TMI Blog2010 (7) TMI 1175X X X X Extracts X X X X X X X X Extracts X X X X ..... ditions as contemplated u/s 12AA of the IT Act, 1961. 3.a) That, without prejudice to the above, the ld. CIT grossly erred in holding that the application for grant of registration u/s 12AA filed by the appellant authority on 27.12.2007 was invalid for the only reason that such application was signed by the Chief Executive Officer (CEO) and not by the Chairman of the appellant authority. b) That, without prejudice to the above, the ld. CIT grossly erred in not considering the material fact that the application signed by Chairman of the appellant authority having been furnished subsequently would relate back to the date of the original application. 4.a) That, without prejudice to the above, the ld. CIT grossly erred in rejecting the application of the authority on various irrelevant grounds without considering the provisions of the law that at the time of grant of registration u/s 12AA, ld. CIT has to be satisfied only about the objects of the application and genuineness of its activities. b) That, the ld. CIT grossly erred in law in enquiring into application of income of the appellant authority for the purpose of grant of registration u/s 12AA of the IT Act, 1961 and a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g into conclusion that the fresh application duly signed by Chairman of IDA filed on 19/06/2008 does not cure the defect (if any) in the original application and such filing of fresh application would not relate back to the date of original application? (Relevant Grounds on this issue from above are ground nos. 3(a) 3 (b)). 2. Whether the ld. CIT is justified in rejecting the application of the IDA for registration u/s 12A /12AA on the ground that the IDA is not entitled to such registration and also whether the activities of the assessee are in conformity with the objects for advancement of the objects of the general public utility within the meaning of section 2 (15) of the IT Act and whether the ld. CIT is correct in coming to a conclusion that the IDA is a commercial organization established with profit motive and only supposed to inquire about the genuineness of activities of objects of the assessee after placing reliance upon the decision in 283 ITR 97 (SC)? (Relevant Grounds on this issue Ground Nos. 1, 2, 4(a), 4(b), 4(c), 4(d), 4(e), 4(f), 5 6) 3. Now, we shall take up the summarized ground no.1 regarding the validity of application which was signed by the Ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted by the State Govt. u/s 46(2) from amongst the members of Development Authority Services belonging to State cadre or from amongst the members of the State Technical/Administrative Services. It was specifically pointed out that the CEO so appointed by State Govt. is the member Secretary of the authority (IDA) by virtue of section 40(h) of the said Act. Since, the CEO of IDA is a statutorily appointed secretary of IDA, he is the Principle Officer of IDA as defined in section 2(35) of the IT Act, 1961. The question, therefore, required to be considered is whether the application for registration signed by the CEO of IDA could be held to be invalid. As already stated above, IDA is a local authority for all purposes, except for exemption u/s 10(20). A strong plea was raised that even the department has assessed IDA, as Local Authority. In the context of position of CEO qua IDA, it was submitted that a reference may be made to the provisions of section 12A/12AA according to which, the person in receipt of income of the assessee authority is required to make an application for registration. The mode of making an application is duly prescribed in rule 17A according to which an appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Hope Textiles Limited, 287 ITR page 321 (M.P.). Prime Securities Ltd. vs. Varinder Mehta, CIT(Inv.) Circle- I(1) reported in (2009) 182 Taxman page 221 (Bom). It was further submitted that even with regard to signing of return, although the courts in above decisions have held that signing of return in the manner prescribed by section 140 is mandatory but the courts are of the view that after insertion of sub-section (9) in section 139, the defect regarding non-signing of the return by proper person makes the return a defective return and the return can be treated as invalid only if the defect is not cured within specified time even after grating opportunity to cure the same. The impugned order of CIT, therefore, deserves to be set aside on this issue. 5. On the other hand, Mr. Girish Dave, the ld. CCIT, DR strongly defended the impugned order and submitted that there are two aspects for consideration of the Bench on this issue, (1) first being the argument canvassed by ld counsel that neither the substantive nor the procedural provisions require signing of the application for the grant of registration under section 12AA, and (2) Second being that there is no prescri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of this Hon ble Tribunal, in the case of M P State Agro Industries Ltd vs. ACIT, this is a curable irregularity and once cured, the date of filing of revised Form No 10A, would relate back to the date of filing of original application. Thus, the period for the grant of registration would be reckoned from the date of filing of the original application. The respondent ld. CIT has considered this issue at pages 1 to 4 of the order. The contention that the CEO was duly authorized as per the note-sheet submitted by and on behalf of the appellant-authority has duly been considered by the ld. CIT and found the explanation incorrect. The ld. CIT has sought to distinguish the case cited by the appellantauthority with the facts of the present case and held that the appellant-authority has not adduced any evidence as regards the authority given to the CEO, or anything explained to ld. CIT in the relevant Act concerning the duties and responsibilities of the CEO. It was submitted that subsequent to the decision in the case of M P State Agro Industries Ltd (supra), Hon ble High of Madhya Pradesh had an occasion to consider this issue in the case of Khialdas sons vs. CIT reported in [1997] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that CEO has filed returns in the past and those returns have been acted upon is no argument as one invalid action acted upon cannot validate invalidity. 