TMI Blog2022 (7) TMI 490X X X X Extracts X X X X X X X X Extracts X X X X ..... , water charges, Malwa fees, land use conversion, F.A.R Fees, map charges etc. - The assessee has also earned income from allotted properties, which obviously is part of its activities to sell properties under various schemes,to carry out planned development of the development area under its jurisdiction. Much is said by Revenue as to earning of interest income by the assessee which as per Revenue shows that the assessee is earning income on commercial lines and thus now entitled for exemption u/s 11, as is reflected in its audited accounts for the year under consideration (placed in paper book filed by the assessee, which is now placed on record in file) The assessee, like, LDA in the case of Lucknow Development Authorit [ 2013 (9) TMI 570 - ALLAHABAD HIGH COURT] was also constituted under the provisions of 1973 State Act, and its activities are paramateria with the activities of LDA.Thus, it could be said based on detailed analysis of the 1973 State Act, activities carried on by the assessee and ratio of aforesaid decisions, that the assessee is engaged in the advancement of object of general public utility, the predominant object being town planning and development of develo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned Assessing Officer (hereinafter called the AO ) under Section 143(3)of the Income-tax Act, 1961 (hereinafter called the Act ) for ay: 2011-12, assessment order dated 30.03.2015 passed by AO under Section 143(3)of the 1961 Act for ay: 2012-13, assessment order dated 29.02.2016 passed by AO under Section 143(3)of the 1961 Act for ay: 2013-14 and assessment order dated 27.12.2016 passed by AO under Section 143(3)of the 1961 Act for ay: 2014-15. These four appeals were heard in Open Court through Physical hearing mode. 2. Since, all these four appeals involve common issues, these four appeals were heard together and are disposed off by this common order. With the consent of both the parties, appeal for ay: 2011-12 is taken as a lead case and our decision in ay:2011-12 shall apply mutatis mutandis to all the remaining three appeals for ay: 2012-13 to 2014-15. This is the second round of litigation before the tribunal. 3. The grounds of appeals raised by assesseein memo of appeal filed with Income Tax Appellate Tribunal, Varanasi (hereinafter called the tribunal ) for ay: 2011-12, reads as under: 1. Because the appellate order dated 05.09.2017 which has been impugned i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich the VDA/appellant had been constituted as an Authority for development of the Specified Development Area as assigned to it and the provisions, as referred to in brief in Annexure-1 to the rounds of appeal, the CIT(A) was obliged to hold that the activities carried on by VDA/appellant, even if consideration, were not hit by the proviso to Section 2(15) of the Act and accordingly it was entitled to exemption under section 211 of the Act. 6. Because the case of VDA/appellant is frequently covered by the decision of Hon ble Jurisdictional High Court in the case of CIT (Exemption), Lucknow vs. Moradabad Development Authority, Moradabad in ITA No. 3 of 2017, dated 05.05.2017 which in turn was based on the earlier decision of the Hon ble Jurisdictional High Court in the case of CIT(Exemption), Lucknow vs. Yamuna Express Industrial Development Authority and others, and the CIT(A) has erred in not following the said judgment, while dismissing the appeal. 7. Because the order appealed against is contrary to the facts, law and principles of natural justice. 4(i). The brief facts of the case (ay: 2011-12) are that the assessee filed return of income on 30.09.2011, decla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO observed that the assessee was formed with the sole object of ensuring the development of Varanasi. The AO observed that on dissolution of the assessee-authority, the assets of the assessee will revert back to State, which is duly mentioned in Section 58 of the 1973 State Act, which reads as under: (1) Where the State government is satisfied that the purpose for which the authority was established under this Act has been substantially achieved so as to render the continued existence of the Authority in the opinion of the State Government unnecessary, that Government may by notification in the Gazette declare that the authority shall be dissolved with effect from such date as may be specified in the notification, and the Authority shall be deemed to be disallowed accordingly. (2) From the said date- a. all properties, funds and dues which are vested in, or realizable by, the Authority shall vest in or be realizable by, the State Government; b. all nazul lands placed at the disposal of the Authority shall revert to the State Government; c. all liabilities which are enforceable against the Authority shall be enforceable against the State Government; an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... zation from allotted properties, interest from bank, interest from allottees and scheme loans and other receipts which are received by assessee from different parties are commercial in nature . The AO issued Show cause notice(SCN) to the assessee as to why these receipts may not be treated as in the nature of commercial /business/trade. The assessee submitted replies in reply to SCN, but the AO held the assesseeis engaged in the activities of acquisition of land and after development of land, selling that on commercial prices, approval of maps of residential and commercial constructions. The AO also observed that the assessee is also developing houses and selling it on commercial lines. The AO further observed that the assessee is engaged in the sale of shops. The AO also observed that the assessee is engaged in the business activities, and hence it has filed audit report u/s 44AB of the 1961 Act, in Form No. 3CB and Form No. 3CD. 4(v) the AO observed that the assessee has explained that the assesseeis engaged in the objective of developing Varanasi and has carried out various activities, to name a few: (i) for development of objects of general public utilities including ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per provisions of Section 2(15) of the 1961 Act, vide assessment order dated 28.02.2014 passed by AO u/s. 143(3) of the 1961 Act. 5. The assessee being aggrieved by assessment framed by AO, filed first appeal before ld. CIT(A), who was pleased to allow appeal of the assessee in first round of litigation. The Revenue being aggrieved filed second appeal with tribunal in first round of litigation, where in tribunal vide order dated 28.08.2015 in ITA No. 380/LKW/2015 for ay: 2011-12, restored the matter to the file of ld. CIT(A) for fresh adjudication, with following directions as under: 4. We have considered the rival submissions. We find that in the case of CIT vs. Lucknow Development Authority (supra), the judgment of Hon ble Allahabad High Court is on this basis that there is not material/evidence brought on record by the Revenue which may suggest that the assessee was conducting its affairs on commercial line with the motive to earn profit. It was held that under these facts, the proviso of Section 2(15) is not applicable. Now we examine the facts of the present case to find out as to whether the Revenue has brought on record any material/evidence which may suggest that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht on record by the revenue which may suggest that the assessee was conducting its affairs on commercial lines with motive to earn profit. The Hon ble ITAT also pointed out that in the original assessment order the A.O. came to the conclusion that the receipts of the assessee are commercial in nature and it was on these facts that the Hon ble ITAT opined that the case of Lucknow Development Authority cannot be made applicable to fact of the present case. The case was set aside simply because the predecessor CIT(A) has merely followed the judgment in the case of Lucknow Development Authority. 6. In Para-4 of the assessment order, the A.O. has observed that the objects of the authority as defined u/s 7 of the UP Urban Planning Development Act, 1973 is as under: The objects of the Authority shall be to promote and secure the development of the development area according to plan and for that purpose the Authority shall have the power to acquire, hold, manage and dispose of land and other property, to carry out building, engineering, dispose of land other property, to carry out building, engineering, mining and other operations, to execute works in connection with the supply ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore, it cannot be said irrevocable transfer which is meant exclusively for charitable purpose. Under these circumstances transfer of assets will be revocable and section 11,12 of the Income Tax will not apply. 7. The A.O. further noticed that the assessee is in receipt of income from the following sources: It is seen that during the assessment year 2011-12 the assessee is in receipt of income from the following sources:- S. No HEADS SCHEDULE NO. AMOUNT (RS.) 1 Realization from allotted properties 4,80,44,700 2 Interest from bank H 4,58,23,859 3 Interest from allottees Schemes Loans I 2,32,25,290 4 Others receipts K 6,65,61,591 The above detail show that the incomes in the form of realization from allotted property, interest from bank, interest from allotees and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s awarding the work. The nature of activities of the appellant are akin to the activity of any other developer, builder or colonizer. 9. Thus, it is clear that income derived by the assessee from above sources are purely in the nature of commercial activities, the S.2(15) of IT Act clearly provides that advancement of any other object of general public utility shall not be considered to be charitable in nature, if it involves, the carrying over any activity, trade, commerce or business or any activity or rendering any services in relation to any trade, commerce or business for a cess or any other consideration. It has been held by Hon ble ITAT, Amrtisar Bench in the case of Jammu Development Authority Vs. CIT, Jammu (2012) 23 taxmann.com343 (Asr.) as under: Section 12AA read with sections 2(15), 10(20), 10(20A) and 12A of the Incometax Act, 1961- Charitable or religious trust- Registration procedure-Main object of the assessee- development authority under Government Control was to promote and secure development of local area- Its activities were found to aim at earning profit and it was not mere incidental to its activity- There was no obligation on part of assessee to sp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... through a Board and subsequently, it should have been decided to from a separate autonomous body or statutory corporation to carry out or accelerate the process of Urban development including the urban area. Accordingly, UP Urban Planning and Development Act, 1974 was enacted and the assessee Authority was notified under the Act. At that point of time, the assesse authority was enjoying monopoly, i.e. it was the only organization involved in orderly development of urban plots. As observed earlier, the profit motive should have been absent at that point of time. Since,the urbanization brought in many economic benefits, like, development of undeveloped areas, economic activity, employment, generation of fresh taxes etc. It was considered to be useful to the public at large and hence the activities of the assessee was considered to be an object of general public utility falling within the definition of charitable purpose as defined u/s 2(15) of the Act. However, we notice there appears to be drastic change in the approach of the assessee. In the present days, the assessee appears to be adopting the system of offering plots/space by way of auctioning /tender, obviously the object is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Computerization of Registration offices Patna vs. CIT dt. 30.10.2009 in ITA No. 61/pat/2009 rendered by Patna Bench of this tribunal relate to prior to the insertion of proviso to Section 2(15). 