Income Tax Appellate Tribunal - Indore
M.P. Road Development Corporation ... vs Assessee on 11 January, 2010
1
IN THE INCOME TAX APPELLATE TRIBUNAL
INDORE BENCH, INDORE
BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER
AND
SHRI R.C. SHARMA, ACCOUNTANT MEMBER
ITA No.132/Ind/2010
Under Section 12AA(1)(b)(i) of the Act
M.P. Road Development Corporation Ltd.,
Bhopal
PAN - AAHHM 4005 L ... Appellant
Vs
CIT-Bhopal ... Respondent
Appellant by : Shri Vikas Maheshwari, CA
Respondent by: Shri Arun Dewan, Sr. DR
O R D E R
PER JOGINDER SINGH, Judicial Member
This appeal is by the assessee against the order of the ld.
CIT-Bhopal, dated 11.1.2010 on the following grounds:
"1. That on the facts and in the circumstances of the case and in law it be held that the objects of the assessee are charitable within the meaning of the section 2(15) of the I.T. Act and its activities are genuine and, therefore, the ld. CIT erred in not granting registration u/s 12A/12AA of the I.T. Act. The registration as requested, therefore, be kindly directed to be granted.2
2. That on the facts and in the circumstances of the case and in law, the ld. CIT erred and not justified in his findings that the details furnished do not justified that the assessee has carried out charitable activities during the year 2008-09 and earlier years. Such findings of the ld. the ld. CIT are neither lawful nor judicious hence be quashed and it be held that the activities of the assessee and its objects are charitable in nature within the meaning of section 2(15) and, therefore, it is eligible for registration u/s 12A/12AA."
2. We have heard the rival submissions of the parties and have gone through the material available on the file. This appeal was taken up for hearing on earlier dates also. on 15.3.2011 the ld. Counsel for the department contended that the issue involved in this appeal is covered by the decision of the Tribunal in the case of Indore Development Authority vs. CIT(2010) 15 ITJ 405 (Indore). The ld. Counsel for the assessee sought time to go through the same, which was granted. Today at the time of hearing, the ld. Counsel for the assessee, Shri Vikas Maheshwari, filed written submissions by claiming that the nature of activities of the assessee is different from Indore Development Authority, therefore, separate 3 consideration is required. The crux of submissions is that the assessee solely and exclusively engaged in planning, developing and maintaining public roads for general public utility, not doing any trade or business and the income from roads is not source of income to the Government and toll charges are realised by the contractors who construct the roads.
3. On the other hand, the learned Sr. DR Shri Arun Diwan, strongly defended the impugned order by contending that no charitable activity is carried out by the assessee and a systematic business activity has been planned. The roads are constructed by the private builders and heavy toll tax is charged from the public so no charitable activity is done by the assessee.
4. We have considered the rival submissions of ld.
representatives of both sides and perused the material available on record. Before coming to any conclusion, we are reproducing hereunder the relevant portion of the order in the case of Indore Development Authority (supra) :-
4"This appeal is by the assessee against the order dated 27.6.2008 of the ld. Commissioner of Income Tax-1, Indore on the following grounds:
"1. That, on the facts and in the circumstances of the case, the ld. Commissioner of Income-tax-I, Indore grossly erred, both on merits and in law, in rejecting the application of the Appellant filed on 27.12.2007 for grant of registration to it under section 12AA of the IT Act, 1961, by holding that the appellant was not entitled for grant of such registration.
2. That, the ld. CIT grossly erred in not considering the material fact that the appellant authority was fully eligible for grant of registration u/s 12AA of the IT Act, 1961, as it being eligible had made a valid application for registration after complying with all the conditions as contemplated u/s 12AA of the IT Act, 1961.
3.a) That, without prejudice to the above, the ld. CIT grossly erred in holding that the application for grant of registration u/s 12AA filed by the appellant authority on 27.12.2007 was invalid for the only reason that such application was signed by the Chief Executive Officer (CEO) and not by the Chairman of the appellant authority.
b) That, without prejudice to the above, the ld. CIT grossly erred in not considering the material fact that the application signed by Chairman of the appellant authority having been furnished subsequently would relate back to the date of the original application.
4.a) That, without prejudice to the above, the ld. CIT grossly erred in rejecting the application of the authority on various irrelevant grounds without considering the provisions of the law that at the time of grant of registration u/s 12AA, ld. CIT has to be satisfied only about the objects of the application and genuineness of its activities.
b) That, the ld. CIT grossly erred in law in enquiring into application of income of the appellant authority for the purpose of grant of registration u/s 12AA of the IT Act, 1961 and also erred in forming an adverse view against the appellant authority on the basis of such enquiries.
c) That, the ld. CIT grossly erred in law in enquiring into sources of the income of the appellant authority for the purpose of grant of registration u/s 12AA of the IT Act, 1961 and also erred in forming an adverse view against the appellant authority on the basis of such enquiries.
