TMI Blog2015 (10) TMI 481X X X X Extracts X X X X X X X X Extracts X X X X ..... The dominant and main object of the Assessee is charitable and not for making profits. Keeping in mind the above factual aspects and the provisions of the KIDA Act [Karnataka Industrial Areas Development Act, 1966], and principle laid down in the case of India trade Promotion Organization (2015 (1) TMI 928 - DELHI HIGH COURT ), in our view, will clearly show that the Assessee does not driven primarily by desire or motive to earn profits but to do charity through advancement of an object of general public utility. The assessee is operating on no profit basis. This is substantiated by the actual income received on operations of the Assessee and the expenditure incurred set out in the earlier paragraphs of this order. The proviso to Sec.2(15) of the Act is therefore not applicable to the case of the Assessee. We therefore hold that the Assessee is entitled to the benefits of Sec.11 of the Act. The AO has not disputed the conditions necessary for allowing exemption u/s.11 of the Act, except the applicability of proviso to Sec.2(15) of the Act. In view of our conclusions that the said proviso is not applicable to the case of the Assessee, we hold that the Assessee s income is not in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vity in the nature of trade, commerce or business. 6. According to the AO, the Assessee was carrying on any other object of general public utility and therefore the proviso to Sec.2(15) of the Act would apply to the case of the Assessee. In the order of assessment, the Assessing Officer has concluded that:- (a) The assessee is not a charitable organization as per the definition of charitable purpose u/s. 2(15) read with provisos thereunder; (b) The assessee is not eligible for exemption u/s. 11 / 12 of the Act. The aforesaid conclusions were drawn for the following reasons:- (i) The assessee has earned a profit of ₹ 155,76,64,004 for the year ending 31.3.2009; (ii) The said profit was around 80% of total income. The same was much more than any private builder s profit engaged in similar kind of business. (iii) The assessee has been earning profits systematically over last few years; (iv) These profits have been earned by systematic commercial activity in the nature of sale of land and providing of services; (v) The assessee is running purely on commercial principles; and (vi) The competent authority i.e.. Director of Income tax (Exemptions). Ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioned in section 2(31). These are natural persons as well as juristic persons. Clause (vii) therein clarifies that every artificial juridical person, not falling within clauses (i) to (vi) of section 2(31) is also a person for the purpose of the Act. By the Finance Act, 2002, with effect from April 1, 2003, an Explanation was inserted to section 2(31) which makes it clear that, inter alia, an artificial juridical person shall be deemed to be a person whether or not it is established or incorporated with the object of deriving income, profits or gains. 13. As per section 5(2) of The Karnataka Industrial Areas Development Act, 1966 (hereinafter referred to as KIAD or KIAD Act), the Board constituted under such Act (which is the Assessee in the present appeal) shall be a body corporate having perpetual succession and a common seal with power to acquire, hold and dispose of the property and may by its corporate name sue and be sued. A body corporate is a person. He referred to the decision of the Supreme Court in Assistant Commissioner, Assessment II,. Bangalore v. Velliappa Textiles Ltd. (2003) 263 ITR 550 (SC) in support of the above stand that a body corporate is a person. On ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wth and development of industries. 17. The development of industries has many benefits such as generation of employment, provision of goods and services, growth of cities/towns in a phased manner, growth of activities complementing and supplementing the various requirements of industries, growth of housing, increase in per capita income, increase in standard of living, increase in income/wealth generation etc. Industrial development leads to overall economic development of the state and the nation. 18. Our attention was drawn to the preamble of The Karnataka Industrial Areas Development Act, 1966 (hereinafter referred to as KIAD) under which the Assessee was established as a body corporate, which reads thus: An Act to make special provisions for securing the establishment of industrial areas in the State of Karnataka and generally to promote the establishment and orderly development of industries therein, and for that purpose to establish an Industrial Areas Development Board and for purposes connected with the matters aforesaid. WHEREAS it is expedient to make special provisions for securing the establishment of industrial areas in the State of Karnataka and generall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e purview of KIAD Act. (c) Facilitate in establishing infrastructure projects. (d) Function on No Profit - No Loss basis. Functions: (a) Acquire land and form industrial areas in the state. (b) Provide basic infrastructure in the industrial areas. ( ) Acquire land for Single Unit Complexes. (d) Acquire land for Government agencies for their schemes and infrastructure projects. Application of Appellant s funds property 24. The funds of the assessee can only be used as per the provisions and for the purposes of the KIAD Act. Section 8 of the Act provides that all property and all other assets vesting in the assessee shall be held and applied by it, subject to the provisions and for the purposes of this Act. The purpose of application is outlined. The funds cannot be distributed or appropriated to any person unless the same is in accordance with the assessee s objectives. The employment utilization and channelizing of funds can be done within the broad framework of the assessee s objectives. Acquisition and development of lands 25. The Acquisition section (one of the wings of the assessee) conducts the proceedings for acquisition of land a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Above all, it is under direct surveillance of State Government. 29. Industrialization is an initiation of social reform and economic development. It boosts the production and manufacturing segments. Employment would scale up; efficiencies stand enhanced and standardization becomes achievable. All these transformations translate into overall amelioration of the society and country as a whole. An institution with such a far sighted and development oriented objective is certainly one which benefits the public at large. The assessee serves the cause of general public utility and is therefore covered within the gamut of Charitable purpose as defined by section 2(15) of the I.T. Act. 30. In the course of carrying on its activities, the benefit arising from such promotion may be shared by those engaged in the industrial sector. The benefit to these cannot deter the claim of the assessee to be a Charitable institution . In the words of the Apex Court in the case of CIT v Andhra Chamber of Commerce (1965) 55 ITR 722 (SC): The principal objects of the assessee are to protect, trade, commerce and industries and to aid, stimulate and promote the development of trade, commerc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th a motive to distribute its surplus. There is no intention to make profits. The objects are to carry out Industrial and infrastructure promotion. The surplus, if any, arising from the activities are solely utilized for the achievement of its objects and no portion is utilized for distribution of any income or profits. In substance, the assessee neither earns any profits nor is it involved in the activities of trade, commerce or business. The activities of assessee are therefore charitable in nature. 