31. But, in our opinion, the proviso under Section 2(15) is not retrospective. It has been added by the Finance Act, 2008 w.e.f. 1.4.2009 i.e. from A.Y. 2009-10. A provision can be regarded to be clarificatory when there is an ambiguity in the interpretation of the provision. Section 2(15), as it stood prior to the insertion of the proviso, did not have any ambiguity. The section, defines charitable purpose by giving an inclusive definition mentioning therein charitable purpose includes relief to the poor, education, medical relief and advancement of any other object of general public utility. In the case of Section 2(15) as it existed prior to the insertion of the proviso, there was no ambiguity on the interpretation of section 2(15)-what does the advancement of any object of general public utility mean? Whether it includes therein carrying on of any activity in the nature of trade, commerce or business. In fact, by putting the proviso by Finance Act, 2008 w.e.f 2009 the legislat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, (b) Any activity of rendering of any service in relation to any trade, commerce or business, for a fee or cess or any other consideration, irrespective of the nature of use of application of the income form such activity or the retention of such income, by the concerned entity. This amendment will take effect from the 1stday of April, 2009 and will accordingly apply in relation to the assessment year 2009-10 and subsequent assessment years. 33.From the explanation, it is apparent that the intention of the legislature is clear that the entities operating on commercial lines should not be allowed exemption on their income either u/s 10(23C) or under Sec. 11 on the ground that they are charitable institutions and they are engaged in advancement of object of general public utility. The memorandum does not speak of ambiguity in the existing definition of charitable purpose as given u/s 2(15). The amendment is not by way of clarification but limits the scope of the phrase advancement of any other objects of general public utility so that the benefit may not be available to any activity in the nature of trade, commerce or business or any activity of rendering any serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nefit to the assessee u/s 11 or section 12 from A.Y. 2009-10 even if the registration u/s 12A is granted and subsequently, it is found that in view of proviso to section 2(15), the assessee can no more be regarded to have been created for charitable purpose. 35. We have gone through the order of the Lucknow Bench of Allahabad high Court in the case of Lucknow Development Authority Vs. CIT, we noted that in that case the appeal relates to the assessment year 2003-04 to 2006-07 not to A.Y. 2009-10, I.e. after insertion of proviso to section 2(15). The question before the Hon ble High Court were: Whether keeping the facts and circumstances of the case, the Tribunal had committed substantially illegal by holding that the income of the assessee is exempted under section 11 of the Income Tax Act, though there is no condition that no profit should be earned by its activities and the profit earned will not be distributed amongst the stake holders and the finding of the Triubnal with regard to exemption under Section 12 of the Act is also substantially illegal? Whether by assuming registration under Section 12AA of the income tax Act and exempting income of the assessee wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration and treat it to be the complete law declared by the court. The judgment must be read as a whole and the observations from the judgment have to be considered in the light of the questions which were before the Court. A decision of the Supreme Court takes its colour from the questions involved in the case in which it is rendered and, while applying the decision to a later case, courts must carefully try to ascertain the true principle laid down by the decision. This decision since does not relate to the impugned assessment year therefore in our opinion the said decision will not assist the assessee. Similar view has been taken by Hon ble Supreme Court in the case of Madhav Rao Jivaji Rao Scindia Bahadur V. Union of India, (1971), 3 SCR 9. 38. The assessee has also relied on the decision of this Tribunal in ITA No. 390-A-2006 we noted that this decision is also not applicable to the facts of the case before us that decision relate to the registration sought u/s 12A of the Income Tax. The case before us does not relate to the registration being sought u/s 12A of the Income Tax. We also noted that all the other decision relied on the by the learned AR are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the property resulting from the execution of the development. 15. The Hon ble Lucknow Bench in Kanpur Development Authority in ITA No. 332 333/Lkw/2013 has discussed this clause in detail in its order on page 23 24 and the same are reproduced as under:- It is important to read the above clause devoting sufficient time and judge whether a charitable institution would be levying such charges on the persons living in the area developed by the Authority and benefitted as a result of increase in prices due to the development. I think that even those firms and companies, working absolutely on the lines of profit of motive, will desist from levying such charges, The areas developed by the Authority are inhabited not only by well off people but also people who find it difficult to meet their means. If such charges are levied on the people of poor class, they would come under grave difficult. If an institution, claiming to be charitable and enjoying the benefits of exemptions under Section 11, has the option to charge people on account of prospective and notional increase in the price of their properties, it would be a better example of Mahajans charging compound interest at h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the assessee. The Ld. Counsel for the assessee drew our attention to Page No. 28, Para 8 of the appellate order passed by ITAT, Lucknow Bench, in the case of Lucknow Development Authority(supra). Our attention was drawn to Para 51-56 of the paper books, where audited accounts of the assessee are placed. It was submitted by ld. Counsel for the assessee that the assessee case is paramateria with the case of Lucknow Development Authority(supra). Our attention was also drawn by ld. Counsel for the assessee to an appellate order passed by ITAT, Agra Bench in the case of Jhansi Development Authority v. DCIT, Circle-4, Agra, reported in (2021) 123 taxman.com247(Agra-trib.). 7.2. On the other hand, the ld. CIT-DR submitted that the ITAT, Lucknow Bench decision in the case of Lucknow Development Authority(supra) is based on certain decisions which were rendered in earlier context, while the law was amended with effect from 1st April, 2009. It was submitted wherever there is a commercial activities carried on by the tax-payer, the deductions under section 11 and 12 of the 1961 Act are not allowed, if it exceeds taxable limits as prescribed u/s. 2(15) of the 1961 Act. Our attention was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proviso to Section 2(15) is applicable. The ld. CIT DR also submitted that in case of winding up of the assessee, all the funds, properties and assets shall go to State Government, which shows that it is revocable transfer and hence the assessee is not entitled for relief under Section 11, 12 and 13 of the 1961 Act. The ld. CIT DR prayed that the orders passed by authorities below be confirmed as the assessee is into business activities of buying land, developing land and selling properties, thus the assessee is not eligible/entitled for deduction/exemption u/s 11, 12 and 13 of the 1961 Act. The ld. CIT-DR submitted that as per provisions of Section 58 of the 1973 State Act, the assets, funds etc of the assessee shall vest with the State Government in the eventuality of winding up of the assessee. 7.3. The ld. Counsel for the assessee submitted in rejoinder that the decision of ITAT, Chandigarh Bench in the case of Chandigarh Lawn Tennis Association (supra) was considered by Agra-tribunal while adjudicating appeal in the case of Jhansi Development Authority (supra), which was adjudicated by tribunal in favour of the tax-payer. The ld. Counsel for the assessee relied upon decisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt rendered in the case of CIT vs. Lucknow Development Authority (supra) cannot be made applicable in the facts of the present case. Learned CIT(A) has simply followed this judgment without examining this aspect that the facts in the present case are tallying or not with the facts in the case of CIT vs. Lucknow Development Authority (supra). Therefore, we feel it proper that this issue should go back to CIT(A) for afresh decision after examining this aspect that the facts in the present case are tallying with the facts in the case of CIT vs. Lucknow Development Authority (Supra) or not. We, therefore, set aside the order of CIT(A) and restore the entire matter back to him for a fresh decision in the light of above discussion after providing reasonable opportunity of being heard to both sides. Thus, as could be seen that tribunal while setting aside the appellate order passed by ld. CIT(A) in first round of litigation, has observed that the ld. CIT(A) has allowed the appeal of the assessee by following judgment and order of Hon ble Allahabad High Court in the case of CIT v. Lucknow Development Authority, reported in (2014)265 CTR 433(All. HC) without comparing whether the facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be imposed by even private firms/developers. Thus, the ld. CIT(A) while relying on the decision of tribunal in the case of Kanpur Development Authority wherein it was observed that if the institution/authority who is claiming exemption u/s 11, has option to charge people on account of notional and prospective increase in value of property, is clearly a case of Mahajan s charging compound interest. The ld. CIT(A) also observed that the assesse is a nodal agency for different government department and has been executing civil contract work as civil contractor, and even income-tax at source has been deducted on payments made to the assessee. There was also reference by AO to Section 58 of the 1973 State Act, wherein on dissolution of the assessee, its funds, properties, dues realizable etc. shall revert back to State Government. The ld. CIT(A) relied upon several judicial precedents to hold that the assessee is not entitled for deduction u/s 11 to 13 of the 1961 Act, as its activities/affairs are run on commercial lines with an intent to make profits, and clearly the assessee is hit by proviso to Section 2(15) of the 1961 Act. The appellate order passed by ld. CIT(A) in second rou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9] 315 ITR 237 (Mad), it was observed that the construction of commercial complex by charitable trust is eligible. 