Income Tax Appellate Tribunal - Mumbai
Mumbai Metropolitan Region ... vs Department Of Income Tax on 25 June, 2012
ITA Nos.5584 and 5062 MMRDA Mumbai-F-Bench
IN THE INCOME TAX APPELLATE TRIBUNAL
"F" Bench, Mumbai
Before Shri B. Ramakotaiah, Accountant Member and
Shri Vivek Varma, Judicial Member
ITA No.5584/Mum/2009
(Assessment year: 2006-07)
DDIT (Exemptions)-1(1) Room Vs. Mumbai Metropolitan Region
No.504, Piramal Chambers, Development Authority Plot
5th Floor, Parel, Mumbai- No;C-14 & C-15 Bandra Kurla
400012 Complex, Bandra (E)
Mumbai 400051
PAN AAATM 7106 R
(Appellant) (Respondent)
ITA No.5062/Mum/2009
(Assessment year: 2006-07)
Mumbai Metropolitan Region Vs. DDIT (Exemptions)-1(1) Room
Development Authority Plot No.504, Piramal Chambers, 5th
No;C-14 & C-15 Bandra Kurla Floor, Parel, Mumbai-400012
Complex, Bandra (E)
Mumbai 400051
PAN AAATM 7106 R (Respondent)
(Appellant)
Department by: Smt. Sasmita Misra, CIT (DR)
Assessee by: Shri Niraj Sheth &
Shri Ronak G. Doshi
Date of Hearing: 25/06/2012
Date of Pronouncement: 29/06/2012
ORDER
Per B. Ramakotaiah, A.M.
These are the cross appeals by Revenue and Assessee for the assessment year 2006-07.
2. We have considered the rival arguments of the learned DR and the Ld.Counsel. Learned Counsel also placed on record the Coordinate Bench decision in the case of Slum Rehabilitation Page 1 of 12 ITA Nos.5584 and 5062 MMRDA Mumbai-F-Bench Authority, Mumbai in ITA No.5150/Mum/2010 dated 30.9.2011 and Maharashtra Housing & Area Development Authority in ITA No.5758/Mum/2010 dated 16-11-2011.
ITA No.5584/Mum/20093. Briefly stated, the issue in this appeal is whether assessee is entitled for exemption under section 11 of the Act. The Mumbai Metropolitan Region Development Authority (MMRDA) was a local authority created by the Government of Maharashtra as per the MMRDA Act, 1974. Assessee was claiming exemption of its income as per section 10 (20A) of the IT. Act till A.Y.2002-03. Section 10(20A) was removed from the statute w.e.f. AY.2003-04. Furthermore, section 10(20) which defined local authorities placed limitations under this section. Hence assessee no more enjoyed exemption U/S 10(20A) or section 10(20). Therefore, assessee applied for registration under sec.12A with the Director of Income- tax (Exemption), Mumbai, and was granted Registration u/s.12A vide order of DIT No. DIT(E)/McIl2A136714/2003 dtd. 22.07.2002. Subsequently, attempt was made to cancel the registration granted and the learned DIT(E), Mumbai, issued a show cause notice to assessee dtd. 08/02/2006 vide letter No. DIT(F)/MC/Show Cause /05-06/295, in response to which, assessee filed reply through letter dtd.24.02.2006 to the DIT(E) objecting to cancellation of registration. No action by the DIT(E) has been taken so far and as such the registration granted uJs.12A has not been withdrawn as yet.
