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TMI Blog2017 (1) TMI 1056X X X X Extracts X X X X X X X X Extracts X X X X ..... cted. (2) 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 Act. (3) allowing the development expenditure of Rs. 1,52,05,67,555/- by relying on the decision of Hon'ble ITAT inspite of the fact the assessee has changed accounting method. (4) allowing a sum of Rs. 16,07,46,832/- on account of disallowing 5% of development expenditure out of establishment and administrative expenditure related to change in accounting policy. (5) allowing of Rs. 1,05,752/- on account of expenses on shooting range in spite of the fact that these expenses are not for earning any income. (6) allowing of Rs. 6,32,10,322/- being expenditure on grants/contributions to charitable institution even though the assessee's activities is commercial in nature and exemption u/s 11 is denied. (7) allowing Rs. 1,81,89,705/- on account of depreciation of fixed asset without appreciating the fact that the application of 100% expenditure of the capital assets is already allowed as capital expenditure hence further allowance of the depreciation on same capital asset would tantamount to double deduction. 3. The brief facts of the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nate Bench in ITA No. 927/JP/2007 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 depreci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t has challenged the order of the ITAT before the Hon'ble High Court against the allowing of registration u/s 12AA which is currently pending adjudication. It was further submitted that on the issue of depreciation, ld CIT(A)'s decision is not acceptable in view of that the investment made in purchase of fixed assets has already been allowed as application of income in the year of investment made as per provisions of section 11, therefore, if any deduction is allowed on the same amount then it will tantamount to double deduction. 6. The ld. AR of the assessee submitted that the appellant is a Government Authority wholly owned and controlled by the State Government. The main purpose of forming the JDA under JDA Act, 1982 as given in the JDA Act, which says in brief "Setting up an Authority for planning, coordinating and supervising for proper, orderly and rapid development of the areas in Jaipur region and of executing plans, projects and schemes for such development and to provide for the 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 me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... benefits of Section 11 and 12, it was held on Para 6 of the order that "We have heard the rival contentions of both the parties and perused the material available on record. The assessee has been granted registration by the order of the Coordinate Bench in ITA No.927/JP/2007 order dated 30/05/2008 w.e.f. 14/3/2007, ITA No. 182/JP/2012 dated 30/09/2014 wherein the coordinate Bench has held that the assessee's activities are charitable and are not covered by proviso to section 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." 7.5 It was further held in the said order 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. 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 los ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it, would not prevent the institution from being a valid charitable trust." 9.1 It was further held at para 28 on page 27,28 and 29 that "It might be earning income but the primary object of the JDA certainly does not involve any profit motive whatsoever. Suffice it to say that the entire funds of the JDA is mandatorily required to be utilized for discarching the functions to achieve the object of integrated development of jodhpur region. Thus, predominate object of the JDA being to secure the integrated development of the jodhpur region which is undoubtedly falls within the expression 'advancement of any other objects of general public utility'. Some of the activities, undertaken by it, which are ancillary or incidental to the main object of general public utility, it does not cease to be charitable in character so as to render it intelligible to claim registration under section 12A read with section 12AA of the act of 1961. It is immaterial if some income is 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 I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not help the revenue in any manner." 10. The ld AR further submitted that all the Grounds of Appeal raised before your good selves by the Department for the Assessment year 2010- 11 are squarely covered in favour of the assessee, i.e. Respondent by the decision of the Hon'ble Coordinate Bench for the Assessment Year 2009-10. 10.1 The submissions made by us to the Ld. CIT (Appeals), Jaipur on 08.01.2016 giving full details, have been duly discussed in the order of Ld. CIT (Appeals). The table below shows the Ground of Appeal raised before your good selves by the Department under this appeal, and the decision of Ld. CIT(Appeals) with reference to order of the Hon'ble Bench: Grounds taken by Revenue in AY 10-11 Decided by the Ld. CIT(A) in its order dated 19.01.2016 1. The learned CIT (Appeals)-3, Jaipur has erred in allowing the exemption u/s 11 of the Act by holding that the activities of the appellant 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- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 11 and 12 to the assessee. Disallowance of development expenditure of Rs. 1520567555/- is deleted as ITAT has accepted the change in method of accounting. In respect of disallowance of Rs. 160746832/- on account of establishment and administrative expenditure, Rs. 105752/- on account of expenses of shooting range, Rs. 63210322/- being expenditure on grant/contribution is allowed as application of income since benefit of section 11 is granted. The Claim of depreciation is also allowed in view of decision of ITAT reported supra" 10.2 From the submissions above, it is apparently clear that: 1) All the issues raised by the department under this appeal are directly related to the Registration of Assessee as Charitable trust and the detailed 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt plan but also sanction projects and schemes for development. The JDA is a tool of State government for coordinated and planned development in Jaipur region. In practical, the main work of JDA is construction of