8. The ld. CCIT/DR explained as to who can file the application under section 12A? Crucial aspect of the matter is that section 12A begins with the phrase The provisions of section 11 and section 12 shall not apply in relation to the income of any trust or institution unless the following conditions are fulfilled, namely:- (a) the person in receipt of the income has made an application for registration of the trust or institution in the prescribed form and in the prescribed manner to the commissioner-------------. Therefore at the threshold stage itself there is a requirement that such a person can claim exemption only when the recipient of the income makes an application to the Commissioner. Even if the rules made there under do not provide who should sign the application, it is evident from the substantive provisions that the person recipient of the income alone can make such application if it has to claim exemption under section 11 and 12 of the Act. If a person other than the said person files application for reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n its income. Clause (20A) of section 10 was omitted from the statute by the Finance Act, 2002 with effect from 1st April 2003 relatable to assessment year 2003- 04. From the said assessment year, that is, 2003-04 onwards, it started filing its returns of income and paid taxes on the income returned for these years. Assessments for assessment years 2003-04, 2004-05, 2005-06 and 2006-07 have already been completed which are placed in the paper book filed by the department. The appellant-authority filed appeals for these years and ld. CIT(Appeals) have after hearing the appellant-authority passed appellate orders in respect of assessment years 2003-04, 2004-05 and 2005-06. The assessment year-wise position of status claimed, income returned, status in which assessment made, nature and amount of addition made to the returned income, income assessed, date of assessment order and revised income consequent to appellate order of the ld CIT(Appeal) is given at page of (5) of the impugned order under section 12AA of the Act passed by the respondent. It shall be interesting to find that the appellant-authority preferred application under section 12AA of the Act only after a notice un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment year, that is, assessment year 2008-09. From the next assessment year 2009-10, section 2(15) has further been amended so as to exclude such entities who are engaged in trade, commerce or business from exemption under section 11of the Act. 10. At page 231 of its compilation, the appellant-authority has enclosed a copy of the letter dated 3rd June 2008 addressed to the respondent-CIT. In this letter, inter alia, it has sought to explain the reasons for the delay in filing application for registration under section 12AA and excerpts from Para 2.2 of this letter is reproduced hereunder: It was only after a serious thought given to the issue that the applicant-authority came out of the aforesaid bonafide ignorance of the relevant legal provisions and this transformation arose after an opinion in that behalf was sought from our present representative Shri Anil Garg, FCA. He, after going through the judicial pronouncements from various benches of income-Tax Appellate Tribunals and also authoritative decisions from higher judiciary i.e. from the Hon High Courts and the Apex Court, apprised this applicant-authority of the correct legal position about the eligibility of exempt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the extent of income was up to a particular level, it never thought that it can claim exemption or should file an application under section 12AA, but when income rose to a substantially high level with the sale of big chunk of land on a purely commercial basis, it was reminded of exemption which it may like to claim. 11. We have considered the rival submissions of ld. representatives of both sides on the issue of validity of signing of application for grant of registration u/s 12A/12AA of the Act by the CEO. We have also perused the material available on the file. Brief facts are that the appellant Indore Development Authority (hereinafter referred to as IDA ) is a statutory authority established by the Government of MP in exercise of its powers conferred under section 38(1) of the Madhya Pradesh Nagar Tatha Gram Nivesh Adhiniyam, 1973( Act No. 23 of 1973) vide Notification No. 1668 XXXII-77, w.e.f. 13th May, 1977 for the area comprised within the Indore Planning Area as specified in the prior notification issued by Town Country Planning Department as referred to in the above Notification (Copy of Notification regarding establishment of the authority has already been filed i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ose as scribed to in section 2(15). It was also emphasized that the authority being a statutory authority there cannot be any doubt about the genuineness of its activity. (Refer Page No. 8 to 13 and Page No. 14 to 30 of the compilation) 12. The aforesaid application along with annexures/documents was followed by letter dated 24.3.2008 (Page No. 223 of compilation) and a further letter dated 28/04/2008 requesting the ld CIT to dispose off the application at an early date in light of the latest decision of the Apex Court in the case of CIT Vs Gujrat Maritime Board reported in (2008) 214 CTR (SC) 81 (Refer Page No 224 to 226 of the compilation). 1) The appellant received notice dated 30/05/2008 from the office of ld. CIT requiring to explain certain points (Refer Page No 227 228 of compilation). 2) The above letter was replied by the appellant vide reply dated 03/06/2008 Point wise reply given to the query letter (Refer Page No. 230 to 240 of compilation). Copy of Audited Financial Statements and copy of Audit Report in prescribed Form No. 10B for last three financial years were also submitted along with the letter (Refer Page No. 100 to 210 211 to 222 of our compilation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lly a business organization created by notification and its activities cannot be said to be the activities towards the object of advancement of the general public utility. 14. If the totality of the facts are analysed, we have found that the ld. CIT treated the application for registration as invalid because the same was signed by CEO of the assessee. According to the ld. CIT, the CEO, not being the head of the institution and also not being the person at the helm of the affairs of the IDA is not competent to sign application on Form No.10A for getting registration u/s 12A/12AA of the Act. In this respect, the contention of the appellant is two fold. Firstly, the appellant desires to contend that in absence of any specific requirement of law regarding signing of application u/s 12A/12AA by Chairman, the CEO who is the principle officer, being statutorily appointed Secretary of IDA, is competent to sign and file an application for registration u/s 12A/12AA on behalf of IDA and hence such application signed by CEO cannot be treated as invalid. Chief Executive Officer, appointed under section 46 of the Madhya Pradesh Nagar Tatha Gram Nivesh Adhiniyam, 1973, being the Secretary of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rm 10A. Neither the provisions of section 12A/12AA nor rule 17A lay down/prescribe any mode of signing the application. Under the circumstances, one may refer to the provisions regarding signing of the Return enjoined under section 140 of the IT Act. According to sub-clause (d) of the said section, a Return of Income in case of local authority is to be signed and verified by the principal officer thereof. Similarly, according to sub-clause (e) a return in case of any other association is required to be signed by any member of the association or the principal officer thereof. And, return in case of any other person not falling in the above clauses, is required to be signed by that person or by some person competent to act on his behalf. In the instant case, the CEO, who is the principal officer being the Secretary of the IDA, is competent to sign the Returns on behalf of the IDA and has actually filed returns on behalf of IDA which have duly been accepted by Department and IDA has been assessed on the basis of such returns. Under the circumstances, if an application under section 12A/12AA is signed by a person who is competent to sign the Return of such authority, cannot be treated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... treated as valid return by placing reliance upon the definition of the word Principal Officer in sec. 2(35). In