Income Tax Appellate Tribunal - Amritsar
Srinagar Development Authoity , ... vs Assessee on 25 July, 2016
IN THE INCOME TAX APPELLATE TRIBUNAL
AMRITSAR BENCH; AMRITSAR.
BEFORE SH. A.D. JAIN, JUDICIAL MEMBER
AND SH. T.S. KAPOOR, ACCOUNTANT MEMBER
ITA No.444(Asr)/2010
Assessment Year:
PAN:
Srinagar Development Authority vs. The Commissioner of Income Tax,
Srinagar (J&K). Jammu.
(Appellant) (Respondent)
Appellant by: Sh. Upender Bhatt, CA
Respondent by: Sh. S.S. Kanwal, DR
Date of hearing: 05/05/2016
Date of pronouncement: 25/07/2016
ORDER
PER A.D. JAIN, JM:
This is the assessee's appeal against the action of the ld. CIT, Jammu, in rejecting the assessee's application for registration under section 12AA(b)(ii) of the Income Tax Act, 1961.
2. This appeal was dismissed for non-prosecution vide order dated 29.11.2012, as none had appeared on behalf of the assessee, despite the RPAD notice issued to the assessee having not returned unserved, nor any application for adjournment having been filed. It was restored in situ vide order dated 05.02.2016, passed in M.A.No.60(Asr)/2014. This is how the appeal is again before us.
2 ITA No.444(Asr)/20103. The application filed by the Department for adjournment stands withdrawn.
4. The ld. CIT(A) while refusing registration to the assessee, has held as follows:
"3.1. After meticulously going through the factual matrix of the case, with reference to the submissions made on behalf of the assessee and the report of the Assessing Officer, it would be appropriate to go through the relevant provisions of the Act, which prescribes the procedure for registration of Trust, where the application for registration is received by the Commissioner of Income u/s 12A(l)(a)(aa). Under this procedure, the Commissioner will call for such documents or information as may be necessary to satisfy himself about the objects of the trust and the genuineness of its activities. Section 2(15) of the Income tax Act, 1961 defines 'Charitable purpose' to include relief of the poor, education, medical relief and advancement of any other object of general public utility. As per Finance Act, 2008, w.e.f. 01.04.2009, a following . proviso has been added below the said section, which reads as under:-
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 the mature of trade, commerce or business or any activity of rendering any service lm relation to a my 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 ".
Further, as per the Finance Act, 2010, after the first proviso, proviso-2 has been inserted and shall be deemed to have been inserted with effect from the 1st day of April, 2009, namely;
"Provided further that the first proviso shall not apply If the aggregate value of the receipts -from the activities referred to therein Is ten lakh rupees or less In the previous year"
3.2. Prior to insertion of these provisos, certain bodies were treated "Charitable' on the ground of advancement of object of general public utility, However, after the insertion of the above 3 ITA No.444(Asr)/2010 provisos the advancement of any other object of general public utility shall not be a 'charitable purpose', if it involves the carrying on of:-
a. Any activity in the nature of trade, commerce or business;
b. Any activity of rendering any service in relation to any trade, Commerce or business;
c. For a cess or fee or any other consideration, irrespective of the nature of use or application or retention of income from such activity.
Thus, hence before the insertion of the above proviso, the Institutions/ Trusts/ Societies which were given registration u/s. 12A of the Act considering them under the head "advancement of any other object of general public utility", were eligible for exemption from tax u/s 11 of the I.T. Act, 1961, if they were not involved in any such commercial activities as brought out above (a)(b) and (c). However, in case they are involved in such commercial activities, and if the aggregate value of the receipt from the activities referred to in the 1st proviso is more than rupees ten lakhs in the previous year, they shall not be eligible to continue with registration u/s 12A and the same is required to be withdrawn. Here it may be mentioned that if any institution/ society or association is carrying on any activity in the nature of trade, commerce or business for a cess or fee or any other consideration, it would loose the status of charitable organization irrespective of the nature of use, or application or retention of ' come from such activity.
4.1 The facts of the case under consideration are that Srinagar Development Authority was' established vide Jammu and Kashmir Development Act, 1970 and it came into effect from 31.10.1970, As per die said Act, the object of the Authority is to promote and secure the development of the local area for which it is constituted according to plan and for that purpose the Authority shall have the power to acquire, hold, manage and dispose off land and other property, to carry out building, engineering and other operations, to execute works in connection with supply of water and electricity, disposal of sewerage and other services and amenities and generally to do anything necessary or expedient for purposes of such development and for purposes incidental thereto. The Authority is a body corporate having 4 ITA No.444(Asr)/2010 perpetual succession and a common seal with power to acquire, hold and dispose of properties, both movable and immovable, to contract, and by the said name sue or to be sued "'The Authority consists of a Chairman, Vice-Chairman and seven other members appointed by the State Government. The Authority is responsible for the planned development of the City including preparation of the Master Plan of the area
(p) The State Government is authorized to entrust the Authority from time to time with any work connected with planned development and matters connected thereto. Section- 19 (Chapter-Vll) of the Jammu & Kashmir Development Act, 1970 obliges the Authority to maintain its own fund to which shall be credited moneys received by the Authority from the Central or State Government by way of grants, loans, advances or otherwise, all fees, rents, charges, levies and fines received by the authority under the Act, all moneys received by the Authority from disposal of its movable or immovable assets and all moneys received by the Authority by way of loan from financial and other institutions and debentures floated for the execution of a scheme or schemes of the Authority duly approved by the State Government . Unless the State Government otherwise, directs, all moneys received by the Authority shall be credited to its funds which shall be kept with The Jammu and Kashmir Bank or any other bank approved by the State Government.
Till the Financial Year 2002-03, the income of such Authorities were exempt under section 10(20A) of the Income tax Act, 1961. However, in view of omission of sec. 10(20A) of the I.T. Act, 1961 an Explanation was added to section 10(20), which is reproduced as under:-
"Explanation:- For the purpose of this clause, the expression 'Local Authority' means-
i) Panchayat as referred to in clause (d) of article 243 of the Constitution; or
ii) Municipality as referred to in clause (e) of article 243P of the Constitution, or
iii) Municipal committee and District Board, legally entitled to, or entrusted by the Government with, the control or management of a Municipal or local fund; or
iv) Cantonment Board as defined in section 3 of the Cantonments Act, 1924 (2 of 1924)".5 ITA No.444(Asr)/2010
It would thus be seen that the income of a Local Authority chargeable under the head "income from house property", "Capital gains" or "Income from other sources" or from a trade or business carried on by it was earlier excluded in computing the total income of the Authority of a previous year However, in view of the amendment, with effect from April 1, 2003, the Explanation "Local Authority" was defined to include only the Authorities enumerated in the Explanation, which does not include an Authority such as the Srinagar Development Authority. At the same time section 10(20A) which to income of an Authority constituted in India by or under any law enacted for .the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, * which before the amendment was not included in computing the total income, was omitted. Consequently, the benefit conferred by clause (20A) on such an Authority was taken away Thus, in view of the fact that section 10(20A) was omitted and an explanation was added to section 10(20) of the Income tax Act, 1961 enumerating the Authorities"
contemplated by section 10(20), the assessee i.e. Srinagar Development Authority could not claim any benefit under those provisions after April 1, 2003^^^s such, the assessee was liable to file their income tax returns from A.Y. 2003-04 onwards which the above Authority has failed to file from the assessment year 2003-04 and its income has only been charged to tax by resorting to the provisions of section 147/148 of the Income tax Act, 1961.
4.3. The benefit conferred by section 10(20A) of the Income tax Act, 1961 on the assessee up to assessment year 2002-03 has been expressly taken away and the explanation added to section 10(20) enumerates the "Local Authority" which do not cover the assessee Authority. Now,[the assessee i.e. Srinagar Development Authority has claimed that its objects falls under the provisions of section 2(15) of the I T. Act, 1961 and has complied with all the eligibility criteria for grant of registration under section 12A of the Income tax Act, 196. The facts as enumerated above, clearly establishes that the assessee has generated income by way of disposing off the developed lands and the lands are sold with 'definite motive of profit' and there is 'no charitable purpose' or any activity for public utility, which is the primary requirement of section 2(15) of the Income tax act, 1961. The activities of the assessee are aimed at earning profit as it is carrying on activity in the nature of trade, commerce or business. Further profit making by the 6 ITA No.444(Asr)/2010 assessee is not mere incidental or by product of the activity of the assessee. The main pre-dominant purpose of assessee is making profit, it is real object of the assessee and also there is no spending of the income exclusively for the purpose of charitable activities and profits of the assessee not used for charitable purpose under the terms of the object and there is no obligation on the part of the assessee to spent on 'charitable purpose' only.
As per clause 53 of the Jammu & Kashmir Development Act relating to . dissolution of the Authority it is provided that :
(1) Where the Government is satisfied that the purposes for which the Authority was established under this Act have been substantially achieved or that there are good grounds which render the continued existence of the Authority unnecessary, the Government Gazettee, declare that the Authority shall be dissolved with effect from such e as may be specified in the notification, and the Authority shall be deemed to be dissolved 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 Government;
b) All Nazul lands placed at the disposal of the Government,
c) all liabilities which are enforceable against the Authority shall be enforceable against the Government; and for the purpose of carrying out by the Authority and for the purpose of realizing properties, funds and dues referred to in clause (a) the functions of the Authority shall be discharged by the. Government"
4,4.2 From the said clause, it reveals that on dissolution / winding up of the Authority all the assets as well as liabilities will be transferred to the Government and there is no restriction as to how the same are to be utilized by the Government. 0 Further, a perusal of the objects as per section 6 also reveals that the objects with which the Authority was set up may appear to be of general public utility for development of the area but then there are other objects like sale and purchase of land and property, which make the Authority a commercial organization: Therefore, the objects pursued by the Authority cannot be said to be charitable in 7 ITA No.444(Asr)/2010 view of the facts that the Authority being a commercial organization with no restriction as to the application of the assets on dissolution/ winding up for charitable purposes. In order to find out whether an organization is a charitable one, tests have been laid down by Hon'ble Supreme Court in the cases of CIT v. Surat Art Silk Cloth Manufacturers Association (1979) 121 ITR and CIT v/s Andhra Pradesh State Road Transport Corporation (1986) 159 ITR-1, In the case of Surat Art silk Cloth Manufacturers Association it has been held "since the income and property of the assessee were able to be applied solely and exclusively for the promotion of the objects set out in the Memorandum and no part of such income or property could be distributed amongst the Members in any form or utilized for their benefit either during its operational existence or on its winding up or dissolution as such the object was a charitable one".
4..4.3.As has been stated above, in case of Srinagar development Authority, being dissolved or wound up, the government which has set up the Authority, by virtue of provisions of section 53 of the Jammu and Kashmir development Act, has the exclusive right over the properties left over thereof with no restriction as regards the utilization of the left over properties for charitable purposes. Thus, the Authority fail the test laid down by the Hon'ble Supreme Court in the above case and therefore, cannot be termed as a charitable organization.
4.4.4. Similarly, in the case of Andhra Pradesh State Road Transport Corporation, it has been held by the Hon'ble Supreme Court " the activity of assessee was not carried on with the object of making profit ....and the amount left over after utilization for the purpose set out in section is of the R..T.C. Act as amended was to be made over the state Government for the purpose of Road development and the amounts handed over to the state Government did not become part of the general revenue of the state but was impressed with a obligation that It should be utilized only for the purpose for which It was entrusted, namely Road development, which was an object of public utility.
