9911796707
TMI Blog2016 (5) TMI 1175X X X X Extracts X X X X X X X X Extracts X X X X ..... is illegal and bad in law. 3. That, in view of the facts and in the circumstances of the case, the learned Commissioner of Income-tax (Appeals) has erred in law and on facts in enhancing the income by making the addition of Rs. 6,58,59,246 on account of excess of income over expenditure, which is illegal, bad in law and without jurisdiction. The enhancement itself is illegal, bad in law and without jurisdiction. 4. That the Assessing Officer/Commissioner of Income-tax (Appeals) failed to appreciate that the appellant-trust has been taken over by the Punjab Government on and with effect from April 12, 2007, and it continued to be custodian owner of the assessee-trust till March 31, 2008, and the income has been wrongly and illegally assessed in the hands of the assessee. 5. That, in view of the facts and in the circumstances of the case, the learned Commissioner of Income-tax (Appeals) has erred in law and on facts in upholding the disallowance of exemption under section 11 of the Act on the ground that the activities carried out by the assessee-appellant is not for charitable purpose as per section2(15) of the Act. In any case, it is wrongly held that the asses see-trust is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olding the disallowance under section 11 of the Act on the ground that the activities carried out by the assessee is not for charitable purpose as per section 2(15) of the Act. In any case it is wrongly held that the assessee-trust is not entitled to exemption under section 11 of the Act. 3. That, in view of the facts and in the circumstances of the case, the learned Commissioner of Income-tax (Appeals) has erred in law and on facts in making the addition/disallowance of the expense under the head of work bill of Rs. 15,55,47,181 on the ground that the said expense is capital in nature not revenue in nature. The same is wrongly and illegally upheld by the Commissioner of Income-tax (Appeals). 4. That, in view of the facts and in the circumstances of the case, the learned Commissioner of Income-tax (Appeals) has erred in law in making the addition of Rs. 76,27,744 by disallowing the deduction on the ground that the assessee has not paid/deposited the said amount in the employees provident fund before the due date of filing of return under section 139(1) of the Act. The same is wrongly and illegally upheld by the Commissioner of Income-tax (Appeals). 5. Without prejudice and in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der. 6. The grievance of the assessee by way of ground No. 5 for the assessment year 2008-09 and ground No. 2 for the assessment year 2010-11, under similar facts and circumstances, stands answered in favour of the assessee by the Income-tax Appellate Tribunal, vide order dated September 10, 2015, for the assessment years 2009-10 and 2011-12 (Hoshiarpur Improvement Trust v. ITO [2016] 45 ITR (Trib) 682 (Amritsar). The Commissioner of Income-tax (Appeals)'s order for the assessment year 2008-09 is dated December 12, 2013, and the Commissioner of Income-tax (Appeals)'s order for the assessment year 2010-11 is also dated December 12, 2013. The learned Commissioner of Income-tax (Appeals) thus, obviously did not have the benefit of the Income-tax Appellate Tribunal order dated September 10, 2015. 7. In the Income-tax Appellate Tribunal order for the assessment years 2009-10 and 2011-12, it has been held as follows (page 695 of 45 ITR (Trib)) : "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 manner, had a rather qui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vities referred to therein is twenty-five lakh rupees or less in the previous year.' Explaining the scope of these provisions, a co-ordinate Bench of this Tribunal in the case of Himachal Pradesh Environment Protection and Pollution Control Board v. CIT [2011] 9 ITR (Trib) 604 (Chandigarh), has observed as follows (page 611) : 'It is also important to bear in mind that the insertion of proviso to section 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 the scope of this amendment, Central Board of Direct Taxes, vide Circular No. 11, dated December 19, 2008 [2009] 308 ITR (St.) 5; [2009] 221 CTR (St.) 1, has observed as follows : "3. The newly amended section 2(15) will apply only to the entities whose purpose is 'advancement of any other object of general public utility', i.e., the fourth limb of definition of 'charitable purpose' contained in section 2(15). Hence, such entities will not be eligible for exemption under section 11 or under section 10(23C) of the Act, if they carry on commercial activi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... object, advancement of any other object of general public utility is essentially a question to be decided on the facts of the assessee's own case and where the object of general public utility is only a mask or device to hide the true purpose of trade, business or commerce, or rendering of any service in relation thereto, the assessee cannot be said to be engaged in a charitable activity within the meaning of section 2(15) of the Act. As a corollary to this approach adopted by the tax administration, in our considered view, it cannot be open to the learned Commissioner of Income-tax to contend that where an object of general public utility is not merely a mask to hide the true purpose or rendering of any service in relation 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 section 2(15). As the Central Board of Direct Taxes rightly puts it, sweeping 'generalisations are not possible' and 'each case will have to decided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by 'involvement in any activity in the nature of trade, commerce or business, etc.,' but, post- Finance Act, 2015, amendment, it will be triggered even if 'such an activity in the nature of trade, commerce or business, etc., is under taken in the course of carrying out such advancement of any other object of general public utility'. This substitution of the proviso to section 2(15), in our considered view, may be viewed as representing a paradigm shift in the scope of the exclusion clause. The paradigm shift is this. So far as the scope of earlier provisos is concerned, the Central Board of Direct Taxes itself has, dealing with an assessee pursing 'the advancement of any object of general pubic utility', observed that '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 entitled to claim that its object is for charitable purposes' because 'in such a case, the object of "general public utility" will only