TMI Blog2017 (1) TMI 1056X X X X Extracts X X X X X X X X Extracts X X X X ..... nfirmed by the ld CIT(A). It is thus clear that the Revenue has not disputed any of these expenses as application of income (except ₹ 1,57,56,523 which was already allowed in earlier years) for want of fulfilment of any of the conditions specified under section 11, 12 and 13 of the Act. Regarding applicability of section 13(8), we have already held above that in view of proviso to section 2(15) not applicable in the case of the assessee, provisions of section 13(8) would not be applicable. Rejection of books of accounts u/s 145(3) - on account of change in the accounting policy - Held that:- Coordinate Bench has already examined this matter in the year of change of accounting policy ie. AY 2009-10 and has held that “the appellant had changed method of accounting during the year under consideration but the same has been found more accurate and scientific to determine the assessee’s income. Therefore, change of accounting is bonafide and same cannot be rejected on the ground that the assessee had claimed more expenses during the year under consideration.” On the issue of depreciation and double deduction, the matter has again been examined by the Coordinate Bench earlier and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure hence further allowance of the depreciation on same capital asset would tantamount to double deduction. 3. The brief facts of the case are that the appellant is a Government authority formed under the Jaipur Development Authority Act, 1982 and is wholly owned and controlled by the Government of Rajasthan. For the year under consideration, the assessee had filed its return of income on 12.10.2010 declaring loss of ₹ 85,28,13,194/- and claimed exemption under section 11, 12 13 of the Act considering it to be charitable organization. During the course of assessment proceedings, the Assessing officer observed that there has been change in the definition of charitable purposes w.e.f. 01.04.2009 i.e. AY 2009-10. The assessee was granted registration u/s 12AA of the Act through order dated 21.11.2008 w.e.f. 14.03.2007, later on in compliance of Hon ble ITAT s order dated 30.01.2009, it was made effective from 12.10.1982, but this registration was lateron withdrawn by order No. 1264 dated 29.12.2011 of CITII. Jaipur. The AO further observed that in view of the specific mandate of the IT Act as no registration u/s 12AA is effective from A.Y. 2010-11, the assessee wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of CIT Vs. Eastern Bengal Jute Trading Co. Ltd. (1978) 112 ITR 575 (Cal.) Accordingly change of the accounting policy is allowed. The assessee has claimed depreciation on fixed assets which is also allowable as held by the various courts in case of Trust where the assessee first made income for application of acquiring of assets and thereafter claiming depreciation on it. Accordingly, we allow the assessee s appeal and dismiss the revenue s appeal. Respectfully following the order of ITAT Jaipur Bench, the AO is directed to allow the benefit of sec. 11 and 12 to the assessee. Disallowance of development expenditure of ₹ 1520567555/- is deleted as ITAT has accepted the change in method of accounting. In respect of disallowance of ₹ 160746832/- on account of establishment and administrative expenditure, ₹ 105752/- on account of expenses of shooting range, ₹ 63210322/-being expenditure on grants/contributions is allowed as application of income since benefit of sec. 11 is granted. The claim of depreciation is also allowed in view of decision of ITAT reported supra. However, the disallowance of ₹ 15756523/- in respect of amortization of expense i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e matters connected therewith, so that housing, community facilities, civic amenities and other infrastructural facilities are created. The main functions of the authority are mostly those as mentioned in Schedule XII of Article 243 W of the constitutions for the municipalities. All activities of urban planning, town planning, infrastructure development and land building regulations etc are carried to achieve the main objects. As such all the functions of the authority are for the advancement of general public utility. Most of the land is State Government land and if any acquisition of land is made, it is made only for the purpose of general public utility services. 7. The ld AR further submitted that the Authority was exempted under section 10(20)/ 10(20A), however after amendment in 10(20) and withdrawal of section 10(20A), the authority was required to file return of income. 7.1. The registration was granted to the Authority by the order of this Honourable Jaipur Bench of ITAT, after considering all issues thereto with retrospective effect. (ITA No. 927/JP/2007 and ITA No. 1615/JP/2008). 