5d) That, the ld. CIT also grossly erred in law in enquiring into modes of investments made by the appellant authority for the purpose of grant of registration u/s 12AA of the IT Act, 1961 and also erred in forming an adverse view against the appellant authority on the basis of such enquiries.
e) That, the ld CIT grossly erred in holding that the activities of the appellant authority are of commercial nature with profit motive and not in the nature of charity.
f) That, the ld. CIT grossly erred in not considering the material fact that all the activities carried on by the appellant authority was either for, or incidental to, attainment of its objectives and therefore no adverse inference should have been drawn on the basis of certain sales transactions entered into by it with "Reliance Industries Limited".
5. That, without prejudice to the above, the CIT grossly erred in holding that decision of the Apex Court rendered in the case of Adityapur Industrial Area Development Authority vs. Union of India & Ors., reported in 283 ITR 97 (SC) squarely applies to the issues in question of taxability of income of the appellant authority.
6. That, without prejudice to the above, the ld. CIT grossly erred in not considering the material fact that the appellant being a statutory authority was carrying on its activities for charitable purposes, as defined under clause (15) of sec. 2 of the IT Act, 1961 and, therefore, it was eligible for grant of registration u/s 12AA."
2. During hearing of this appeal, we have heard Shri P.M. Choudhary along with Shri Anil Kamal Garg, ld. Counsel for the assessee and Shri Girish Dave, ld. CCIT, DR. We find that the grounds raised by the assessee are argumentative in nature, therefore, these are summarized as under:-
1. Whether the ld. CIT is correct in treating application signed by CEO as invalid on the ground that the CEO was not competent to sign the application for registration. and further whether the ld. CIT is also right in coming into conclusion that the fresh application duly signed by Chairman of IDA filed on 19/06/2008 does not cure the defect (if any) in the original application and such filing of fresh application would not relate back to the date of 6 original application? (Relevant Grounds on this issue from above are ground nos. 3(a) & 3 (b)).
2. Whether the ld. CIT is justified in rejecting the application of the IDA for registration u/s 12A /12AA on the ground that the IDA is not entitled to such registration and also whether the activities of the assessee are in conformity with the objects "for advancement of the objects of the general public utility" within the meaning of section 2 (15) of the IT Act and whether the ld. CIT is correct in coming to a conclusion that the IDA is a commercial organization established with profit motive and only supposed to inquire about the genuineness of activities of objects of the assessee after placing reliance upon the decision in 283 ITR 97 (SC)?
(Relevant Grounds on this issue - Ground Nos. 1, 2, 4(a), 4(b), 4(c), 4(d), 4(e), 4(f), 5 & 6)
3. Now, we shall take up the summarized ground no.1 regarding the validity of application which was signed by the Chief Executive Officer (hereinafter referred to as 'CEO') of the assessee authority. The submission made by ld. Counsel for the assessee is that the ld. CIT has treated the appellant's application for registration under section 12A/12AA as invalid because the same was signed by the CEO of the IDA. According to the ld. CIT, the CEO, not being the Head of the Institution and not being the person at the helm of the affairs of the IDA, is not competent to sign application on form 10A for registration under section 12A/12AA. In this respect, the contention of the appellant is two fold. Firstly, in the absence of any specific requirement of law regarding signing of application u/s 12A/12AA by Chairman, the CEO who is the Principle Officer, being statutorily appointed Secretary of IDA, is competent to sign and file an application for registration u/s 12A/12AA on behalf of IDA and hence such application signed by CEO cannot be treated as invalid. The CEO appointed under section 46 of the Madhya Pradesh Nagar Tatha Gram Nivesh Adhiniyam, 1973, being the Secretary of the IDA, is the Principal Officer of the IDA within the meaning of section 2(35) of the Income-Tax Act, 1961 and as such CEO is competent to file an application u/s 12A/12AA of the Act for and on behalf of IDA.
4. Alternatively, it was submitted by the ld. Counsel for the assessee that assuming for the sake of argument that the 7 CEO is not competent to sign application u/s 12A/12AA, such defect regarding improper signing is merely a procedural/technical defect which stands cured with the filing of fresh application, which relates back to the date of original application (refer page 265 of paper book). Mr. Choudhary explained the position of the Chief Executive Officer in the case of the assessee by submitting that IDA is a statutory authority established under the provisions of MP Nagar Tatha Gram Nivesh Adhiniyam, 1973. Chapter VII of the Adhiniyam contains all provisions regarding establishment, administration and other provisions regarding functions of such authorities established under the Act. It also contains appointment of the Chairman and other members of the Board governing the Authority. It was explained that section 46 of the Act provides that every Town and Country Development Authority shall have a Chief Executive Officer, who shall act as the Secretary of the Authority. The CEO is appointed by the State Govt. u/s 46(2) from amongst the members of Development Authority Services belonging to State cadre or from amongst the members of the State Technical/Administrative Services. It was specifically pointed out that the CEO so appointed by State Govt. is the member Secretary of the authority (IDA) by virtue of section 40(h) of the said Act. Since, the CEO of IDA is a statutorily appointed secretary of IDA, he is the 'Principle Officer' of IDA as defined in section 2(35) of the IT Act, 1961. The question, therefore, required to be considered is whether the application for registration signed by the CEO of IDA could be held to be invalid. As already stated above, IDA is a local authority for all purposes, except for exemption u/s 10(20). A strong plea was raised that even the department has assessed IDA, as Local Authority.