Again it may be appreciated that the that! the Srinagar development Authority does not gualify the above test laid down by the Hon'ble Supreme Court In view of the fact that properties left over to the government as per the provisions of section 53 of the J & K development Act, will become a part of 8 ITA No.444(Asr)/2010 general revenue of the state and the state Government Is not under any obligation to utilize the same for the purpose for which the Authority was set up i.e. development of a particular area. Thus again Srinagar development Authority does not fulfill the conditions required for claiming the status of charitable organization or In other words the objects cannot be termed as charitable although they appear to be of a general public utility but when put to test as per the conditions laid down by the Hon'ble Supreme Court In the cases mentioned above they fail to qualify the same.
4.5.1. It is pertinent to mention here that M/s. Patnitop Development Authority, Kud District Udhampur had also sought registration u/s 12A of the Income tax Act, 1961, but their application was rejected try the then Commissioner of Income tax, J&K, Jammu vide his order dated 28-06-2007. It is pertinent to mention that similar issue had come up before the Hon'ble Income tax Appellate Tribunal, Amritsar bench, Amritsar in the case of M/s Jalandhar Development Authority v/s Commissioner of Income Tax -2, Jalandhar in which case, the Commissioner of Income tax had rejected. the application filed by the assessee holding that the object of Jalandhar Development Authority is profit making and as such, is not entitled for registration u/s 12AA of the Income tax Act, 196l. The Hon'ble Tribunal upheld the decision of the Commissioner of Income Tax in Income Tax Act, 1961 No.562(ASR)/ 208 dated(^1206^2009?Ihe Hon'ble ITAT Amritsar has also considered the cases of Addl. CIT Vs, Surat Art Silk Cloth Manufacturers Association ( 1980) 121 ITR 1 and CIT Vs. Andhra Pradesh State Transport Corporation ( 1986 ) 159 ITR 1 ( SC ) while deciding the case in favour of the Revenue.
It is also observed that the Hon'ble Apex Court in the case of Indian Chamber of Commerce Vs, CIT reported in 101 ITR 796 has held as under ;-
That the activities of the chamber being activities carried on for profit, in the absence of any restriction I m Its memorandum and articles of association against the making of profit from those activities, the Income of chamber from those activities was liable to Income-tax.
Sec. 2(15) must be Interpreted according to the language used therein and against the background of Indian life. By definition in s. 2(15") the benefit of inclusion from, total income Is taken away when In accomplishing a charitable purpose the Institution engages Itself In activities for profit."
9 ITA No.444(Asr)/2010Hon'ble Jurisdictional ITAT, Amritsar further relied upon the decision of the Hon'ble ITAT, Chandigarh in the case of Punjab Urban Planning & Development Authority (PUPA) Vs CIT(Supra), wherein it has been held:
' Plea that on Identical facts registration under S.12A was, accorded to Patiala urban Planning and bevehopment Authority by the CIT has no substance, if the Intention of creating Patiala Authority was the same then there was no need of Its creation, as the same objects would have been, fulfilled by the bigger unit, i.e, the assessee . At the same time, res judicata is not applicable in Income tax proceedings. Further, the order passed by a lower authority Is not binding on, the Tribunal.
It Is a well-fen-known, fact that In, some of the situations the provisions of law are misused In the names of charities, if an expanded /broader latitudes Is extended to the word charity, then there are so many institutions / departments who will try to come under the umbrella of this provision to misuse the provision. Therefore, for the broad development of the nation/society, a strict and positive vigil is required so that the provision can be saved from Its misuse In any manner. No activity can be carried on efficiently, properly unless and until It Is carried out on business principle * but It does not mean that the provision Is misused In any manner under the grab of charity and any Institution, be allowed to become richer and richer under the grab of charity by making it a non tax payable organization. A charitable Institution provides services for charitable purposes free of cost and not for a gain, in the present scenario, similar activities are performed by big colonizers/developers who are earning a huge profit, if this registration is granted, then anybody will claim the exemption from tax. if the accounts of the assessee are analyzed, It has turned Into a huge profit making agency from which it Is taking money from, the general public, if any Institution of public Importance like schools, community centers are created/developed, the assessee Is charging the cost of It from the public at large and the money is coming from the c o f f e r o f the Government. it can be said that objects / activities of the assessee are more of commercialized nature and no charity Is Involved In It. At the time. If these facilities are not provided, then nobody will purchase a plot. It ca. be said that it is a means of attracting the people so that maximum people may apply for the same and the hidden cost is already added, so no charity Is Involved. At best, the 10 ITA No.444(Asr)/2010 assessee can be said to be an authority created to help It to achieve certain objects, it can be said that he duty of the government to create/provide all these facilities to public e, which Is being done through an agency In a particular area. At the same time the funds which are provided to the assessee by the government is again a public money or generated from public Itself.....In view of these facts, the assessee's activities not being of charitable nature, the application for registration under sec.2A has been rightly rejected by CtT-Asstt. CIT vs. Thanthi Trust (200l) l65 CTR (sc) 681: (200l) 247 ITR. 725 (SC) and Bihar state Forest development Corporation vs. CIT (1997) 224 ITR 757 (Pat) relied on; Addl. ClT' vs. Surat Art sllfe cloth Manufacturers Association (1979 13 CTR (sc) 378 (1980) 121 ITR. 1 (SC), CIT 52 VS. Andhra Pradesh State Road Transport Corporation (1925) 52 CTR (SC) J-5: (1986) 159 ITR-1 (sc) and New Life in Christ Evangelistic Association (NLC) VS. CIT (2001) T55 CTR (Mad) 440 (2000) 240 ITR 532 (Mad) distinguished."
4.5.2. The object with which the assessee was formed may appear to be a general public utility, but then there were other objects as well which make the assessee a commercial organization. Considering the principle set out in the above decision, we find that the assessee is a commercial organization just like any business firm engaged m the real estate business. It can be said that the Authority have the power to acquire, hold, manage and dispose off land and other property, to carry out building, engineering and other operations, to execute works in connection with supply of water and electricity, disposal of sewerage and other services and amenities and generally to do anything necessary or expedient for purposes of such development and for purposes incidental thereto, it is a means of attracting the people so that maximum people may apply for the same and the hidden cost is already added, so no charity is involved. At best, the assessee can be said to be an Authority created to help it to achieve certain objects. It can be said that it is the duty of the imminent to create/ provide all these facilities to public large, which is being done through its agency in a particular area. At the same time, the funds which are provided to the assessee by the Government is again a public money or generated public itself. The objects of the assessee, though claimed to be charitable, but actually are of purely commercial nature where profit motive is involved. It is known fact that the assessee is acquiring the land at very low prices and selling the same on very higher rates and is earning as profit 11 ITA No.444(Asr)/2010 there from. A new trend has also emerged that the assessee is auctioning the plots by way of bidding at the market rate and sometimes more than that is charging interest on belated payments. In such a situation, no charity is involved. Rather the assessee has converted itself into a big businessman. Similar development/ infrastructure/ facilities are also provided by private developers these days, then they will also claim the status of a charitable institution The facilities which are provided to the plot holders are incidental to the commercial activity carried out by the assessee and if certain facilities like parks, community center, school are provided, it is not only basis requirement, rather a tool attracting the investors wherein the hidden cost of these facilities is already included. In the absence of these facilities, normally the purchaser may not invest and the prices may be less. In view of these facts, the assessee's activities not being of charitable nature, the application of registration under section 12A does not qualify for registration and same is rejected. In other words, the purpose of the authority is not an advancement of any object of general public utility and the activity of the assessee involve carrying on activity for profit and the activities of the assessee cannot be said to fall within the purview of section 2(15) of the Act. The activities of the assessee is to carry on business and there is no restriction in its object of making profit There is no evidence to suggest that the assessee is not engaged in the activity of the profits and as such, the assessee is not entitled for registration under section 12A of the Act. Further profit making by the assessee is not mere incidental or by product of the activity of the assessee. The main pre-dominant purpose of assessee's is making profit, it is real object of the assessee and also there is no spending of the income exclusively for the purpose of charitable activities and profit of the assessee not used for charitable purposes under the terms of the object clause of Notification under which it was formed and, there is no obligation on the part of the assessee to spent on charitable purpose'. Hence the contention of the assessee is not accepted and applicant is thus not entitled to registration u/s 12A of the Income tax Act, 1961, therefore, the same is rejected.
5.1. So far as the argument of the counsel of the assessee that:-
'That the Jammu Development Authority has already been granted recognition u/s ^Jl2AHdy your good offices after perusing thoroughly the objectives of the Authority as per the 12 ITA No.444(Asr)/2010 enactment. In the Registration Certificate bearing th No.CIT/J&K/2009-10/5211-13 dated 30 September, 2009 vide Para 3, your good office has already given the following conclusion:
'3.After perusing the said Act of 1970,1 am satisfied that the instrument does not exist for any Trade, Commerce or business' is concerned, attention is invited to the five member Bench of Hon'ble Supreme Court of India in the case of A. Distributors (Baroda) P. Ltd. v/s Union of India and Ors. Reported at 155 ITR 120 (SC) wherein while reversing the order of three member bench, the Hon'ble Court ruled:
We have given our most anxious consideration to this question, particularly since one of us, namely, P.N. Bhagwati J. was a party to the decision in Cloth Traders' case..... we are compelled to reach the conclusion that Cloth Traders' case must be regarded as wrongly decided. The view taken in that case must be held to be erroneous and it must be corrected. To perpetuate an error is no heroism. To rectify it is the compulsion of the judicial conscience. In this, we derive comfort and strength from the wise and inspiring words of Justice Bronson in Pierce v. Delameter (A.M.Y, at page 18): " a judge ought to be wise enough to know that he is fallible and, therefore, ever ready to learn; great and honest enough to discard all mere pride of opinion and follow wherever it may lead: and courageous enough to acknowledge his errors". Under these circumstances, it is clear that on merits as well as on facts, there is no room to blithe arguments put forth on behalf of the assessee Authority. It is the settled legal position that if a word or an expression has been judicially defined by the Court then it should be presumed that the legislature was well aware of such meaning while enacting an enactment and consequently, such word or expression m the __ent should be understood in the same sense in which it was judicially defined.
It is pertinent to mention that the Counsel for the applicant has relied upon case laws in the case of Addl. CIT' Vs. Surat Art Silk Cloth Manufacturers Association (1979) 13 ~CTR (SC) 378: (1980) 121 ITR 1 (SC), CIT 52 Vs. Andhra Pradesh State Road Transport Corporation (1986) but the same have been decided on the provisions of Income-Tax Act 1961 without the amendment in section 2(15) regarding definition of charitable purpose as discussed above. Moreover on merits also the cases are distinguishable as held by the Hon'ble ITAT, Amritsar. Even the other cases including the cases of CIT Vs. 13 ITA No.444(Asr)/2010 Moga Improvement Trust ( 2008 ) ITA No. 489 of 2007 (P & H ) and Gujrat Maritime Board ( 2007) 295 ITR 561 ( SC ) are prima facie distinguishable as discussed in the body of this order.