4. The Assessing Officer examined the whole issue in the assessment order and held that despite the registration under section 12A having not been withdrawn by the DIT(E), the Assessing Officer is entitled to go beyond and verify whether assessee is engaged in charitable activity and whether it is entitled to exemption of income under section 11 of IT Act. The A.O. concluded that at the time of granting of registration u/s.12A, the Page 2 of 12 ITA Nos.5584 and 5062 MMRDA Mumbai-F-Bench CIT is not required to verify the application of income and as such despite registration, AO can deny the exemption under section 11. The A.O. thereafter proceeded to examine whether MMRDA is a valid trust within the meaning of sec. 11 to 13 and whether it is entitled to claim exemption. AO referred to the decision of Bombay High Court in the case of Madhav Prasad Nathurarn Pandit Vs. Mohilal Ramchand Mahesee 30 Bom LR 186 AIR 1928 Bom 97 : 108 IC 482. The A O. also referred to the decision of Hon'ble Madras High Court in the case of R. Venugopala Reddian Vs. Krishna Swamy Reddian AIR 1971 Mad. 262. AO further referred to his predecessor's order for A.Y. 2004-05. He specifically relied on pages 2 to 11 of that order and concluded that MMRDA is not a Valid Trust and change of status as claimed is not permissible.
5. After concluding that the facts and circumstances of the case are similar for this year at Page 2, the AO concluded that assessee is not entitled to exemption under section l1 for the following reasons:
"(1) Within the meaning of preamble to the MMRDA Act, 1974, the handing over of ownership, control, management of the MMRDA hitherto belonging to the State Government is considered not to have created a lawful Trust within the meaning of term Trust used for the purpose of section 11, 12, 12A, 12AA and 13 of the I.T. Act, 1961.
(2) The MMRDA was created as a Local Authority within the meaning of term "person for the purpose of Income Tax Act, 1961 and w.e.f. its inception to 2002, the MMRDA continues to be Local Authority in the eyes of law. It cannot be considered as a Public Trust or Charitable Trust or Trust of any other kind. (3) On a proper interpretation of the intention behind the enactment of the provision of section 11, 12, 12A, 12AA Page 3 of 12 ITA Nos.5584 and 5062 MMRDA Mumbai-F-Bench and 13 of the I.T. Act, 1961, it appears that the tax incentive proposed in the scheme of exemption from charge of income tax is more applicable to the case of private individual and groups and association who create valid Public Trust and dedicate its income for the purpose of general public welfare,. The scheme of section 11 to 13 specifically the restrictive provision of section 13 cannot be made applicable to the case of public enterprises/public sector undertakings/public sector utility service provider. The basic incentive provided in the exemption section cannot be intended for utilization of public property and application of income of public property administered through Govt. reaching the people as a whole.
(4) The absence of profit motive in the functioning of the MMRDA does not by itself create a situation of total exemption from the charge of income tax in respect of income which has earned or likely to earn from its activities comprising of providing various infrastructural facilities and also deriving income ancillary to its principal activities such as rental income from let out property/sale and leasing out of commercial plots to its customers, development charges, income from investments etc. In view of the nature and activities being carried out by the authority as well as the legal status discussed in the foregoing paragraphs, its claim for Exemption under section 11 of the I.T. Act cannot be entertained.
6. Before the CIT (A) assessee raised certain fundamental issues i.e. (a) Whether during the currency of registration granted by the DIT (E), AO cannot deny registration and refuse exemption and (b) Page 4 of 12 ITA Nos.5584 and 5062 MMRDA Mumbai-F-Bench whether assessee is entitled to exemption under section 11 to 13 if the registration granted in section 12A were to be ignored by AO.
7. After considering the submissions the CIT (A) upheld assessee's contention that AO is not entitled to examine whether such Trust or Institution was created for charitable or religious purpose or not once it was registered under section 12A. The learned CIT (A) relied on the following decisions:
i) Income Tax Officer vs. Mrs. Dwarika Prasad Trust (1989), 30 ITD 84 (Delhi)
ii) Audit Bureau of Circulation vs. ADIT, 55 ITD 408 (Bom.)
iii) U.S. Srivastava Educational Memorial Society vs. ACIT, 30 SOT 151 (Lucknlow)
iv) Stock Exchange of Ahmedabad vs. ACIT 74, ITD 1
v) Surat City Gymkhana vs. ACIT 106 Taxmann, 114 Ahd (Mag.) The learned CIT (A) also relied on the following High Court judgments:
a) Madhya Pradesh Madhyam vs. CIT (2002), 256 ITR 277 (MP)
b) Hiralal Bhagwat vs.CIT (2000) 246 ITR 188 (Guj.)