In the context of position of CEO qua IDA, it was submitted that a reference may be made to the provisions of section 12A/12AA according to which, the person in receipt of income of the assessee authority is required to make an application for registration. The mode of making an application is duly prescribed in rule 17A according to which an application for registration shall be made in Form 10A. Neither the provisions of section 12A/12AA nor rule 17A lay down/prescribe any mode of signing the application. Under the circumstances, one may refer to the 8 provisions regarding signing of the Return under section 140 of the IT Act. According to sub-clause (d) of the said section, a Return of Income in case of local authority is to be signed and verified by the Principal Officer thereof. Similarly, according to sub-clause (e) a return in case of any other association is required to be signed by any member of the association or the principal officer thereof and the return in case of any other person not falling in the above clauses, is required to be signed by that person or by some person competent to act on his behalf. In the instant case, the CEO, who is the Principal Officer being the Secretary of the IDA, is competent to sign the returns on behalf of the IDA and has actually filed returns on behalf of IDA which have duly been accepted by Department and IDA has been assessed on the basis of such returns. Under the circumstances, if an application under section 12A/12AA is signed by a person who is competent to sign the return of such authority, it cannot be treated as invalid. Therefore, with this position, the ld. Counsel for the assessee submitted that the ld. CIT has clearly committed an error in treating the application signed by CEO as invalid. Moreover, although it was not required, but the Chairman of the IDA had specifically authorized the CEO to take all necessary/appropriate steps towards filing of application for registration under section 12A/12AA which would naturally include signing of the prescribed form. (Refer copy of note sheet regarding such authorization filed at Page No. 264 of the Compilation). Thus, the order of CIT dismissing application as invalid on this ground deserves to be set aside. It was pleaded that the application so filed would naturally relates back to the date of the Original Application. In support of the above contention, reliance was placed upon the following decisions:
M.P. State Agro Industries Development Corporation Limited vs. CIT reported in (1995) 53 TTJ (Ind) 262. = (82) Taxman Page 85.
CITvs. Masoneilan (I) Ltd. reported in (2000) 242 ITR page 569.
CIT Lucknow vs. Rudrabilas Kisan Sahakari Chini Mills reported in 145 Taxman page 497.
CIT vs. Hope Textiles Limited, 287 ITR page 321 (M.P.).9
Prime Securities Ltd. vs. Varinder Mehta, CIT(Inv.) Circle-I(1) reported in (2009) 182 Taxman page 221 (Bom).
It was further submitted that even with regard to signing of return, although the courts in above decisions have held that signing of return in the manner prescribed by section 140 is mandatory but the courts are of the view that after insertion of sub-section (9) in section 139, the defect regarding non- signing of the return by proper person makes the return a defective return and the return can be treated as invalid only if the defect is not cured within specified time even after grating opportunity to cure the same. The impugned order of CIT, therefore, deserves to be set aside on this issue.
5. On the other hand, Mr. Girish Dave, the ld. CCIT, DR strongly defended the impugned order and submitted that there are two aspects for consideration of the Bench on this issue, (1) first being the argument canvassed by ld counsel that neither the substantive nor the procedural provisions require signing of the application for the grant of registration under section 12AA, and (2) Second being that there is no prescription for signing by any specific person on the Form prescribed for this purpose. Consequently, it is argued that equivalent provisions contained in Section 140 of the Act should apply. An alternate submission is made that second proviso to Clause (a) of sub-section (1) of section 12A read with sub- section (2) to section 12A as inserted by the Finance Act, 2007 provides with effect from 1/06/2007 that where an application is made on or after 1/06/2007, the provisions of section 11 and 12 shall apply in relation to the income of such trust or institution from the assessment year immediately following the financial year in which such application is made. In view of these provisions it is argued that since original application is made on 27/12/2007, so registration can be granted for the financial year 2007-08 relevant for the assessment year 2008-09 and the revised application filed on 17/06/2008 should be treated as to have been filed on 27/12/2007. This argument is based on the premise that defect, if any, in the original application which is filed in time, stands cured from the date of original application.
106. Our attention was invited to the submissions dated 18th June 2008 addressed to the CIT, which are filed in its compilation at pages from 241 to 256, the assessee explained the circumstances under which Form No 10A was signed by the CEO and the duties and authority of the CEO to sign declaration under section 13 (1) (c) and (d). It was explained that in Para 2.2 (available at pages 241 to 245 of the compilation) of the said letter that it has nowhere been stated in the provisions contained in section 12A read with Rule 17A that by whom it should be signed and therefore it was argued that reference must be drawn from similar provisions in the Act. In this background, it was argued that section 140 (d) should be the guiding provision. As per section 140 and 115WD, a principal officer is required to sign and verify the return and so the CEO of the appellant- authority would be the right person to sign the Form No 10A. It is also pointed out that all the returns have been filed by the CEO in the past and cognizance of these returns has been duly taken by the department.