another case of CITvs. Hope Textiles Ltd. (287 ITR 321) (MP), wherein in the light of Rule 45 r.w.s. 140 of the Act, it was held to be directory and not mandatory, therefore, the Hon ble jurisdictional High Court affirmed the decision of the Tribunal in remanding the case to ld. CIT for giving opportunity to the assessee to sign memo of appeal in confirmation with Rule 45 r.w.s. 140. The Hon ble Court held that such requirement is only directory requiring grant of an opportunity to get proper signature. In view of this fact, we are not in agreement with the conclusion of the ld. CIT that signing of application only by the Chairman is mandatory especially when it was duly signed by the CEO of the assessee who is also member secretary to Indore Development Authority (in short IDA). Even otherwise, the returns filed by IDA and duly signed by the CEO were accepted without raising any objection, therefore, we are of the considered opinion that the application for grant of registration u/s 12A/12AA cannot be said to be invalid. It is pertinent to mention here that instead of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such circumstances shall provide an opportunity to the assessee to rectify the defect u/s 139(9) before treating the same to be invalid and non-est. In the present appeal, even an application duly signed by the Chairman was filed by the assessee, therefore, on this ground, it can be said that in view of the ratio laid down in the aforesaid decision, though on validity of return, the ld. CIT is not justified to reject the application. The Hon ble Apex Court in the case of Narendra Kr. J. Modi vs. CIT(105 ITR 109) (SC) clearly held that return of HUF can be signed by junior member. The Hon ble Calcutta High Court in Sri Sri Sridhar Jiew vs. ITO (63 ITR 192) held that the concept of a Hindu deity is such that it must be taken that the signature of the shebait is the signature of the deity itself. Even otherwise, there is no specific requirement under the Act for signing the application u/s 12A/12AA that it can only be signed by the Chairman. Since the CEO, being statutorily appointed secretary of the IDA, is a Principal Officer , therefore, very much competent to sign and file an application for registration u/s 12A/12AA on behalf of the IDA, hence, such application, signed by the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ying registration u/s 12A/12AA. The submissions made on behalf of the assessee are that since the exemption under ss. 10(20)/10(20A) of the Act stands withdrawn w.e.f. from AY 2003-04, the appellant has flied an application u/s 12A/12AA of the IT Act for registration as a charitable institution. The IDA is a successor to the Indore Improvement Trust which was established under the Town Improvement Trust Act, which has been repealed with the coming into force of the MP Nagar Tatha Gram Nivesh Adhiniyam, 1973 by virtue of section 87. Thus, there is a statutory legal obligation upon the authority constituted/established under the said provision to carry on the activities in accordance with Act. The registration, if allowed, would entitle the appellant to claim exemption under ss. 11 12 in respect of its income subject to the conditions of the said section. Section 12A provides that provisions of sec.11 12 will not apply unless the person in receipt of income has made an application for registration of the trust or institution and such trust or institution is registered u/s 12AA. Section 12AA lays down procedure for registration and requires the ld. CIT to examine the genuineness ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of that Adhiniyam would determine the object of activities of IDA. Scheme of the said Act was explained as under: (1) The IDA is a statutory authority established/created by the Government of Madhya Pradesh in exercise of its powers under section 38 of the Madhya Pradesh Nagar Tatha Gram Nivesh Adhiniyam, 1973. According to the applicant, the object of establishment of the IDA is advancement of the causes of general public utility. In this respect, the appellant has already placed on record a detailed note on the various activities undertaken by it IDA (Refer Page No. 8 to 13) along with a detailed note on the admissibility of its claim regarding grant of registration under section 12A/12AA (Refer Page No. 14 to 30). For determining the object for which the institution has been established/created, a reference was made to the preamble of the statute which has been reproduced at Page No. 14 of the compilation (Also given at top of the Page No. 31 of the Compilation). The Act namely, the Madhya Pradesh Nagar tatha Gram Nivesh Adhiniyam has been enacted by the State of Madhya Pradesh for making a provision for planning and development and use of land; to make better provisions for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act, no one can say that the intention of the State of Madhya Pradesh in legislating this law is to carry on the real estate business like a private builder. In any event surplus arising to various Authorities constituted under the legislation is necessarily required to be deployed for its objects only and no part of the surplus can be distributed to any person or agency by way of profit or dividend. The ld. Counsel for the assessee took us to the provisions of the Act of the IDA by explaining the relevant section, which will be discussed while disposing of the issue. It was further submitted that the analysis of the Act and the provisions regarding constitution of the town and country development authority would enable this Hon ble Tribunal to appreciate the object of the legislation and the object with which the authority has been established. It would be clear that the object of the legislation is only advancement of general public utility. The act aims at welfare of the public as a whole by planned development of cities, towns etc, by allocating land for various purposes. 19. It was submitted that the aim of the assessee is to determine the land use for overall develop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all other purposes except section 10(20) still is that of a local authority, being a successor of the improvement trust which was in existence prior to the establishment of the IDA. The ld. Counsel for the assessee submitted that in a number of judicial pronouncements the apex court has laid down the test for determining whether the object of an institution are for charitable purpose as defined in section sec.2(15) of the Act . The Courts have interpreted the expression advancement of objects of general public utility in the context of statutory authorities. It has also been held that where the predominant object is to carry out charitable purpose and not to earn profit, it would not loss its charitable character merely because some profit arises from the activity. The following cases were relied upon: - (i) Decision of the Supreme Court in the case of CIT vs. Gujarat Maritime Board reported in 295 ITR page 561 = (2008) 214 CTR (SC) page 81 = (2008) 166 Taxman page 58 (Refer Page No. 1 to 5 of Judgment Compilation Book, in short JCB). It was pleaded that their Lordships, while considering the similar case of Gujarat Maritime Board established under the provisions of Gujarat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts which promote welfare of the public and it cannot be said that a purpose would cease to be charitable even if the public welfare is intended to be served. If the primary purpose and dominant objects are to promote welfare of the general public, the purpose would be charitable purpose. It has further been held when an object is to promote or protect the interest of a particular trade or industry, that object becomes an object of public utility but not so if it seeks to promote the interest of those who promote or conduct the said trade or industry. Their Lordships after applying the ratio of the earlier decisions and in particular the ratio of decision in the case of Andhra Pradesh State Road Transport Corpn (supra) came to the conclusion that the Gujarat Maritime Board was established for the dominant purpose of development of minor ports within the State of Gujarat, the management and control of board is essential with the Government and there is no profit motive. The income of the board is deployed for the development of the ports in India and hence according to Their Lordships, the board was entitled to registration as a charitable institution. 