roads, sewerage, parks, play grounds, provide plots for educational, health and cultural institution for over all development of the community. By making planned development it provides smooth transportation so that air pollution can be minimized and save time of the public. If it is left in the hands of private operator, these facilities would not be provided on similar price as provided by the JDA. Whatever, the Revenue is generated through these activities are finally utilized for the benefit of the public. The intention 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 f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entitle or negate the claim of engagement in charitable purpose defined under section 2(15) of the Act. It further held that CBDT circular No. 11/2008 emphasized that 2008 amendment is only applicable to residual category, charitable entity when it carries on any activity in the nature of trade, commerce or business, on any activity and to determine whether such activity is commercial will be decided on its own facts and no generalization is possible. However, the tax authorities in the context of the above circular denied tax exemptions on the premises that charitable activity was only a mask to cover business activity of the charitable entity to determine whether the residual category, charitable entity is engaged in any business activity, 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) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provided. Therefore, we are of the considered view that learned CIT was no right to withdraw the registration of the appellant from A.Y. 2009-10. Accordingly, we set aside the order of the learned CIT(A) and directed to grant the registration to the JDA." 12. We now refer to the subsequent decision of the Coordinate Bench in ITA No. 427/JP/13 and ITA No. 447/JP/2013 for A.Y. 2009-10 dated 04.01.2016 which was pronounced subsequent to restoration of registration under section 12AA and whereby the Coordinate Bench has disposed off identical grounds of appeal as raised before us. The relevant findings are reproduced as under: "The assessee has been granted registration by the order of the Coordinate Bench in ITA No. 927/JP/2007 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 ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... & 12 of the Act but the registration u/s 12A by itself does not make a trust or institution entitled to claim exemption under section 11 & 12 of the Act unless, the conditions for claiming exemption as envisaged u/s 11 & 12 of the Act, are satisfied. Obviously, the entitlement of the person or the trust claiming exclusion of the income under section 11 or 12 has to be determined by the AO after making necessary inquiries regarding the fulfilment of the requisite conditions as enumerated under the aforesaid provisions. But the fact remains that under section 12AA the scope of the enquiry under section 12AA for the purpose of grant of registration u/ 12A shall be confined with regard to the objects of the trust or institution 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he projects and schemes for the development of Jodhpur Region or any part thereof, execution of the project and schemes directly by itself or through a local authority or other agency, coordinating execution of projects or schemes for the development of Jodhpur Region supervision or otherwise ensuring adequate supervision over the planning and execution of any project or schemes the expenses of which in whole or in part are to be met from Jodhpur Region Development funds; preparing schemes and advising the concerned authorities department and agencies in formulating and undertaking schemes for development of agriculture horticulture, forestry, dairy development, transport communication, schooling, cultural activities, 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 prop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the object of general public utility sought to be achieved by constitution and establishment of the JDA as such involve carrying on of any activity for profit and therefore, it is immaterial if some income is earned by ancillary and incidental activities which as per the mandate of the relevant statute, is used for achieving or implementing such object. The genuineness of the activities of the JDA which are regulated by the provisions of the JDA act and the Rules made thereunder, cannot be doubted. Thus the order passed by the ITAT holding the JDA, Jodhpur entitled for registration under section 12A read with Section 12AA of the Act of 1961, does not suffer from any infirmity or illegality." 12. We have 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt Plan and Zonal Development Plans and carrying out surveys for the purpose and also making alterations therein as may be deemed necessary; formulation and sanction of the projects and schemes for the development of Jaipur Region or any part thereof, execution of the project and schemes directly by itself or through a local authority or other agency, coordinating execution of projects or schemes for the development of Jaipur Region; supervision or otherwise ensuring adequate supervision over the planning and execution of any project or schemes the expenses of which in whole or in part are to be met from Jaipur Region Development funds; preparing schemes and advising the concerned authorities department and 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 acquir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the "predominant object of the JDA being to secure the integrated development of the Jodhpur Region which is undoubtedly falls within the expression advancement of any other objects of general public utility within the definition of section 2(15) of the Act of 1961 and therefore, on account of profit being earned by it through some of the activities undertaken by it, which are ancillary or incidental to the main object of general public utility, it does not cease to be charitable in character so as to render it ineligible to claim registration under section 12A read with section 12AA of the Act of 1961." The said decision thus support the case of the Jaipur Development Authority for being eligible to claim 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 e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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