5.2. On a cursory look at the Memorandum explaining the provisions in the Finance Bill under which the provisions of section 10 (20A) were omitted and the definition of the term 'Charitable Purposes' amended, it becomes abundantly clear that the Legislature clarified its intention. At this stage, it would not be out of place to consider the Heydon's Rule also known as the 'Mischief Rule' which deals with ascertaining the correct intention of the legislature by looking into the mischief that was sought to be remedied by the legislature.
This rule basically comprises four things to be considered;
a) what was the common law before the making of the Act;
b) what was the mischief and defect f or which the common law did not provide.
c) what remedy the Parliament has appointed to cure the defect; and
d) the true reasons of the remedy.
This rule contemplates in considering the position prevailing anterior to the amendment, which was intended to be rectified by way of amendment or insertion of a section and then considering the amendment as overruling the hitherto legal position. If a particular provision is enacted for getting rid of the existing law, as it is or interpreted by the Courts, the new amendment would be construed as superseding the earlier prevalent view which was considered by the legislature as mischievous. The Mischief rule has been repeatedly approved by several Courts in the country including the Hon'ble Apex Court in the case of CIT v/s Shahzada Nand & Sons (1966) 60 ITR 392 (SC). Coming back to our case and applying the Mischief rule, we observe that through Finance Act, 2002 clause (20A) of section 10 has been o as to withdraw exemption available to the Development Authorities so as to the intention of the Legislature that their income becomes taxable. It has been noticed that entities operating on commercial lines are now claiming exemption on their income by taking recourse to the provisions of 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 14 ITA No.444(Asr)/2010 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 provisions. With a view to limiting the scope of the phrase "advancement of any other object of general public utility, sub section (15) of section 2 has been amended to provide 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 views of the foregoing discussion, I am satisfied that Srinagar Development Authority is an Authority established with the motive of profit constituted under the Jammu & Kashmir Development Act, 1970 and that the activities of such Authority are hit by sub-section 15 of section 2 of the Income tax Act, 1961, therefore, I am satisfied that the applicant Authority is not entitled to registration as requested for and same is refused in terms of provisions of section 12AA(l)(b)(ii) of the Income tax Act, 1961."
5. On behalf of the assessee, the following written submissions have been raised before us. The ld. counsel for the assessee has reiterated these submissions:
"The above mentioned appeal has been fixed by the Hon Bench to be heard on 05.05.2016 As instructed by my Clients, 1 would like make the following submissions for your kind considerations:-
The Assessee has taken Five grounds of Appeal but all the grounds relate to Grant of Exemption U/S 12A , hence a single submission is being made covering all the Grounds.
It is humbly submitted that the Assessee had Applied for Grant of Registration U/S 12AA of the Income Tax Act 1.961 to worthy CIT Jammu & Kashmir which has been rejected and hence the Appeal before this Honorable Tribunal. Before proceeding with the Submissions it is important to mention 15 ITA No.444(Asr)/2010 that another Authority which is the creation of the same legislature viz Jammu Development Authority had been Granted Exemption by the worthy CIT J & K which was withdrawn and As per the Available information JDA had filed appeals before this bench , Hon High Court of J i K which have not been considered and Accordingly Registration has not been granted to Jammu Development Authority.
In view of the above the Assessee submits before this Honorable Bench that the following facts need to be considered while deciding the appeal of the Assessee .
a) That, after the withdrawal of Exemption U/S 10(20) from the Assessment Year 2003-04 various Development Authorities applied for Registration U/S 12AA of The Income Tax Act 1961.
Whereas some of the Assessee have been Granted Registration U/S 12AA various others have been denied.
The ITAT Delhi Bench "C" vide its order dated 25.07.2014 has allowed the appeal of Haridwar Development Authority for Grant of the Registration U/S 12AA in Addition the Following are the Development Authorities which have been granted registration by different Benches of the Income Tax Appellate Tribunal (ITAT ) & have held that activities of these authorities are for advancement of general public utility as given in sub section 15 of Section 2 of the Act.
In support of above the Reliance is placed on the following decisions of the various ITATs:
i) Aligarh Development Authority-ITA No. 168(Ag)/Del/2007, order dated 30.05.2008.
ii) U.P Awas Evam Vikas Parishad- ITA No. 1690 (Luck)/2003 for A. Y. 2003-04 dt: 25.07.2005.
iii) Lucknow Development Authority, Lucknow Bench.
ITA 3056/D/12, 3013/D/13 & 6058/D/12
4. Kanpur Development Authority, Lucknow Bench.
5. Khurja Development Authority-ITA No. 1851 (DEL) 2009 order dt: 14.07.2009.
6. Saharanpur Development Authority- ITA No. 5008 (Del) 2007 order dated 20.06.2008.
16 ITA No.444(Asr)/20107. Hapur Pilkhuwa Development Authority- ITA No. 2735/Del/2006, order dated 15.05.2007.
8. Ghaziabad Development Authority- ITA No. 2903 (Del) 2006 order dated 31.01.2007.
9. Ayodhya Faizabad Development Authority.
10. Unnao- Shuklaganj Development Authority ITA ho.
686,690,696,703and 736 (Luck)/2003 for A.Y. 2003-04 dt: 25.07.2005.
10. Muzzafarnagar Development Authority decided by ITAT, Delhi "E" Bench on 01.02.2010 the latest order on the issue.
Further to above this Honorable Bench has also allowed the Appeals of various Improvement Trusts and thus these improvement Trusts were Granted Registration U/S 12AA .
We are reproducing the Findings of the Hon Punjab & Haryana High Court which has reproduced the Findings of this Hon'ble Bench.
1. The finding recorded by the Tribunal is as hereunder :
"A perusal of the above s. 22 of the Town Improvement Trust Act, 1922, shows that it empowers the trust, when the conditions prescribed in the said are prevailing, to frame a general improvement scheme for the public utility of a local area or part thereof. It is in pursuance of this provision. that the assessee is undisputedly carrying on its activities. Secs to 26 of the said Act provided for street schemes, development and mansion scheme, housing accommodation schemes and housing scheme he activities of the assessee trust are also in consonance with these statutory schemes. It is evident from this that the object of the assessee trust t - provide benefit to the public with its local limits, rather than to itself Fhis apart, it is on record, that the same learned CIT as who has passed the impugned order, has, on similar facts and circumstances, granted registration : the Improvement Trust, Jalandhar, vide order dt. 12th/13th April, 2006. holding that the activities of that trust were with an object of 'general public utility'. Similarly, registration was also granted to the Improvement Trust, Sangrur and the Improvement Trust, Patiala."17 ITA No.444(Asr)/2010
3. We have heard learned counsel for the parties and perused the record.
4. Learned counsel for the assessee has drawn our attention to judgment of Hon'ble apex Court in the case of CIT vs. Gujarat Maritime Board (2008) 214 CTR (SC) 81 : (2007) 295 ITR 561 (SC), wherein the question for consideration was the meaning to be assigned to expression "any other object of general public utility" in s. 2(15) of the Act. It was held that the said expression includes all objects which promote welfare of general public. Gujarat Maritime Board, for development of minor ports in the State of Gujarat, was held to be charitable institution.
5. Learned counsel for the assessee has also drawn our attention to a Division Bench judgment of this Court in the case of CIT vs. Market Committee, Dhariwal (2007) 294 ITR 563 (P&H). It was held that even if assessee was not a trust, if its objective was to promote general public interest, s. 2(15) of the Act was attracted and the assessee is entitled to registration under s. 12A of the Act.
6 It is not the case of the appellant CIT that the assessee is not carrying on activities of general welfare covered by the expression "any other object of general public utility" in s. 2(15) of the Act.
7. In view of judgment of Hon'ble Supreme Court in the case of case Gujrat Martitime Board (supra) and the Division Bench judgment of this Court in the case of Market Committee (supra), we are of the view that the question sought to be raised is covered against the Revenue.
8. The appeal is accordingly dismissed."
It is submitted before this Honorable Bench that the Facts of Haridwar Development Authority are similar to that of Srinagar Development,. Authority. We are accordingly reproducing the observations of honorable bench hereunder for a ready reference ( Copy of the Judgment is also enclosed) "7. We have heard rival submissions and perused the record of the case.The first proviso to section takes out an activity from the ambit of charity object if the same is 18 ITA No.444(Asr)/2010 in the nature of trade, commerce or business. Section 2(15) reads as under:
"2. (15) "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;
Provided further that the. first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is twenty five lakh rupees or less in the previous year.
7.1 The assessee was set up as per U.P. Govt. G.O. dated 04/06/1986 under Uttar Pradesh Nagar Yojna Evam Vikas Adhiniyam 1973 (based on Delhi Development Act 1957) with an objective of development of Hardwar, Pauri, Tehri and part of Dehradun and all development schemes as well as beautification of the District came under its purview. In the objects, it is, inter alia, mentioned that the existing local bodies and other authorities inspite of their best efforts had not been able to cope with the problems of town planning and urban development and, therefore, to tackle the same resolutely the State Government considered it advisable that in such developing areas. Development Authorities patterned on.the Delhi Development Authority be established. The entire activities are controlled/ administered through various government orders and notifications.
7.2. It is noticeable that in section 2(15) preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest have been brought within the definition of "charitable purpose". In our 19 ITA No.444(Asr)/2010 opinion, the submission of the assessee that development of the district by providing housing, roads, development and maintenance of parks (boost to environment) plantation of trees (again pertaining to environment), providing sewerage system ( clean and healthy environment) are all objects for the welfare of the people of the district; as also these are objects of general public utility. However, since these are the objects of general publicity utility and the boost to environment is only incidental to the activity undertaken by the assessee, therefore, the activity carried out by assessee comes within the last limb of section 2( 15) viz.
advancement of any other object of general public utility and, therefore, it is to be examined whether the same does not involve the carrying on of activity in the nature of trade, commerce or business or any activity of rendering any services in relation to any trade, commerce or business or cess or fee or any other consideration irrespective of the nature of use or application or reduction of the income from such activity.
7.3. In this regard, we would first refer to the various sections dealing with activity undertaken by the assessee. As per section 3 of the U P. Urban Planning & Development Act, 1973, first of all the State has to form an lion that any area within the state requires to be developed according to n and on formation of such opinion, it is to notify in the gazette the area as a development area. Thereupon, the State will constitute an Authority to be called the Development Authority in respect of that development area per section 4 of the said Act.
7.4. The objects of the Authority are contained in Section 7 and for carrying out its objects of development, it has been vested with the power:
i) to acquire, hold, manage and dispose of
land and other property;
ii) to carry out building, engineering, mining
and other operations;
iii) 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 20 ITA No.444(Asr)/2010
iv) generally to do anything necessary or expedient for purpose of such development and for purposes incidental thereto.
7.5 Section 14 of the Act gives exclusive right to the Development Authority for development of land in respect of area which has been declared as development area u/s 3. After such declaration no development of land shall be undertaken or carried out or continued in that area by any person or body (including a department of government), unless permission of such development ahs been obtained in writing from the Vice Chairman in accordance with the provisions of the Act.
7.6. Further, the development has to be carried out as per the plans. Section 18 of the Act requires the State government to acquire the land and transfer the same to the Development Authority. The Authority is not entitled to gift the land but to dispose of the land by way of sale, exchange or lease or by the creation of any easement, right or privilege or otherwise.