8. Following the decisions quoted above of various High Courts and different Benches of the Tribunal, the CIT (A) held that in the assessment proceedings AO has to give effect to the registration granted under section 12A after satisfying himself to the correctness of application of income of such Trust or Institutions or accumulation of such income in accordance with section 11. He also distinguished the decision of the Hon'ble Allahabad High Court in the case of Fifty Generation Educational Society vs. CIT, 185 ITR 634 (Allahabad) relied upon by AO to concluded that reliance decision by AO is incorrect. The CIT (A) analyzed the said decision and came to the conclusion that decision in this case is consistent with the other decisions quoted above that only the issue of application of income of the Trust or Institution has to be examined Page 5 of 12 ITA Nos.5584 and 5062 MMRDA Mumbai-F-Bench by AO in section 11, whereas whether the Trust is created for charitable purposes or not has to be examined by the CIT/DIT under section 12A. For the reasons mentioned in the order, he held that AO wrongly assumed the jurisdiction to examine whether the Trust or Institution was created wholly for charitable or various purposes and whether the registration granted under section 12A was right or wrong.
9. The CIT (A) also held on the issue whether a local authority is entitled to exemption under section 11, 12 and 13. Following the decision of the ITAT Ahmedabad Bench in the case of Gujarat Maritime Board vs. CIT (2005) 147 Taxman 31 (Mag.) which in turn were upheld by the Hon'ble Gujarat High Court and further affirmed by the Supreme Court in the case of CIT vs. Gujarat Maritime Board 295 ITR 561 and further on the conclusions derived from the decision of the Hon'ble Supreme Court in the case of CIT vs. AP State Roadways Transport Corporation 159 ITR 1 and DIT vs. Bharat Diamond Bourse 259 ITR 280 it was held that for the purpose of falling under section 11 it is not necessary that the status of assessee should be that of a Trust and any institution or Trust is entitled to claim exemption, if it is satisfied the conditions mentioned in section 11 to 13.
10. The CIT (A) further considered in Ground No.3 the findings of AO that the activities of assessee are not genuine and they are not charitable in nature. On this issue also since the list of present activities undertaken by assessee are for the public at large which was accepted at the time of grant of registration under section 12A, AO was precluded from making inquiry about the genuineness of the institution and correctness of the certificate regarding the activities of the institutions being charitable. He held that AO was empowered to verify the application of income only and was precluded from making inquiries about the genuineness of the institution as such.
Page 6 of 12ITA Nos.5584 and 5062 MMRDA Mumbai-F-Bench
11. The Revenue is aggrieved on the above and raised the grounds as under:
"1.On the facts and circumstances of the case, and in law, the learned CIT (A) erred in directing AO to allow exemption under section 11 of the IT Act, 1961 ignoring the elaborate discussion of the issues and facts and circumstances of the case by AO.
2. On the facts and circumstances of the case, and in law, the learned CIT (A) erred in holding that AO has wrongly held that the appellant is not entitled to exemption because it is not trust and that because it is no longer a local authority for the purpose of section 10(20) and therefore, by exclusion not entitled to exemption under section 11.
3. On the facts and circumstances of the case, and in law, the learned CIT (A) erred in not appreciating the findings of AO that the activities of the appellant are not genuine and not charitable in nature"
12. The learned Counsel placed on record the Coordinate Bench decision on the issues in assessee's case similarly considered in the case of Slum Rehabilitation Authority (Supra) and Maharashtra Housing & Area Development Authority (Supra) whereas the learned CIT (DR) relied on the orders of AO.