be a mask or a device to hide the true purpose which is trade, commerce, or business or rendering of any service in relat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w, these provisions are only prospective in effect. As a corollary to this legal position, in our considered view, even if the activities in the nature of trade, commerce or business, etc., are undertaken in the course of actual carrying out of advancement of any object of general public utility, till the end of the previous year relevant to the assessment year 2016-17, the activities will continue to be covered by the scope of section 2(15). As we hold so, we may only refer to the observations of a Five Member Bench of the honourable Supreme Court, in the case of CIT v. Vatika Township Pvt. Ltd. [2014] 367 ITR 466 (SC), as follows (page 486) : 'Of the various rules guiding how a 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 nature of the law is founded on the bed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Indian Chamber of Commerce v. CIT [1975] 101 ITR 796 (SC), etc., observed (page 803) : "Notwithstanding the possibility of obscurity and of dual meanings when the emphasis is shifted from 'advancement' to 'object' used in section 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 advancement of the objects of general public utility a trust resorts to carrying on of any activity for profit, then necessarily section 2(15) cannot confer exemption. In Sole Trustee, Loka Shikshana Trust [1975] 101 ITR 234 (SC), their Lordships Khanna J. and Gupta J. observed (page 243) : ". . . Ordinarily, profit motive is a normal incident of business activity and if the activity of a trust consists of carrying on of 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 activity for profit . . ." 3. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stified in assuming in the absence of some indication to the contrary that the object of the trust involves the carrying on of an activity for profit". (page 243 of 101 ITR) And to the same effect, observed Krishna Iyer J. in Indian Chamber of Commerce's case [1975] 101 ITR 796, 804 (SC) when he said : "An undertaking by a business organisation is ordinarily assumed to be for profit unless expressly or by necessary implication or by eloquent surrounding circumstances the making of profit stands loudly negatived . . . a pragmatic condition, written or unwritten, proved by a proscription of profits or by long years of invariable practice or spelt from some strong 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 yields profit, the inferenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... represent any paradigm shift or substantive amendment in law inasmuch as this amendment was stated to be only consequential to similar restriction now placed under section 11 itself. It was explained, in the aforesaid circular, as follows (page 17) : '(i) Amendment of the definition of "charitable purpose"-Section 2(15) 8. Under section 2(15) of the Income-tax 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. Section 3(a) of the Finance Act has omitted the words "not involving the carrying on of any activity for profit" from the definition. This amendment is consequential to the amendment made in section 11 of the Income-tax Act by section 6(b) of the Finance Act whereunder profits and gains of business in the case of charitable or religious trusts and institutions will not be entitled to exemption under that section except in cases where the business fulfils the conditions specified in section 11(4) of the Act. The amendment takes effect from April 1, 1984 and will, accordingly, apply in relation to the assessment year 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (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 will not be available unless separate books of account are maintained by the trust or institution in respect of such business. In consequence of the new provisions made in sub-section (4A) of section 11, clause (bb) of section 13(1) of the Income-tax Act (which restricted the exemption of business income in the case of charitable trusts and institutions for the relief of the poor, education or medical relief, only in cases where the business is carried on in the course of the actual carrying out of a primary purpose of the trust or institution) has been omitted. 19.3 It is relevant to note that the provisions of new sub-section (4A) of section 11 do not override the provisions of section 10 of the Income-tax Act, and as such, profits derived by any trust, institution, association, etc., referred to in clauses (21), (22), (22A), (23), (23A), (23B), (23BB) and (23C) will continue to be exempt from Income-tax. 19.4 The Finance Act has also am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve. The charitable or religious trust will no longer lose complete exemption from Income-tax. However, the profits and gains from such business activity will be subjected to tax. Central Board of Direct Taxes Circular No. 642 dated December 15, 1992 [1993] 199 ITR (St.) 7 at page 7 In partial modification to paragraph 15.8 (as extracted above) of the Circular No. 621, dated 19th December, 1991 issued from 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 April 1, 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 respect of such business. Income of any other business which is not incidental to the attainment of the objectives of the trust or institution will not be exempt from tax.' The above discussions clearly show that so far as making profits from a business activity incidental to the attai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 public utility. Any profit- making activity linked with an object of general public utility would be taxable. The theory of the dominant or primary object of the trust cannot, therefore, be projected into the fourth head of charity, viz., "advancement of any other object of general public utility", so as to make the carrying on of a business activity merely ancillary or incidental to the main object. In fact, if any other view were to prevail, it would lead to an alarming result detrimental to the Revenue.' Clearly, therefore, so far as pre insertion of provisos to section2(15), i.e., prior to April 1, 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 activitie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Circular No. 11, dated December 19, 2008, issued at the point of time when the first proviso to section 2(15) was introduced) ; and-second in which any activities in the nature of trade, commerce or business, etc., are 'undertaken in the course 