7.7. Section 20 deals with the fund of the Authority', which is reproduced hereunder:
"20. Fund of the Authority - (I) The Authority shall have and maintain its own fund to which shall he credited - (a) All moneys received by the Authority from the Stage Government by way of grants, loans, advances or otherwise;
b) All moneys borrowed by the Authority from sources other than the State Government by way of loans or debentures;
c) All fees. tolls and charges received by the Authority under this Act;
d) A11 moneys received by the Authority from the disposal of lads, buildings and other properties, movable and immovable: and
e) All moneys received by the Authority by way of rents and profits or in any other manner or from any other source.
f) The fund shall be applied towards meeting the expenses incurred by the Authority in the administration of this Act and for no other purposes. "21 ITA No.444(Asr)/2010
7.8. All these provisions in the Act lead to inescapable conclusion that State Govt, constituted Development Authority for the welfare of people and not with any profit motive.
7.9. Now, we will examine the proviso to section 2(15) with reference to hove broad scheme of the Act. From the above it is evident that the main object of the assessee is development of the area as per the mandate of U.P. urban Planning & Development Act, 1973. The activity undertaken by the authority comes within the object of general public utility but it cannot be concluded that it involves the carrying on of any activity in the nature of made. commerce or business. Unless the activity undertaken by the assessee comes within the ambit of trade, commerce or business, the proviso would not get attract.
7.10. Hon'ble Supreme Court in the case of CIT vs. Gujarat Maritime Hoard 295 1TR 561 has held that where the assessee was under a legal obligation to apply its income which was directly and substantially from the business held under trust for the development of minor ports in the State of Gujarat then it does not involve any profit motive and assessee was entitled or registration u/s 12A. The Hon'ble Supreme Court pointed out that the income earned by the Port was deployed for the development of minor ports n the state of Gujarat. Hon'ble Supreme Court took note of the fact that u/s 73 of the Gujarat Maritime Board Act 1981, all moneys received by or on behalf of the Board were to be credited to a fund called the general account /the minor ports and under section 74, detailed guidelines as noted at page ;64 of the report, were there. The mode of dealing with deficit or surplus as contemplated u/s 75 of the said Act. Considering all these sections, the Hon'bie Supreme Court held that there could not be said to be any profit motive. Unless there was a profit motive, it cannot be said that an entity was carrying on any trade, commerce or business.
7.11 We further find that in case of Krishi Utpadan Mandi Samity (supra), the Hon'ble Allahabad High Court, while dealing with the proviso to section 2(15), inter alia, observed that main object is to be considered 22 ITA No.444(Asr)/2010 and incidentally if some profit is made and the said profit is used for charitable purpose the said trust/ institution does not cease to be established for charitable purpose.
7.12. We further find that in the case of Muzaffamagar Development Authority (supra), the ITA T following the decisions in the case of U P. Avas Evam Vikas Parishad (supra); and M/s Khurja Development Authority Vs. CIT (supra), allowed the assessee's appeal.
7.13. Further in the case of Sabarmati Ashram Gaushala Trust Vs. ADIT (E) (supra), we find that Tribunal has held that profit motive is must for holding an activity to be in the nature of trade, commerce or business.
7.14 Since the decision of Hon'ble Allahabad High Court is in the case of U P. Avas Evam Vikas Parishad (supra) is applicable to the facts of the case, therefore, we do not find any reason to refer to the decisions relied upon by the Id. CIT in the cases of Punjab Urban Planning & Development Authority (supra) & Jalandhar Development Authority (supra). It is 'pertinent to note that Id. CIT has granted registration u/s 12AA from 20- 1-2009.
7.15 In view of above discussion we hold that assessee-Authority has been created with the object of general public utility which is a charitable object within the meaning of section 2(15) and the proviso to section 2( 15) is not applicable because assessee-Authority is not carrying out activity with any profit motive but the predominant object is welfare of people at large.
8. 8. In the result, the grounds raised by assessee are allowed and the registration is restored herewith for ready reference):-
Based on the quoted judgment of Hon Punjab & Haryana High Court & Hard-war Development Authority, The Following Points need to be considered while deciding the Appeal of Srinagar Development Authority :23 ITA No.444(Asr)/2010
1. "Srinagar Development Authority has been created by the state legislature and the legislatures and the objects of the Authority are:
"The objects of the Authority shall be to promote and secure the development of the local area for which it is constituted, 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 and other operations, to execute works in connection with supply of water and electricity, disposal of sewerage and other services and amenities and generally to do anything necessary or expedient for purpose- of such development and for purposes incidental thereto;
( Copy of the Act is enclosed herewith for ready reference) For achieving the objective the Act further provides that:
1. The Government may, by notifications may be agreed upon between the Government and the Authority place at the disposal of the Authority all or All developed and undeveloped lands* in the zone xir the local area vested in the Government (known and hereinafter referred to as "Nazul Land" for the purpose of development in accordance with the provisions of this Act.
2. No development of any Nazul land shall be undertaken or carrier out except by or under the control supervision of the Authority after such land has been placed at the disposal of the Authority under sub-section
3. After any such Nazul land has been developed, by under the control and supervision of, the Authority, it shall be dealt with by the Authority in accordance with rules made and directions given by the Government in this behalf.
4. If any Nazul land placed at the disposal of the Authority under sub section (I) is required at any time thereafter by the Government, the Authority shall, by notification in the Government Gazette, place it at the disposal of the Government upon such terms and conditions as may be agreed upon between the Government and the Authority.
T he f ollo wing undisputed f acts emerge f rom the Act as d iscussed above.
24 ITA No.444(Asr)/2010i) T hat the Nazool Land and Assets on it belongs to the J & k Govt.
ii) That S.D.A as & when asked will develop the Land etc as per the direction of the J & K Govt.
iii) After the Development the Land will be dealt by the S.D.A in the manner as directed by the J & K Govt.
iv) The most important point to be noted is that that the Govt. can reclaim the Land etc any time as & when it decides by way of notification.
v) Dissolu tion of the Authority:
1) Where the Govern ment is satisf ied th at
the purposes f or wh ich the Author ity was
Authority was establ ished under the Ac t have been subs tan tially achieved or that there are goood grounds wh ich render the con tinued exis tence of the Author unnecessary, the Govern ment G azette, decl are th at the Author ity shall be d issolved with eff ect f rom such date as m be specif ied in the notif ic atio n, and the Authority sh all dee med to be dissolved accordingly.
2) Fro m the s aid date:-
a) all properties, funds and dues which are vested in, realizable by, the Authority shall vest in, or be re alis able by t h e Government;
b) all Nazul lands shall be placed at the
disposal of the Government;
c) all liabilities which are enforceable against
the Government; and
d) For the purpose of carrying out by the Authority and for the purpose of realising properties, funds and dues referred to in clause.
e) the functions of the Authority shall be discharged by the Government.
vi) From the above it is ample clear that it Authority is implementing the development agenda of the Govt which is of advancement of general Public utility.
Profit Moto : The Authority is not for earning of any Profit but is implementing the development program of the Jammu & Kashmir Govt as directed and as per the terms & conditions as set by the Govt.
25 ITA No.444(Asr)/2010There is no Capital, No reserves and no provision for declaration of a kind of Dividend or distribution of Profits. Clause/ sec 19 deals with the Fund of the Authority which is reproduced here and Provides that:
The Authority shall have and maintain its own fund to which shall be credited:
a) all moneys received by the Authority from the Central or State Government by way of grants, loans, advances or otherwise;
b) all money borrowed by the Authority from source other than the Government by way of loans or debentures;
c) all fees and charges received by the Authority under this Act;
d) all money received by the Authority from the disposal of lands, buildings and other properties, movable and immovable; and
e) all moneys received by the Authority by way of rents and profits or in any other manner or from any other source;
2) The funds shall be applied towards meeting the expenses incurred by the Authority in the administration of this Act and for no other purpose "It is important to mention that the Ld. CIT has rejected the application for registration under section 12AA of the Act on the basis that Authority has a Profit Motive without adducing any evidence to prove that the Appellant was pursuing any object which was not charitable purpose or that the property and funds of the appellant are not being applied in meeting the charitable objectives.
The Ld. CIT ignored the facts that as per the Provisions of the Act the Funds can be applied only for the administration of this Act and for no other purpose."
6. Post passing of the impugned order, dated 28.09.2010, this Bench vide order dated 14.06.2012, passed in ITA No. 30(Asr)/2011, in the case of 'Jammu Development Authority vs. C.I.T. Jammu', decided the matter in favour of the Department, as follows:
26 ITA No.444(Asr)/2010"3. The brief facts in this case are that registration under section 12A read with section 12AA of the Act, was granted to the assessee on 30.09.2009 as per certain conditions as envisaged in the said order. A show cause notice was issued to the assessee under section 12AA(3) of the Act on 14.10.2010. For the sake of clarity the said show cause notice is reproduced as under:
"Please refer to this office order under section 12A read with section 12AA of the Income-tax Act, 1961 issued under No. CIT/J&K/2009-10/5211-13 dated 30.09.2009 under which registration was granted to Jammu Development Authority, Jammu w.e.f. 01.04.2008 subject to satisfaction of conditions enumerated below the said order and entered at serial No.56 of the register maintained in this office.
2.1.Your attention is invited to the provisions of sub-section (15) of Section -2 of the Income tax Act, 1961 which defines charitable purpose to include relief of the poor, education, medical relief and advancement of any other object of general public utility. As per Finance Act, 2008 w.e.f. 01.04.2009, a following proviso has been added below the said section, which reads as under:
"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 rentention of the income from such activity".
Further, as per the Finance Act, 2010 after the first proviso, proviso-2 has been inserted and shall be deemed to have been inserted with effect from the Ist day of April, 2009, namely:
"Provided further that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is ten lakh rupees or less in the previous year."27 ITA No.444(Asr)/2010
Prior to insertion of these proviso, certain bodies have been treated 'charitable ' on the ground of advancement of object of general public utility. However, after the insertion of the above proviso, the advancement of any other object of general public utility shall not be a 'charitable purposes', if it involves the carrying on of:
a) Any activity in the nature of trade, commerce or business;
b) Any activity of rendering any services in relation to any trade, comer or business;
c) For cess or fee or any other consideration, irrespective of the nature of use or application of retention of income from such activity.
2.2 Thus, the newly inserted 2nd proviso to section 2(15) w.e.f. 01.04.2009 (assessment year 2009-10 and onwards) provides that the provisions of the Ist proviso to section 2(15) shall not apply if the aggregate value of the receipts from the activities referred to in the Ist proviso is Rs.10,00,000/- or less in the previous year. However, after going through the returns of income filed by Jammu Development Authority, it is observed that the aggregate value of the receipts from the activities referred to in the Ist proviso is more than the prescribed limit, as such, it shall not be entitled to the benefit of exemption u/s 11 of the Income Tax Act, 1961. It has been noticed that Jammu Development Authority is operating on commercial lines and by taking recourse to the provisions of section 11 of the Act on the ground that it is charitable institution. This is based on the argument that Jammu Development Authority is 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 provisions. With a view to limiting the scope of the phrase " advancement of any other object of general public utility, sub section (15) of section 2 has been amended to provide 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 28 ITA No.444(Asr)/2010 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.