20. If the objects of the Authority is charitable as public utility then the benefit being a charitable trust is eligible as per the ratio laid down in the case of CIT v. Gujarat Maritime Board [2007] 295 ITR 561/[2008] 166 Taxman 58 (SC), where it was observed that:- '... in Section 2(15), namely, any other object of general 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 [CIT v. Ahmedabad Rana Caste Association [1983] 140 ITR 1 (SC)]. The said expression would prima facie include all objects which promote 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1979] 117 ITR 1/1 Taxman 1 (SC), the Apex Court was called upon to determine as to whether the contribution made by the employer should be treated as a business expenditure, the requirement being contribution should be made to a recognized provident fund. 24. Needless to mention that this Hon'ble Court in the case of CIT v. U.P. Forest Corpn. Ltd., Tax Appeal No. 70 of 2009 observed that the Forest Corporation being an statutory entity is entitled for the registration under Section 12A of the Act. The said observations was upheld by the Hon'ble Apex Court vide its order dated 12.05.2011 in Special Leave Petition No. (Civil) No. 2590/2011. 25. We may also like to refer a C.B.D.T. Circular No. 11/2008 dated 19.12.2008, wherein the applicability of the commercial activities in respect of charitable purpose has been clarified. The said circular is reproduced as below:- 2.2. 'Relief of the poor' encompasses a wide range of objects for the welfare of the economically and socially disadvantaged or needy. It will, therefore, include within its ambit purposes such as relief to destitute, orphans or the handicapped, disadvantaged women or children, small and m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pears that the funds are utilized for general utility. 30. Moreover, in the instant case, the Assessing Officer has not given any defective in computation of income as per Section 11 as submitted in FormXB, but observed that the activities of the assessee are not charitable. The activities of the assessees are genuine. So, then it is so, then we find no reason to interfere with impugned orders passed by the Tribunal. The same are hereby sustained along with reasons mentioned therein. 31. The answer to the substantial questions of law are in favour of the assessee and against the department. 32. In view of above, all the appeals filed by the department are dismissed, as stated above. The aforesaid judgment and order passed by Hon ble Allahabad High Court deciding the issue in favour of the taxpayer viz. Lucknow Development Authority(supra), was for ay s: 2003-04 to 2006-07, which assessment years were all prior to ay: 2009-10, while there was an amendment in Section 2(15) by Finance Act, 2008 w.ef. 01.04.2009, wherein first proviso to Section 2(15) was inserted. We are concerned with ay: 2011-12 wherein amended Section 2(15) shall be applicable, which read as: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plication, or retention, of the income from any such activity. This amendment will take effect from 1st April, 2009 and will accordingly apply in relation to the assessment year 2009-10 and subsequent assessment years. The Memorandum to Finance Bill, 2008, provided as under: RATIONALISATION AND SIMPLIFICATION MEASURES Streamlining the definition of charitable purpose Section 2(15) of the Act defines charitable purpose to include relief of the poor, education, medical relief, and the advancement of any other object of general public utility. It has been noticed that a number of entities operating on commercial lines are claiming exemption on their income either under section 10(23C) or section 11 of the Act on the ground that they are charitable institutions. This is based on the argument that they are engaged in the advancement of an object of general public utility as is included in the fourth limb of the current definition of charitable purpose . Such a claim, when made in respect of an activity carried out on commercial lines, is contrary to the intention of the provision. With a view to limiting the scope of the phrase advancement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, it is used for development work in the city of Lucknow. Authority is just assisting State Government in development of towns which is for the welfare of the public. 9. As regards the Revenue s stand to compare the assessee with a private colonizer, we observe that the major source of income of the assessee authority is from the sale of plots, houses, shops, rent, sundry receipts and interest, still the assessee authority cannot be compared with a private Real Estate Developers for several reasons. Few such reasons are discussed below: a. The appellant Authority is constituted by Uttar Pradesh Urban Development Act, 1973 for the development of Lucknow without profit motive. On the other hand, the private colonizers/ Real Estate Developers are embodied by private firms and companies for the development of a housing project undertaken by them with profit motive. b. The appellant Authority consist of nominees of the State Government and are answerable to the State Government for any course of action taken by them beyond the powers delegated to them by the Act/ State Government, however, private colonizers/ Real Estate Developers consist of private players who are only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iii. All the plots/ flats/ houses allotted by appellant Authority of similar sizes cost the same to the buyer, however, the cost of plots/ flats/ houses of same size as of appellant Authority build by private players is exorbitantly high and also differ if, the property sold by private player are vastu compliant/ east facing/ park facing, etc. iv. The receipt of money is arising out of sole purpose of growth and development of the areas and if there are surplus funds, they cannot be distributed but are used in forth coming years for development of Lucknow city. No such restriction is upon the Real Estate Developers. Therefore, from the development undertaken by the appellant Authority, public is benefited at large. It is clear that the benefits of development undertaken by the appellant Authority is not restricted to an individual or particular group of individuals for which its objects should be considered charitable under forth limb of section 2(15) of Income-tax Act. Words other objects of general public utility have been decided in catena of decisions. The said expression is widest of connotation. Words general in the said expression is pertaining to a whole class ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earning profit. Lands, plots etc. acquired by the L.D.A. and allotted by it are allotted without earning profit after taking into account the direct and indirect expenses. Further, the L.D.A. is registered u/s 12AA of the Income-tax Act, as per the order of the Hon ble ITAT dated 25.07.2005 in ITA No. 690/LUC/2003 and in pursuance of such order, registration has been granted by the Ld. Commissioner of Income Tax-I u/s 12AA of the Income Tax Act 1961, with effect from 01.04.2003 vide order dated 17.01.2006. Further, the registration u/s 12AA has never been revoked till date. 9.4 The argument of the Revenue is that after insertion comes out of the definition of charitable activities w.e.f. 01/04/2009, any activities in the nature of business or trade comes out by an organization will preclude the same for being an entity engaged in charitable activities. To examine the impact of insertion of proviso to Section 2(15), it is important to look at the intention with which the amendment was brought into force which is discussed below. 9.5 The main intent or purpose of the Legislature in bringing such an amendment is to exclude certain non-genuine NGOs which are carrying on acti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hed from sport or pleasure and is used in the sense of an occupation continuously carried on for the purpose of profit [Rogers Pyatt Shellac Co. v. Secretary of State, AIR 1925 Cal 34=11TC 363]. Thus the word 'business' is a wider term than, and not synonymous with, trade; and means practically anything which is an occupation as distinguished from a pleasure [ Halsbury's Laws of England, Third Edition, Vo1.38, page 10, quoted in CIT v. Upasana hospital, (19970 225 ITR 845,851 (Ker). Also see, CIT v. Delhi Transport Corporation, (1996) 134 Taxation 386, 392-93 (Del)]. 'Business' is a word which has more extensive I meaningthat trade. All trade is business but all business is not trade [Vijaya Bank v. A.N. Tewari, (1995) 83 Taxman 340,342 (Del)]. The aforesaid Commentary further explains business as under on Page 1336: Is profit-motive essential to constitute a 'business'? - Business, without profit is not business, any more than a pickle is candy [Abbot]. To regard an activity as 'business', there must be a course of dealings, either actually continued or contemplated to be continued with a profit motive, and not for sport or plea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... als Ltd.,(1968) 70 ITR 730, 732 (Sc)]. If a person buys goods with a view to selling them at profit, it is an ordinary case of 'trade'. If the transactions are on a large scale, it is called 'commerce, [Gannon Dunkerley Co. v. State of Madras, (1954) 5 STC 216,244 (Mad)], and it is the continuous repetition of such transactions which will constitute a business . 