Income Tax Appellate Tribunal - Chandigarh
Income Tax Officer, Chandigarh vs The Nabha Improvement Trust, on 28 November, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
DIVISION BENCH'B', CHANDIGARH
BEFORE SMT. DIVA SINGH, JUDICIAL MEMBER AND
SHRI B.R.R. KUMAR, ACCOUNTANT MEMBER
ITA No.201/Chd/2016
Assessment Year: 2012-13
The I TO Exemption Vs. The Nabha Improvement Trust
Ward, Chandigarh Patiala Gate Nabha, Punjab
PAN No. AAALI 0017R
(Appellant) (Respondent)
Assessee By : Sh. Y.K. Sud
Revenue By : Sh. Manjit Singh
Date of hearing : 05/10/2017
Date of Pronouncement : 28/11/2017
ORDER
PER B.R.R. KUMAR A.M. This appeal has been filed by the Revenue against the order of Ld. CIT(A)- Patiala dt. 18/12/2015.
2. In this appeal Revenue has raised the following grounds:
1. That the order of Ld. CIT(A) is perverse both in law and on facts of the case.
2. That the Ld. CIT(A) is not justified in allowing the appeal of the assessee by holding that it is carrying out charitable activities whereas it was mainly engaged in developing and selling of commercial properties during the year.
3. That the order of Ld. CIT(A) is bad in law as the amendment in 2(15) is effective w.e.f. 01.04.2009 and the assessment in the case has been completed considering the activities of assessee which are not for "advancement of any other object of general public utility" as per first proviso.
4. That the order of Ld. CIT(A) is bad in law as the ratio laid down in the cases of Punjab Urban Development Authority and Jammu Development Authority (to the extent improvement trusts carry out land development in a similar manner as development authorities do) has been ignored.
3. Brief facts of the case are that the appellant is an artificial juridical person having income from planning & development of cities and the same was shown income of Rs. 2,41,90,570/- as exempt.
24. During the course of assessment proceeding, Assessing Officer observed that the appellant was carrying on business of sale & purchase of residential houses, construction of mutli-storeyed houses, sale of residential plots and commercial plots by auction. It earned net profit of Rs. 2,41,90,570/- during the year under consideration, which is in the nature of trade, commerce and business, but is not covered within the meaning of the expression "the advancement of any other object of general public utility" u/s 2(15) of the Income Tax Act, 1961. However, the assessee trust has stated during assessment proceedings that it was not carrying on any business activity but the object of trust was planning, development and improvement of city.
5. The Assessing Officer further observed that the contention of the assessee was not correct in view of omission of section 10(20A) of the Income Tax Act, by the Finance Act, 2002, w.e.f 01/04/2003 and by way of amendment of Sec. 2(15) of the Income Tax Act, 1961 by the Finance Act, 2008 & 2010 w.e.f 01/04/2009 i.e A.Y. 2009-10.
6. The Ld. CIT(A) has deleted the addition based on the judgment of Coordinate Bench of ITAT Amritsar in case of Hoshiarpur Improvement Trust in ITA No. 200/ Asr /2010 dt. 10/09/2015.
7. Before us during the hearing the Ld. DR submitted that the only issue raised by the Revenue through its various grounds of appeal listed at Sr.Nos. 1 to 4 is that the Ld CiT (A) has erred in treating the assessee as covered by section 2(15) of the Act and thereby extending the benefits of section 11 to the assessee. It was submitted that the Ld CIT(A) has simply relied on the decision of Hon'ble ITAT . The Ld CIT(A) has not discussed and/or distinguished case laws on the same of facts as that of the assessee relied by the Ld AO while holding that the assessee is not covered u/s 2(15) and hence its income is taxable and not exempt u/s 11 of the Act.