It is further argued that it has, on being objected by the CIT, filed fresh Form No 10A after getting it signed by the Chairman of the appellant-authority and in view of the decision of this Hon'ble Tribunal, in the case of M P State Agro Industries Ltd vs. ACIT, this is a curable irregularity and once cured, the date of filing of revised Form No 10A, would relate back to the date of filing of original application. Thus, the period for the grant of registration would be reckoned from the date of filing of the original application. The respondent ld. CIT has considered this issue at pages 1 to 4 of the order. The contention that the CEO was duly authorized as per the note-sheet submitted by and on behalf of the appellant-authority has duly been considered by the ld. CIT and found the explanation incorrect. The ld. CIT has sought to distinguish the case cited by the appellant- authority with the facts of the present case and held that the appellant-authority has not adduced any evidence as regards the authority given to the CEO, or anything explained to ld. CIT in the relevant Act concerning the duties and responsibilities of the CEO.
It was submitted that subsequent to the decision in the case of M P State Agro Industries Ltd (supra), Hon'ble High of Madhya Pradesh had an occasion to consider this issue in the case of Khialdas & sons vs. CIT reported in [1997] 94 11 Taxman 394 (MP) and affirmed the decision of Hon'ble Tribunal in the case by holding that under section 140, it is for the assessee to sign and verify the return. Hon'ble Court further held that section 140 clearly contemplates that all categories of returns have to be duly signed and verified by a person and if it is not duly signed and verified then it cannot be treated to be a return in the eyes of law. That being the position, if return is filed without signature and verification, it will have to be an invalid return. Hon'ble Court also made its observations in the context of section 292B and held that only minor defect does not militate against the intent and purpose of the Act.
In this regard, our attention was invited to the decision of Hon'ble High Court of Calcutta in the case of National Insurance Co Ltd vs. CIT reported in [1994] 72 Taxman 161 (Cal) and of Hon'ble Supreme Court in the case of CIT vs. Sir Keshab Chandra Mandal reported in [(1950) 18 ITR 569 (SC).
7. It was further submitted that a finding of fact has been recorded by the ld. CIT that the assessee has not furnished any evidence that the CEO is the "principal officer" of the authority. Mentioning of sections 38, 40, 46 and 47 of the Adhiniyam in its submissions available at pages from 243 - 244 of the compilation may not help the assessee. It was further explained that even section 38 does not come to the aid of the authority's claim. Section 40 of the Adhiniyam provides the constitution of the authority wherein the CEO is said to be member-secretary. In this section, chairman appears to be the principal officer. Section 46 makes the CEO as secretary who shall be appointed from amongst the members of the Development Authority Services belonging to the State cadre from among the members of the State Technical/Administrative Services, if necessary. Section 47 also does not help the case of the authority. However, if one looks at pages 87, 90, 91, 93, 94, 95, 96, 97 of the compilation, it would reveal that only reference to the CEO is available at page 98 and in respect of all other references, it is either Director, Town Planning or Secretary to State Government, or Chairman of the authority, or the authority itself. Only at page 98, reference to CEO is made. This also explains the position of CEO as not being the Principal Officer of the appellant-authority.
12The argument that CEO has filed returns in the past and those returns have been acted upon is no argument as one invalid action acted upon cannot validate invalidity.
8. The ld. CCIT/DR explained as to who can file the application under section 12A?
Crucial aspect of the matter is that section 12A begins with the phrase "The provisions of section 11 and section 12 shall not apply in relation to the income of any trust or institution unless the following conditions are fulfilled, namely:-
(a) the person in receipt of the income has made an application for registration of the trust or institution in the prescribed form and in the prescribed manner to the commissioner-------------."
Therefore at the threshold stage itself there is a requirement that such a person can claim exemption only when the recipient of the income makes an application to the Commissioner. Even if the rules made there under do not provide who should sign the application, it is evident from the substantive provisions that the person recipient of the income alone can make such application if it has to claim exemption under section 11 and 12 of the Act. If a person other than the said person files application for registration under section 12A, it shall be infirm and invalid in law. If one looks at the provisions of the Adhiniyam which fact has been demonstrated clearly by the revenue by pointing out relevant provisions of the Adhiniyam, the rules framed there under as well various forms prescribed under the Adhiniyam, it is the "Chairman of the Authority" alone who can be said to be the person in receipt of income. Therefore any application filed by a person other than the Chairman of the Authority would suffer from illegality and not irregularity. This circumstance can not be equated with the filing of the returns and consequent assessments completed by the assessing officer. The defect of this nature can not be cured and the revised application filed on 17/06/2008 can not take effect from the date of original application filed on 27/12/2007.
It was submitted that the assessee authority filed a revised from on 19th June 2008 duly signed by the Chairman of the authority and this date would fall in the financial year 2008- 09 and with this reckoning, it would enable the authority to claim registration in relation to assessment year 2009-10. In 13 view of the amendment in the definition of "Charitable Purpose", in clause (15) of section (2) of the Act, it would not be entitled to exemption sought for by it, even if registration is granted to it.
