Income Tax Appellate Tribunal - Delhi
Moradabad Development Authority, ... vs Department Of Income Tax on 11 October, 2011
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "E" DELHI
BEFORE SHRI RAJPAL YADAV AND SHRI K.G. BANSAL
ITA No. 2276(Del)/2011
Assessment year: 2007-08
Income-tax Officer, Moradabad Development Authority,
Ward 1(1), Moradabad. Vs. Kanth Road, Moradabad.
PAN: AAJFM7731M
(Appellant) (Respondent)
Appellant by : Shri Raj Tandon, CIT, DR
Respondent by: Shri Piyush Kaushik, Advocate
Date of Hearing : 11.10.2011
Date of pronouncement: 21.10.2011.
ORDER
PER K.G. BANSAL : AM The revenue has taken six grounds in the appeal as under:-
1. "The CIT(A), Bareilly has erred in fact as well as law in holding that the facts of the case Safdurjung Enclave Educational Society Vs. Municipal Corporation of Delhi (1992) 3 SCC 390, in which it has been held that the activities run on commercial lines do not fall within the ambit of charitable object, are different from the present case without distinguishing the facts of both the cases.
2. The CIT(A), Bareilly erred in holding that the criteria which enable the receipts of a trust as eligible income for exemption u/s 11 & 12 of the Act, are fully applicable to the facts of the case whereas the activities of the assessee during the year under consideration are not in conformity with its main object.2 ITA No. 2276(Del)/2011
3. The CIT(A), Bareilly erred in holding that income of the assessee is exempt as it is registered u/s 12AA whereas the registration u/s 12AA does not confer blanket exemption of income.
4. Under the circumstances of the case, The CIT(A) has erred in holding that the AO did not gather any material on record which could establish that the assessee was engaged in profit making activity and did not apply receipts for meeting the predominant objects of general public utility, whereas the comparative perusal of objects of the assessee and trading and profit and loss account clearly reveals that the assessee is involved in business activity like other private builders and developers.
5. The CIT(A), Bareilly erred in holding the income of the assessee as exempt whereas the assessee is an institution and not a trust as per definition of Trust provided in the Indian Trust Act and hence the income of the assessee does not fall under any category of section 11(1)(a), (b), (c) or (d) or u/s 12(1) of the Income-tax Act, 1961.
6. Any other ground which may be taken during the course of the appellate proceedings."
2. The facts of the case are that the assessee filed its return declaring total income of Rs. 60/-. The return was picked up for scrutiny by issuing statutory notices u/s 143(2) and 142(1) of the Income-tax Act, 1961 ('the Act' for short). It was found that the authority was registered u/s 12AA of the Act by the Commissioner of Income-tax, Moradabad with effect from 01.04.2003 with the object to promote and secure the development of the development area according to plan and for that purpose the authority had the power to acquire, hold, manage and dispose of land 3 ITA No. 2276(Del)/2011 and other property, to carry out 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 for purposes incidental thereto. The total income was computed by the assessee as under:-
"Income from other sources (Chapter IVF) 1297376266 Gross receipts 1297376266 Income before application of income 1297376266 Less: Application of income Revenue expenditure 439004524 Capital expenditure 1139242 Repayment of loan 172000000 Amount deemed to applied 490626000 during the previous year-clause (2)- - - - - - - - - -
of the Explanation to sec.11(1) 1102769766 Income exempt u/s 11(1)(a) Income accumulated or set apart up to 15% 194606440 1297376206 Gross total Income: 60/- 4 ITA No. 2276(Del)/2011
2.1 The AO came to the conclusion that the activities carried out are regarding purchase of land and to sell it after developing. Further, it carries on the activities of construction of houses, flats, shops etc. which are sold. These activities are similar to the activities carried out by dealers, builders and developers of real estate. In other words, the activities are in the nature of carrying on of business. No charitable activity has been carried on by the assessee. In view thereof, the surplus in the building activity amounting to Rs. 85,52,21,356/- is held to be liable for tax.