9.8 In the case of State of Punjab and Another v. Bajaj Electricals Ltd (1968) 70 ITR 730(SC), it has been held that essential condition for carrying on business, trade, commerce is making profit. The relevant portion of this judgment is reproduced below: Liability to pay tax under Act 7 of 1956 arises if a person carries on trade by himself or through his agent, or follows a profession or is in employment within the State, and to otherwise. The expression trade is not defined in the Act. Trade in its primary meaning is the exchanging of goods for goods for money; in its secondary meaning it is repeated activity in the nature of business carried on with a profit motive, the activity being manual or mercantile, as distinguished from the liberal arts or learned professions or agriculture. 9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hority has not changed since grant of registration u/s 12AA of the Act. The funds can be utilized in accordance with approved budget by State Government. The ultimate property/ funds of the appellant Authority vest with StateGovernment in case of dissolution by the State Government. The appellant Authority cannot act beyond the Statute through which it was incorporated. 10. As regards the objection of Revenue regarding surplus of income, we observe that the receipt of money by way of sale consideration, sundry receipts, interest, rent etc. is arising out of sole purpose of growth and development of the areas. Surplus of funds if any, cannot be distributed but are used in subsequent years for development of Lucknow city only. Therefore, surplus of funds should not be equated to profit motive. 10.1 In the judgment of Hon ble Allahabad High Court in case of Commissioner of Income-tax vs. KrishiUtpadanMandiSamite (2010) 1 ALJ 817, their lordship held that charging cess /fee is for the purpose of carrying out object of Act i.e. KrishiUtpadanMandiSamitiAdhiniyam, 1964. Where dominant purpose of trust is charitable, incidentally if some profit is made and such profit is used for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be treated as charitable within the meaning of Section 2(15). The object of the Authority is to provide shelter to the homeless people, therefore, there is no objectionable material to treat these institutions as noncharitable. The registration under Section 12A is mandatory to claim exemption under Sections 11 13, but registration alone cannot be treated as conclusive. It is always open to Revenue Authorities, while processing return of income of these assessees, to examine the claim of the assessees under Sections 11 13 and give such treated to these institutions as is warranted by the facts of the case. Revenue Authorities are always at liberty to cancel the registration under Section 12AA(3). Moreover, it may be mentioned that the benefit of Section 11 is not absolute or conclusive. It is subject to control of Sections 60 to 63. If it is found by keeping in view the provisions of Sections 60 to 63 that it is not so includible then such income does not qualify for any relief. The contention that the assessee are earning profit has no merit as per the ratio laid down in the case Sarafa Association vs. CIT, [2007] 294 ITR 262 (MP), where it was observed that the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s no profit motive as the income earned by the Authority is deployed for the development of the State. Further, it may be mentioned that Section 12AA of the Act lays down the procedure for registration in relation to the conditions for applicability of Sections 11 12 as provided in Section 12A. Therefore, once the procedure is complete as provided in sub-section (1) of Section 12AA and a certificate is issued granting registration to the trust or institution the certificate is a document evidencing satisfaction about (i) the genuineness of the activities of the trust or institution, and (ii) about the objects of the trust or institution. Section 12A stipulates that the provisions of Sections 11 12 shall not apply in relation to income of a trust or an institution unless the conditions stipulated therein are fulfilled. Thus, granting of registration under Section 12AA denotes that the conditions laid down in Section 12A stand fulfilled. The effect of such a certificate of registration under Section 12AAA, therefore, cannot be ignored or wished away by the Assessing Officer by adopting a stand that the trust or institution is not fulfilling the conditions for appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roviso to Section 2(15) and deny exemption available under Section 11. The intention of the trustees and the manner in which the activities of the charitable trust institution are undertaken are highly relevant to decide the issue of applicability of proviso to Section 2(15). There is no material/evidence brought on record by the revenue which may suggest that the assessee was conducting its affairs on commercial lines with motive to earn profit or has deviated from its objects as detailed in the trust deed of the assessee. In these facts and circumstances of the case, the proviso to Section 2(15) is not applicable to the facts and circumstances of the case, and the assessee was entitled to exemption provided under Section 11 for the relevant assessment year. From the record, it also appears that the Authority had been maintaining infrastructure, development and reserve fund IDRF as per the notification dated 15.01.1998, the money transferred to this funds is to be utilized for the purpose of project as specified by the committed having constituted by the State Government under the said notification and the same could not be treated to be belonging to the Authority or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive of general public utility, as such. The Applicant was purely involved in commercial activities for the purpose of making profit and charity, if any, was just incidental to its business. The Authority was acquiring land from farmers and others at a low price, which was developed and sold at a premium to the perspective buyers. Apparently, on dissolution of the authority, all assets shall be transferred to the Government and there was no restriction on the use of these assets by the Government. Therefore the objects pursued by the applicant cannot be termed as charitable in view of the fact that the applicant, was a commercial organization (with no restriction as to the application of assets on dissolution or winding up) Therefore the applicant cannot be termed as charitable organization by any stretch of imagination. (d.) Whether on the facts and circumstances of the case the Hon'ble ITAT was justified in upholding the order of Ld. CIT(A) and giving the benefit of section 12A to the assessee as the activities of advancement of the object of general public utility by the appellant authority are undertaken/carried on in a totally commercial manner and activities of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d it s predominant object of welfare of public at large are correct or not ? (iii) Whether the Income Tax Appellate Tribunal at New Delhi had the jurisdiction to entertain an appeal from the order of the CIT(E), Lucknow in exercise of power under section 12AA of the IT Act. The analysis of the above questions of law, as framed by Hon'ble Court, reflects that first question was regarding entitlement of the assessee for registration u/s 12AA of the Act whereas the second question framed by Hon'ble Court is to the effect as to whether assessee was not carrying out any activity of profit. The Hon'ble Court, after having elaborate discussions on various aspects of various sections of registration, denial of registration u/s 11, 12 and 13, has decided the above three questions in favour of the assessee and against the Revenue. The argument of the Revenue that this judgment of YEIDA do not deal with the denial of exemption u/s 11 does not seem to be correct in view of the specific question framed by the Hon'ble Court as question No. 2. This judgment, which has been followed in the Moradabad Development Authority, therefore, is quite relevant and the case of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or manager] as aforesaid; (e) any concern in which any of the persons referred to in clauses (a), (b), [(c), (cc)] and (d) has substantial interest. 11.3 We find from the list of persons mentioned in sub section (3) that employees has not been included in this list. It is Department s own case that assessee had allowed benefits to employees. 11.4 The Hon'ble Patna High Court in the case of CIT vs. Tata Steel Charitable Trust 78 Taxman 98 (Pat) vide order dated 07/01/1993 has held that employees of the author of the trust do not fall in the specified category of persons referred to in section 13(3) of the Act. The relevant findings of the Hon'ble court are reproduced below: As regards, the second condition, it seems that even if a trust has been created wholly for charitable purposes, when subsequently it is found that its income either enures or is used or applied directly or indirectly for the benefit of any person specified under sub-section (3) of section 13, then such trust becomes disentitled to claim any exemption under section 11. But the list of such persons as contained under section 13(3 ) does not include the employees of the author of the tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are allowed. Ground No. 1 2 are general in nature and therefore, these grounds need no adjudication. 11.7 As regards ground No. 8 in I.T.A. No.185 and ground No. 9 in rest of the appeals, we find that the assessee has been transferring certain amounts to IDRF account and was directly reflecting that account in the balance sheet and was not routing through the profit loss account. The Assessing Officer has also added back these amounts while denying exemption u/s 11 of the Act. We find that this issue has already been dealt by the Hon'ble Allahabad High Court in the case of assessee itself whereby vide order dated 16/09/2013, Hon'ble Allahabad High Court has held that the money transferred to this fund is to be utilized for the purpose of project as specified by the committee having constituted by the Government and the same could not be treated to be belonging to the authority or the receipt is taxable in its hand. Therefore, ground No. 8 in I.T.A. No.185 and ground No. 9 in rest of the appeals are allowed. 11.8 As regards the other disallowance, as agitated by the assessee vide various grounds, we find that these disallowances do not need any specific adjudi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on u/s 11 of the 1961 Act. The assessee is registered u/s 12A of the 1961 Act vide Registration No. CT/62/HQ-I/2003-04/1001 dated 22.03.2004. The assessee before us, like L.D.A. was constituted u/s 4 of the Uttar Pradesh Planning and Development Act, 1973.The Varanasi Development Authority, Varanasi is a development authority declared under Section 4 of the 1973 State Act and was notified in exercise of power under Section 3 of the State Act of 1973 by the State Government by Gazette Notification dated 20th August, 1974. Thus, the assessee is a Statutory Authority which was established under the 1973 State Act. It is pertinent to mention that preamble to the 1973 State Act provides that it is an Act to provide for the development of certain areas of Uttar Pradesh according to plan and for matters ancillary thereto. The reasons for enactment are stated to be, as follows: Reasons for the enactment.