7.2. Ld. CIT-II, Jaipur issued an order dated 29/12/2011 withdrawing the regi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration. The case law relied by the assessee is squarely applicable. A change in the method of accounting should not be rejected for reasons that it would result in bringing into accounts in one year the losses of several years as held in the case of CIT Vs. Eastern Bengal Jute Trading Co. Ltd. (1978) 112 ITR 575 (Cal.) Accordingly change of the accounting policy is allowed. Further at Last Para it was finally held In the result appeal of the assessee is allowed and revenue s appeal is dismissed. 7.6 In view of giving effect to the order of the Coordinate Bench, the Ld. ACIT (Exemptions) has made the required computation and assessed the demand to Rs. Nil for AY 2009-10 after considering the provisions of Section 11 and 12 of the Income Tax Act as discussed by the Hon ble Bench. 8. It is to submit further to support that the proviso to section 2(15) is not hit by the appellant since the activities carried out by it are not in the nature of trade since there is no predominant purpose to earn profit. Hon ble High Court of Judicature at Allahabad , Lucknow Bench in case of Lucknow development authority has held at last page of the order that: that mere selling some pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned by ancillary and incidental activities, which as per the mandate of the relevant statute, is used for achieving or implementing such object. Thereby holding that the proviso to section 2(15) is not applicable. 9.2 In the same case, the order was also passed regarding the UIT, Sriganganagar, where allowing application for assessment u/s 11 and 12, the Hon ble Rajasthan High Court has held on page 31 of the order that Undoubtedly, the aforesaid statutory functions which are being discharged by the UIT, are the activities undertaken for welfare of the public at large and certainly, achieve its predominant object of improvement of the urban area specified, the UIT, SRI GANGANAGAR is also engaged in sale, letting or exchange of any property of land comprised in the scheme and it is also empowered to levy betterment charges in terms of section 62 of the UIT act, incidental and ancillary to its main object of improvement of specified urban area. Restoring the matters back to the files of assessing officer for the assessment year 2004-05 2006-07 and 2010-11, for passing the assessment orders afresh, also deserve to be dismissed. The appeal nos.95/13,96/13 and 98/13, directed ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellant Authority are Charitable even though the amended provisions of Section 2(15) of the Act are attracted. The Ld. CIT (A) held that the issue raised in this appeal are squarely covered by the decision of the Hon ble Jaipur Bench of ITAT in ITA No. 427 and 447/JP/2013 for AY 2009-10, which is clear and justified in facts as well as in law. The Ld. CIT (A) has held at first para on page 11 of the order that Respectfully following the order of ITAT Jaipur Bench the AO is directed to allow the benefits of sec. 11 and 12 to the assessee. 2. The learned CIT (Appeals)-3, Jaipur has erred in holding that the AO erred in applying the provisions of Section 145(3) and assess in the manner as provided in Sec 144 of the Income Tax Act, 1961. The Ld. CIT (A) held that the issue raised in this appeal are squarely covered by the decision of the Hon ble Jaipur Bench of ITAT in ITA No. 427 and 447/JP/2013 for AY 2009-10, which is clear and justified in facts as well as in law. The Ld. CIT (A) has held on page 11 of the order that Respectfully following the order of ITAT Jaipur Bench the AO is directed to allow the benefits of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etailed decisions and findings of the Hon ble Coordinate Bench in the ITA No. 182/JP/2012 that the proviso to section 2(15) is not applicable are in place. Further the benefits of section 11 12 shall be allowed and assessment has to be made accordingly. This has been duly mentioned in the Registration Certificate issued by the Income Tax Department in compliance of the decision of Hon ble Jaipur Bench of ITAT. Further the order for AY 2009-10 as decided by Hon ble this Bench of ITAT clearly directed to the AO to give benefit of Section 11 and 12 of the IT Act to the assessee and accordingly 2009-10 has been assessed and also Ld. CIT (A) has decided 2010-11 in the same manner. 