3. The order was challenged in appeal before the first appellate authority, Bareilly. Various arguments were made by the assessee before him. The ld. CIT(Appeals) came to the conclusion that the assessee is entitled to deduction u/s 11. For this purpose, he mainly relied on the fact that deduction u/s 11 was allowed in past. For the sake of completeness, his findings are reproduced below:-
" I have carefully considered the facts of the case and the submission of the AR of the appellant. The facts of the decision (supra) relied by the assessing officer were also gone through. The decision relied by the A.O. was having entirely different facts and it was delivered in a different contest. Therefore, the citation of the AO does not have any bearing to the facts of the case under consideration.5 ITA No. 2276(Del)/2011
Admittedly, the status of the appellant in the earlier year was accepted as a charitable trust having income eligible for exemption u/s 11 of the Act. As a mater of fact, there was no change in the facts and circumstances of the case during the year under consideration. The AO did not gather any material on record which could establish that the appellant was engaged in profit making activity and did not apply receipts for meeting the predominant objects of general public utility. His decision was based on two points, i.e., the assessee was constructing and selling the immovable properties to the public at competitive market price and income from this activity was not income from property held by the trust. However, he did not cite even a single example to substantiate his finding as to how, the accommodation provided to the public for residential and commercial purposes, was at competitive market price. It seems that this view was taken without any material on record. The aims mentioned in the objects were being fulfilled by the assessee in the form of town planning, roads, houses, commercial shops, sewerage etc. Therefore, in my view, the decision of the AO was not justified and it was contrary to the facts of the case.
Having regard to the facts and circumstances of the case, submission of the appellant and the rulings of the Apex Court on the issue, it is my considered view that the criteria which enable the receipts of a trust as eligible income for exemption u/s 11 & 12 of the Act, are fully applicable to the facts of the case under consideration. Accordingly, the claim of the assessee of having its income as exempt u/s 11 is allowed."
3.1 Aggrieved by this order, the revenue is in appeal before us. 6 ITA No. 2276(Del)/2011
4. At the outset, the ld. counsel submitted that the issue stands decided in favour of the assessee by the Tribunal in its own case in ITA No. 1986(Del)/2008, dated 09.03.2009, for assessment year 2005-06, a copy of which has been placed in the paper book on page nos. 1 to 4. Therefore, it is agitated that the various issues may be decided in the favour of the assessee by following the aforesaid order. The findings recorded by the Tribunal in paragraph 7 are as under:-
"7. We have heard the ld. DR and gone through the material available on record. Ld. CIT, DR fairly conceded that the CIT, Moradabad has granted registration under section 12A w.e.f. 01.04.2003, therefore, assessment could not be made under section 143(3) in the status of AOP. There is no dispute that the assessee was granted registration under section 12A(a) vide registration vide letter dated 02.05.2005 w.e.f. 01.04.2003. Prior to 01.04.2003, the assessee was enjoying exemption under section 10(20A) of the Act. Since the assessee has been granted registration under section 12A, the income of assessee will be exempt under section 11 subject to fulfillment of other conditions specified in the sections 11 and 13 of the Act. In the case before us, the contention of Assessing Officer is that the activities of assessee in so far as they relate to purchase, development and sale of plots/shops, houses could not be treated for charitable purposes and, therefore, assessee was not entitled for exemption u/s 11 of the Act as provisions of section 11 were applicable in the case of charitable institutions. In the case before us, the activities of assessee are charitable in nature. The properties of the trust are held under trust for charitable purposes. The Moradabad Development Authority has been constituted for the development of roads, town planning, providing cheaper residential and commercial properties to 7 ITA No. 2276(Del)/2011 the public. The management of the Development Authority is by officers and employees appointed by the State Government. In case of dissolution, the surplus after meeting the liabilities will go to the State Government. Therefore, the charitable activities are not in doubt. In fact, the assessee has been granted registration u/s 12A. Therefore, in our considered view, Assessing Officer was not justified to deny the exemption under section 11 of the Act on the basis of activities by holding that the purchase, development and sale of properties were not charitable activities. Registration under section 12A has been granted w.e.f. 01.04.2003. Therefore, once registration has been granted to institution that it cannot be withdrawn in assessment proceedings. One of the grounds of appeal raised by assessee is that the Assessing Officer had adopted status of AOP as claimed in the return of income. However, we note that Ld. CIT(A) has annulled the assessment. In our view, assessment cannot be annulled under given circumstances of the case. Ld. CIT(A) should have examined the case from the angle of exemption under section 11 of the Act and decided the matter accordingly. We, therefore, set aside the matter to the file of Assessing Officer with the directions to decide the claim of assessee for exemption under section 11 of the Act treating the activities of assessee as charitable in nature. Needless to say the Assessing Officer shall provide opportunity of being herd to the assessee. We order accordingly."