- (1) The Governor of Uttar Pradesh promulgated on June 12, 1973, the Uttar Pradesh Urban Planning and Development Ordinance, 1973, which reproduced the provision of the Uttar Pradesh Urban Planning and Development Bill, 1973, as passed by the U.P. Legislative Council. The re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... responsibilities of Government both Central and State Government, which is now been vested by State Government with these specialized statutory development authorities like assessee to carry out development in a planned manner in the development area, rather than making profits at its core objective. Section 1 of the 1973 State Act, provides that it will extend to whole of Uttar Pradesh., excluding Cantonment Area and lands owned, requisitioned or taken on lease by the Central Government for the purpose of defense. Thus, it could be seen that the 1973 State Act has widest coverage of the area within development area falling within the jurisdiction of Development Authority, excluding Cantonment Area and land held by Central Government for the purpose of Defense. Section 3 of the 1973 State Act, reads as under: 3. Declaration of development, areas.- If in the opinion of the State Government any-area within the State requires to be developed according to plan it may, by notification in the Gazette, declare the area to be a development area. Thus, if in the opinion of State Government, any area within the State requires to be developed according to plan, the State ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Vice-Chairman shall be entitled to receive from the funds of the Authority such salaries and allowance-and be governed by such conditions of service as may be determined by general or special order of the State Government in this behalf. (6) A member referred to in Clause (c) Clause (d) Clause (e) or Clause (f) of Sub-section (3) may instead of attending a meeting of the Authority himself depute an officer, not below the rank of Deputy secretary in the department, in the case of a member referred to In Clause (c) or Clause (d) and not below the rank of Town Planner in the case of a member referred to in Clause (e) and not below the rank of Superintending Engineer in the case of a member referred to in clause (f) to attend the meeting. The officer so deputed shall have the right to take part in the proceedings of the meeting and shall also have the right to vote. (7) The Authority in respect of a development area other than that mentioned in Sub-Section (3) shall consist of a Chairman, a Vice Chairman and not less than five and not more than eleven such other members, including at least one member from Municipal Boards and Notified Area Committees having each jurisdiction in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n with administration of the 1973 State Act. The Advisory Council again consists of specialized public functionaries, in the field of town planning, health, transportation, electricity, local authorities, labour, industry, commerce, elected people representatives of the area etc. . Thus, it could be seen that the State Government has deep and pervasive control over the appointments and management of the Authority . The fundamental and predominate object of constituting these authorities including assessee, being to have planned, regulated and integrated development of the development area according to plan, and not otherwise. The purpose is to have planned development, rather than making profits . The objects of the Authority are stated in Section 7 of the 1973 State Act, which shall be to promote and secure the development of the area according to plan . The authority has powers to carry our building, engineering, mining and other operations, to execute works in connection with the supply of water and electricity to dispose of sewage and to provide and maintain other services and amenities and generally to do anything necessary or expedient for purposes of such development and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es, roads, housing, recreation, industry, business, markets, schools, hospitals and public and private open spaces and other categories of public and private uses; specify the standards of population density and building density; show every area in the Zone which may, in the opinion of the Authority, be required or declared for development or re-development. Section 9A of the 1973 State Act contain, provisions regarding all or any of the following matters, namely- (i) the division of any site into plots for the erection of buildings; (ii) the allotment or reservation of land for roads, open spaces, gardens, recreation grounds, schools, markets and other public purposes: (iii)the development of any area Into a township or colony and the restrictions and conditions subject to which such development may be undertaken or carried out, (iv) the erection of buildings on any site and the restrictions and conditions in regard to the open spaces to be maintained in or around buildings and height and character of buildings: (v) the alignment of buildings of any site; (vi) the architectural features of the elevation or frontage of any building to be erected on any site, (vii)the number of resi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le, and all the States as well Union Territories comprising within Union of India are working for the welfare of the people. Thus, to undertake the planned development of urban areas, proper town planning and housing for all are important responsibilities of Central and State Government, which is now been vested by State Government with these specialized statutory development authorities like assessee to carry out development in a planned manner in the development area, rather than making profits at its core objective. Moving further, Reference is also drawn to Section 14 of the 1973 State Act, which lays down that once the area is declared as development area falling within jurisdiction of Development Authority, no person or body (including Government Department) can carry out or continue with the development of land unless permission in writing is obtained from the Authority. Further, it provides that all developments in the development area shall be carried out only in accordance with Master Plan and/or Zonal development plans. It is provided in Section 15 of the 1973 State Act, the authority is vested with powers to levy fee for granting permission to any person or body to carr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. There are also provisions for punishment by way of imprisonment for encroachment or creating obstruction on any land not being private property, whether or not such land vests in the authority Section 27, 28 and 28A of the 1973 State Act empowers Authority to order demolition, seal or stop of any development which was carried out in contravention of Master Plan and/or Zonal Development Plan or without the sanction, permission or approval of the Authority as is mandated under the provisions of the 1973 State Act. Section 29 of the 1973 State Act provides that the Authority shall have such other powers and functions exercisable by the local authority concerned or its Chief Executive Officer, as the case may be, under the enactment constituting that local authority subject to such exceptions or modifications, as the State Government may by notification in the Gazette specify. Section 34 of the 1973 State Act provides that where any area has been developed by the Authority, it may require the local authority within whose local limits the area so developed is situated, to assume responsibility for the maintenance of the amenities which have been provided in the area by the Authority ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt. 42. Returns and Inspections.- (1) The Authority shall furnish to the State Government such reports, returns and other information as that Government may from time to time require. (2) Without prejudice to the provisions of Sub-section (1), the State Government or any officer authorised by the State Government in that behalf, may call reports, returns and other information from the Authority, or the local authority concerned in regard to the implementation of the Master Plan. (3) Any person authorised by the State Government or the officer referred to in Sub-section (2) may enter into or upon any land with of without assistants or workmen for ascertaining whether the provisions of the Master Plan are being or have been implemented, or whether the development is being or has been carried out in accordance with such plan. (4) No such entry shall be made except between the hours of sunrise and sunset and without giving reasonable notice to the occupier, or if there be no occupier, to the owner of the land or building. Section 55 of the 1973 State Act provides that the State Government has powers to frame rules to carrying out the purposes of the 1973 State A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate Government by Gazette Notification dated 20th August, 1974.On going through the 1973 State Act as elaborately discussed above, it is clear that the Varanasi Development Authority is been given vast and onerous responsibilities under the 1973 State Act to undertake planned, regulated and integrated development of the entire area which falls under its jurisdiction, and it will be preposterous to compare it with an ordinary real estate company/builder who is building/constructing a residential / commercial complex, who are carrying on business with an intent to make profits. It could also be seen that the State Government has deep and pervasive control over the Authority . The fundamental and predominate object being to have planned, regulated and integrated development of the development area according to plan, and not otherwise. The purpose is to have planned development. It could be said that the Authority is a State instrumentality discharging functions which are hitherto required to be performed by State created for advancement of objects of general public utility being town planning and urban development including housing for all . It is pertinent to mention that India is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that purpose, is contemplated. In In re Trustees. of the Tribune [1939] 7 ITR 415, 425 (PC) the Judicial Committee of the Privy Council was called upon to consider whether a trust created under a will to maintain a printing press and newspaper in an efficient condition, and to keep up the liberal policy of the newspaper, devoting the surplus income of the press and newspaper after defraying all current expenses in improving the newspaper