Further, the alternate contention is otherwise not admissible for the reason that the amendment in this regard has been brought for different reasons and a person coming to the altar of justice can not be allowed to take advantage of his own wrong. The amendments were inserted for remedying certain mischief and to harmonize these provisions and not to benefit those persons who wish to take advantage of unintended implications. Even otherwise as already submitted, the revised application should take effect from the date when it was filed and not from the date of original application.
9. During the course of the arguments, the ld. CCIT/DR posed a question to himself, Whether the quantum of income be permitted to be the determinative factor for the status of the appellant-authority?
In response to the aforementioned self raised question, the ld. Counsel for the assessee explained that the assessee authority is in existence since May 1977. It was enjoying exemption from income tax under section 10(20A) of the I T Act, 1961 on its income. Clause (20A) of section 10 was omitted from the statute by the Finance Act, 2002 with effect from 1st April 2003 relatable to assessment year 2003-
04. From the said assessment year, that is, 2003-04 onwards, it started filing its returns of income and paid taxes on the income returned for these years. Assessments for assessment years 2003-04, 2004-05, 2005-06 and 2006-07 have already been completed which are placed in the paper book filed by the department. The appellant-authority filed appeals for these years and ld. CIT(Appeals) have after hearing the appellant-authority passed appellate orders in respect of assessment years 2003-04, 2004-05 and 2005-06. The assessment year-wise position of status claimed, income returned, status in which assessment made, nature and amount of addition made to the returned income, income assessed, date of assessment order and revised income consequent to appellate order of the ld CIT(Appeal) is given at page of (5) of the 'impugned' order under section 12AA of the Act passed by the respondent.
14It shall be interesting to find that the appellant-authority preferred application under section 12AA of the Act only after a notice under section 210(3) was issued to it for deposit of advance tax on 11th December 2007 on the basis of calculation of its liability towards advance tax indicated in the said notice and on the basis of information whereby the department came to note that it had sold a commercial plot in a prime location adjacent to Sayaji Hotel for a consideration of about Rs 270 Crores. The appellant- authority replied to the notice on 14th December 2007 objecting to the notice and filed Form No 28B on the same date estimating its income at Rs 2, 78, 00, 000/- and tax payable thereon at Rs 93, 92, 570/-. In this estimate, it indicated its liability towards tax at Rs 63, 92, 570/- after deducting Rs 30, 00, 000/- towards prepaid taxes, such as TDS and further reduction of Rs 40, 00, 000/- paid by way of advance tax. The balance liability was shown at Rs 23, 92, 570/- as against the demand of Rs 90, 88, 06, 287/- worked out by the department. It also informed the department that it is examining the possibility of registration under section 12AA of the Act.
It was only on 27th December 2007 that the appellant- authority chose to file an application under section 12AA of the Act. In its explanation, it has stated that it was under the bonafide ignorance of the possible fall out of the omission of clause (20A) of section 10. It has further stated that there was bonafide ignorance of other sections 11and 12 and therefore the necessity of making an application for registration under section 12A was never felt. One would wonder as to the correctness and truthfulness of this explanation as from the conduct of the appellant- authority, it is clear that from assessment year 2003-04 onwards, it started filing its return of income and it was this period when the effect of the omission of clause (20A) of section 10 commenced. It was also clear from the amendments that certain authority which was claiming exemption under the said clause were included in the amended clause (20) of section 10 by the same Finance Act with effect from 1st April 2003.
Knowing fully well that with the amendment in law by the Finance Act, 2007, it was not open for it to make an application under clause 12A (1) (a), it sought to make such an application under clause (aa) of the said section though it 15 knew that this provision would allow it an exemption only for one assessment year, that is, assessment year 2008-09. From the next assessment year 2009-10, section 2(15) has further been amended so as to exclude such entities who are engaged in trade, commerce or business from exemption under section 11of the Act.
10.At page 231 of its compilation, the appellant-authority has enclosed a copy of the letter dated 3rd June 2008 addressed to the respondent-CIT. In this letter, inter alia, it has sought to explain the reasons for the delay in filing application for registration under section 12AA and excerpts from Para 2.2 of this letter is reproduced hereunder:
"It was only after a serious thought given to the issue that the applicant-authority came out of the aforesaid bonafide ignorance of the relevant legal provisions and this transformation arose after an opinion in that behalf was sought from our present representative Shri Anil Garg, FCA. He, after going through the judicial pronouncements from various benches of income-Tax Appellate Tribunals and also authoritative decisions from higher judiciary i.e. from the Hon High Courts and the Apex Court, apprised this applicant-authority of the correct legal position about the eligibility of exemption u/ss 11and 12, as aforesaid. It was on receipt of such an opinion that the subject application was submitted on 27-12-2007."