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 April 1, 2016, i.e., the assessment year 2016-17). As for the first category, post April 1, 2009, amendment, this category cannot be treated as covered by section 2(15) but then that is not the case before us. It is not, and it cannot be, the case that the Government formed these trusts by legislating the Punjab Towns Improvement Trusts Act, 1922, because it wanted to carry on the business as coloniser or developer. Therefore, by no stretch of logic, formation of trusts can be said to be a mask or device to hide the true purpose of the doing business. The case of the Revenue at best is that the manner in which the activities are carried out is of a profit seeking entity that a business inherently is. In other words, thus, the case of the Revenue is that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 services and due to exigency of rendering such service some surplus (not profit) results such assessee are not hit by the proviso to section 2(15) even if rendering of such services partake the character of trade, commerce or business or rendering services in relation to any trade commerce or business. (b) Where the assessee have the objective of rendering general public utility services but for doing so they first earn income by engaging themselves in activities in the nature of trade, commerce or business 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 sections 11 and 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agent of the Government and does not hold any independent entity whereas the trusts are a corporate body and have perpetual succession and common seal and can sue and be sued in its name as per section 3 of the Punjab Towns Improvement Trusts Act, 1922. In view of this difference 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 doubt that when land or buildings are put on auction by the trust, the intent is to make maximum profit and when it sells residential plots or residential buildings, it sells the same at reserve price. It is submitted that reserve price so fixed is fixed in such a manner and may take within its sweep huge profit as would be seen from the annexure at page 9 of the paper book filed by Shri J. S. Bhasin, advocate, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... um 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 Rs. 5,03,30,800 but in the year 2014, the price for the same plot was intimated at Rs. 10,43,65,946. Thus in a period of three and a half years, it had more than doubled the price of its plot measuring 60.35 marlas. An affidavit of Shri Charan Dass, Assistant Commissioner of Income-tax, Pathankot is enclosed in support of this fact. If this is the way the trust does charity by way of developing cities and town then certainly, it amounts to robbing Peter to pay Paul and surely such an activity cannot be clothed as charitable activity. 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 honourable Punjab and Haryana High Court to the Tribunal, vide its order in ITA No. 100 of 2014 (O&M) dated August 6, 2014, as per the directions contained in para 8 of the order. It is submitted that though the honourable Punjab and Haryana High Court has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e petitioner had not indicted involvement of any charitable activity or advance of any other object of general 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, stricto sensu, in the same domain as the activities of the Andhra Pradesh State Seed Certification Agency [2013] 356 ITR 360 (AP) ; [2013] 83 DTR 23 (AP) fall. Its activity of selling plot and building for residence to persons though for the allottee it may not for commercial purpose but the way the trust fixes its reserve price as discussed above, it is clear that the activity is commercial in nature for the trust and not charitable. It is further pertinent to mention here that when the trust fixes the reserve price for residential as well commercial plots or buildings, it includes in its cost all the amenities which it promises to the people including all development charges like roads, sewerage, water supply, storm water drainage, street lighting a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies. As we do so, we may only make a note of the following observations made by a co-ordinate Bench decision in the case of Devki Devi Foundation v. DIT (Exemptions) [2015] 40 ITR (Trib) 1 (Delhi) ; [2015] 56 taxmann.com 56 (Delhi) (page 30) : '. . . . The soul of charity is benevolence and generosity towards others and the community at large. Of course, it is important as to what are the activities of a charitable institution but what is even more important is what is the predominant motivation for such activities. 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 person does is, is important for determining whether such an action is in the course of business or charity. What is really, therefore, required to be carefully examined, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his allegation about presence of the two elements only to maximise 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 [1975] 101 ITR 796 (SC), which has been relied upon by the Assessing Officer and referred to in Central Board of Direct Taxes Instruction No. 1024 (supra), it has been stated thus : 'Ordinarily profit motive is a normal incident of business activity and if the activity of a trust consists of carrying on of 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 activity for profit'. That apart, mere presence of these 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by efficient regulation of the affairs, it is an object of general public utility. It is also important to bear in mind that costs of proper development of area are also costs incidental to the plots and units sold by the assessee and, therefore, these two things should not be seen in isolation. As for the specific instance of inordinate hike in prices within a short period of three and a half years, 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. As for the decision of the co-ordinate Bench in the case of the Punjab Urban Planning and Development Authority v. CIT [2006] 103 TTJ (Chandigarh) 988, 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 present case, there is no dispute on this aspect, and that is a crucial aspect having bearing on the conclusions. There was also no, and could not have been any, occasion to consider the impact, what is referred to as "kill effect", of the amendments by the Finance Act, 2015. The Revenue, t ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