13. We have heard the rival submissions and perused the records and gone through the case laws relied upon by the parties. So far as the merits of the case are concerned, in our opinion, the principles laid down by the Hon'ble Supreme Court in the case of Gujarat Maritime Board 259 ITR 561 (SC) are squarely applicable to assessee's case. The Coordinate Bench in the case of Slum Rehabilitation Authority (Supra) has considered the similar issue held as under:-
4. We have heard the rival submissions of the parties, perused the records and gone through the case laws relied on by the parties. We find that, in the preceding years, when the revenue's appeals were dismissed for want of the COD approval. So far as merits of the case is concerned, in our opinion, the principles laid down by the Hon'ble Supreme Court in the case of Gujarat Page 7 of 12 ITA Nos.5584 and 5062 MMRDA Mumbai-F-Bench Maritime Boards (supra) are squarely applicable to the assessee's case.
5. It is necessary to reproduce sub-sec. (15) of Sec. 2 of the Act, which defines term 'charitable purpose which reads as under:-
"Charitable purpose" includes relief of the poor, education, medical relief, preservation of environment including watersheds, forests and wildlife and preservation of monuments or places or objects of artistic or historic interest, and the advancement of any other object of general public utility:
Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying 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."
6. In the case of Gujarat Maritime Boards (supra) while interpreting the expression "Charitable purpose"
in section 2(15) of the I.T. Act, the Hon'ble Supreme Court has 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 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 or protect the interest of a particular trade or industry Page 8 of 12 ITA Nos.5584 and 5062 MMRDA Mumbai-F-Bench 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 55 ITR722 (SC). If the primary or predominant object of an institution is charitable, any other object which might not be charitable but which is ancillary or incidental to the dominant purpose, would not prevent the institution from being a valid charity--Addl. CIT v. Surat Art Silk Cloth Mfrs. Association 121 ITR 1 (SC).
15. The present case in our view is squarely covered by the judgment of this Court in the case of CIT v. Andhra Pradesh State Road Transport Corpn. 159 ITR 1 in which it has been held that since the Corporation was established for the purpose of providing efficient transport system, having no profit motive, though it earns income in the process, it is not liable to income tax." In the present case, the Slum Development Authorities is established for providing residential settlements to the slum dwellers without any profit motive.
Moreover, primary purpose and the predominant object are to promote the welfare of the general public by providing better residential accommodations to slum dwellers and economically deprived class of society and said purpose would be charitable in nature only. Hence, in our humble opinion assessee's case is squarely covered by the principles laid down by the Hon'ble Supreme Court of India in the case of Gujarat Maritime Boards (supra).
7. In our opinion, the activities of the SRA, present assessee are charitable in nature and hence, the assessee is entitled for exemption u/s.11 of the I.T. Act. Moreover, the assessee has been also granted the registration u/s.12AA that has not been cancelled. Therefore, in our opinion, in the light of our above discussion no interference is called in the order under challenged before us and we accordingly confirm the order of the Ld. CIT (A) and dismiss the ground taken by the revenue".
Similar view was also expressed by the Coordinate Bench in the case of Maharashtra Housing & Area Development Authority in ITA No.5758/Mum/2010 where the Coordinate Bench held as under:
Page 9 of 12ITA Nos.5584 and 5062 MMRDA Mumbai-F-Bench "3. We have perused the records and considered the matter carefully. The dispute is regarding allowability of deduction under section 11 of the Income Tax Act in case of the assessee. There is no dispute that the assessee has been registered under section 12AA of the Income tax Act by the DIT(E) which means that charitable character of the assessee is not in dispute. Therefore, exemption under section 11 in case of the assessee can not be denied. We also find that identical dispute had arisen in case of SRA in which the Tribunal in ITA No.5150/Mum/2010 noted that charitable purpose included advancement of any other job of general public utility. Moreover the institution had also been registered under section 12A by the department which also confirmed its charitable status. The Tribunal, therefore, held that exemption under section 11 could not be denied. The facts in case of the assessee are identical, therefore, respectfully following the decision of the Tribunal in the case of SRA (supra), we see no infirmity in the order of CIT(A) allowing the claim of exemption under section 11 to the assessee. Accordingly the order of CIT(A) is upheld".