and placing it on a footing of permanency and further providing that in case the paper ceased to function or for any other reason the surplus of the income could not be applied to the object mentioned above, the same should be applied for the maintenance of a college which had been established out of the funds of another trust created by the same testator, was a charitable purpose within the meaning of section 4(3). The Judicial Committee expressed the view that the object of the settlor was to supply the province with an organ of educated public opinion and this was prima facie an object of general public utility, and observed : These English decisions are in point in so far only as they illustrate the manner in which political objects, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecessary for the furtherance of its objects, with power to make regulations for the conduct of affairs of the association of the council and to maize such amendments in the present constitution, as may be considered from time to time. The funds of the association consisted mostly of donations and subscriptions, and out of the funds charkas and handlooms were purchased and supplied to the inhabitants free of charge. Raw cotton was supplied to the poor people to be spun into yarn and the yarn so spun along with the yarn acquired by the association were supplied to other poor people for handweaving. The income of the association was treated by the Commissioner of Income-tax as not exempt under section 4(3)(i) of the Indian Income-tax Act inasmuch as (i) the dominant purpose of the association was political, (ii) even assuming it was not political, the dominant purpose was not in any event a valid charitable purpose in law, and (iii) some of the objects were not clearly charitable objects. The Judicial Committee held that the income of the association was derived from property held under trust or other legal obligation wholly for charitable purposes and the English decisions on the law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he memorandum of association income was to be applied towards the promotion of its expressed objects, one of which was the promotion of, or opposition to, legislative or administrative educational measures, the holding of examinations, etc., was not a body of persons established for charitable purposes only within the meaning of the Income Tax Acts. Similarly, an incorporated association of preparatory schools incorporated under the Companies Act as an association limited by guarantee, the income whereof was to be applied solely towards the promotion of its expressed objects which included the advancement and promotion of, or opposition to, legislative or administrative educational measures, etc., was not an association whose income was applicable to charitable purposes only. The Court of King's Bench held in the case of each of the two trusts that because the income could be utilised for promotion of, or opposition to, legislative or administrative educational measures, and those being the primary objects, the income was not liable to be applied solely to charitable purposes. In Commissioners of Inland Revenue v. Temperance Council of the Christian Churches of England and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one of the objects mentioned in the memorandum of association that the assessee may take steps to urge or oppose legislative or other measures affecting trade, commerce or manufactures. Such an object must be regarded as purely ancillary or subsidiary and not the primary object. It will be also relevant to refer to judgment and order of Hon ble Supreme Court in the case of CIT v. Gujarat Maritime Board, reported in (2008) 295 ITR 561(SC), wherein Hon ble Supreme Court held as under: 14. We have perused number of decisions of this Court which have 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-CIT v. Ahmedabad Rana Caste Association [1983] 140 ITR 1 (SC). The said expression would prima facie include all objects which promote the welfare of the general publ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore, they are entitled to be registered as 'Charitable Trust' under section 12A of the 1961 Act. It would also be relevant to refer to relevant extracts in Reference answered by Hon ble Supreme Court in Reference u/s 257 of the 1961 Act in Tax Reference in Addl. CIT v. Surat Art Silk Cloths Manufacturers Association, reported in (1979) 2 Taxman 501(SC), as under: Per Lordship P.N. Bhagwati, J *** *** 6. But even if such a contention were permissible, we do not think there is any substance in it. The law is well settled that if there are several objects of a trust or institution, some of which are charitable and some non-charitable and the trustees or the managers in their discretion are to apply the income or property to any of those objects, the trust or institution would not be liable to be regarded as charitable and no part of its income would be exempt from tax. In other words, where the main or primary objects are distributive, each and everyone of the objects must be charitable in order that the trust or institution might be upheld as a valid charity Mohammed Ibrahim Riza v. CIT [1930] LR 57 IA 260 and East India Industries ( Madras) Pvt. Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g out its main charitable purpose, it would not by itself prevent the association or institution from being a charity. It would be a question of fact' in such case whether there is no such personal benefit, intellectual or professional, to the members of the society or body of persons as to be incapable of being disregarded. 7. It is this criterion which has to be applied in the present case and if we do so, it is clear that the dominant or 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 sub-clause (a) of clause (3) of the memorandum and the objects specified in sub-clauses (b) to (e) of clause (3) were merely incidental to the carrying out of this dominant or primary purpose. The objects set out in sub-clauses (b) to (e) of clause (3) were, in fact, in the nature of powers conferred upon the assessee for the purpose of securing the fulfilment of the dominant or primary purpose. The Revenue, it may be conceded, is right in contending that these objects or powers in sub-clauses (b)to (e) of clause (3) could benefit the members of the assessee but this benefit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, therefore, the purpose of a trust or institution is relief of the poor, education or medical relief, the requirement of the definition of charitable purpose would be fully satisfied, even if an activity for profit is carried on in the course of the actual carrying out of the primary purpose of the trust or institution. But if the purpose of the trust or institution is such that it cannot be regarded as covered by the heads of relief of the poor, education and medical relief , but its claim to be a charitable purpose rests only on the last head advancement of any other object of general public utility , then the question would straight arise whether the purpose of the trust or institution involves the carrying on of any activity for profit. The last head of charitable purpose thus requires, for its applicability, fulfilment of two conditions: (i) the purpose of the trust or institution must be advancement of an object of general public utility, and (ii) that purpose must not involve the carrying on of any activity for profit. The first condition does not present any difficulty and, as we have already pointed out above, it is fulfilled in the present case, because the primar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... beth Statute. The law has been developed by analogy upon analogy and it is to be found in the large case of case law that has been built up by the court over the years. The result is that the concept of charity in English law is as vague and undefined as it is wide and elastic and every time there has to be a search for analogy from the preamble to the Statute of Elizabeth or from decided cases. An early attempt to simplify this problem by a classification under main heads was made by Sir Samuel Romilly when he tried to sub-even charitable purposes under four heads in the following summary submitted by him in the course of arguments in Morice v. Bishop of Durham [1805] 10 Ves. 522 relief of the indigent, the advancement of learning, the advancement of religion and the advancement of objects of general public utility . This classification was adopted in substance by Lord Macnaughten in his classic list of charitable purpose in Special Commissioners v. Pemsel [1891] 3 TC 53 (HL) where the learned Law Lord pointed out that charity in its legal sense comprises four principal division's trusts for the relief of poverty, trusts for the advancement of education, trusts for the advan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osed before us was - and that is a question which we must first resolve before we can arrive at the true meaning and effect of these words - whether these words qualify advancement or object of general public utility . What is it that must not involve the carrying on of any activity for profit in order to satisfy the requirement of the definition; advancement or object of general public utility ? The Revenue contended that it was the former and urged that whatever be the object of general public utility, its advancement or achievement must not involve the carrying on of any activity for profit, or, in other words, no activity for profit must be carried on for the purpose of achieving or attaining the object of general public utility. The argument was that if the means to achieve or carry out the object of general public utility involves the carrying on of any, activity for profit, the purpose of the trust or institution, though falling within the description any other object of general public utility, would not be a charitable purpose and the income from business would not be exempt from tax. Now, if this argument is right, it would not be possible for a charitable trust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the Kerala and Andhra Pradesh High Courts in CIT v. Cochin Chamber of Commerce Industry [1973] 87 ITR 83 and Andhra Pradesh State Road Transport Corporation v. CIT [1975] 100 ITR 392, in our opinion, lay down the correct interpretation of the last ten words in section 2, clause (15). The true meaning of these last ten words is that when the purpose of a trust or institution is the 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. 