4.1 The ld. CIT (DR) referred to page no.7 of the assessment order. In paragraph no. 11, the AO referred to the activities carried out by the assessee vis-à-vis the object for which registration was granted u/s 12AA. It is mentioned that the assessee earned income mainly from sale of houses in different residential colonies. This activity has not been included in the object clause. It was granted registration for development 8 ITA No. 2276(Del)/2011 of the area of the city by carrying out building engineering, mining and other operations, to execute works in connection with supply of water and electricity, to dispose off sewerage, to provide and maintain other services etc. No such activity has been carried out as ascertained from the contents of the profit and loss account. It has mainly engaged itself in construction and sale of immovable properties to the general public and this is similar to the activities carried out by dealers, builders and developers. Therefore, the activities are not in pursuance of the object of development of town planning and public utility system and also not without any profit motive. On the other hand, the activities are commercial in nature and the apartments etc. had been sold at competitive rates. Therefore, the assessee is not entitled to deduction u/s 11(1)(a) of the Act. 4.2 Thereafter, he referred to page no. 72 of the paper book, being representation made by the assessee before the AO, in which it is inter-alia mentioned that the receipts have been applied for charitable purpose:
"Purchases, administrative and other expenditure, capital expenditure and repayment of loan of the outstanding of receipts. Advance of Rs. 250,00,000/- given to irrigation for construction of bridge is covered under rule 17C(iii) of the I.T. Rule. Deposited in bank and investment in bank FDR are in accordance with the provision of section 11(5)(iii) of I.T.Act, 9 ITA No. 2276(Del)/2011 1961. The cash in hand of Rs. 13,975/- is a negligible amount, which is .004%, which is much less than 15% allowable is as a surplus."
4.3 Our attention has also been drawn to page no. 74, being the income and expenditure drawn for this year. The credit side contains sale proceeds of about Rs. 108.48 crore and the other receipts of about Rs. 21.45 crore. The debit side contains purchases of about Rs. 28.07 crore, administrative and other expenditure of about Rs. 6.42 crore. For the sake of ready reference, the account is reproduced hereunder:-
Expenditure/Investment Amount(Rs.) Gross Amount (Rs.) receipts Purchase 280743870.04 Sale 1084794330.86 Administrative & Other 64151794.04 Other 212581935.22 expenditure receipts Capital expenditure 1139242.00 Advance for irrigation 25000000.00 Deposits in bank 34800632.00 Cash in hand 13975.00 Repayments of loans 172000000.00 Investments in bank 719526753 FDRs Total: 1297376266.08 1297376266.08 4.4 The case of the ld. DR is that the Development Authority has engaged itself in activities which are in the nature of business activities. It has not carried out any activity of charitable nature, as understood u/s 10 ITA No. 2276(Del)/2011 2(15) of the Act. Therefore, the whole of the question of registration, expenditure incurred towards the objects and deductible u/s 11(1)(a) can be looked into at the time of assessment. The AO is not bound to follow the position obtained in earlier years blindly and it is open to him to take an independent view in case any grave error of law has been committed earlier. It is argued that the position as aforesaid is obtained in this case and, therefore, the order of the Tribunal for assessment year 2005-06 (supra) may not be followed blindly.
5. In reply, the ld. counsel submits that the assessee is an authority constituted under a statute and it has been in existence since the year 1973. Its income was not liable to tax earlier u/s 10(20A). However, on deletion of the provision, the assessee applied for registration, which has been granted with effect from 01.04.2003. The object is to promote and secure development of the development area according to the plan and for this purpose it has the power to acquire, hold, manage and dispose of land and other properties to carry out building, engineering, mining and other operations, to execute works in connection with supply of water and electricity, to dispose off sewerage and to provide and maintain other services and amenities and in general to do anything necessary or 11 ITA No. 2276(Del)/2011 expedient for the purpose of such development and for purposes incidental thereto. Therefore, the development of township or colony is an integral part of the object of the assessee-authority. The constitution of the authority provides that the funds of the authority shall be applied only towards meeting the expenses incurred by it in the administration of the Act. Thus, the assessee is not authorized to earn profit and distribute it to the members. It has been shown before the Assessing Officer that all the receipts have been utilized for the objects of the assessee-authority.