21. It was submitted by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is to carry out charitable purpose and not to earn profit, it would not lose its charitable character merely because some profit arises from the activity. 50 (viii) Himachal Pradesh Environment Protection and Pollution Control Board vs. CIT(2009) TTJ (Chd) 98 The ld. Advocate explained that the following cases are also in favour of the assessee: - (i) CITvs. Improvement Trust, Moga (2008) 15 DTR (P H) 217 (ii) Lucknow Development Authority vs. ITO (Tech.) (Luck) unreported judgment copy. (iii) Improvement trust vs. CIT(2007) 12 SOT Page 307 (Del.) (iv) Mormugao Port Trust vs. CIT(2007) 112 TTJ (Panaji) 681. KRISHI UPAJ MANDI SAMITIS CONSTITUTED UNDER THE STATUTORY PROVISIONS HAVE BEEN HELD TO BE ENTITLED TO REGISTRATION UNDER SECTION 12A BY THE JURISDICTIONAL HIGH COURT AND THE JURISDICTIONAL ITAT. (i) CIT vs. Krishi Upaj Mandi Samiti 170 Taxman page 515 (MP-Indore Bench of the High Court of Madhya Pradesh), (Refer Page No. 107 to 110 of JCB) after analyzing the preamble of the statute under which the krishi upaj Mandi samitis are established, held that the object of Mandi samiti is benevolent and as such it is entitled to registration under section 12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 ITJ page 325 ITAT, Indore Bench. ITAT, Indore Bench, Indore has also followed the above decisions and held that Krishi Upaj Mandi Samities are entitled to registration under section 12A/12AA. (vi) CIT vs. Krishi Upaj Mandi Samiti, Khargone (2009) 13 ITJ page 504 (MP), Indore Bench of M.P. High Court. 24. The ld. Counsel for the assessee submitted that if the impugned order passed by ld. CIT is examined in the light of these principles laid down by the judicial pronouncement , it would be clear that the order suffers from the vice being affected by irrelevant considerations rather than deciding the applications according to ratio of these decisions. The ld. CIT has not at all applied its mind to the object of legislation under which IDA has been established but laid unnecessary stress upon the fact that the IDA sells developed plots of land at prevailing market value as if sell of real estate is the only activity carried on by IDA. The CIT has completely lost sight of the fact that apart from development sell of developed land etc IDA as a part of its of development of the planning area within its jurisdiction, carries on many other projects for the overall development ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to workers of closed textile mills of Indore, It has also established statues of national heroes and divine historical personalities such as Shahid Chandrashekhar Azad, Rani Avantibai, Chandragupta Mourya etc. viii) A project of old age homes for old aged persons is also under progress. It was pointed out that the sale proceeds of commercial plot sold to Reliance Industries for substantial amount have also been mainly deployed for above activities. 26. The Bench directed the ld. Counsel for the assessee to differentiate the activities of the assessee as from a private colonizer, these were explained as under: Sno. Particulars Qua a private colonizer Qua IDA 1 Constitution May be a sole proprietorship firm, partnership firm, AOP or a company A statutory authority constituted under an enactment of the State 2 Pre-dominant object Is to make maximum profit by selling its properties Is to implement proposal for planning and development of notified area. It is instrumental ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etc.. All the decisions are taken by such Board only. The term of office of the members of the Board is at pleasure of State Government under s. 42(2) 7 Control of the State A private colonizer is not accountable to State Government. IDA under s. 52 is bound by the directions given by the State Government from time to time. Under s. 24 the overall control of development and use of land in the State shall vest in the State Government only. Thus the land owned by the IDA is under the control of State Government only under s. 76BB, the State Government can enquire into the constitution, working and financial conditions of a development authority. 8 Acquisition of Land A private colonizer is not authorized to compulsorily acquire any land for carrying on its activities. It is for the reason that land is not used by him for public cause but for serving his own interest of making profit. IDA under s. 55 is entitled to acquire land for public purposes. If the object is not to serve the public than IDA cannot acquire any land. Further, if the land is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Many times but not private colonizer make violation of various permissions and approvals as regard to sanction of map, permissible built-up area etc. with a motive to maximize their profit IDA being a public body cannot make even a slights variation from its plans and approved maps. 13 Audit by local fund Auditors Not Applicable Each and every in flow and out flow of funds of IDA is pre-vouched by local fund auditors of the Government. 14 Appointment and termination of staff No binding It has to be strictly in accordance with the rules and regulations of the State Government under s. 80. Every member and officer of the authority is deemed to be a public servant within the meaning of section 21 of the Indian Penal Code, 1860 15 Utilization of the Funds A private colonizer can utilize the funds in any manner of his choice. IDA can utilize its fund only for the objects for which it has been established. 16 Investmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . CIT(2007) 109 TTJ (Asr) 850. Dharma Sansthapak Sangh (Niyas) vs. CIT(2008) 118 TTJ (Del.) 823 Modern Defence Shikshan Sansthan vs. CIT(2007) 108 TTJ (Jd) 732 Shiya Dawoodi Bohra Jamat, Neemuch vs. CIT(2007) 9 ITJ 409 (Ind Tri.) DIT vs. Garden City Educational Trust (2009) [28 DTR (Kar) 139] H.P. E.P. P.C.B. vs. CIT(2009) [125 TTJ (Chd) 98] Adl. CIT vs. Vatsalya Senior Secondary School (2010) [130 TTJ/Indore/UO/27] 28. The ld. Counsel for the assessee further contended that the decision in the case of Adityapur Industrial Area Development Authority vs. UOI others (2006) 283 ITR 97 (SC) is not a binding precedent in the present matter rather the decision in CIT vs. Gujarat Maritime Board (295 ITR 561) (SC) is applicable. 