11. It is true that the consequences of a suggested construction cannot alter the meaning of a statutory provision where such meaning is plain and unambiguous, but they can certainly help to fix its meaning in case of doubt or ambiguity. Let us examine what would be the consequences of the construction contended for on behalf of the Revenue. If the contention put forward on behalf of the Revenue were accepted, then, as already pointed out above, no trust or institution whose purpose is promotion of an object of general public utility, would be able to carry on any business, even though such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ttee of the Privy Council in In re. Trustees of the Tribune [1939] 7 ITR 415 that property in the corresponding section 4(3)(j) of the 1922 Act included business and this principle was affirmed by the pronouncements of this Court in J.K. Trust v . CIT [1957] 32 ITR 535 and CIT v . P. Krishna Warrior [1964] 53 ITR 176. Section 11, sub-section (4), merely gave statutory recognition to this principle. New section 13(1)(bb), introduced in the 1961 Act with effect from 1-4-1977, provides that in the case of a charitable trust or institution for the relief of the poor, deduction or medical relief which carries on any business, income derived from such business would not be exempt from tax unless the business is carried on in the course of the actual carrying out of a primary purposes of the trust or institution. Where, therefore, there is a charitable trust or institution falling within any of the first three categories of charitable purpose set out in section 2, clause (15), and it carries on business which is held by it under trust for its charitable purpose, income from such business would not be exempt by reason of section 13(1)(bb). Section 11, sub-section (4), would, therefore, hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f any other object of general public utility and its purpose was, therefore, charitable within the meaning of section 2, clause (75), and its income was exempt from tax under section 11. The Revenue, on the other hand, contended that though the objects of the assessee were covered by the expression advancement of any other object of general public utility , the activities of the assessee which yielded income were carried on for profit and the advancement or accomplishment of these objects of the assessee, therefore, included carrying on of activities for profit and hence the purpose could not be said to be charitable and the income from these activities could not be held to be exempt from tax. These rival contentions raised the same question of interpretation of section 2, clause (75), which has arisen in the present case. Krishna Iyer, J., speaking on behalf of the Court, lamented the obscurity and complexity of the language employed in section 2, clause (75) - a sentiment with which we completely agree - and after referring to the history of the provision the learned Judge proceeded to explain what according to him was the true interpretation of the last concluding words in sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rise therefrom. Therefore, the emphasis is not on the object of public utility and the carrying on of related activity for profit. On the other hand, if in the advancement of these object the chamber resorts to carrying on of activities for profit, then necessarily section 2(75) cannot confer cover. The advancement of charitable objects must not involve profitmaking activities. That is the mandate of the new amendment. It will thus be seen that Krishna Iyer, J. accepted the contention of the Revenue that the means of accomplishing or carrying out an object of general public utility must not involve the carrying on of any activity for profit or to use the words of the learned Judge must be unsullied by profit-making ventures and even if a business is carried on by a trust or institution for earning profit to be applied wholly for an object of general public utility, the trust or institution would forfeit the claim for exemption from tax. The view taken by him was that the benefit of the exemption would be taken away where, in accomplishing or carrying out an object of general public utility, the trust or institution engages itself in activity for profit or, in other words, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt in this case proceeded on a wrong test and impliedly, therefore, was incorrectly decided. But this Court while disposing of the appeal from the decision of the Kerala High Court differed from the view taken by Krishna Iyer, J. and upheld the judgment of the Kerala High Court. This Court pointed out that the facts of Dharmodayam case were not before Krishna Iyer, J. and that the test applied by Kerala High Court was held by him to be wrong on the assumption that the case fell under the last clause of section 2, clause (75), but, in fact, this assumption was invalid, as Dharmodayam case was not one falling under the last part of the definitional clause. The finding of the Kerala High Court was that the business of conducting kurries was a business held under trust for applying its income to the charitable purpose and it was not carried on as a matter of advancement of the primary purpose of the trust or in the course of carrying out such purpose and it could not, therefore, be said that the primary purpose of the trust involved the carrying on of an activity for profit within the meaning of the last concluding words in section 2, clause (75). This Court thus held in no uncertain t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sense that it cannot be achieved without carrying on an activity for profit. On this view, if the purpose can be achieved without the trust or institution engaging itself in an activity for profit, it cannot be said that the purpose involves the carrying on of an activity for profit. Take, for example, a case where a trust or institution is established for promotion of sports without setting out any specific mode by which this purpose is intended to be achieved. Now obviously promotion of sports can be achieved by organising cricket matches on free admission or noprofit no-loss basis and equally it can be achieved by organising cricket matches with the predominant object of earning profit. Can it be said in such a case that the purpose of the trust or institution does not involve the carrying on of an activity for profit, because promotion of sports can be done without engaging in an activity for profit. If this interpretation were correct, it would be the easiest thing for a trust or institution not to mention in its constitution as to how the purpose for which it is established shall be carried out and then engage itself in an activity for profit in the course of actually carryin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the question obviously depends on the correct connotation of the proposition for . This proposition has many shades of meaning but when used with the active participle of a verb it means for the purpose of and connotes the end with reference to which something is done. It is not, therefore, enough that as a matter of fact an activity results in profit but it must be carried on with the object of earning profit. Profit-making must be the end to which the activity must be directed or, in other words, the predominant object of the activity must be making of profit. Where an activity is not pervaded by profit motive but is carried on primarily for serving the charitable purpose, it would not be correct to describe it as an activity for profit. But where, on the other hand, an activity is carried on with the predominant object of earning profit, it would be an activity for profit, though it may be carried on in advancement of the charitable purpose of the trust or institution. Where an activity is carried on as a matter of advancement of the charitable purpose or for the purpose of carrying out the charitable purpose, it would not be incorrect to say as a matter of plain English gram ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter that it was with a view to setting at naught this decision that the exclusionary clause was added in the definition of charitable purpose . The test which has, therefore, now to be applied is whether the predominant object of two activities involved in carrying out the object of general public utility is to subserve this charitable purpose or to earn profit. Where profit-making is the predominant object of the activity, the purpose, though an object of general public utility, would cease to be a charitable purpose. But where the predominant object of the activity is to carry out the charitable purpose and not to earn profit, it would not lose its character of a charitable purpose merely because some profit arises from the activity. The exclusionary clause does not require that the activity must be carried on in such a manner that it does not result in any profit. It would indeed be difficult for persons in charge of a trust or institution to so carry on the activity, that the expenditure balances the income and there is no resulting profit. That would not only be difficult of practical realisation but would also reflect unsound principle of management. We, therefore, agree wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the activity of publication of the journal is carried on for profit and the purpose is non-charitable. We may take by way of illustration another example given by Krishna Iyer, J. in Indian Chamber of Commerce case (supra) where a blood bank collects blood on payment and supplies blood for a higher price on commercial basis. Undoubtedly, in such a case, the blood bank would be serving an object of general public utility but since it advances the charitable object by sale of blood as an activity carried on with the object of making profit, it would be difficult to call its purpose charitable. Ordinarily, there should be no difficulty in determining whether the predominant object of an activity is advancement of a charitable purpose or profit-making. But cases are bound to arise in practice which may be on the border line and in such cases the solution of the problem whether the purpose is charitable or not may involve much refinement and present real difficulty. 