8. The Ld. DR argued that the Ld.CIT(A) has decided the issue in favour of the assessee relying on the order of Hon'ble ITAT Amritsar in the case of Hoshairpur Improvement Trust vs ITO (ITA NO.496/ASR/2013). He further contended that while relying on the decision of Hon'ble ITAT Amritsar in the case of Hoshiarpur Improvement Trust (supra) the Ld.CIT(A)did not follow the decision in the cases of Housing Board Haryana vs CIT (ITA No 1200/Chd/2004) dated 30.05.2014 and Khanna Improvement Trust vs CIT (ITA No. 406/Chd/2013) dated 3 26.11 2014 In these cases the Hon'ble ITAT has decided the issue in favour of the Revenue holding that Housing Board Haryana and Khanna Improvement Trust are not covered by the definition of charitable organization as provided u/s 2(15) w.e.f. 01 04.2009. While deciding the issue in favour of the Revenue, the Hon'ble ITAT has relied on the decision of Hon'ble ITAT Amritsar in the case of Jammu Development Authority(JDA) which has subsequently been upheld by Hon'ble J&K High Court and by Hon'ble Supreme decisions, as discussed supra, the Hon'ble ITAT has relied on the decision of J&K High Court in the case of JDA which has been subsequently confirmed by the Hon'ble Supreme Court.
9. Ld. AR relied on the order of the Ld. CIT (A) In the course of hearing the Ld AR argued based on the decision of Hon'ble Punjab and Haryana High Court in the case of Tribune Trust (2016) 76 taxmann.com 363 (P&H). In this case the Hon'ble High Court has decided the issue of applicability of section 2(15) in favour of Improvement Trust , Moga The Hon'ble High Court has also considered the decision of Hon'ble J&K High Court in the case JDA and has tried to distinguish it by holding that:
'The judgment is of no assistance to the appellant for the Division Bench observed that there were findings of fact that the assessee/appellant had in that case not been acting to advance any object concerning general public utility. The judgment was, therefore, based on the facts of this case. It is obviously for this reason that the Division Bench held that no question of law much less a substantial question of law emerged from the order of the Tribunal. It is difficult to understand how this order can possibly be relied upon as laying down any law when Court itself records that the order impugned therein is based on the facts of that case. The dismissal of the Special Leave Petition filed against that order is, therefore, of no assistance to the Revenue either."
Hon'ble High Court of Punjab & Haryana High Court vide order dt. 23/12/2016 in case of CIT(E), Chandigarh Vs. M/s Improvement Trust, Moga held as under:
73. The Tribunal also rightly held that an object of general public utility does not necessarily require the 66 of 74 ITA-62-2015 and ITA 147-2016 - 67 - activities to be funded or subsidized by the State. So long as the objects fall within the ambit of the words "object of general public utility", it is sufficient. The achievements of those objects do not have to be as a result of State funding or State subsidy. The Tribunal accordingly rightly held that the authorities were not justified in denying the benefit of section 11 and holding that the assessee was not covered by the words "advancement of any other object of general public utility" in Section 2(15). The Tribunal, therefore, rightly directed the Assessing Officer to delete disallowance of exemption.
74. It cannot possibly be suggested that the Government of Punjab formed the trusts under the Punjab Town Improvement Act, 1922 because it wanted to carry on the business as colonizers or developers under the mask of the category "objects of general public utility".4
75. Section 28(2)(iii) of the Punjab Town Improvement Act, 1922 permits a scheme under this Act to provide inter- alia for the disposal of the land vested in or acquired by the trust including by lease, sale and exchange thereof. This, however, is not the predominant activity or responsibility of the trust. Nor for this assessee is making profits from this activity its predominant motive.
76. The power of the assessee to dispose of land conferred by Section 28(2)(iii) is not an absolute or independent power. It is conferred upon the assessee in the discharge of its statutory duties imposed on it by the PTI Act of framing schemes.
Sub section (1) of Section 28 entitles the assessee to combine the various schemes referred to in Chapter-IV. Sub section (2) stipulates that the scheme 67 of 74 ITA-62-2015 and ITA 147-2016 - 68 - under the Act may provide for a variety of things including the disposal of land belonging to the assessee. This power is, therefore, in furtherance of, connected with and in relation to a scheme in Chapter-IV. It is not an absolute power independent of and unconnected with the assessee's statutory functions under the PTI Act.