It was further submitted that there is no evidence led for such a situation existing nor has it been affirmed by any responsible /authorized person. It is a fact that after withdrawal of exemption in Clause (20) and (20A) by the amendments brought out by the Finance Act, 2002, a number of such entities made application for the grant of registration under section 12AA on the basis of some statement made by the then Finance Minister but were denied registration by the department, Appeals filed by such entities before various benches of the Hon'ble Tribunal decided such appeals on the merits of the matter. Therefore to argue that the appellant-authority was ignorant of the effect of changes by the Finance Act, 2002 is unbelievable. In fact, appellant-authority is under the guidance, instructions and advice of a chartered accountant from so many years and it is rather unbelievable that it is only after the issue of notice under section 210(3) of the Act for the 16 payment of advance tax that the appellant-authority woke from slumber. Moreover, Shri Anil Garg C.A has also been advising the appellant-authority much before the filing of application on 26-12-2007. This fact can be noticed from his appearance before ld. CIT(A) in relation to appellate proceedings for assessment year 2003-04 onwards. Shri Garg was aware of the fact that in the past, the appellant- authority was claiming exemption under clause (20) of section 10 as can be noticed from orders of ld. CIT(A). Thus, this explanation is completely untrue. In fact, by such a conduct the appellant-authority cannot be said to be coming with clean hands before this honorable forum. How can a responsible organization of this nature that is entrusted with the development of a vast city plead that it was ignorant of law, particularly when it was enjoying exemption under section 10(20A) and that exemption was withdrawn. Consequent to this amendment, the appellant-authority started filing returns of income for succeeding years and paid taxes thereon. It was only when the liability increased to a substantial extent that it sought to object for the imposition and attempted to seek exemption by filing application for registration under section 12AA. Such an action on its part suggests that till the extent of income was up to a particular level, it never thought that it can claim exemption or should file an application under section 12AA, but when income rose to a substantially high level with the sale of big chunk of land on a purely commercial basis, it was reminded of exemption which it may like to claim.
11.We have considered the rival submissions of ld. representatives of both sides on the issue of validity of signing of application for grant of registration u/s 12A/12AA of the Act by the CEO. We have also perused the material available on the file. Brief facts are that the appellant Indore Development Authority (hereinafter referred to as "IDA") is a statutory authority established by the Government of MP in exercise of its powers conferred under section 38(1) of the Madhya Pradesh Nagar Tatha Gram Nivesh Adhiniyam, 1973( Act No. 23 of 1973) vide Notification No. 1668-XXXII-77, w.e.f. 13th May, 1977 for the area comprised within the Indore Planning Area as specified in the prior notification issued by Town & Country Planning Department as referred to in the above Notification (Copy of Notification regarding establishment of the 17 authority has already been filed in the Paper Book compilation at Page No. 4 Annexure A-1.02). The IDA applied for a registration u/s 12A/12AA of the IT Act, 1961 vide its application filed in prescribed Form 10A on 26/12/2007, before the Commissioner of Income Tax-1, Indore. The application for registration was filed in view of the fact that the appellant came to know that the Chief Ministers of some of the states had requested the then Finance Minister, Govt. of India to withdraw the amendment regarding withdrawal of exemption to development authorities whose income was exempted as local authorities till AY 2002-03.
But the Finance Minister in his letter addressed to the Chief Minister, UP had advised that such authorities could claim exemption u/s 11 of the Act. The application was, therefore, filed on the ground that the IDA is entitled to registration as a charitable institution as the objects for which it has been established under the provisions of Nagar Tatha Gram Nivesh Adhiniyam, fall with the wider connotation of expression 'the advancement of any other object of general public utility' and constitute charitable purpose as defined in section 2(15) and consequently activities of IDA constitute activities for charitable purpose as defined in the said section for which our attention was drawn to documents Sr. Nos. 1 to 3 & Page Nos. 4 to 99 of the Paper Book compilation - copies of application in Form 10A along with the papers and documents filed before the CIT. The assessee filed the following documents before the ld. CIT along with the application:
i) Copy of Bare Act of 'The Madhya Pradesh Tatha Gram Nivesh Adhiniyam, 1973' i.e. the Act under which the authority was constituted.
ii) Copy of Notification regarding establishment of the authority.
iii) List of Members of the Board of the authority.
iv) Declarations u/s 13 (1)(c) & 13 (1) (d) of the IT Act.
v) A note on the activities of the authority.
vi) A note on admissibility of the application and eligibility of IDA to get registration u/s 12A / 12AA.
In the note appended to the application, the appellant enumerated various activities undertaken by it for the development of the planning area within its jurisdiction so as to show that the object of the establishment of the authority 18 is that of advancement of the object of general public utility, which falls within the definition of the word 'charitable purpose' as scribed to in section 2(15). It was also emphasized that the authority being a statutory authority there cannot be any doubt about the genuineness of its activity. (Refer Page No. 8 to 13 and Page No. 14 to 30 of the compilation)
12.The aforesaid application along with annexures/documents was followed by letter dated 24.3.2008 (Page No. 223 of compilation) and a further letter dated 28/04/2008 requesting the ld CIT to dispose off the application at an early date in light of the latest decision of the Apex Court in the case of CIT Vs Gujrat Maritime Board reported in (2008) 214 CTR (SC) 81 (Refer Page No 224 to 226 of the compilation).
1) The appellant received notice dated 30/05/2008 from the office of ld. CIT requiring to explain certain points (Refer Page No 227 & 228 of compilation).