However, the AO denied exemption by relying on the case of Safdarjung Enclave Educational Society Vs. Municipal Corporation of Delhi, 3 SCC
390. The matter has been decided by the ld. CIT(A) in the favour of the assessee by following the earlier decision of the Tribunal. 5.1 It is argued that the case of the assessee is distinguishable from the case of a private builder on grounds- (i) the funds of the assessee can be applied only for the administration of the Act and for no other purpose, and
(ii) it is not entitled to earn profit or distribute surplus to members, and
(iii) in case of dissolution, all its properties stand vested in the State Government. Therefore, it has been argued that since the objects are charitable in nature and monies have been applied towards the 12 ITA No. 2276(Del)/2011 administration of the Act, the ld. CIT(Appeals) has rightly allowed the appeal of the assessee.
6. We have considered the facts of the case and submissions made before us. The facts are that the assessee has been constituted under U.P. Urban Planning and Development Act, 1973. As per section 4(2) of that Act, the Authority is a body corporate, by the name given to it in the said notification, having perpetual succession and a common seal with power to acquire, hold and dispose of property, both movable and immovable and to contract and shall by the said name sue and be sued. It will be seen from this provision that the status of the assessee-authority is a body corporate, i.e., a company. Accordingly, it is held that the income, if assessable, is assessable in the status of a company.
6.1 It is also seen that the ratio of decision in the case of Safdarjung Enclave Educational Society (supra) is not applicable for the reason that the definition of "charitable object" is different. Therefore, we have to examine the whole case in the light of the definition of the term "charitable purpose" furnished in section 2(15) of the Act.
13 ITA No. 2276(Del)/2011
7. The further facts are that the assessee had applied for its registration which had been granted with effect from 01.04.2003. The registration has not been cancelled till date. In other words, the registration is effective for this year. The grant of registration is not an empty formality as it has to be granted after satisfying that the objects are charitable in nature. Since the registration has effect for this year also, the object of the development authority will have to be taken as charitable in nature.
8. The further facts are that in this year the assessee has carried on the activity of sale of immovable properties, from which surplus of Rs. 85,52,21,356/- has been derived. This represents the difference between receipts of Rs. 129,73,76,266/- and the revenue expenditure of Rs. 43,90,04,524/-. The case of the revenue is that its activity is purely commercial in nature and in no way different from the activities undertaken by any private builder. On the other hand, the ld. counsel has pointed out two essential differences-(i) the profit from the activity cannot be distributed in any manner to the members, (ii) in case of dissolution, the assets are to be vested in the State Government, and (iii) the activity has been undertaken in pursuance of the main object, i.e., to promote and 14 ITA No. 2276(Del)/2011 secure the development of the development area according to the plan. In this connection, the assessee has been empowered to acquire, to dispose off, to construct etc. immovable properties. Therefore, this activity has been undertaken in pursuance of the main object. Since there is no motive to make profit, the activity cannot be said to be a business activity.
9. In order to support the rival contentions as aforesaid and others, a number of cases have been cited which also include the cases decided under the 1922 Act. In order to avoid duplication, we are of the view that it will be sufficient to briefly discuss the cases hereunder:
(i) In the case of CIT Vs. Andhra Pradesh State Road Transport Corporation, (1986) 159 ITR 1, decided on 07.03.1986 under the 1922 Act, it has been held that the Corporation was under obligation to provide secure and promote provision of an efficient, adequate economical and properly coordinated system of road transport services in the State.
Such activities cannot be carried out efficiently, adequately and economically unless it is carried on business principles, as held by the Court in Surat Art Silk Cloth Manufacturers Association's case, (1980) 120 ITR 1 (SC). If the activities carried on business principles it would 15 ITA No. 2276(Del)/2011 result into profit. However, what is to be seen is whether what is the predominant object of the activity-whether it is to carry out a charitable purpose or to earn profit? If the predominant object is not to earn profit but to carry out a charitable purpose, the purpose would not loose its charitable character merely because some profit arises from the activity.
