessment year 2009-10. 63. Grievance of the assessee, in short and in substance, is that learned CIT(A) erred in declining exemption under section 11 read with section 2(15) on the ground that the assessee was not entitled to exemption under section 11 as the assessee was not covered by the provisions of Section 2(15). 64. Learned represe .....

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sessee is entitled to exemption under section 11 in respect of the same as well, is infructuous. 65. ITA No 417/Asr/2013 is also thus allowed in the terms indicated above. 66. We now take up ITA No. 402/Asr/ 2014 i.e. appeal filed by the Jalandhar Improvement Trust. 67. By way of this appeal, the assessee has challenged correctness of the order dated 29th May 2014 passed by the CIT(A) in the matter of assessment under section 143(3) of the Act for the assessment year 2010-11. 68. Grievance of th .....

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demic. 69. Learned representatives fairly agree that whatever we decide in the ITA No. 496/Asr/ 2013 will apply mutatis mutandis on this appeal as well. As we have decided that appeal in favour of the assessee, we see no reasons to take any other view of the matter in this case. Respectfully following our decision in the said case, we uphold the grievance of the assessee in this case as well and direct the Assessing Officer to grant relief accordingly. The issue regarding certain disallowances, .....

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