2) The above letter was replied by the appellant vide reply dated 03/06/2008 Point wise reply given to the query letter (Refer Page No. 230 to 240 of compilation). Copy of Audited Financial Statements and copy of Audit Report in prescribed Form No. 10B for last three financial years were also submitted along with the letter (Refer Page No. 100 to 210 & 211 to 222 of our compilation).
3) Thereafter, a second query vide letter dated 13.6.2008 was issued by ld. CIT asking the assessee to submit its reply on various queries again and also signing of application in Form No.10A by CEO along with question of delay in filing the application was raised (Refer page 229 of compilation). In response to the same, the assessee filed a detailed reply dated 18.6.2008 and explained that CEO being the Principal officer of the authority is competent to filed application for registration u/s 12AA.Copy of note sheet authorizing CEO to take action for registration u/s 12A / 12AA filed with the reply (Refer Page No. 264 of Compilation). Also explained that no retrospective benefit is claimed and in view of the amended provisions of section 12AA and the applicant, if registered, would qualify for exemption only w.e.f. AY 2008-09 and not prior to that . Other points also replied in details. (Refer Page No 241 to 256 of Compilation). Along with this letter , a fresh application in Form 10A duly signed by the Chairman of the IDA was also filed (Refer Page No. 19 265 of Compilation) to avoid any technical controversy with the submission that the defect, if any, would stand cured and would relate back to the date of original application. Reliance was placed on the decision of ITAT, Indore Bench in the case of MP State Agro Industries Ltd Vs CIT reported in (1995) 53 TTJ (Ind) 262 (Refer Page No. 243 of Compilation).
4) Vide letter dated 24/06/2008, certain further information was furnished by appellant in consequence of the queries made during the course of the hearing on 19/06/2008. The said letter was followed by additional submission dated 26/06/2008 (Refer Page No. 257 to 261 & 262 to 263).
13.The ld. CIT, Indore vide impugned order dated 27.6.2008 refused registration u/s 12A/12AA to the assessee mainly on the following grounds:
(i) According to ld. CIT application signed by CEO was invalid in law because CEO, not being the head of the institution at the helm of the affairs of the institution, was not competent to sign the Form No. 10A i.e. application for registration u/s 12A/12AA. (Relevant observation and findings on this issue from Page No. 1 to 4 of the impugned order).
(ii) On merits, ld. CIT came to the conclusion that since the activities of IDA are conducted in a commercial manner with prime intention of earning profits, IDA is essentially a business organization created by notification and its activities cannot be said to be the activities towards the object of advancement of the general public utility.
14.If the totality of the facts are analysed, we have found that the ld. CIT treated the application for registration as invalid because the same was signed by CEO of the assessee. According to the ld. CIT, the CEO, not being the head of the institution and also not being the person at the helm of the affairs of the IDA is not competent to sign application on Form No.10A for getting registration u/s 12A/12AA of the Act. In this respect, the contention of the appellant is two fold. Firstly, the appellant desires to contend that in absence of any specific requirement of law regarding signing of application u/s 12A/12AA by Chairman, the CEO who is the principle officer, being statutorily appointed Secretary of IDA, is competent to sign and file an 20 application for registration u/s 12A/12AA on behalf of IDA and hence such application signed by CEO cannot be treated as invalid. Chief Executive Officer, appointed under section 46 of the Madhya Pradesh Nagar Tatha Gram Nivesh Adhiniyam, 1973, being the Secretary of the IDA, is the "Principal Officer" of the IDA within the meaning of section 2(35) of the Income-Tax Act, 1961 and as such CEO is competent to file an application 12A/12AA for and on behalf of IDA.
Alternatively, the ld. Counsel for the assessee submitted that assuming for the sake of argument that the CEO is not competent to sign application u/s 12A/12AA, such defect regarding improper signing is merely a procedural/ technical defect which stands cured with the filing of fresh application, which relates back to the date of original application.