(ii) In the case of New Life in Christ Evangelistic Association Vs. CIT & Another, (2000) 246 ITR 532 (Mad.), regarding registration u/s 12A, it has been held that two conditions are prescribed for registration of trust-
(i) the person concerned should make an application for registration in prescribed form and in prescribed manner, and (ii) the account should be maintained in a particular manner and such account should be audited. These conditions have been satisfied and the objections raised are only technical in nature. Therefore, the Commissioner of Income-tax was directed to pass the order in the light of aforesaid observations.
(iii) In the case of M. Visvesvaraya Industrial Research & Development Centre Vs. ITAT & Others, (2001) 251 ITR 852 (Bom.), it has been mentioned that it is the Commissioner who has to examine whether the application is made in accordance with section 12A, i.e., it is for him to 16 ITA No. 2276(Del)/2011 see whether objects of the trust are charitable or not. At this stage, he is not required to examine the application of income. Hence, in the present matter, the Tribunal was certainly entitled to ascertain whether there was a proper application of income for charitable purpose. Accordingly, it was held that the Tribunal should have considered the miscellaneous application filed by the assessee. In the context of the contention raised that there is no legal concept propounded by the Tribunal, viz., sale of lease-hold rights of the use of space. The Commissioner had granted registration u/s 12A, however, such registration did not prevent the Tribunal from ascertaining whether there was proper application of income during the years under consideration.
(iv) In the case of Madhya Pradesh Madhyam Vs. CIT & Another, (2002) 256 ITR 277 (MP), it has been held that proceedings for registration and cancellation of registration of charitable institution are different from assessment proceedings. Once an institution has been registered, the income-tax authorities are bound by it.
(v) In the case of Dy. CIT Vs. Rajneesh Foundation, (2003) 262 ITR (AT) 60, it has been held that grant of registration u/s 12A has to be taken 17 ITA No. 2276(Del)/2011 as conclusive evidence that the objects are charitable in nature, however, the Tribunal is competent to examine the correctness of claim u/s 11 of the Act.
(vi) In the case of Punjab Urban Planning and Development Authority Vs. CIT, (2006) 156 ITD 37 (Case Digest), it has been mentioned that the assessee acquired land at nominal rate and after developing the same, sold the land at high profit. This activity could not be said to be a charitable activity. If registration is granted in such a case, then every private colonizer would claim charity. The facilities which were provided to the plot holder were incidental to the commercial activity. Certain facilities like parks, community centre, school were provided which was not only basic requirement but also a tool for attracting the investors. The hidden cost of these facilities was included in the sale price of plot. Since the assessee was generating income, so no charity was involved. Therefore, it was held that the Commissioner rightly concluded that since no charitable activity was carried out for public at large, the assessee was not entitled to get registration u/s 12A.
18 ITA No. 2276(Del)/2011
(vii) In the case of Cane Development Council Vs. CIT, (2010) 35 SOT 308 (Del), the assessee had been granted registration u/s 12AA on 15.11.2007. In view of amendment in section 2(15) defining the phrase "charitable purpose", coming into force with effect from 01.04.2009, the registration was withdrawn on the ground that for each and every development activity, it charged fee in the shape of contribution. It was found that the assessee did not have power to levy contribution on sugar factories and Cane Growers' Cooperative Society, the assessee carried out various functions like development of zone, execution of development plans in the field of cane seeds, cane varieties, sowing program, fertilizers and manures, development of irrigation facilities etc. It was held that the functions were of charitable nature and the registration could not be cancelled. Referring to section 11(4A), it was mentioned that the profit and gain of any business carried on by the assessee will not be eligible for deduction u/s 11(1)(a) unless separate books of account were maintained and the business activity was incidental to attainment of objects.