3. In view of the above, I am satisfied that Jammu Development Authority is a Authority established with the motive of profit constituted under the Jammu & Kashmir Development Act, 1970 and that the activities of such Authority are hit by sub-section 15 of section 2 of the Income Tax Act, 1961, therefore, I am satisfied that the applicant Authority is not entitled to registration in terms of provisions of section 12AA(1)(1)(ii) of the Income Tax Act, 1961. Therefore, in terms of the provisions of section 12AA(3) which provides that where a Trust has been granted registration u/s 12AA(1)(b) and subsequently the Commissioner of Income Tax is satisfied that the activities of such trust are not genuine or are not being carried out in accordance with the objects of the Trust, he shall after affording reasonable opportunity of being heard to it, cancel the registration by passing an order in writing.
4. You are hereby requested to appear before the undersigned at Ayakar Bhawan, Railhead Complex, Panama Chowk, Jammu on 29.10.2010 at 11.30AM/PM and show cause why an order canceling the registration granted to Jammu Development Authority should not be made u/s 12AA(3) of the Income Tax Act, 1961. If you do not wish to avail yourself of this opportunity of being heard in person or through an authorized representative, you may show cause in writing on or before the said date which will be considered before any such order made u/s 12AA(3) of the Income tax Act, 1961."
4. The assessee vide letter dated 10.11.2010 submitted that the above subject show cause notice is not tenable, which is reproduced by the ld. CIT vide para 2 at pages 4 to 15 of his order. The Ld. CIT before cancelling the registration of the assessee reproduced the provisions and conditions in section 12AA(3) of the Act and then the proviso introduced by Finance Act,2008 w.e.f. 01.04.2009 in section 2(15) of the Act along with 2nd proviso to section 2(15) by the Finance Act, 2010 29 ITA No.444(Asr)/2010 w.e.f. I.4.2009. It was observed by the Ld. CIT that prior to insertion of these provisos certain bodies were treated 'charitable' on the ground of advancement of object of general public utility. However, after the insertion of the above provisos ' the advancement of other object of general public utility shall not be a 'charitable purpose', if it involves the carrying on of :
a) Any activity in the nature of trade, commerce or business;
b) Any activity of rendering any service in relation to any trade, commerce or business.
c) For a cess or fee or any other consideration, irrespective of the nature of use or application or retention of income from such activity.
4.1. Therefore, before insertion of the above proviso, the Institutions/Trusts/Societies which were given registration u/s 12A of the Act considering them under the head 'advancement of any other object of general public utility, were eligible for exemption from tax u/s 11 of the Act, if they were not involved in any such commercial activities as brought out in (a) (b) and
(c). However, in case, they are involved in such commercial activities and if the aggregate value of the receipt from the activities referred to in the Ist proviso is more than rupees ten lakhs in the previous year, they shall not be eligible to continue with registration u/s 12A and the same is required to be withdrawn. It was observed by the Ld. CIT that if any institution is carrying on any activity in the nature of trade, commerce or business for a cess or fee or any other consideration, it would loose the status of charitable organization irrespective of the nature of use, or application or retention of income from such activity.
4.2. The fact of the present case as observed by the Ld. CIT in para 4.1. are that Jammu Development Authority was established vide Jammu & Kashmir Development Act, 1970 and it came into effect from 31.10.1970. As per the said Act, the object of the Authority is to promote and secure the development of the local area for which it is constituted according to plan and for that purpose the Authority shall have 30 ITA No.444(Asr)/2010 the power to acquire hold, manage and dispose off land and other property, to carrying out building, engineering and other operations, to execute works in connection with supply of water and electricity, disposal of sewerage and other services and amenities and generally to do anything necessary or expedient for purposes such development and for the purposes incidental thereto. The Authority is a body corporate having perpetual succession and a common seal with power to acquire, hold and dispose of properties, both movable and immovable to contract, and by the said name sue or to be sued. The Authority consists of a Chairman, Vice Chairman and seven other members appointed by the State Government. The Authority is responsible for the planned development of the city including preparation of the Master Plan of the area. The State Government is authorized to entrust the Authority from time to time with any work connected with planned development and matters connected thereto. Section 19(Chapter-VII) of the Jammu & Kashmir Development Act, 1970 obliges the Authority to maintain its own fund to which shall be credited moneys received by the Authority from the Central or State Government by way of grants, loans, advances or otherwise, all fees, rents, charges, levies and fines received by the authority under the Act, all moneys received by the Authority from disposal of its movable and immovable assets and all moneys received by the Authority by way of loan from financial and other institutions and debentures floated for the execution of a scheme or schemes of the Authority duly approved by the State Government. Unless the State Government otherwise, directs all moneys received by the Authority shall be credited to its funds which shall be kept with the Jammu& Kashmir Bank or any other bank approved by the State Government. 4.3. The Ld. CIT in para 4.2. of his order observed that till the financial year 2002-03, the income of such Authorities were exempt u/s 10(20A) of the Act. However, in view of omission of section 10(20A) of the Act an Explanation was added to section 10(20), which is reproduced as under:
"Explanation: For the purpose of this clause, the expression 'Local Authority' means -
i) Panchayat as referred to in clause (d) of article 243 of the Constitution; or 31 ITA No.444(Asr)/2010
ii) Municipality as referred to in clause (3) of article 243P of the Constitution; or
iii) Municipal committee and District Board, legally entitled to, or entrusted by the Government with, the control or management of a Municipal or local fund; of
iv) Cantonment Board as defined in section 3 of the Cantonments Act, 1924 (2 of 1924)".
It would thus be seen that the income of a local Authority chargeable under the head "income from house property", "Capital gains" or "Income from other sources" or from a trade or business carried on by it was earlier excluded in computing the total income of the Authority of a previous year. However, in view of the amendment with effect from April 1, 2003, the Explanation "Local Authority" was defined to include only the Authorities enumerated in the Explanation, which does not include an Authority such as the Jammu Development Authority. At the same time section 10(20A) which related to income of an Authority constituted in India by or under any law enacted for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, which before the amendment was not included in computing the total income, was omitted. Consequently, the benefit conferred by clause (20A) on such an Authority was taken away. Thus, in view of the fact that section 10(20A) was omitted and an Explanation was added to section 10(20)A) of the Act, enumerating the "Local Authorities"
contemplated by section 10(20), the assessee i.e. Jammu Development Authority could not claim any benefit under those provisions after April 1, 2003. The benefit conferred by section 10(20)A) of the Act on the assessee upto the A.Y. 2002-03 has been expressly taken away and the explanation added to section 10(20) enumerates the "Local Authority" which do not cover the Authority. The assessee i.e. Jammu Development Authority subsequently claimed that its objects falls under the provisions of section 2(15) of the Act and has complied with all the eligibility criteria for grant of registration u/s 12A of the Act, which was allowed vide order dated 30.09.2009 subject to fulfillment of certain conditions. On examination of the facts as enumerated above with reference to the amendment made to 32 ITA No.444(Asr)/2010 the provisions of sub section (15) of section 2 of the Act which defines 'Charitable purposes' to include relief of the poor, education, medical relief and advancement of any other object of general public utility.
4.4. Referring to insertion of the Ist and 2nd proviso to section 2(15) of the Act, the Ld. CIT after going through the objects of the Authority as envisaged u/s 6, it was observed that the object of the Authority is to promote and secure the development of the local area. The assessee has generated income by way of disposing off the developed lands and the lands are sold with definite motive of profit and there is no charitable purpose or any activity for public utility, which is the primary requirement of section 2(15) of the Act. The activities of the assessee are aimed at earning profit as it is carrying on activity in the nature of trade, commerce or business. Further profit making by the assessee is not mere incidental or by product of the activity of the assessee. The main pre-dominant purpose of assessee is making profit, it is real object of the assessee and also there is no spending of the income exclusively for the purpose of charitable activities and profits of the assessee not used for charitable purpose under the terms of the object and there is no obligation on the part of the assessee to spent on 'charitable purpose' only. The Ld. CIT referred to clause 53 of the Jammu & Kashmir Development Act relating to dissolution of the Authority. The said clause is reproduced in para 4.4 of CIT's order at page-21 where it has been declared that such authority shall be dissolved w.e.f. such date as may be specified in the notification and tall the properties, funds and dues etc. shall vest in the Government and for the purpose of realizing the properties, funds and dues, functions of the Authority shall be discharged b the Government. It was interpreted by the Ld. CIT that all assets and liabilities as per clause 53 of Jammu & Kashmir Development Act, will be transferred to the Government and there is no restriction as to how the same are utilized by the Government. On perusal of the objects as per clause 6 it reveals that objects with which the Authority was set up may appear to be of general public utility for development of the area but then there are other objects like sale and purchase of land and property which make the Authority a commercial organization. Therefore, the objects pursued by the Authority 33 ITA No.444(Asr)/2010 cannot be said to be charitable in view of the fact that the authority being a commercial organization with no restriction as to the application of the assets on dissolution or winding up of for charitable purposes. In order to find out whether n organization is a charitable one, tests have been laid down by the Hon'ble Supreme Court in the case of CIT vs. Surat Art Silk Cloth Manufacturers Association (1997) 121 ITR and CIT vs. Andhra Pradesh State Road Transport Corp. (1986) 159 ITR 1. In the case of Surat Art Silk Cloth Manufacturers Association, it was held as under:
"Since the income and property of the assessee were liable to be applied solely and exclusively for the promotion of the objects set out in the Memorandum and no part of such income or property could be distributed amongst the Members in any form or utilized for their benefit either during its operational existence or on its winding up or dissolution as such the object was a charitable one".
4.5. Therefore, vide para 4.6, the Ld. CIT observed that on being dissolved or wound up, the Government which has set up the Authority, by virtue of provisions of section 53 of the Jammu & Kashmir Development Act, 1970, has the exclusive right over the properties left over thereof with no restriction as regards the utilization of the left over properties for charitable purposes. Thus, the authority failed the test laid down by the Hon'ble Supreme Court in the above case and therefore, cannot be termed as a charitable organization within the meaning of section 2(15) of the Act. Similarly, in the case of Andhra Pradesh State Road Transport Corporation, it was held by the Hon'ble Supreme Court as under:
"The activity of assessee was not carried on with the object of making profit... and the amount left over after utilization for the purpose set out in section 13 of the R.T.C. Act as amended was to be made over the State Government for the purpose of Road Development and the amounts handed over to the State Government did not become part of the general revenue of the State but was impressed with an obligation that it should be 34 ITA No.444(Asr)/2010 utilized only for the purpose for which it was entrusted, namely Road Development, which was an object of public utility."
4.6. The assessee does not qualify by the test laid down by the Hon'ble Supreme Court in view of the fact that properties left over to the Government as per the provisions of section 53 of the J & K Development Act, 1970 will become a part of general revenue of the State and the State Government is not under any obligation to utilize the same for the purpose for which the Authority was set up. Therefore, the assessee does not fulfil the conditions required for claiming the status of charitable organization as envisaged under the fourth limb of the definition of charitable purposes contained in section 2(15) or in other words the objects cannot be termed as charitable although they appear to be of a general public utility but were put to test as per the conditions laid down by the Hon'ble Supreme Court in the cases mentioned hereinabove, they fail to qualify the same.
