TMI Blog2016 (5) TMI 168X X X X Extracts X X X X X X X X Extracts X X X X ..... account of lump-sum lease charges received - Held that:- Assessing Officer did not accept the contention of the assessee and observed that the lease is for a long period which amounts to transfer of the land to the allottee and therefore the entire lump-sum lease rental received by the assessee during the year was considered as revenue receipt of the assessee. It is pertinent to note that the land allotted on lease is not a outright sale giving absolute title and ownership to the allottee. Only when a conveyance deed is executed on payment of unearned premium and until and unless the land is converted into freehold by executing a conveyance deed after payment of unearned premium the allottee gets absolute legal title of ownership of the land. The lease transaction does not give an absolute ownership or title as it can be cancelled and re-entered. Further the assessee has been consistently following the accounting policy of recognizing the lease rental proportionate to the lease period and therefore the consistent accounting method followed by the assessee for a considerable long time cannot be disturbed when there is nothing on record to suggest that the accounting method followed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (a) The activities carried on by the appellant are commercial in nature with an intention to make profits; (b) The appellant is hit by the proviso to section 2(15) read with section 13(8) of the Act. 4.2 On facts and in the circumstances of the case and law applicable, proviso to section 2(15) and section 13(8) are inapplicable and consequently exemption under section 11 is to be allowed as claimed by the appellant. 5. The learned Commissioner of Income tax (Appeals), Mysore has erred in confirming the addition of ₹ 1,74,00,000/- relying on the audit report of the Auditor General. On facts and circumstances of the case and law applicable, the addition so made is liable to be deleted in entirety. 6. The learned Commissioner of Income tax (Appeals), Mysore has erred in confirming the levy of interest under section 234A and 234B of the Act. On facts and circumstances of the case and law applicable, interest under section 234A and 234B is not leviable. The appellant denies its liability to pay interest under section 234A and 234B. 7. In view of the above and other grounds to be adduced at the time of hearing, the appellant prays that the order pas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore the CIT (Appeals). The CIT (Appeals) concurred with the finding of the Assessing Officer and held that the cancellation of Registration under Section 12A is not very crucial factor in deciding the taxability of the income of the assessee which is held to have been attracted by amended provisions of proviso to Section 2(15) rws 13(8) of the Act as applicable to the year under consideration. 4. Before us, the learned Authorised Representative of the assessee has referred to the object and purpose of establishment of the assessee under the statutory provisions i.e. Karnataka Industrial Area Development Act. Thus the learned Authorised Representative has submitted that the object of creating and establishment of the assessee board, is charitable in nature and the activity of promoting and establishment of industries for providing infrastructure facilities and amenities in the industrial area are not profit motive but the assessee is performing these activities only to achieve the objective of providing and promoting establishment and development of industries as well as industrial infrastructural facilities. The learned Authorised Representative has referred to the income and ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... registration is still subsists in view of the decision of this Tribunal as well as the Hon'ble jurisdictional High Court. As far as the issue regarding applicability of proviso to Section 2(15) of the Act is concerned, we note that this issue came up before this Tribunal for the Assessment Year 2009-10. The Tribunal after considering the objections and definitions of the assessee as per the KIADB Industrial Area Development Act has vide order dt.4.9.2015 in paras 18 to 49 held as under : 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 generally to promote the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 as per KIAD Act and hands these lands to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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, commerce and industries in India or an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ute 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 compensation payable for la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 principles 39. There is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons 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 learned counsel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nature 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty of rendering any service 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 no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mplexes.(d)Acquire land 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 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee and after giving the benefit of cost and development of the land, the Assessing Officer arrived at figure of ₹ 1.75 Crores being excess amount collected by the assessee in respect of lease transactions. The Assessing Officer made the addition of the same as understated income. On appeal, the CIT (Appeals) has confirmed the action of the Assessing Officer. 7.3 Before us, the learned Authorised Representative of the assessee has submitted that the assessee has already disclosed this amount of lease rentals in the accounts. He referred to the Schedule R to the balance sheet and submitted that the assessee has already shown the rent receipt to the extent of ₹ 2,26,47,745. Therefore the said rent receipt has already been included and part of the total receipts. The assessee has been recognizing the rent receipt proportionate to the lease period. Thus the learned Authorised Representative has submitted that the Assessing Officer has made the addition by considering the total lump-sum amount received by the assessee instead of proportionate amounts relating to the year under consideration. He has further contended that the assessee has been following this method ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Officer. 8. Ground No.6 is regarding interest under Sections 234A 234D which is consequential and mandatory. 9.1 The revenue has raised the following grounds : 1. The CIT (Appeals) has erred in ignoring the fact that the assessee has claimed depreciation on the assets the cost of acquisition of which was already claimed by the assessee and allowed by the Department as application of income under Section 11(1) in the respective year(supra)) of acquisition/purchase of such assets. 2. The CIT (Appeals) failed to appreciate the fact that allowance of depreciation on the assets tantamount to double deduction firstly in the form of allowing appreciation of income in the year(supra)) of acquisition/purchase of assets and secondly in the form of depreciation allowance over a period of usage of assets/several assessment years. 3. The CIT (Appeals) has erred in not appreciating the well settled legal position that the tenets of taxation would not allow double deduction in respect of the same amount/expenditure except in a case wherein it is expressly provided in the stature. 4. The CIT (Appeals) has erred in not considering the ratio laid down by the Hon' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inted out that an identical issue has been considered by co-ordinate bench of this Tribunal in the case of DCIT Vs. Jyothi Charitable Trust vide order dt.11.6.2015 in ITA No.522/Bang/2014. Thus this issue is covered in favour of the assessee by various decisions of Hon'ble High Courts as well as by order of the co-ordinate bench. 9.4 On the other hand, learned Authorised Representative has relied upon the orders of authorities below. 9.5 Having considered the rival submissions and material on record, at the outset we note that this issue has been covered by the decision of co-ordinate Bench in the case of Jyothi Charitable Trust (supra) wherein it has been held in paras 7 to 9 as under : 7. We have heard the submissions of the ld. DR, who relied on the order of AO. We have considered the order of the AO. Identical issue came up for consideration before ITAT Bangalore Bench in the case of DDIT(E) v. Cutchi Memon Union (2013) 60 SOT 260 Bangalore ITAT, wherein similar issue has been dealt with by this Tribunal. In the aforesaid case, the assessee claimed depreciation and the AO denied depreciation on the ground that at the time of acquiring the relevant capital asset, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt was dealing with a case of two deductions under different provisions of the Act, one u/s. 32 for depreciation and the other on account of expenditure of a capital nature incurred on scientific research u/s. 35(1)(iv) of the Act. The Hon ble Court thereafter held that a trust claiming depreciation cannot be equated with a claim for double deduction. The Hon ble Punjab Haryana High Court has also made a reference to the decision of the Hon'ble Karnataka High Court in the case of CIT v. Society of Sisters of Anne, 146 ITR 28 (Kar), wherein it was held that u/s. 11(1) of the Act, income has to be computed in normal commercial manner and the amount of depreciation debited in the books is deductible while computing such income. In view of the aforesaid decision on the issue, we are of the view that the order of the CIT(A) on the above issue does not call for any interference. 22. Consequently, ground No.5 raised by the revenue is dismissed. 8. We may also add that the legal position has since been amended by a prospective amendment by the Finance (No.2) Act, 2014 w.e.f. 1.4.2015 by insertion of sub-section (6) to section 11 of the Act, which reads as under:- ..... X X X X Extracts X X X X X X X X Extracts X X X X
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