(viii) In the case of Jallandhar Development Authority Vs. CIT, (2010) 35 SOT 15 (Asr.), it has been mentioned that the assessee was not engaged in the activities of relief to the poor, education or medical relief and 19 ITA No. 2276(Del)/2011 advancement of any other object of general public utility as defined in section 2(15). The activities of the assessee were to carry on business and there was no restriction in its object of making profit. There is no evidence to suggest that the assessee was not engaged in the activities of making profit. It is a known fact that the assessee was acquiring the land at a very low price and selling the same at a very price and was earning profit therefrom. The assessee had also started auctioning plots at market rate and sometimes more than that and it was also charging interest on belated payment. Therefore, the pre-dominant purpose was to make profit and there was no spending exclusively for charitable purpose. Therefore, it was held that the Commissioner was right in refusing registration.
(ix) In the case of ACIT Vs. Surat City Gymkhana, (2008) 300 ITR 214 (SC), it has been held that no further probe into objects was permissible after registration u/s 12A and the decision in the case of Hira Lal Bhagwati Vs. CIT, (2000) 246 ITR 188 holds the field in this matter.
(x) In the case of Oxford Academy for Career Development Vs. Chief Commissioner of Income-tax & Others, (2009) 315 ITR 382 (All.), it was mentioned that the assessee was providing coaching and guidelines to 20 ITA No. 2276(Del)/2011 the students for getting admission in professional institutions. The word "education", used in section 2(15), means the systematic instruction, schooling or training given to young persons for preparing them for the work of life. Similarly, extending financial assistance, scholarship etc. to students for educational purposes would fall within the meaning of the term "education". Thus, the assessee had been engaged in educational activity. Accordingly, it has been held that the Commissioner was not within his right to cancel the registration already granted.
(xi) In the case of CIT Vs. Haryana Urban Development Authority, (2010) 322 ITR 61 (P&H), the assessee had been engaged in the activities of improvement, development and planning of cities and towns. It was deriving rental income which was sought to be assessed as business income. The Hon'ble Court held that as per finding of the Tribunal, the main business of the assessee is not renting of property but development and sale of property. Therefore, the assessee could claim rental income as income from property instead of income from business. Accordingly, the decision of the Tribunal was upheld.
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(xii) In the case of Ghaziabad Development Authority Vs. CIT, (2011) 201 Taxman 252, it has been held that the first and foremost principle of interpretation of a statute is the literal rule of interpretation. The other rule i.e., the mischief rule, purposive interpretation etc. can only be resorted to when the plain words of a statute are ambiguous or do not lead to intangible results or would nullify the object of the statute.
(xiii) In the case of Pragati Construction Co. Vs. ACIT, (2004) 89 ITD 271 (Del), it has been held that there is no dispute that in case the AO departs from the consistent stand, then he is required to spell out the reasons for the departure. He has also to hear the assessee to clear the doubt in the matter and to bring on record any evidence to show that departure from the consistent stand should not be made. However, where he feels that a grave error of law has been committed, he can make a departure because the bona fide acceptance of assessee's version would not vest in him any right which would continue ad-infinitum.
(xiv) In the case of Napar Drugs (P) Ltd. Vs. DCIT, (2006) 98 ITD 285, it has been held that the decision of a coordinate bench does not constitute a binding precedent on any subsequent bench. However, if it is only a 22 ITA No. 2276(Del)/2011 case of difference of opinion being held on the same facts, material and aspect already considered, the subsequent bench should not proceed on its own to make a contrary decision and instead refer the matter to the President for consideration of a larger bench. At the same time, it is neither practicable nor necessary to make a reference for constitution of a larger bench when there is a qualitative difference in respect of issues, facts, evidence and material.