4.7. Vide para 4.9 of the Ld. CIT's order, it was observed that the ITAT, Amritsar Bench, Amritsar, in the case of M/s. Jalandhar Development Authority vs. CIT-2, Jalandhar, had rejected the application filed by the assessee holding that the object of Jalandhar Development Authority is profit making and as such s not entitled for registration u/s 12AA of the Act and upheld the decision of the ld. CIT-2, Jalandhar. The ITAT, Amritsar Bench, in the said case of Jalandhar Development Authority has also considered the cases of Addl. CIT Vs. Surat Art Silk Cloth Manufacturers Association (1980) 121 ITR 1, while deciding the case in favour of the Revenue. The Ld. CIT, referred to the decision of the Hon'ble Supreme Court in the case of Indian Chamber of Commerce vs. CIT reported in 101 ITR wherein it has been held as under:
"that the activities of the chamber being activities carried on for profit, in the absence of any restriction in its memorandum and articles of association against the making of profit from those activities, the income of chamber from those activities was liable to income tax.35 ITA No.444(Asr)/2010
Section 2(15) must be interpreted according to the language used therein and against the background of India Life. By definition in section 2(15) the benefit of exclusion from total income is taken away when in accomplishing a charitable purpose the institution engages itself in activities for profit".
4.8. The ITAT, Amritsar Bench, in the case of M/s. Jalandhar Development Authority relied upon the decision of the ITAT Chadigarh Bench, in the case of Punjab Urban Planning & Development Authority vs. CIT. The ITAT in the case of Jalandhar Development Authority further held as under:
"It is a well known fact that in some of the situations the provisions of law are misused in the names of charities. If an expanded /broader latitude is extended to the word charity, then there are so many institutions / departments who will try to come under the umbrella of this provision to misuse the provision. Therefore, for the broad development of the nation / society, a strict and positive vigil is required so that the provision can be saved from its misuse in any manner. No activity can be carried on efficiently, properly unless and until it is carried out on business principle but it does not mean that the provision is misused in any manner under the grab of charity and any institution be allowed to become richer and richer under the grab of charity by making it a non-tax payable organization. A charitable institution provides services for charitable purposes free of cost and not for a gain. In the present scenario, similar activities are performed by big colonizers/developers who are earning a huge profit. If this registration is granted, then anybody will claim the exemption from tax. If the accounts of the assessee are analysed, it has turned into a huge profit-making agency for which it is taking money from the general public. If any institution of public importance like schools, community centers are created /developed, the assessee is charging the cost of it from the public at large and the money is coming from the coffer of the Government. It can be said that objects/activities of the assessee are more of commercialized nature and no charity is 36 ITA No.444(Asr)/2010 involved in it. At the time, if these facilities are not provided, then nobody will purchase a plot. It can be said that it is a means of attracting the people so that maximum people may apply for the same and the hidden cost is already added, so no charity is involved. At best, the assessee can be said to be an authority created to help it to achieve certain objects. It can be said that it is the duty of the Government to create / provide all these facilities to public large, which is being done through is agency in a particular area. At the same time, the funds which are provided to the assessee by the Government is again a public money or generated from public itself. The objects of the assessee, though claimed to be charitable, but actually are of purely commercial nature where profit motive is involved. It is a known fact that the assessee is acquiring the land at very low prices and selling the same land on very higher rates and is earning as profit therefrom. A new trend has also emerged that the assessee has started auctioning the plots by way of bidding at the market rate and sometimes more than that and charging interest on belated payments In such a situation, no charity is involved. Rather the assessee has converted itself into a big businessman. Similar development/infrastructure/facilities are also provided by private developers these days, then they will also claim the status of a charitable institution. The facilities which are provided to the plot holders are incidental to the commercial activity carried out by the assessee and if certain facilities like parks, community center, school are provided, it is not only basic requirement, rather a tool attracting the investors wherein the hidden cost of these facilities is already included. In the absence of these facilities, normally the purchaser may not invest and the prices may be less. In view of these facts, the assessee's activities not being of charitable nature, the application of registration under s. 12A has been rightly rejected by CIT, - Asstt. CIT Vs Thanthi Trust (2001), 165 CTR (SC) 681: (2001) 247 ITR 785 (SC) and Bihar State Forest Development Corporation Vs CIT (1997) 224 ITR 757 (Pat) reline on : Addl. CIT Vs Surat Silk Cloth 37 ITA No.444(Asr)/2010 Manufacturers Association (1979) 13 CTR (SC) 378:
(1980) 121 ITR 1 (SC), CIT Vs Andhra Pradesh State Road Transport Corporation (1986) 52 CTR (SC) 75: (1986) 159 ITR 1 (SC) and New Life in Christ Evangelistic Association (NLC) Vs CIT (2001) 165 CTR (Mad) 446: (2000) 246 ITR 532 (Mad) distinguished ."
4.9. The Ld. CIT, vide para 5.1. of his order observed that there is no evidence to suggest that the assessee is not engaged in the activity of the profits and as such the assessee is not engaged in the activity of the profits and the registration granted u/s 12A of the Act is required to be cancelled within the meaning of section 12AA(3) of the Act, as the findings show that the activities of the assessee are aimed at earning profit as it is carrying on activity in the nature of trade, commerce and business. Further, for profit making by the assessee is not mere incidental or by product of the activity of the assessee. The main pre-dominant purpose of assessee's is making profit and it is the real object of the assessee and also there is no spending of the income exclusively for the purpose of charitable activities and profit of the assessee not used for charitable purposes only under the terms of the object clause of notification under which it was formed and there is no obligation on the part of the assessee to spend on 'charitable purpose' and accordingly, the Ld. CIT cancelled the registration so granted u/s 12A of the Act within the meaning of section 12AA(3) of the Act. 4.10. The Ld. CIT has also dealt with the arguments of the ld. counsel made before him that registration to the assessee was granted on 30.09.2009 i.e. well after the amendment of section 2(15) of the Act by Finance Act, 2008. It was observed by the Ld. CIT in this regard and invited our attention to the decision of five Member Bench of Hon'ble Supreme Court in the case of A Distributors (Baroda) Pvt. Ltd. vs. Union of India and Others 155 ITR 20 (SC) wherein while reversing the order of the three Member Bench, the Hon'ble Court ruled as under:
"We have given our most anxious consideration to this question, particularly since one of us, namely, P.N. Bhagwati J, was a party to the decision in Cloth Traders' case.............. we are compelled to reach the conclusion that Cloth Traders case must be regarded as wrongly 38 ITA No.444(Asr)/2010 decided. The view taken in that case............must be held to be erroneous and it must be corrected.. To perpetuate an error is no heroism. To rectify it is the compulsion of the judicial conscience. In this, we derived comfort and strength from the wise and inspiring words of Justice Bronson in Pierce v. Delameter (A.M.Y at page 18) " a judge ought o be wise enough to know that he is fallible and therefore, ever ready to learn: great and honest enough to discard all mere pride of opinion and follow wherever it may lead " and courageous enough to acknowledge his errors".
4.11. On the issue of principle of consistency, as argued by the Ld. counsel for the assessee before the Ld. CIT, it was observed by the Ld. CIT vide para 6.2. of his order and referred to the decision of ITAT, Amritsar Bench, in the case of ITO Vs. Goverdhan Dass & Sons 20 ITD 681 that 'an erroneous view in law could not be allowed to be perpetuated on the ground of consistency. This order of the ITAT, has been upheld by the Hon'ble Punjab & Haryana High Court in 288 ITR 481 dated 28.06.2006 Therefore, the ld. CIT observed that it is to be appreciated that an error in law cannot be allowed to be perpetuated on the ground of principle of consistency. The Ld. counsel for the assessee also relied upon the decision of Hon'ble Supreme Court in the case of Radhasoami Satsang vs. CIT (1992) 193 ITR 32 (SC). With regard to the said decision, the Hon'ble Supreme Court observed that the facts of this case being very special, nothing should be said in a manner which would have general application and would like to state in clear terms that the decision is confined to the facts of the case and may not be treated as an authority on aspects which have been decided for general application. Similarly, the Ld. CIT distinguished the other case relied upon in the case of H.A. Shah & Co. vs. CIT (195) 30 ITR 618 (Bom.) 4.12. Referring to various courts of law, the Ld. CIT finally while canceling the registration observed as under:
"Thus from the above discussion it is clear that if a decision or order is contrary to law or not warranted in the facts and circumstances of the case or runs contrary to the reasoning and 39 ITA No.444(Asr)/2010 result reached, or a mistaken view of statutory provisions has been taken or the order is contrary to the law pronounced by the Hon'ble Supreme Court or jurisdictional High Court or Tribunal, then the rule of consistency has no application and merely because an illegal .unwarranted for erroneous view in law has been taken by an authority, such illegality or erroneous view cannot be allowed to be repeated or perpetuated. Such illegal/erroneous view must be corrected, if it can be done according to law. An erroneous view in law cannot be allowed to be perpetuated on the ground of consistency.
On a cursory look at the Memorandum explaining the provisions in the Finance Bill under which the provisions of section 10(20A) were omitted and the definition of the term 'Charitable purposes' amended, it becomes abundantly clear that the Legislature clarified its intention. At this stage, it would not be out of place to consider the Hydron's Rule also known as the "Mischief Rule' which deals with ascertaining the correct intention of the legislature by looking into the mischief that was sought to be remedied by the legislature. This rule of consistency comprises four things to be considered;
a) What was the common law before the making of the Act;
b) What was the mischief and defect for which the common law did not provide;
c) What remedy the Parliament has appointed to cure the
defect; and
d) The true reasons of the remedy.
This rule contemplates n considering the position prevailing anterior to the amendment, which was intended to be rectified by way of amendment or insertion of a section and then considering the amendment as overruling the hitherto legal position. If a particular provision is enacted for getting rid of the existing law, as it is or as interpreted by the Courts, the new amendment would be construed as superseding the earlier prevalent view which was considered by the legislature as mischievous. The Mischief rule has been repeatedly approved by several courts in the country including the Hon'ble Apex court in the case of CIT vs. Shahzada Nand & Sons (1966) 60 40 ITA No.444(Asr)/2010 ITR 392 (SC). Coming back to our case and applying the Mischief rule, we observed that through Finance Act, 2002 clause (20A) of section 10 has been deleted so as to withdraw exemption available to the Development Authorities so as to clarify the intention of the Legislature that their income becomes taxable. It has been deleted so as to withdraw exemption available to the Development Authorities so as to clarify the intention of the Legislature that their income becomes taxable. It has been noticed that entities operating on commercial lines are now claiming exemption on their income by taking recourse to the provisions of 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 provisions. With a view to limiting the scope of the phrase "advancement of any other object of general public utility, sub section (15) of section 2 has been amended to provide 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.