77. The predominant activity of and the purpose for the establishment of the assessee is summed up in two words "town improvement" in the title "Punjab Town Improvement Act, 1922". The preamble is titled "An Act for the improvement of Certain Areas". The preamble states "whereas it is expedient to make provision for the improvement and expansion of towns in Punjab". The Act in general and Chapter-IV thereof in particular indicates the reason for and the basis of the establishment of the trust. Almost every section in the Chapter indicates clearly that the trust is established for the purpose of "advancement of the object of general public utility". This is the predominant purpose of the trust.
78. The language of the provisions of the Act are self explanatory in this regard. The trust must deal with the buildings unfit for human habitation, the danger caused or likely to be caused to the health of the inhabitants of the area on account of the congested conditions of streets or buildings or want of light, air, ventilation or proper conveniences in an area and sanitary defects. The trust is required to frame the street schemes to lay out new streets, thoroughfares and open spaces or alter existing streets whenever it appears to the trust that it is necessary to do so for the purpose of providing building sites or remedying 68 of 74 ITA-62-2015 and ITA 147-2016 - 69 - defective ventilation or creating new or improving existing means of communication and facilities for traffic.
79. The trust must also prepare development schemes. This duty contained in Section 24 is not akin to that of a private developer or a colonizer as wrongly suggested by the Assessing Officer and confirmed by the CIT(A). The development scheme under section 24 is prepared for the purpose of development of a locality. Sub section (2) of Section 24 provides that the trust may if it is of the opinion that it is expedient and for the public advantage to promote and control the development of and to provide for the expansion of a municipality in any locality adjacent thereto within the local area of such trust prepare "an expansion scheme". The development scheme, therefore, is for the public purpose of development of any locality and an expansion scheme is also prepared when it is expedient and for the public advantage as opposed to a mere personal advantage as in the case of private developers or the colonizers. The two cannot possibly be compared. These schemes do not contemplate mere development of the plots and the construction of the premises for sale. The Trust must under the Act adopt a holistic approach for the betterment and advantage of the entire area within its jurisdiction.
80. Section 25 which provides for a housing accommodation scheme to be framed is similar. The trust is required to frame such a scheme if it is of the opinion that it is expedient and for the public advantage to provide housing accommodation for any class of inhabitants within its local area. The trust is, therefore, to be motivated not by personal but by public benefit. Such activities clearly fall 69 of 74 ITA-62-2015 and ITA 147-2016 - 70 - within the last category of cases in the proviso to Section 2(15) as it stood at the relevant time, namely, "advancement of an object of general public utility".
581. It can hardly be suggested that the Government of Punjab established the assessee's trust and conferred upon it public responsibilities and duties of the nature specified in the PTI Act as a camouflage for its commercial, trade and business ventures. The creation and incorporation of the trust under section 3 is for a public purpose. We have no doubt whatsoever that the activities of the trust fall within the meaning of the words "charitable purpose" in Section 2(15).
82. Whether the mandate of the Act is followed by such a trust is a different matter. The facts in that regard are relevant in examining whether the activities of the trust of a given year entitled it to the benefit of the Income Tax Act. Mere profit making on account of certain incidental or ancillary activities of the trust do not disentitle it to the exemptions. The Trust constituted under the PTI Act is likely to make profit on account of its commercial or business activities such as when it acts pursuant to the power under section 28(2)(iii) by disposing off its lands. That, however, does not take it out of the definition of 'charitable purpose' in Section 2(15). As we held earlier, trade, commerce and business in Section 2(15) must be such as to involve an element of profit. Profit, however, is not the predominant motive of such trusts. In our view considering the nature of the Act, selling of plots and premises by the trust is only incidental and ancillary to its main purpose which at the cost of repetition is "town improvement" in 70 of 74 ITA-62-2015 and ITA 147- 2016 - 71 -almost every respect. Even where the plots are developed and premises are constructed and sold at the market price, the activity is not commercial or business venture per se but one necessitated on account of the implementation of the provisions of the trust through statutory schemes. The main purpose of such schemes is driven by public requirements and not as a commercial venture per se. They are incidental to the main object of the trust.
83. In the present case, the Assessing Officer has not indicated any facts which indicate that the assessee deviated from this principle. He has merely referred the extent of profit making activities without correlating the same to the other activities of the trust. In our view, therefore, the order of the Tribunal must be upheld.