19. There is, however, one comment which is necessary to be made whilst we are on this point and that arises out of certain observations made by this Court in Sole Trustee, LokaSikshana Trust case (supra) as well as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing out a charitable purpose. If it is the former, the purpose would not be a charitable purpose, but, if it is the latter, the charitable character of the purpose would not be lost. 20. If we apply this test in the present case, it is clear that the activity of obtaining licences for import of foreign yarn and quotas for purchase of indigenous yarn, which was carried on by the assessee was not an activity for profit. The predominant object of this activity was promotion of commerce and trade in art silk yarn, raw silk, cotton yarn, art silk cloth, silk cloth and cotton cloth, which was clearly an object of general public utility and profit was merely a bye-product which resulted incidentally in the process of carrying out the charitable purpose. It is significant to note that the assessee was a company recognised by the Central Government under section 25 of the Companies Act, 1956 and, under its memorandum of association, the profit arising from any activity carried on by the assessee was liable to be applied solely and exclusively for the promotion of trade and commerce in various commodities which we have mentioned above and no part of such profit could be distributed amongs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustainable, and merely because betterment charges are recovered it could not be said that the Authority is a commercial enterprise working with profit motive. Infact, there is also provision in 1973 State Act for grants being given by State Government to assessee, for fulfilling its onerous and vast responsibilities entrusted to the assessee under the 1973 Act. Fourthly, if any development scheme is carried out by Authority in any development area which has led to increase in value of properties in that area, there are costs associated with implementation of that particular development scheme which is to be incurred by Authority, and if the said costs are recouped from the property owners of that area, will not make the Authority a commercial enterprises existing for profits, even if some surplus is generated on that count, as Section 20(2) of the 1973 State Act, mandates that the Authority is bound to apply its funds towards meeting the expenses incurred by Authority in the administration of this Act and for no other purpose.Thus, this contention of the Revenue is rejected. Revenue has also raised the contention that the assessee is maximizing profits by selling the properties ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ities as we have seen in the preceding para s of this order for development of the development area in a planned manner, and not otherwise, which not only include development of Master Plans, Zonal Development Plans for the Zones in the development area, and then overseeing that all the development, constructions in the development area takes place in a planned manner, and not otherwise. Preamble of the 1973 State Act itself states that the local bodies who were entrusted to do the act of development were not able to achieve the desired results and hence a separate body on the pattern of DDA is required to be created. Can it be said that with ever increasing population and growth of the Indian Economy, there will not be a requirement for a planned development of the cities, rather in our considered view with the passage of time the burden and responsibilities of these authorities will further increase and requirement for more planned growth of development area will be more felt. The needs for good road, electricity, sanitation, waste disposal, sewerage, parks, libraries, sports complexes, open space, community centers, stadium, conference halls etc. within the development area is m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther receipts as included above at S.No. 4, comprises of following: S.No. Particulars Amount in Rs. 1 Entry Fee from Nagwa Park 15,30,565.00 2. Sale of Forms 5,40,974.45 3. Penalty 1,37,500.00 4. Sub Division Charges 16,735,580.08 5. Income from Appeal Charges 1,24,075.00 6. Income from Plan Charges 34,39,216.00 7. Legal Charges 29,200.0 8. Income from Advertisement 1,68,250.00 9. Income from Late Fees 20,293.00 10. Inspection Charges ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 244617.00 15h Income by Deduction from Advance for Land/Building 72.00 15i Income by Deduction from Registration Amount 183100.00 15j House Rent deduction from Security Money Amount 12280.00 15k House Rent Deduction from Salary 190636.00 15l Vehicle Deduction 45300.00 Total 66561591.87 The above charts clearly reveals that the assessee is rendering various services for which necessary charges are recovered by assessee, which are in discharge of onerous and vast responsibilities entrusted to the assessee under the 1973 State Act, more particularly sub-division of property, plan charges, receipt against map sanction and regularization, compounding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the administration of the 1973 State Act. Thus, even if surplus/profits is generated, it will not change its character of being a charitable entity engaged in advancement of objects of general public utility as defined u/s 2(15) of the 1961 Act, and it will not lose its character of being a charitable entity eligible for exemption u/s 11 of the 1961 Act. The assessee is transferring receipts under the following heads directly to Infrastructure Fund in its books of accounts (audited financial statement/page 63 /paper book) instead of crediting the same to Income and Expenditure Account, which is utilized by assesse for incurring expenditure on infrastructure development Transfer to Infrastructure Fund S.No. Particulars Amount in Rs. 1. Development Charges 90% 58342183.10 2. Strengthening Charges 90% 1271060.15 3. Compounding Charges 50% 17835952.72 4. Prabha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fund IDRF are relevant, which are as under: 29 From the record, it also appears that the Authority had been maintaining infrastructure, development and reserve fund IDRF as per the notification dated 15.01.1998, the money transferred to this funds is to be utilized for the purpose of project as specified by the committee having constituted by the State Government under the said notification and the same could not be treated to be belonging to the Authority or the receipt is taxable in nature in its hands. For this reason also, it appears that the funds are utilized for general utility. The assessee has incurred following expenses on Schemes, apart from incurring Establishment and Administrative Expense, as under: S.No. Expenses on Scheme Amount in Rs. 1. Planning Expenses 6119195.00 2. Park Maintenance 332395.50 3. Repair and Maintenance of Lalpur-I 1814605.99 4. Sever, Mal Nala Expenses Lalpur-I 520501.56 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Authority(supra), has concluded after detailed deliberations that LDA is not engaged in business, trade or commerce, and is not working with profit motive. It is also pertinent to reproduce hereunder the relevant extract of the appellate order passed by Lucknow-tribunal in the case of LDA(supra), wherein tribunal dealt with the issue whether LDA is engaged in activities in the nature of business, trade or commerce, and the tribunal after detailed discussion held that the LDA is not engaged in any activities of business, trade or commerce. The assessee is also an authority constituted under the 1973 State Act and the activities of the assessee are for tackling problems of town planning and urban development in Varanasi in a planned manner and not otherwise. The relevant extract of decision of Lucknow-tribunal are reproduced, as under:- 9.5 The main intent or purpose of the Legislature in bringing such an amendment is to exclude certain non-genuine NGOs which are carrying on activities in the nature of trade, commerce or business in the garb of advancement of public utilities and enjoying the exemption of income which is accrued because of such activities.In this regard referenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r term than, and not synonymous with, trade; and means practically anything which is an occupation as distinguished from a pleasure [ Halsbury's Laws of England, Third Edition, Vo1.38, page 10, quoted in CIT v. Upasana hospital, (19970 225 ITR 845,851 (Ker). Also see, CIT v. Delhi Transport Corporation, (1996) 134 Taxation 386, 392-93 (Del)]. 'Business' is a word which has more extensive I meaningthat trade. All trade is business but all business is not trade [Vijaya Bank v. A.N. Tewari, (1995) 83 Taxman 340,342 (Del)]. The aforesaid Commentary further explains business as under on Page 1336: Is profit-motive essential to constitute a 'business'? - Business,without profit is not business, any more than a pickle is candy [Abbot]. To regard an activity as 'business', there must be a course of dealings, either actually continued or contemplated to be continued with a profit motive, and not for sport or pleasure [Shah. J., in State of Andhra Pradesh v. H. Abdul Bakshi Bros., (1964) 15 STC644, 647(SC); StateofGuajrat v. Raipur Mfg. Co. Ltd., (1967)19 STC 1 (SC) ; Director of Supplies and Disposals v. Member, Board of Revenue (1967) 20 STC 398 (SC); C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 16,244 (Mad)],and it is the continuous repetition of such transactions which will constitute a business . 9.8 In the case of State of Punjab and Another v. Bajaj Electricals Ltd (1968) 70 ITR 730(SC), it has been held that essential condition for carrying on business, trade, commerce is making profit. The relevant portion of this judgment is reproduced below: Liability to pay tax under Act 7 of 1956 arises if a person carries on trade by himself or through his agent, or follows a profession or is in employment within the State, and to otherwise. The expression trade is not defined in the Act. Trade in its primary meaning is the exchanging of goods for goods for money; in its secondary meaning it is repeated activity in the nature of business carried on with a profit motive, the activity being manual or mercantile, as distinguished from the liberal arts or learned professions or agriculture. 9.9 Similarly, Hon ble Supreme Court in the case of Commissioner of Income-tax, Punjab v. Lahore Electric Supply Co. Ltd (1966)60 ITR 1 (S.C) has held as under: Income Tax business Income-Carrying On of Business - Government Acquired Assessee Company's Undertaking In Reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tio of aforesaid decisions, that the assessee is engaged in the advancement of object of general public utility, the predominant object being town planning and development of development area under its jurisdiction, in a planned manner, and not otherwise, with no profit motive, while sale of properties etc. being ancillary objects to its predominant object and the assessee is not engaged in any business, trade or commerce. The assessee authority is also constituted under same statute viz. 1973 State Act, and after perusing the vast and onerous responsibilities assigned to the assessee-authority under the 1973 State Act, its audited financial statements and activities carried on by the assessee as elaborately discussed in the preceding para s of this order, we are also of the considered view that the assessee authority predominant purpose is to tackle problems of town planning and urban development in a planned manner, and not otherwise, with no profit motive as its object, while sale of properties etc. are merely ancillary objects for attainment of main and predominant objects, and it could be said that the assessee is not engaged in any trade, commerce or business. We have a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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