In view of the above, I am satisfied that Jammu Dev Development is an Authority established with the motive of profit constituted under the Jammu & Kashmir Development Act, 1970 and that the activities of such Authority are hit by sub section 15 of section 2 of the Act, therefore, I am satisfied that the Jammu Development Authority is not entitled to registration in terms of provisions of section 12AA(1)(a)(ii) of the Act. Therefore, in terms of the provisions of section 12AA(3) which provides that where a Trust has been granted registration u/s 12AA(1)(b) and subsequently the C.I.T. is satisfied that the activities of such trust are not genuine or are not being carried out in accordance with the objects of the 41 ITA No.444(Asr)/2010 Trust, he shall after affording reasonable opportunity of being heard to it, cancel the registration by passing an order in writing. Accordingly, I am satisfied that Jammu Development Authority is an Authority established with the motive of profit constituted under the Jammu & Kashmir Development Act, 1970 and that the activities of such Authority are hit by sub- section 15 of section 2 of the Act and are not in line with the objects of the trust so far as the activities relating to purchase and sale of properties as discussed above. Hence, the activities are not genuine to the extent discussed above, therefore, I am satisfied that the Jammu Development Authority is not entitled to registration and accordingly the registration granted is hereby cancelled in terms of provisions of section 12AA(3) of the Income tax Ac, 1961."
5. The Ld. counsel for the assessee argued on similar lines as argued before the Ld. CIT. In addition, it was argued that the decision in the case of M/s. Jalandhar Development Authority Vs. ITO Jalandhar, in ITA No.562(Asr)/2008 dated 12th June, 2009, is not applicable in the present facts and circumstances of the case, since in that case registration of the Institution was not granted. Whereas in the present case registration having been granted, the Ld. CIT does not have any right to withdraw/cancel the said registration since the Ld. CIT while granting registration to the assessee had considered the introduction of Ist proviso and 2nd proviso to section 2(15) of the Act. The Ld. counsel for the assessee relied upon the submissions made before the ld. CIT(A) in this regard.
6. The Ld. DR, on the other hand, relied upon the decision of the ld. CIT and decision of ITAT Amritsar Bench in the case of M/s. Jalandhar Development Authority, Jalandhar vs. Commissioner of Income Tax-II, Jalandhar (supra).
7. We have heard the rival contentions and perused the facts of the case, including section 12AA(3) of the Act, where Trust or Institution has been granted registration and subsequently the Commissioner is satisfied that the activities of such trust or institution are not genuine or are not being carried out in accordance with the objects of the trust or 42 ITA No.444(Asr)/2010 institution of such trust or institution, as the case may be , he shall, pass an order in writing canceling the registration of such trust or institution. Section 2(15) of the Act defines "charitable purpose" to include the advancement of any other object of general public utility. It is also not disputed that the Ld. CIT while granting registration u/s 12AA(3) of the act to the assessee had observed that he is satisfied that instrument does not exist in any trade, commerce or business. The order is dated 30.09.2009 whereas the amendment by Finance Act, 2008 is w.e.f. 01.04.2009, where as per Finance Act, 2008, following proviso had been added w.e.f. 01.04.2009:
"Provided that the advancement of any other object of generally 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 of application, or retention, of the income from such activity."
7.1. Further, as per Finance Act, 2010, after first proviso, second proviso has been added w.e.f. 01.04.2009, which is read as under:
"Provided further that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is ten lakh rupees or less in the previous year".
7.2. As a matter of fact from the perusal of the order of the Ld. CIT, it appears that first proviso so inserted by the Finance Act, 2008 w.e.f. 01.04.2009 was not taken into consideration while granting registration vide order dated 30.09.2009. Therefore, in the facts and circumstances of the case, we concur with the views of the Ld. CIT, who had placed reliance on the decision of five Member Bench of Hon'ble Supreme Court in the case of A Distributors (Baroda) P. Ltd. vs. Union of India & Ors. reported in 155 ITR120 (SC), wherein it has been held to perpetuate an error is no heroism. To rectify it is the compulsion of the judicial conscience. In this, we derived comfort and strength from the wise and inspiring words of Justice Bronson in Pierce v. Delameter (A.M.Y at page 18).
43 ITA No.444(Asr)/2010Therefore, the Ld. CIT in view of the decision of the Hon'ble Supreme Court in the case of A Distributors (Baroda) P. Ltd. vs. Union of India & Ors.(supra) is within his power to decide the issue as per insertion of the first proviso by the Finance Act, 2008 w.e.f. 01.04.2009 and also the second proviso inserted by the Finance Act, 2010 w.e.f. 01.04.2009 whereas the aggregate value of the receipts in the present assessee are Rs. 10 lakhs. Also on the principle of consistency, we concur with the views of the ld. CIT relying upon the decisions of various courts of law that an erroneous view in law could not be allowed to be perpetuated on the ground of consistency. Therefore, in the facts and circumstances of the present case, the Ld. counsel for the assessee was put a question by the Bench how the facts in the present case are different from the facts in the case of M/s. Jalandhar Development Authority. The ld. counsel for the assessee argued and replied that the difference in the facts and circumstances of the present case with M/s. Jalandhar Development Authority is not there except that the registration had been granted in the case of M/s. Jalandhar Development Authority whereas in the present case, registration having been granted cannot be cancelled. Since the order of the CIT dated 30.09.2009 in the present case is after amendment to section 2(15) i.e. introduction of the first proviso was well before the Ld. CIT.
7.3. Considering the arguments of the ld. counsel for the assessee and on perusal of the facts of the present case with the facts in M/s. Jalandhar Development Authority (supra), we are of the view that facts in the present case are identical to the facts as in the case of Jalandhar Development Authority. As regards the first proviso inserted in section 2(15) of the Act, we have given our views hereinabove that the Ld. CIT had not considered the first proviso to section 2(15) as well as the second proviso to section 2(15) while making the order for grant of registration on 30.09.2009. Therefore, the Ld. CIT is well within his power to decide the issue by his order in view of the decision of the Hon'ble Supreme Court in the case of A. Distributors (Baroda) P. Ltd. vs. Union of India and Ors. 155 ITR 120 (SC). Therefore, in the facts and circumstances of the present case and following our order in the case of M/s. Jalandhar Development Authority (supra) being on identical 44 ITA No.444(Asr)/2010 facts, the registration u/s 12AA cannot be granted to the assessee and the Ld. CIT has rightly cancelled the registration so granted.
7.4. Also, we concur with the views of the Ld. CIT(A) vide para 3.2 to 6.2 of his order that prior to insertion of these provisos i.e. first and second proviso to section 2(15) of the Act, certain bodies were treated as 'charitable' on the ground of advancement of object of general public utility. However, after the insertion of the above proviso, the advancement of any other object of general public utility shall not be a 'charitable purposes' if it involves the carrying on of :-
a) Any activity in the nature of trade, commerce or ; business
b) Any activity of rendering any service in relation to any trade, commerce or business.
d) For a cess or fee or any other consideration, irrespective of the nature of use or application or retention of income from such activity.
7.4.1. Therefore, the Institutions/Trusts/Societies which are involved in the activities in (a)(, (b) & (c) mentioned hereinabove and aggregate value of the receipt of the activities referred to in the first and second proviso is more than Rs. ten lakhs in the previous year, they shall not be eligible to continue with registration u/s 12A and the same is required to be withdrawn.
7.5. The main objects of the assessee's institution has been mentioned inPara 4.1. of Ld. CIT's order, as mentioned hereinabove. It has rightly been mentioned by the Ld. CIT in para 4.2 mentioned hereinabove that till the financial year 2002-03, the income of such Authorities were exempt u/s 10(20A) of the Act. However, in view of omission of section 10(20A) of the Act, an Explanation was added to section 10(20), which has been mentioned hereinabove. The income of Local Authority is chargeable under the head 'Income from House property', 'Capital gains' or "Income from other sources" or from a trade or business carried on by it was earlier excluded in computing the total income of the Authority of a previous year. However, in view of the amendment, with effect from 45 ITA No.444(Asr)/2010 01.04.2003, the Explanation "Local Authority" was defined to include only the Authorities enumerated in the Explanation to include Panchayat, Municipal Committee and District Board and Cantonment Board as referred in the said Explanation.
7.6. Also, at the same time, section 10(20A) which related to income of and Authority constituted in India by or under any law enacted for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages which before the amendment was not included in computing the total income, was omitted. Consequently, the benefit conferred by clause (20A) on such an Authority was taken away. Thus, in view of the fact that section 10(20A) was omitted and an Explanation was added to section 10(20) of the Act, enumerating the "Local Authorities" contemplated by section 10(20), the assessee could not claim any benefit under those provisions after April 1, 2003. The assessee subsequently claimed that its objects falls under the provisions of section 2(15) of the Act and has complied with all the eligibility criteria for grant of registration under section 12A of the Act, which was allowed vide order dated 30.09.2009. It is at this juncture that the first proviso and second proviso were added by the Finance Act, 2008 w.e.f. 01.04.2009, as mentioned hereinabove. Therefore, after insertion of the said proviso, any institution carrying on of any activity in the nature of trade, commerce or business etc. as mentioned hereinabove, shall not be a charitable purpose. As per objects of the assessee, it is observed that the main object of the assessee is to promote and secure the development of local area and there is no charitable purpose or any activity for general public utility. The activities of the assessee are aimed at earning profit as it is carrying on activity in the nature of trade, commerce or business. Further profit making by the assessee is not mere incidental or by product of the assessee. There is no real object of the assessee and there is no spending of the income exclusively for the purpose of charitable activities and profits of the assessee are not used for charitable purpose under the terms of the object and there is no obligation on the part of the assesse to spend on 'charitable purpose' only. Also as per clause 53 of the Jammu & Kashmir Development Act, on dissolution of all properties and funds to vest in the Government and for the 46 ITA No.444(Asr)/2010 purpose of realizing properties, the function of the Authority shall be discharged by the Government. We concur with the views of the Ld. CIT on transfer of the properties, funds and dues and liabilities etc. will vest in the Govt. There is no restriction, how the same are to be utilized by the Government. There are other objects like sale and purchase, which makes the Authority a commercial organization. Therefore, in the facts and circumstances of the case, even on dissolution or winding up by not having any restriction on application of asset for charitable purpose, the objects pursued by the assessee cannot be said to be a charitable in nature.
7.7. As regards the reliance on the decisions of various courts of law by the Ld. CIT, most of the decisions have been dealt by the Tribunal in the case of M/s. Jalandhar Development Authority vs. ITO (supra). In the facts and circumstances of the present case, we concur with the views of the ld. CIT that Jammu Development Authority is an Authority established with the motive of profit constituted under the Jammu & Kashmir Development Act, 1970 and that the activities of such Authority are hit by section 2(15) of the Act read with first and second proviso and are not in line with the objects of the Authority/Trust so far as the activities relating to purchase and sale of properties, as mentioned hereinabove. Hence, the activities are not genuine to the extent, mentioned hereinabove and the Ld. CIT, Jammu, has rightly being satisfied held that the Jammu Development Authority is not entitled to registration and accordingly cancelled the registration so granted. We find no infirmity in the order of the Ld. CIT, Jammu and the same is upheld. Thus, all the grounds of the assessee are dismissed.
8. In the result, the appeal filed by the assessee in ITA No.30(Asr)/2011 is dismissed."
7. The order of this Bench in the case of 'Jammu Development Authority' (supra) has undeniably been upheld right up to the Hon'ble Supreme Court. The factum of its being confirmed by the Hon'ble High Court stands noted in the written submissions filed by the assessee also.
The ld. counsel for the assessee has reiterated these written 47 ITA No.444(Asr)/2010 submissions. The ld. DR, on the other hand, has also placed strong reliance on the impugned order and on 'Jammu Development Authority' (supra).