84. Mr. Goel relied upon the judgment of the High Court of Jammu & Kashmir in Jammu Development Authority v. Union of India and another ITA No. 164 of 2012. The Division Bench dismissed the appeal with the following order:-
"1. The instant appeal under section 260-A of the Income Tax Act, 1961 (for brevity, the Act) is directed against order dated 14.06.2012 passed by the Income Tax Appellate Tribunal, Amritsar, upholding the order withdrawing the status of Charitable Institution given to the appellant- assessee under Section 12AA(1)(b)(i)of the Act. The Tribunal has reached a categorical conclusion that the assessee-Jammu Development Authority cannot be regarded as an institution or trust which may have been set up to achieve the objects enumerated under Section 2 of the Act particularly in view of the addition of first and second proviso made by the Finance Act, 2008 w.e.f. 01.04.2009 to Section 12AA of the Act. There are findings of fact that the assessee-appellant has not been acting to advance any of the object concerning general public utility. Even otherwise the proviso which has been added by the Finance Act, 2008 w.e.f. 01.04.2009 stipulates that the advancement of any other object of the general public utility shall not be a charitable purpose, if it involves 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 or a cess or fee of any other consideration.
2. We find that no question of law much less a substantial question of law would emerge from the impugned order of the Income Tax Appellate Tribunal warranting admission of the appeal. The appeal is wholly without merit and is thus liable to be dismissed.
3. For the reasons aforementioned, this appeal fails and same is dismissed alongwith connected application(s)."6
The judgment is of no assistance to the appellant for the Division Bench observed that there were findings of fact that the assessee/appellant had in that case not been acting to advance any object concerning general public utility. The judgment was, therefore, based on the facts of this case. It is obviously for this reason that the Division Bench held that no question of law much less a substantial question of law emerged from the order of the Tribunal. It is difficult to understand how this order can possibly be relied upon as laying down any law when Court itself records that the order impugned therein is based on the facts of that case. The dismissal of the Special Leave Petition filed against that order is, therefore, of no assistance to the Revenue either.
86. The assessee, namely, Moga Improvement Trust is undoubtedly an authority constituted in India. It is also constituted by or under a law, namely, the Punjab Town Improvement Act, 1922. Further, it is engaged for the purpose of dealing with and satisfying the need for housing accommodation. It is also constituted for the purpose of planning, development of improvement of cities, towns and villages or for both as is evident from Sections 22 to 28 of the PTI Act quoted above. The appellants, would, therefore, undoubtedly have been entitled to the benefit of Section 10(20A). The assessee would not have been entitled to the benefit of Section 10(20A) upon its omission by the Finance Act, 2002 with effect from 01.04.2003. Section 10(20A) of the Act did not contain any other requirement. It was wider than Section 2(15).
However, Section 2(15) and the corresponding sections including Sections 11, 12, 12A and 12AA are independent of Section 10(20A) of the Act. Upon the omission of Section 10(20A), the provisions of the other sections were not affected. They remained intact. An assessee could have been entitled to the provisions of Section 10(20A) and the other provisions simultaneously. The omission of one, however, does not affect the validity or the existence of the others. The two provisions are distinct and independent of each other. Thus the omission of Section 10(20A) did not affect the rights of the parties claiming the benefit of Sections 2(15), 11, 12, 12A and 12AA of the Act.
10. Similar view has been taken by the Coordinate Bench of ITAT Chandigarh in the case of The Improvement Trust, Sangrur Vs. The ITO in ITA No. 987/CHD/2014 and by the Hon'ble ITAT Amritsar Bench, Amritsar, in the case of Hoshiarpur Improvement Trust vs. Income Tax Officer, Ward 1, wherein full relief has been allowed to the appellant. No contrary decision was brought to our notice by the Revenue.
11. Following the same, we do not find any infirmity in the order of the Ld. CIT(A) deleting the addition which was based the on correct interpretation of section 2(15)
12. In the result, the appeal of the Revenue is dismissed.
Order pronounced in the open court.
Sd/- Sd/- (DIVA SINGH) (B.R.R.KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated : 28/11/2017 AG
Copy to: The Appellant, The Respondent, The CIT, The CIT(A), The DR