10. Coming to the facts of this case, we have already held that the assessee has been registered u/s 12AA of the Act. Therefore, it follows that the assessee will be entitled to deduction u/s 11 on fulfillment of necessary conditions mentioned in this provision. In this connection, the provision contained in section 11(4A) assumes importance, which is to the effect that the provisions contained in sub-section (1), sub-section (2), sub- section (3) or sub-section (3A) shall not apply in relation to any income of a trust or an institution being profits and gains of business, unless the business is incidental to attainment of objective of the trust, or, as the case may be, institution, and separate books of account are maintained by such trust or institution in respect of such business. This provision was discussed in the course of proceedings before us and we have summarized 23 ITA No. 2276(Del)/2011 the rival submissions. The submission of the revenue is that the activities carried out by the assessee are in no way different from the activities carried out by a builder developing a large colony. The submission of the ld. counsel is that there is no profit motive and the activities have been carried out in pursuance of the object clause. In this very connection, the definition of the term "business" furnished in section 2(13) was also discussed. The word "business" has been defined in an inclusive manner to include any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture. The case of the ld. counsel is that this provision is not applicable. However, he has not elaborated it any further in this matter. Therefore, it will be appropriate for us to examine this definition in a greater detail. The definition has been examined by the Hon'ble Orissa High Court in the case of CIT Vs. M.P. Bajaj & Others, (1993) 200 ITR 131. After considering a number of decisions, it has been held that an activity carried on continuously in an organized manner with a set purpose and with a view to earn profit is "business". The matter has been discussed on page nos. 135 and 136, which reads as under:-
"The word "business" is a word of large and indefinite import. It is something which occupies the attention and labour of a person for the purpose of profit. Section 2(13) of the Act defines" business" to include "... any trade, commerce or 24 ITA No. 2276(Del)/2011 manufacture or any adventure or concern in the nature of trade, commerce or manufacture". When a word is defined to "mean" something, the definition is prima facie restrictive and exhaustive as was indicated by the Supreme Court in the case of Vanguard Fire and General Insurance Co. Ltd. v. Fraser and Ross [1960] 30 Comp Cas (Ins) 13 ; AIR 1960 SC 971. Where, however, the word defined is declared to "include" certain things, the definition is extensive. (See Ardeshir H. Bhiwandiwala v. State of Bombay [1961-62] 20 FJR 113 ; AIR 1962 SC 29). In Smith v. Anderson [1880] 15 Ch. D. 247, 258 (CA), Jessel M.R., after citing definitions of "business" from several dictionaries, said, "anything which occupies the time and attention and labour of a man for the purpose of profit is business." Further on, he remarks (at page 260) : "There are many things which in common colloquial English would not be called a business, even when carried on by a single person, which would be so called when carried on by a number of persons." For instance, a man who is the owner of a house divided into several floors and used for commercial purposes, e.g., offices, would not be said to carry on a business because he let the offices as such. But, suppose a company was formed for the purpose of buying a building, or leasing a house, to be divided into offices and to be divide into offices and to be let out
- should not we say, if that was the object of the company, that the company was carrying on business for the purpose of letting offices? The same observation may be made as regards a single individual buying or selling land, with this addition, that he may make it a business, and then it is a question of continuity. When you come to an association or company formed for a purpose, you would say at once that it is a business, because there you have that from which you would infer continuity. The word "business" has a more extensive meaning than the word "trade". In Narasingha Kar and Co. v.
CIT [1978] 113 ITR 712, this court had occasion to deal with almost a similar controversy. It was held that the income of the assessee in that case from the shops was assessable under section 28 of the Act as income from business, and since the assessee was carrying on a business, it was entitled to registration. The decisions on which reliance has been placed by learned counsel for the Revenue were also considered by 25 ITA No. 2276(Del)/2011 this court in Narasingha Kar's case [1978] 113 ITR 712 (Orissa). The tests indicated in those two cases were applied and conclusions were arrived at. In Karnani Properties Ltd. v. CIT [1971] 82 ITR 547, the apex court has observed that, an activity carried on continuously in an organised manner with a set purpose and with a view to earn profits is "business". Similarly, when the assessee took a plot of land on lease, constructed some structures thereon and let them out to shop- keepers and stall-holders, the apex court construed the activity to be business. (See S. G. Mercantile Corporation P. Ltd. v. ClT [1972] 83 ITR 700 (SC). Keeping in view the decisions of the apex court in Karnani Properties case [1971] 82 ITR 547 and S. G. Mercantile Corporation's case [1972] 83 ITR 700 and also the decision of this court in Narasingha Kar's case [1978] 113 ITR 712 (Orissa), the Tribunal held that the activities carried on by the assessee amounted to business. The conclusion is essentially one of fact, and, in our considered opinion, does not give rise to a question of law. Accordingly, our answer to the reframed question is in the affirmative, in favour of the assessee and against the Revenue."