8. 'Jammu Development Authority' (supra), of this Bench is directly applicable to the present case. The facts in both the cases are exactly similar, as, inter-alia, follows:
Regarding both the Authorities, i.e., Srinagar Development Authority and Jammu Development Authority:
1) Established vide Jammu and Kashmir Development Act, 1970.
2) The object of the Authority is to promote and secure the development of the local area for which it is constituted
3) The power to acquire, hold, manage and dispose of land and other property, to carry out building, engineering and other operations, to execute works in connection with supply of water and electricity, disposal of sewerage and other services and amenities and generally to do anything necessary or expedient for purposes of such development and for purposes incidental thereto.
4) The Authority is a body corporate having perpetual succession and a common seal with power to acquire, hold and dispose of properties, both movable and immovable, to contract, and by the said name, sue or be sued.
5) The Authority consists of a Chairman, Vice-Chairman and seven other members appointed by the State Government.48 ITA No.444(Asr)/2010
6. The Authority is responsible for the planned development of the City, including preparation of the Master Plan of the area.
7. The State Government is authorized to entrust the Authority from time to time with any work connected with planned development and matters connected thereto.
8. Section- 19 (Chapter-Vll) of the Jammu & Kashmir Development Act, 1970 obliges the Authority to maintain its own fund to which shall be credited moneys received by the Authority from the Central or State Government by way of grants, loans, advances or otherwise, all fees, rents, charges, levies and fines received by the authority under the Act, all moneys received by the Authority from disposal of its movable or immovable assets and all moneys received by the Authority by way of loan from financial and other institutions and debentures floated for the execution of a scheme or schemes of the Authority duly approved by the State Government .
9. Unless the State Government otherwise directs, all moneys received by the Authority shall be credited to its funds which shall be kept with The Jammu and Kashmir Bank or any other bank approved by the State Government.
10. Till the Financial Year 2002-03, the income of such Authorities were exempt under section 10(20A) of the Income tax Act, 1961. However, in view of omission of sec. 10(20A) of the I.T. Act, 1961 an Explanation was added to section 10(20), which is reproduced as under:-
49 ITA No.444(Asr)/2010"Explanation:- For the purpose of this clause, the expression 'Local Authority' means-
i) Panchayat as referred to in clause (d) of article 243 of the Constitution; or
ii) Municipality as referred to in clause (e) of article 243P of the Constitution, or
iii) Municipal committee and District Board, legally entitled to, or entrusted by the Government with, the control or management of a Municipal or local fund; or
iv) Cantonment Board as defined in section 3 of the Cantonments Act, 1924 (2 of 1924)".
11. The income of a Local Authority chargeable under the head "income from house property", "Capital gains" or "Income from other sources" or from a trade or business carried on by it was earlier excluded in computing the total income of the Authority of a previous year However, in view of the amendment, with effect from April 1, 2003, the Explanation "Local Authority" was defined to include only the Authorities enumerated in the Explanation.
12. At the same time section 10(20A), which related to income of an Authority constituted in India by or under any law enacted for .the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, which, before the amendment was not included in computing the total income, was omitted.
13. Consequently, the benefit conferred by clause (20A) on such an Authority was taken away.
14. In view of the fact that section 10(20A) was omitted and an explanation was added to section 10(20) of the Income tax Act, 1961 enumerating the Authorities contemplated by section 10(20), the Authority could not claim any benefit under those provisions after April 1, 2003.
15. The benefit conferred by section 10(20A) of the Income tax Act, 1961 on the Authority up to assessment year 2002-03 has been expressly taken away and the explanation added to section 10(20) enumerates the "Local Authority".
50 ITA No.444(Asr)/201016. The Authority has claimed that its objects fall under the provisions of section 2(15) of the I T. Act, 1961 and has complied with all the eligibility criteria for grant of registration under section 12A of the Income tax Act, 1961.
17. The Authority has generated income by way of disposing of the developed lands.
18. As per clause 53 of the Jammu & Kashmir Development Act relating to dissolution of the Authority it is provided that on dissolution / winding up of the Authority, all the assets as well as liabilities will be transferred to the Government and there is no restriction as to how the same are to be utilized by the Government.
9. In 'Jammu Development Authority' (supra), this Bench held that that the facts in that case were identical to the facts as in the case of Jalandhar Development Authority; that as regards the first proviso inserted in section 2(15) of the Act, the Ld. CIT had not considered the first proviso to section 2(15) as well as the second proviso to section 2(15) while making the order for grant of registration on 30.09.2009; that therefore, the Ld. CIT was well within his power to decide the issue by his order, in view of the decision of the Hon'ble Supreme Court in the case of 'A. Distributors (Baroda) P. Ltd. vs. Union of India and Ors.', 155 ITR 120 (SC); and that therefore, in the facts and circumstances of the case and following the Tribunal order in the case of 'M/s. Jalandhar Development Authority', being on identical facts, the registration u/s 51 ITA No.444(Asr)/2010 12AA could not be granted to the assessee and the Ld. CIT had rightly cancelled the registration granted.
9.1 In that case the Tribunal concurred with the views of the Ld. CIT(A) vide para 3.2 to 6.2 of his order, that prior to insertion of these provisos, i.e., the first and the second proviso to section 2(15) of the Act, certain bodies were treated as 'charitable' on the ground of advancement of object of general public utility, that however, after the insertion of the above proviso, the advancement of any other object of general public utility shall not be a 'charitable purposes' if it involves the carrying on of :-
a) Any activity in the nature of trade, commerce or business.
b) Any activity of rendering any service in relation to any trade, commerce or business.
c) For a cess or fee or any other consideration, irrespective of the nature of use or application or retention of income from such activity, and therefore, the Institutions/Trusts/Societies which are involved in the activities in (a) (b) & (c) and whose aggregate value of the receipt of the activities referred to in the first and second proviso was more than Rs. ten lakhs in the previous year, shall not be eligible to continue with registration u/s 12A and the same was required to be withdrawn.
9.2 The Tribunal observed that the main objects of the assessee institution had been mentioned in Para 4.1. of Ld. CIT's order, that it had rightly been mentioned by the Ld. CIT in para 4.2, that till the financial 52 ITA No.444(Asr)/2010 year 2002-03, the income of such Authorities was exempt u/s 10(20A) of the Act, that however, in view of omission of section 10(20A) of the Act, an Explanation was added to section 10(20), that the income of a Local Authority, chargeable under the head 'Income from house property; or 'Capital gains', or 'Income from other sources', or from a trade or business carried on by it, was earlier excluded in computing the total income of the Authority of a previous year, however, in view of the amendment, with effect from 01.04.2003, the expression "Local Authority" was defined to include only the Authorities enumerated in the Explanation to include Panchayat, Municipal Committee and District Board and Cantonment Board, as referred in the said Explanation, that also, at the same time, section 10(20A), which related to income of an Authority constituted in India by or under any law enacted for the purpose of dealing with and satisfying the need for housing accommodation, or for the purpose of planning, development or improvement of cities, towns and villages which, before the amendment was not included in computing the total income, was omitted, that consequently, the benefit conferred by clause (20A) on such an Authority was taken away, that thus, in view of the fact that section 10(20A) was omitted and an Explanation was added to section 10(20) of the Act, enumerating the "Local Authorities" contemplated by section 10(20), the assessee could not claim any benefit under those provisions after April 1, 2003, that the assessee subsequently claimed that its objects fell under 53 ITA No.444(Asr)/2010 the provisions of section 2(15) of the Act and it had complied with all the eligibility criteria for grant of registration under section 12A of the Act, which was allowed vide order dated 30.09.2009, that It was at this juncture, that the first proviso and second proviso were added by the Finance Act, 2008 w.e.f. 01.04.2009 that therefore, after the insertion of the said proviso, any institution carrying on any activity in the nature of trade, commerce or business etc., shall not be for a charitable purpose, that as per the objects of the assessee, the main object of the assessee was to promote and secure the development of the local area and there was no charitable purpose or any activity for general public utility, that the activities of the assessee were aimed at earning profit, as it carrying on activity in the nature of trade, commerce or business, that further, the profit making by the assessee was not merely incidental, or a by -
product of the assessee, that there was no real object of the assessee and there was no spending of the income exclusively for the purpose of charitable activities and the profits of the assessee were not used for charitable purposes under the terms of the objects and there was no obligation on the part of the assesse to spend on 'charitable purpose' only, that also as per clause 53 of the Jammu & Kashmir Development Act, on dissolution, all properties and funds were to vest in the Government and for the purpose of realizing properties, the function of the Authority shall be discharged by the Government, that the Bench concurred with the view of the Ld. CIT that on transfer of the properties, 54 ITA No.444(Asr)/2010 funds and dues and liabilities, etc., would vest in the Govt. and there was no restriction, how the same were to be utilized by the Government, that there were other objects, like sale and purchase, which made the Authority a commercial organization, that therefore, in the facts and circumstances of the case, even on dissolution or winding up, by not having any restriction on application of the assets for charitable purposes, the objects pursued by the assessee could not be said to be charitable in nature, that most of the decisions relied on by the CIT had been dealt with by the Tribunal in the case of M/s. Jalandhar Development Authority vs. ITO, that the Bench concurred with the view of the ld. CIT that Jammu Development Authority was an Authority established with the motive of profit, constituted under the Jammu & Kashmir Development Act, 1970 and that the activities of such Authority were hit by section 2(15) of the Act, read with its first and second provisos and its activities were not in line with the objects of the Authority/Trust, so far as the activities relating to purchase and sale of properties, and that hence, the activities were not genuine to the said extent, and the Ld. CIT, Jammu, had rightly been satisfied that the Jammu Development Authority was not entitled to registration and had accordingly, rightly cancelled the registration granted.
10. 'Jammu Development Authority' (supra), as noted, has been upheld upto the Hon'ble Supreme Court. The arguments of the assessee before us, in the present case, stand effectively considered and met in 55 ITA No.444(Asr)/2010 'Jammu Development Authority' (supra). Too, the case laws relied on, as against 'Jammu Development Authority' (supra), are not applicable.
Since 'Jammu Development Authority' (supra) concerns an Authority created under the Jammu and Kashmir Development Act, 1970, which statute is also the Mother Statute of the present assessee/Authority, and the Tribunal decision in the case of 'Jammu Development Authority' has been confirmed upto the Hon'ble Supreme Court, reliance by the assessee on the Tribunal decisions in the cases of various other development Authorities is of no avail to it. For the same reason, the decision of the Hon'ble Punjab & Haryana High Court, which concerns an Improvement Trust and not any Development Authority like the assessee, is even further off course.
11. The order under appeal is thus confirmed and we hold that the assessee has rightly been held as not entitled to registration under the Act. The assessee's grievance is without any merit and it is rejected as such.
12. In the result, the appeal is dismissed.
Order pronounced in the open court on 25/07/ 2016.
Sd/- Sd/-
(T.S. KAPOOR) (A.D. JAIN)
ACCOUNTANT MEMBER JUDICIAL MEMBER
/SKR/
Dated: 25/07/2016
Copy of the order forwarded to:
1. The Assessee:M/s. Srinagar Development Authority
2. The C.I.T. Jmmu
3. The SR DR, ITAT, Amritsar.
True copy 56 ITA No.444(Asr)/2010 By order Income Tax Appellate Tribunal, Amritsar Bench: Amritsar.