2) Further Hon ble Rajasthan High Court has also held in case of Jodhpur Development Authority and UIT, Sriganganagar that the proviso to the section 2(15) is not applicable and holding that if the predominant purpose of the entity is charitable, then they are valid Charitable Trust and benefits of Section 11 and 12 are available to them. 11. We now refer to the decision of the Coordinate Bench in ITA No. 182/JP/2012 dated 30.09.2014 whereby the assessee s registration u/s 12AA was restored with effe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the institution is not to earn profit but recover the cost of the establishment as well as other expenditure to implement the object of the JDA. The State Government also give the grant to it. As per Rajasthan Tenancy Act, the land is owned by the State Govt. but farmers are lessee for 99 years in perpetuity. It can be acquired for the public purposes. Various sports as well as community facilities provided by the JDA are not for profit motive but for the development of the whole urban community. The learned DR as well as learned AR cited various case laws against and in favour of the assessee but recently Hon ble Allahabad High Court in the case of Lucknow Development Authority has held that mere selling some product at profit will not ipso facto hit assessee by applying proviso to section 2(15) and deny exemption available under section 11. The intention and manner of the assessee was not to earn profit. Further the amendment made in Section 2(15) is effective from 2011-12 as clarified by the CBDT in its circular mentioned above. The ITAT A Bench of Lucknow in the case of Uttar Pradesh Avas Evam Vikas Parishad Vs. CIT-1, Lucknow has held that as per Section 12AA that the CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctivity, the issue of the self enrichment and self gain should be carefully looked into. A small contribution by way of fees should not be emulated the transaction or the give activity to be commercial in nature. As per Section 2(15), the charitable activity test means activity with a view to make or earns profit. The four integrates laid down are (a) profit motive is a critical factor to discern whether the activity is business, trade or commerce, (b) charitable activity should be devoid of selfishness or illiberal spirit, (c) the underline propelling motive is not for commercial exploitation but general public good and (d) fees charged if any should be nominal and based on commercial principle. Applying the above test, the Hon ble Delhi High Court opined that a mere levy of fees is neither reflective of business aptitude nor indicative of profit oriented intent. The Hon ble Delhi High Court held that when propelling motive is not to earn profit but general public good, the charitable entity will fail the business test and meet the touchstone of charity. The Hon ble Delhi High Court further held that charging fees on IPR sense profit motive does not amount to commercial exploit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 order dated 30/05/2008 w.e.f. 14/3/2007 wherein the Coordinate Bench has held that the assessee s activities are charitable and are not covered u/s 2(15) of the Act. Therefore, the Assessing Officer is directed to give benefit of Section 11 and 12 of the Act to the assessee. The income of the assessee is to be assessed on the real income basis which has been accrued to the assessee during the year under consideration. The appellant had changed method of accounting during the year under consideration but the same has been found more accurate and scientific to determine the assessee s income. Therefore, change of accounting is bonafide and same cannot be rejected on the ground that the assessee had claimed more expenses during the year under consideration. The case law relied by the assessee is squarely applicable. A change in the method of accounting should not be rejected for reasons that it would result in bringing into accounts in one year the losses of several years as held in the case of CIT Vs. Eastern Bengal Jute Trading Co. Ltd. (1978) 112 ITR 575 (Cal.) Accordingly change of the accounting policy is allowed. The assessee has claimed depreciation on fixed assets which is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion and genuineness of its activities and it cannot travel to the extent that whether the income of the trust in respect whereof exemption is claimed, is wholly applied for the religious or charitable purpose or not so as to make them entitle to claim exemption u/s 11 12 of the Act of 1961. 16. As noticed hereinabove, the contention of the Revenue is that since the assesses are involved in carrying on activities in the nature of trade and commerce, by virtue of first proviso to Section 2(15), their activity/objects cannot be recognized as for charitable purposes so as to make them entitled for registration under section 12A of the Act of 1961. 17. Section 2(15) of the Act 1961 which defines charitable purposes read as under: (15) charitable purpose includes relief of the poor, education, medical relief, preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest and the advancement of any other object of general public utility. Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ities, sports, medicine, tourism and similar other activities, to prepare Master Plan for traffic control and management, devise policy and programmes of action for smooth flow of traffic and matters connected therewith, undertaking housing activity in Jodhpur Region etc. are essentially the functions, which promote the welfare of the general public. Of course, while discharging the said functions, the JDA also discharges function to acquire, hold, manage and dispose of property movable or immovable as may be deemed necessary and also enters into contract, agreements or arrangements with any person or organization and deem necessary for performing its function and in this process, it might be earning income but the primary object of the JDA certainly does not involve any profit motive whatsoever. It is pertinent to note that as per the provisions of section 51 of JDA Act, for the purpose of discharging the statutory functions, The Jodhpur Region Development Fund is created to which all money received by the authority is credited including amount of contribution to be made by the State Government, such other money as may be paid to the authority by the State Government, Central Go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heard the rival contentions and pursued the material on record. It is manifestly clear that the asseessee has been duly registered as a charitable organisation under section 12AA of the Act for the impugned assessment year, a condition precedent for availing exemption under section 11 and 12 of the Act. The Coordinate Bench while restoring the registration under section 12AA of the Act vide its order dated 30.9.2014 (in ITA No. 182/JP/2012) has also examined the matter from the perspective of applicability of proviso to section 2(15) of the Act which was the main contention raised by the Revenue while withdrawing the registration. After taking into consideration the rival contentions, the Coordinate Bench has given a finding that the proviso to section 2(15) of the Act is not applicable to the assessee as the appellant is a government agency and engaged in the coordinate and planned development of Jaipur region and which is predominant object of it. The said order of the Coordinate Bench has since been followed by the Coordinate Bench in its subsequent order dated 4.01. 2016 (referred supra) while disposing off identical grounds of appeal as in the instant case raised by the Reve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d agencies in formulating and undertaking schemes for development of agriculture, horticulture, floriculture, forestry, dairy development, transport communication, schooling, cultural activities, sports, medicine, tourism and similar other activities; undertaking housing activity in Jaipur Region provided that the delineation of responsibility for housing between Rajasthan Housing Board and the Authority will be made by state government effective from the date fix by it; to acquire, hold, manage and dispose of property, movable or immovable as may be deemed necessary; to enter into contracts, agreements or arrangements with any person or organization as it deem necessary; to prepare Master Plan for traffic control and management, devise policy and programmes of action for smooth flow of traffic and matters connected therewith; and to do all such acts and things which are necessary for the furtherance of the objects for which the authority is established. Further, as per the provisions of section 55 of JDA Act, for the purpose of discharging the statutory functions, The Jaipur Region Development Fund is created to which all money received by the authority is credited including amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laim exemption u/s 11 12 of the Act. 15. Further, on perusal of assessment order, it is observed that limited ground on which exemption under section 11 and 12 of the Act was denied was on account of non-registration under section 12AA of the Act. Nothing has been brought on record to suggest that besides non-registration under section 12AA, the assessee has failed to fulfil any other conditions as envisaged u/s 11, 12 and 13 of the Act by virtue of which it shall be denied the exemption under section 11 12 of the Act. In fact, on perusal of assessment order, it is noted that the Assessing officer has noted in context of grant of ₹ 2,50,00,000 to Amber Development Authority and of ₹ 3,82,10,322 to Jaipur Metro Rail Corporation Limited that these expenses would be admissible as application of income if it was to be considered exempted under section 11, 12 and 13 and as the benefit of section 11 is not admissible, the sum paid to these two institutions as grant would not be admissible and hence added back to assessee s income. Similar is the position in respect of other disallowances except for an amount of ₹ 1,57,56,523 which has been allowed in the earlie ..... X X X X Extracts X X X X X X X X Extracts X X X X
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