64 29. On the other hand, the ld. CCIT, DR Shri Girish Dave strongly defended the impugned order and explained the facts of the case, the provisions of the Adhiniyam, Rules framed thereunder as well as various forms prescribed under the Adhiniyam. Mr. Dave took us to various paras of the impugned order along with sec. 10 clause (20A) of the Act. Circular no.8 of 2002 dated 27.8.2002 reported in 258 ITR (Statute) 13 and the provisions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the 98[***] Commissioner is, for reasons to be recorded in writing, satisfied that the person in receipt of the income was prevented from making the application before the expiry of the period 99 aforesaid for sufficient reasons; (ii) from the 1st day of the financial year in which the application is made, if the 1[***] Commissioner is not so satisfied:] 2 [Provided further that the provisions of this clause shall not apply in relation to any application made on or after the 1st day of June, 2007;] 2[(aa) the person in receipt of the income has made an application for registration of the trust or institution on or after the 1st day of June, 2007 in the prescribed form 3 and manner to the Commissioner and such trust or institution is registered under section 12AA;] (b) where the total income of the trust or institution as computed under this Act without giving effect to 4[the provisions of section 11 and section 12 exceeds the maximum amount which is not chargeable to income-tax in any previous year], the accounts of the trust or institution for that year have been audited by an accountant as defined in the Explanation below sub-section (2) of section 288 and the person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Commissioner is satisfied that the activities of such trust or institution are not genuine or are not being carried out in accordance with the objects of the trust or institution, as the case may be, he shall pass an order in writing cancelling the registration of such trust or institution: Provided that no order under this sub-section shall be passed unless such trust or institution has been given a reasonable opportunity of being heard.] In the light of the aforesaid provisions of the Act, we are framing certain questions and deliberate upon them: 31. Whether the quantum of income be permitted to be the determinative factor for the status of the appellant-authority? The assessee authority is in existence since May 1977. It was enjoying exemption from income tax under section 10(20A) of the I T Act, 1961 on its income. Clause (20A) of section 10 was omitted from the statute by the Finance Act, 2002 with effect from 1st April 2003 relatable to assessment year 2003-04. From the said assessment year, that is, 2003-04 onwards, it started filing its returns of income and paid taxes on the income returned for those years. Assessments for assessment years 2003-04, 2004-0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lness of this explanation as from the conduct of the appellant-authority, it is clear that from assessment year 2003-04 onwards, it started filing its return of income and it was this period when the effect of the omission of clause (20A) of section 10 commenced. It was also clear from the amendments that certain authority which was claiming exemption under the said clause were included in the amended clause (20) of section 10 by the same Finance Act with effect from 1st April 2003. Knowing fully well that with the amendment in law by the Finance Act, 2007, it was not open for it to make an application under clause 12A (1) (a), it sought to make such an application under clause (aa) of the said section though it knew that this provision would allow it an exemption only for one assessment year, that is, assessment year 2008-09. From the next assessment year 2009-10, section 2(15) has further been amended so as to exclude such entities who are engaged in trade, commerce or business from exemption under section 11of the Act. At page 231 of its compilation, the appellant-authority has enclosed a copy of the letter dated 3rd June 2008 addressed to the respondent-CIT. In this lette ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. CIT(A). Thus, this explanation is completely untrue. In fact, by such a conduct the appellant-authority cannot be said to be coming with clean hands before this honorable forum. How can a responsible organization of this nature that is entrusted with the development of a vast city plead that it was ignorant of law, particularly when it was enjoying exemption under section 10(20A) and that exemption was withdrawn. Consequent to this amendment, the appellantauthority started filing returns of income for succeeding years and paid taxes thereon. It was only when the liability increased to a substantial extent that it sought to object for the imposition and attempted to seek exemption by filing application for registration under section 12AA. Such an action on its part suggests that till the extent of income was up to a particular level, it never thought that it can claim exemption or should file an application under section 12AA, but when income rose to a substantially high level with the sale of big chunk of land on a purely commercial basis, it was reminded of exemption which it may like to claim. 34. Whether the relevant law should be construed as a whole or in piecemeal as i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ectively, Municipal Committees and District Boards legally entitled to or entrusted by the Government with the control or management of a Municipal or Local Fund and Cantonment Board as defined under section 3 of the Cantonment Act, 1924. These entities are included in clause (20) of section 10 by way of an explanation inserted by the Finance Act, 2002 with effect from 1st April 2003 as these were getting exemption along with other local authorities like urban improvement trusts, development authorities, agricultural marketing societies and agricultural market boards etc., under clause (20A) of section 10 which was omitted from the statute by the Finance Act, 2002 with effect from 1st April 2003. Para 12.3 states that exemption under clause 20 of section would, therefore , not to be available to agricultural marketing societies and agricultural market boards, etc., despite the fact that they may be deemed to be treated as Local Authorities under any other Central or State Legislation. Exemption under this clause would not be available to port trusts also. 35. Clause (20A) of section 10 as it stood prior to its omission by the finance Act 2002 is reproduced as under: Any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng authorities, etc., would not be eligible for deduction in the hands of donors and this may result in drying up of donations. To continue the incentive to donation made to housing authorities, etc., section 80G has been amended so as to provide that 50% of the sum paid by an assessee to an authority constituted in India by or under any law enacted either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, or for both, shall be deducted from the total income of such assessee. 13.4 These amendments will take effect from 1st April 2003 and will, accordingly, apply to the assessment year 2003-04 and subsequent assessment years. 