10.1 Therefore, the question before us is-whether, the activity of construction and sale of immovable property constitutes "business"? We may clarify that the question is not whether, all object clause of the assessee constitutes business or not? The only objection of the assessee in regard to the first mentioned question is that there is no profit motive. In other words, there is no doubt that the activity has been carried on continuously in an organized manner with a set purpose. The question is only regarding the profit motive. It is clear from the accounts that this activity has been undertaken with a view to earning profit so as to use the profit for the 26 ITA No. 2276(Del)/2011 object of the authority. This becomes abundantly clear that profit of more than Rs. 85.52 crore has been earned in this activity. The amount of profit is no doubt subject to further verification on the basis of actual accounts of this activity. In the order of the Tribunal for assessment year 2005-06 (supra), it is mentioned that the AO computed the income at Rs. 6,42,41,460/-. Thus, the assessee has consistently earned substantial profit in this activity. Therefore, the activity has been carried on with profit motive and in the same manner in which a private builder of large township will conduct his business. Apart from this, the activity of construction and sale of immovable property cannot be the object but only a mean to achieve the object of development of area in accordance with the plan. Therefore, while the object in a given case may be a charitable purpose, not involving profit, some of the activities undertaken in pursuance of the object, may attain the colour of business, as in the aforesaid activity of the assessee-authority. We are also of the view that each individual receipt from disposal of the property cannot be said to be income of the assessee available for charitable purpose because expenditure has to be incurred and has been incurred in acquiring land and construction thereon. Therefore, only the surplus from this activity can be said to be the income derived from property held under trust. There is yet another angle, 27 ITA No. 2276(Del)/2011 namely, that some meaning has to be placed on the content of sub-section (4A) of section 11 and especially on the words "unless the business is incidental to attainment of the objective of the trust". The legislature postulates that a charitable institution may have to carry on incidental business for attainment of objective. If the argument of the ld. counsel that there is no profit motive in so far as the development authority is concerned and, therefore, there is no question of carrying on any business, then no meaning can be placed on the contents of this provision. It has been mentioned earlier that the assessee has carried on systematic activities in a regular manner for construction of immovable properties as per plan, which have led to profit, and such activity is incidental to the main object of town planning, therefore, it is clear that the assessee has carried on a business which is incidental to attainment of objects of the authority. Sub- section (4A) provides that no deduction shall be allowed under sub- sections (1), (2), (3) or (3A) from such profit. However, the incidence of taxation is lifted provided that-(i) the business is incidental to the attainment of the objective, and (ii) separate books of account are maintained in respect of such business. We have already held that the business of construction etc. is incidental to attainment of the object of town planning. Therefore, the only question to be seen is-whether, 28 ITA No. 2276(Del)/2011 separate books of account are maintained for this business? This issue has not been addressed to by the AO or the ld. CIT(Appeals). The AO, after computing the profit, has not applied his mind whether it is incidental business and separate books have been maintained or not. In absence of any finding by any of the authorities below, we think it fit to restore the matter to the AO to ascertain as to whether separate books have been maintained for construction business. If separate books have been maintained, deduction under sub-sections (1),(2), (3) and (3A) will be available to the assessee, otherwise not. Thereafter, he will have to examine whether capital expenditure, repayment of loan and the amount deemed to have been applied towards charitable purpose under clause (2) of the Explanation to section 11(1) are deductible under the aforesaid provision. Ground nos. 2, 3 and 4 are disposed off accordingly.
10.2 It may be mentioned here that we are not expressing a view different from the view expressed in the order of the Tribunal for assessment year 2005-06. It has been accepted by us that the assessee is engaged in a charitable purpose. Therefore, it is entitled to deduction u/s 11 of the Act. In the earlier decision, the Tribunal restored the matter to the assessing officer after recording this finding. We are now proceeding 29 ITA No. 2276(Del)/2011 further to decide the manner in which exemption is to be granted by interpreting the provision contained in section 11(4A), which was neither argued nor considered in the earlier order. Since this issue has been discussed before us, we are bound to record our finding in this matter.
11. In the result, the appeal is treated as partly allowed for statistical purpose, as discussed above.
Sd/- sd/- (Rajpal Yadav) (K.G.Bansal) Judicial Member Accountant Member SP Satia Copy of the order forwarded to:- Moradabad Development Authority, Moradabad. ITO, Ward 1(1), Moradabad. CIT(A) CIT The DR, ITAT, New Delhi. Assistant Registrar.