34. As already mentioned, assessee operates on a no profit or no loss basis. This is evident from their pricing mechanism. The assessee acquires agricultural land from the farmers by paying compensation to the farmers. Such compensation is determined by Deputy Commissioner of District. Such land would be developed into plots for the purposes of projects approved by State High level Clearance Committee (headed by Chief Minister). State Level Single Window Clearance Committee is headed by Chief Secretary. Govt. of Karnataka and District Level Single Window Clearance Committee is headed by the Deputy Commissioners of the Districts. 35. The assessee prepares a budget for compensatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmed by CIT(A) that the activities of the assessee are commercial in nature thereby attracting the proviso to section 2(15) is incorrect, contrary to facts, bad in law and liable to be quashed. 38. Without prejudice, the assessee submits that eleemosynary element is not essential element of charity. It is also not a necessary element in a charitable purpose that it should provide something for nothing or for less than it costs or for less than the ordinary price. The surplus generated. if it is held and applied for charitable purpose, the assessee has to be considered as existing for a charitable purpose. The decisions in Krupanidhi Educational Trust v DIT(E), ITA No. 86/2012 dt. 14.9.2012 - Bangalore ITAT; Loka Shikshana Trust v ClT [1975] 101 ITR 234 (SC) , Cricket Association of Bengal v CIT [1959] 37 ITR 277 (Cal), CIT v. Breach Candy Swimming Bath Trust (1955) 27 ITR 279 (Born), The Trustees of the Tribune, In re (1939) 7 ITR 423 (PC) and para No. 19 Page No. 528 - Volume I of The Law and Practice of Income tax by Kanga, Palkhivala and Vyas was relied upon in support of the above principle. Difference between business activity and activity with business principl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence to those decisions at the appropriate place, to the extent it is necessary to dispose this appeal. 43. The learned DR placed strong reliance on the findings of the AO in the order of assessment and the order of the CIT(A). 44. We have given a very careful consideration to the rival submissions. The purpose for which the Assessee exists is for the advancement of any other object of general public utility . The fact that the Assessee enjoyed registration u/s.12AA of the Act in the past is itself sufficient to come to this conclusion. The withdrawn of registration u/s.12AA of the Act was only consequent to the introduction of the proviso to Sec.2(15) of the Act by the Finance Act, 2008. Therefore the question that we need to be answered is as to whether the proviso to Sec.2(15) of the Act would be applicable to the case of the Assessee. 45. We shall now understand the approach to be adopted in coming to the conclusion as to whether the proviso to Sec.2(15) of the Act will be applicable to the Assessee in the light of the decision of the Hon ble Delhi High Court in the case of India Trade Promotion Organization Vs. DGIT(Exemption) and others 371 ITR 333 (Delhi) . The le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re of trade, commerce or business is carried on and it generates income, the fact that such income is applied for charitable purposes, would not make any difference and the activity would nonetheless not be regarded as being carried on for a charitable purpose. If a literal interpretation is to be given to the proviso, then it may be concluded that this fact would have no bearing on determining the nature of the activity carried on by the petitioner. But, in deciding whether any activity is in the nature of trade, commerce or business, it has to be examined whether there is an element of profit making or not. Similarly, while considering whether any activity is one of rendering any service in relation to any trade, commerce or business, the element of profit making is also very important. (iii) The meaning of the expression charitable purposes has to be examined in the context of income , because, it is only when there is income the question of not including that income in the total income would arise. Therefore, merely because an institution, which otherwise is established for a charitable purpose, receives income would not make it any less a charitable institution. Whether ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vice in relation to any trade, commerce or business for a cess or fee or any other consideration. In both the activities, in the nature of trade, commerce or business or the activity of rendering any service in relation to any trade, commerce or business, the dominant and the prime objective has to be seen. If the dominant and prime objective of the institution, which claims to have been established for charitable purposes, is profit making, whether its activities are directly in the nature of trade, commerce or business or indirectly in the rendering of any service in relation to any trade, commerce or business, then it would not be entitled to claim its object to be a 'charitable purpose'. On the flip side, where an institution is not driven primarily by a desire or motive to earn profits, but to do charity through the advancement of an object of general public utility, it cannot but be regarded as an institution established for charitable purposes. (emphasis supplied) 46. It can be seen from the various provisions of the KIAD Act which we have set out in the earlier part of the order that the dominant and prime objective of the Assessee is not profit making. Pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for Government agencies for their schemes and infrastructure projects. The dominant and main object of the Assessee is charitable and not for making profits. 48. A look at the income stream of the Assessee clearly reveals that all the activities from which the Assessee derives income are an inherent part of the main object of the Assessee. It is clear from the facts of the case that profit making is not the driving force or objective of the Assessee. Rather the purpose for which the Assessee was created is to regulate and develop drinking water and drainage facilities in the urban areas of the State of Karnataka and for matters connected therewith. This makes it clear that any income generated by the Assessee does not find its way into the pockets of any individuals or entities. It is to be utilized fully for the purposes of the objects of the petitioner. 49. Keeping in mind the above factual aspects and the provisions of the KIDA Act, and principle laid down in the aforesaid decision of the Hon ble Delhi High Court in the case of India Promotion Organization (supra), in our view, will clearly show that the Assessee does not driven primarily by desire or motive to earn profi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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