37. The issue is whether the appellant-authority is permitted to seek registration only for one year and to draw advantage of its own gross negligence and ignore the scheme of the Act. The legislature s intention is clear that these entities are not entitled to exemption from tax on their total income for and from assessment year 2003-04 onwards and the comprehensive legislation brought out by changes in clauses (20) and (20A) of secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f providing exemption to Agricultural Produce Marketing Committees and Boards, inserted clause (26AAB) in section 10 by the Finance Act, 2008 with effect from 1st April 2009 to provide such exemption and Development Authorities were still kept out of such exempted category of persons. The intention of the legislature is clear from amendment whereby Clause (15) of section (2) is substituted by the Finance Act, 2008 with effect from 1st April 2009 providing that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity. On a conjoint reading of all these provisions, it becomes clear that because of dominant purpose being carrying on of business, the development authorities are not considered to be persons involved in charitable activities. 39. Whether the activities of the appellant-authority fits in to the over-all s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hority that it is engaged in carrying on of business. This fact is further confirmed in Columns (8) and (17) of Form No 3CD for all these years. Whether this carrying on of business is incidental to the attainment of the objectives of the appellant-authority would be discussed separately. (iii) Filing of the reports of audit of the accounts in Form No 10B: Appellant-authority has also filed audit reports in respect of the years ending on 31st March 2005, 31st March 2006, and 31st March 2007 in Form No s 10B under Rule 17B read with section 12A (b) of the Act. It can be seen from the information available in these Forms that except information in Columns (1) and (3), in every other column, the remarks are Not required , Not Applicable , No or Not Noticed . Information in column (1) is the figure of total expenditure incurred during the year and column (3) provides the net profit earned after the payment of tax which has been carried over to the balance sheet of that year. (iv) Observations in the order under section12AA: The factual aspects noticed from the above documents have been gone through by the respondent and certain conclusions have been drawn the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment thereof can be imposed. Such regional plan is subject to review. Chapter IV of the Act provides for carving out planning areas and preparation of development plans. Development plans are required to be prepared and finalized only in relation to the planning areas. An area, however, which is notified, can be sub-divided into planning areas and non-planning areas. Chapter V of the Act deals with the preparation, finalization, review and modifications of the zonal plan wherewith we are not concerned much in these appeals. Chapter VI of the Act provides for control of development and use of land. In terms of Section 24 of the Act, the Director is to control land use. Preparation of development plan, prohibition of development without permission and matters connected therewith and incidentals thereto are also dealt with in Chapter VI. Chapter VII of the Act, however, provides for shift of control in respect of land use and development for the hands of the Director and, consequently of the State to the Town and Country Development Authority. Section 38(1) of the said Act provides that the State Government may, by notification, establish a Town and Country Development Aut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies of the Board as also power to issue directions are circumscribed by the provisions contained in Sections 72 and 73 of the 1973 Act. 42. The Act envisages the following steps which are required to be complied with: (a) Constitution of a planning area by notification under Section 13. (b) Compliance of the detailed procedure set out under Sections 14 to 19, leading to sanction of the development plan under Section 19. The said procedure envisages compliance of principles of natural justice. (c) Section 38 provides for establishment of a Town and Country Development Authority, by notification for such areas as may be specified in the notification . Under sub-section (2) thereof, duties of implementation of the development plan and preparation of the town development scheme have been cast on the Town and Country Development Authority. (d) The town development scheme is to be prepared upon following the procedure set out under Section 50. The said scheme can be prepared only when there exists a development plan, prepared in accordance with the procedure prescribed under the Act as envisaged under Sections 14 to 19 and after notification under Section 38(1). In this r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovisions with regard to the appointment of Chief Executive Officers contained in Chapter IX A and control over them exercised by the State Government also confirms this conclusion. In Reserve Bank of India vs. Peerless General Finance and Investment Co. Ltd. [(1987) 1 SCC 424] this Court stated: ... If a statute is looked at, in the context of its enactment, with the glasses of the statute-maker, provided by such context, its scheme, the sections, clauses, phrases and words may take color and appear different than when the statute is looked at without the glasses provided by the context. With these glasses we must look at the Act as a whole and discover what each section, each clause, each phrase and each word is meant and designed to say as to fit into the scheme of the entire Act. ... 45. Whether ld. CIT can make enquiry at the time of grant of registration under section 12AA: It has been held by Hon ble High Court of Madhya Pradesh in the case of Shri Sarafa Association v CIT reported in (2007) 163 Taxman 228 (MP) that enquiries can be made by the CIT. Similar view is expressed by Hon ble High Court of Delhi as well by the Delhi Bench of ITAT in the case of Kir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pose for which established cannot be equated with the object and purpose of the appellantauthority. This would be evident from a comparison of relevant statutes establishing an Agriculture Produce Marketing Committee and the appellantauthority. In fact, the law has been amended with the insertion of Clause 26AAB in section 10 of the Act, whereby exemption earlier available to Agriculture Produce Market Committees has been restored by the Finance Act, 2008 with effect from 1/04/2009. In so far as decisions in the cases of UP Awas Vikas Parishad and others (2007) 162 Taxman 173 (Lucknow) is concerned, the issue was decided in favour of the appellants by holding that the land was being acquired by the State Government only for public purposes and that in case of dissolution of the authority, all the properties, funds and dues which were vested in or realizable by the authority, shall vest in or to be realizable by the State Government. There was no consideration of the issue as to what would be a public purpose. It is not necessary that every acquisition can be held to be a public purpose. The affected person can always challenge such a decision in any court of law and therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al was fixed and re-fixed on various dates for clarification. On 5.3.2010 the ld. Counsel for the assessee was directed to produce the relevant material to substantiate its submission which were claimed at page 42 of the written synopsis to which on 29.3.2010 the ld. Counsel for the assessee filed almost 20 documents wherein details of productive work in public trust were filed. The details are very lengthy which