14. The facts of assessee are similar to the other two institutions considered by the Coordinate Bench, as they were also the local authority created by the Govt. of Maharashtra and consequent to the amendment brought out in financial year 2002 to the provision of section 10(20) and 10(20A), the entities become taxable.
Subsequently, assessees applied for exemption and got registration under section 12AA. Since the facts are similar, respectfully following the Coordinate Bench decision, we uphold the orders of the CIT (A) on this issue and dismiss the Revenue Grounds. Accordingly the Revenue appeal is dismissed.
ITA No.5062/Mum/2009.15. In this appeal assessee is contesting the following two grounds:
"1. On the facts and in the circumstances of the case and in law, the Commissioner of Income Tax (Appeals)- XXXII, Mumbai ("the CIT (A)") erred in not adjudicating the action of the Asstt. Director Income Tax (Exemptions)-1(1), Mumbai ("AO") in making notional addition on account of interest aggregating to `.124.24 Page 10 of 12 ITA Nos.5584 and 5062 MMRDA Mumbai-F-Bench crore on loans given and deposits made with various Public Sector Undertakings (PSU)/ Govt. of Maharashtra.
2. On the facts and in the circumstances of the case and in law, the CIT (A) erred in upholding the action of AO in not allowing exemption to the Appellant under section 10(20) of the Act".
16. Briefly stated, AO while denying the benefit of section 11 to assessee held that assessee is not a local authority and further also held that assessee has not accounted for the amount of `124.24 crores of interest on loans given and deposits made with various public sector undertakings/Govt. of Maharashtra. After considering the submissions of assessee, the CIT (A) considered that as assessee is entitled for exemption of income, the ground of bringing to tax notional interest becomes infructuous. However, he on the issue of assessee being local authority, after discussion in the order, held that assessee is not a local authority for the purpose of section 10(20). In doing so he relied on the decision of the Hon'ble Supreme Court in the case of Adityapur Industrial Area Development Authority, 283 ITR 97 (SC), U.P. State Road Transport Corporation vs. CIT, 286 ITR 350, CALCUTTA STATE TRANSPORT CORPORATION - VS - CIT 219 ITR 515 (SC) and CIT vs. U.P. Forest Corporation, 230 ITR 945 (SC) wherein it has been held that institutions set up for the specific purposes, does not amount to 'local authority' for the purpose of section 10(20) of the I.T. Act.
17. In the course of arguments the learned Counsel squarely admitted that these issues became academic in nature and can be left open for adjudication at the relevant point of time in view of the granting benefits of section 11 to assessee. He fairly admitted that in case the Revenue appeal is dismissed, there is no need for adjudication of the grounds raised by assessee. Since we have dismissed the Revenue appeal and upheld the order of the CIT (A) granting benefit of section 11 to assessee, this issue becomes academic in nature and so not adjudicated. Issues are left open for Page 11 of 12 ITA Nos.5584 and 5062 MMRDA Mumbai-F-Bench consideration in an appropriate case as and when required. The grounds are, therefore considered rejected.
18. In the result, both the appeals filed by Revenue and Assessee are dismissed.
Order pronounced in the open court on 29th June, 2012.
Sd/- Sd/-
(Vivek Varma) (B. Ramakotaiah)
Judicial Member Accountant Member
Mumbai, dated 29th June, 2012.
Vnodan/sps
Copy to:
1. The Appellant
2. The Respondent
3. The concerned CIT(A)
4. The concerned CIT
5. The DR, " F" Bench, ITAT, Mumbai
By Order
Assistant Registrar
Income Tax Appellate Tribunal,
Mumbai Benches, MUMBAI
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