are summarized as under :- [Details of unproductive work in public trust] Sr. No. Particulars Page No. Remarks 1. Audited A/cs. for F.Y. 2008-09 270-287 Not relevant since for fromA.Y.2009-10, the definition of the term Charitable Purpose in Section Sec.2 (15) is amended. Since, IDA is engaged in business activities, it is not entitled for exemption under the amended law for from the said assessment year. 2. Allocation of Tatal Exp. F.Y. 2008-09 288-290 3. Details of Exp. F.Y. 2008-09 291-293 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A.Yr. 2008-09 18.82 Crores A.Yr. 2009-10 10.49 Crores A.Yr. 2010-11 16.97 Crores 46.60 Crores 383-409 M/s. Niraj Pratibha JV, Mumbai 13. BRTS 06.50 km. Corridor*** Photographs Page No. 410-414 Page no. 415 410-423 M/s. Niraj Cement Strictures Pvt. Ltd., Mumbai 14. BRTS 04.75 km. Corridor*** Photographs Page No. 424-427 Page no. 428 Under JNNRUM Plan 30% is contributed from own sources A.Yr. 2007-08 0.08 Crores A.Yr. 2008-09 2.34 Crores A.Yr. 2009-10 3.26 Crores A.Yr. 2010-11 3.11 Crores 8.79 Crores 424-439 M/s. Niraj Cement Strictures Pvt. Ltd., Mumbai 15. Western Ring Road*** A.Yr. 2009-10 (No further details) 440-441 16. Building for Old Aged Homes*** Photographs Sr. No. 207 Page No. 442 American Color Lab Page no. 443 A.Yr. 2008-09 0.76 Crores A.Yr. 2009-10 0.18 Crores 0.94 Crores ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sh would mean that from this work, no income would generate to the Authority. All the 20 documents forming part of the compilation itself are interestingly marked with the title unproductive work and thus convey the real intention of the appellant that it is primarily engaged in business activities with profit motive. For some of these works Grant-in-Aid is received either from the Central or the State Government. All these works are executed by the contractors and not by the Authority. These facts go against any avowed object of charity. The appellant has sought to furnish this bulky information in support of its claim that it is engaged in activities which may fall within the ambit of the term Object of general public utility , but has failed to furnish any information required by Hon ble Bench in respect of the impugned plot sold to the Reliance industries Ltd. It is pertinent to mention here that on earlier occasion also the Bench directed the assessee to furnish the details of cost of acquisition of the said plot paid by the Authority to the original owner(s), the purpose for which it was earmarked in the Master Plan of the city at the time of acqui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a authority, then no two yard sticks should be adopted. At the outset, we are of the view that we are not agree with the contention of the ld counsel because if the intention of creating Patiala authority was the same then there was no need of its creation as the same objects would have been fulfilled by the bigger unit i.e. the assessee. At the same time, resjudicata is not applicable in income tax proceedings. We do not want to comment as why and how the registration was granted to Patiala authority as the same is not pending before us for adjudication. Reliance can be placed upon the decision pronounced by the Hon'ble Apex Court in the case of Distributors (Baroda) Private. Ltd. Vs. UOI Others wherein the Hon'ble Apex Court held that It is almost as important that the law should be settled permanently as that it should be settled correctly but there may be circumstances where public interest demands that the previous decision be reviewed and re-considered. The doctrine of stare decises should not deter the court from overruling an earlier decision, if it is satisfied that such decision is manifestly wrong or precedes upon a mistaken assumption in regard to the existen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is a major shift in the law with regard to institutions who are claiming charities. This is a well known fact that in some of the situations the provisions of law is misused in the names of charities. If an expanded/broader latitude is extended to the word charity, then there are so many institutions/departments who will try to come under the umbrella of this provisions to misuse the provision. Therefore, for the broad development of the nation/society, a strict and positive vigil is required so that the provision can be saved from its misuse in any manner. We are aware that no activity can be carried on efficiently, properly unless and until it is carried out on business principle but it does not mean that the provision is misused in any manner under the garb of charity and any institution is allowed to become richer and richer under the garb of charity by making it a non-tax payable organization. In the case of Surat Art Silk Cloth Manufactures Association and Bar Council of Maharashtra cases, it was held that what is predominant object of the activity whether r it is to carry out a charitable purpose and not to earn profit the purpose should be that it should not loose its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o emerged that PUDA, i.e. the assessee has started auctioning the plots by way of bidding at the market rate and sometimes more than that and charging interest on belated payments. In such a situation, we are of the view that no charity is involved. Rather the assessee has converted itself into a big businessman. Similar development/infrastructure/facilities are provided by big developers these days, then they will also claim the status of a charitable institution. During argument the ld counsel relied upon the decision of the Hon'ble Apex Court pronounced in the case of Adldl. CIT Vs. Surat Art Silk Cloth Manufactures Association (121 ITR 1) (SC) where the assessee was incorporated under the Companies Act wherein the dominant or the primary purpose of the assessee was to promote commerce and trade in art silk yarn, raw silk, cotton yarn, art silk cloth, silk cloth and cotton cloth as set out in Clause (a) and the object specified in Clauses (b) to (e) and the object was found to be public utility not involving the carrying on of any activity for profit within the meaning of Section 2(15), the assessee was held to be entitled for exemption under section 11 (1)(a) of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rve as ancillary objects and which were meant to feed the dominant purpose. Clause 21 of the Trust Deed empowered the Chairman of the trust to spend the funds of the Trust for the purchase of immovable property and since no part of the income of the Trust was applied on any specific charitable purposes, the exemption under section 11 of the Act was denied. The Hon'ble court relied upon various judicial pronouncements which are available at Page 515 of the said order and then came to a particular conclusion. In view of these facts and judicial pronouncements, we are supposed to see the predominant object of the assessee. If all the objects and activities actually carried out by the assessee are analysed and kept in juxta position with the aforesaid judicial pronouncements, we are of the view that activities of the assessee are more of commercial nature with profit oriented intent, so no leniency should be shown to the assessee. The department may also get support from the decision of the Hon'ble Patna High Court as pronounced in the case of Bihar State Forest Development Corporation Vs. (224 ITR 757) where the govt. company was formed for promotion and development of forestr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave discussed in the preceding para, the assessee acquires land at nominal rates and after developing the same, the same land on high profit which cannot be said to be a charitable activity. Even just for argument sake, under the present facts, if registration is granted then every private colonizer will claim charity. The facilities which are provided to the plot holders are incidental to the commercial activity carried out by the PUDA and if certain facilities like parks, community center school are provided is not only basic requirement, rather a tool of attracting the investors wherein the hidden cost of these facilities is already included. In the absence of these facilities, normally the purchaser may not invest and the prices may be less. In view of these facts and judicial pronouncements, we are of the view that the application of the assessee has been rightly rejected by ld CIT. The stand of the ld CIT is upheld. Appeal of the assessee is therefore dismissed. 50. In the aforesaid case, the Chandigarh Bench of the Tribunal on identical facts has considered various judicial pronouncements and ultimately decided the issue in favour of the revenue. Likewise, the Amritsa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interpreted the words, in section 2(15), namely, any other object of generally public utility . From the said decisions it emerges that the said expression is of the widest connotation. The word general in the said expression means pertaining to a whole class. Therefore advancement of any object of benefit to the public or a section of the public as distinguished from benefit to an individual or a group of individuals would be a charitable purpose CITv. Ahmedabad Rana Caste Association (1983) 140 ITR 1 (SC). The said expression would prima facie include all objects which prom ote the welfare of the general public. It cannot be said that a purpose would cease to be charitable even if public welfare is intended to be served. If the primary purpose and the predominant object are to promote the welfare of the general public the purpose would be charitable purpose. When an object is to promote the interest of a particular trade or industry that object becomes an object of public utility, but not so, if it seeks to promote the interest of those who conduct the said trade or industry CIT v. Andhra Chamber of Commerce (1965) 55 ITR 722 (SC). If the primary or predominant object of an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e advancement of an object of general public utility, it is that object of general public utility and not its accomplishment or carrying out which must not involve the carrying on of any activity for profit. So long as the purpose does not involve the carrying on of any activity for profit, the requirement of the definition would be met and it is immaterial how the monies for achieving or implementing such purpose are found, whether by carrying on an activity for profit or not. 51. If the aforesaid observation of the Hon ble Apex Court is analysed then business income of the assessee institution became entitled to exemption because such business was carried on to advance an object of general public utility notwithstanding the words not involving the carrying on of any activity for profit . In section 2(15) the said decision resulted in the amendment to section 2(15) 11 by Finance Act, 1983 w.e.f. 1st April a1984 and the words not involving the carrying on of any activity for profit omitted by Finance Act, 1983 w.e.f. 1.4.1984 in section 2(15) and profits and gains from business or profession were made expressly taxable through insertion of sub-section (4A) in section 11. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al estate business. Further, in the case of Indian Chamber of Commerce vs. CIT(101 ITR 796) (SC), the Hon ble Apex Court held as under: that the activities of the chamber being activities carried on for profit, in the absence of any restriction in its memorandum and articles of association against the making of profit from those activities, the income of chamber from those activities was liable to income-tax. Section 2(15) must be interpreted according to the language used therein and against the background of Indian Life. By definition in section 2(15) the benefit of exclusion from total income is taken away when in accomplishing a charitable purpose the institution engages itself in activities for profit. Commercial education activity and private coaching institutes are therefore not covered within the provisions of sec. 2 (15) for which reliance can be placed in CIT vs. National Institute of Aeronautical Engg. Education Society (2009) 184 Taxman 264 (Uttarakhand) and Bihar Institute of Mining and Mining Surveying vs. CIT(1994) 208 ITR 608 (Pat). Even otherwise, the onus on the assessee to prove that the objects are of charitable nature as was held by Hon ble Apex C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ately, these authorities turned into a commercial organization with the sole intention to earn maximum profit even at the cost of poor farmers whose lands are acquired, for namesake considered to be backbone of this great country, are paid negligible amount as compensation and after incurring development cost, the same land is sold at commercial rates. The helpless farmers sometimes have no means of even livelihood. Further, the profit motive of the assessee is not incidental to the objects of the assessee authority rather there is a systematic commercial activity with the intention to earn maximum profit. It is not the case that the assessee, after earning huge profit from such commercial activities, is spending such profit on charitable activities rather there is no obligation on the assessee to spend its earnings for charitable purposes. These authorities have become a great source of earning income in itself and the assessee authority is no exception to it. It is common knowledge/fact that the assessee authority is selling the developed plots on auction to the highest bidder and one such example is sale to Reliance near Sayaji Hotel as asserted by the learned CCIT DR which was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... objects of general public utility is a question of fact. If such assessee engages in any activity in the nature of trade, commerce or business or render any service in relation to trade, commerce or business, it would not be entitled to claim that its objects are of charitable purposes. In such a case, the objects of general public utility will only be a mask or a device to hide the true purpose which is trade, commerce or business or the rendering of any service in relation to such trade, commerce or business. Each case would, therefore, be decided on its own facts and no generalization is possible, therefore, any misuse was intended to be removed by this circular. The very concept of charity denotes altruistic thought and action. It objects must necessarily be to benefit others rather than one s self. The action which follows from charitable thinking is always directed as benefit to others. It is this direction of thought and efforts and not the result what is done in term of financially measurable gain which determines that it is charitable [quoted from Sole Trustee Lok Shikshan Trust vs. CIT(101 ITR 234) (SC)]. Since the main predominant object of the assessee is profi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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