Position of CEO qua IDA was explained as under:
As stated earlier, IDA is a statutory authority established under the provisions of MP Nagar Tatha Gram Nivesh Adhiniyam, 1973. Chapter VII of the Adhiniyam contains all provisions regarding establishment, administration and other provisions regarding function of such authorities established under the Act. It also contains appointment of the Chairman and other members of the Board governing the Authority. Section 46 of the Act provides that every Town and Country Development Authority shall have a Chief Executive Officer, who shall act as the Secretary of the Authority. The CEO is appointed by the State Govt. u/s 46(2) from amongst the members of Development Authority Service belonging to State cadre or from amongst the members of the State Technical/Administrative Services. It would also be pertinent to note that and the CEO so appointed by state Govt. is the member Secretary of the authority (IDA) by virtue of section 40(h) of the said Act. Since, the CEO of IDA is a statutorily appointed secretary of IDA, he is a 'Principle Officer' of IDA as defined in section 2(35) of the IT Act, 1961. The question, therefore, required to be considered is whether the application for registration signed by the 'Principle Officer' of IDA could be held to be invalid. As already stated above, IDA is a local authority for all purposes, except for exemption u/s 10(20). Admittedly, even department has assessed IDA, as Local Authority.21
In the context of position of CEO qua IDA, a reference may be made to the provisions of section 12A/12AA according to which, the person in receipt of income is required to make an application for registration. The mode of making an application is duly prescribed in rule 17A according to which an application for registration shall be made in form 10A. Neither the provisions of section 12A/12AA nor rule 17A lay down/prescribe any mode of signing the application. Under the circumstances, one may refer to the provisions regarding signing of the Return enjoined under section 140 of the IT Act. According to sub- clause (d) of the said section, a Return of Income in case of local authority is to be signed and verified by the principal officer thereof. Similarly, according to sub-clause (e) a return in case of any other association is required to be signed by any member of the association or the principal officer thereof. And, return in case of any other person not falling in the above clauses, is required to be signed by that person or by some person competent to act on his behalf. In the instant case, the CEO, who is the principal officer being the Secretary of the IDA, is competent to sign the Returns on behalf of the IDA and has actually filed returns on behalf of IDA which have duly been accepted by Department and IDA has been assessed on the basis of such returns. Under the circumstances, if an application under section 12A/12AA is signed by a person who is competent to sign the Return of such authority, cannot be treated as invalid. With this legal position, it was argued that the ld. CIT has clearly committed an error in treating the application signed by CEO as invalid. Moreover, the Chairman of the IDA had specifically authorized the CEO to take all necessary/ appropriate steps towards application for registration under section 12A/12AA which would naturally include signing of the prescribed form. (Refer copy of note sheet regarding such authorization filed at Page No. 264 of the Compilation). Thus, the order of ld. CIT dismissing application as invalid on this ground deserves to be set aside. In the alternative, it is submitted that assuming without admitting that the CEO was not competent to sign the application for registration, such a defect in signing the application, in absence of any statutory provision prescribing the mode for signing such application, would only be a procedural/ technical and a curable defect, which 22 stands cured immediately on filing a fresh application duly signed by proper person (Chairman in this case) (Refer Page No. 265 of the Compilation). In the instant case, although the appellant, during the course of proceedings, has filed such application duly signed by Chairman of IDA, the ld. CIT has treated the application filed de-novo on 19-06- 2009.
The fresh application has been filed to avoid any controversy on the issue but without prejudice to the contention that application originally filed is proper since, the applicant has filed another application duly signed by the Chairman of the IDA, according to the applicant, the defect, if any, regarding signature stands cured. The application so filed would naturally relate back to the date of the Original Application.
15.We would like to analyse the issue with the help of certain cases. In the case of M.P. Agro Industries Development Corpn. Ltd. vs. CIT(supra), there was a defect regarding signing of revised return. It was held to be curable defect by the bench by further holding that filing of such return goes to cure the irregularity and would relate back to the date on which the returns were originally filed (pages 197 to 201, relevant observation in para 8 & 13 of the order
- 53 TTJ (Ind) 262: 82 Taxman 85). In the case of CIT vs. Massoneilan (I) Ltd. (supra) and CITvs. Rudra Vilas Kisan Sahakari Chini Mills (supra), the returns were signed by the agent of the society, the same was treated as valid return by placing reliance upon the definition of the word "Principal Officer" in sec. 2(35). In another case of CITvs. Hope Textiles Ltd. (287 ITR 321) (MP), wherein in the light of Rule 45 r.w.s. 140 of the Act, it was held to be directory and not mandatory, therefore, the Hon'ble jurisdictional High Court affirmed the decision of the Tribunal in remanding the case to ld. CIT for giving opportunity to the assessee to sign memo of appeal in confirmation with Rule 45 r.w.s. 140.
The Hon'ble Court held that such requirement is only directory requiring grant of an opportunity to get proper signature. In view of this fact, we are not in agreement with the conclusion of the ld. CIT that signing of application only by the Chairman is mandatory especially when it was duly signed by the CEO of the assessee who is also member secretary to Indore Development Authority (in short IDA). Even otherwise, the returns filed by IDA and duly signed by 23 the CEO were accepted without raising any objection, therefore, we are of the considered opinion that the application for grant of registration u/s 12A/12AA cannot be said to be invalid. It is pertinent to mention here that instead of granting an opportunity to cure the defect, the ld. CIT did not take on record the duly signed application by the Chairman from the date of original application. Thus, the decision of the CIT is contrary to ratio laid down by Hon'ble jurisdictional High Court in CIT vs. Hope Textiles Ltd. (supra). Even otherwise, the ld. CIT ought to have treated the fresh application as valid when the defect, if any, was cured by the assessee. In order that a person can be said to be a "Principal Officer" as defied u/s 2 (35) (b), two ingredients must be satisfied (i) that he must be a person connected with the management or administration with the assessee and (ii) the ITO must have served upon him a notice of his intention for treating him as "Principal Officer". The satisfaction of any of two conditions or ingredients will not attract this clause. In the present appeal, since the department accepted the returns/other documents, signed by the CEO, therefore, the department is not permitted to take a reverse stand on the application filed for getting registration u/s 12A/12AA. If the scheme of the Act of the IDA is analysed, the first part of the Act relates to appointment of Planning Authorities. Chapter two containing sec. 3 contemplates appointment of an officer to be a Director, Town & Country Development Planning and sec. 46 provides that every Town & Country Development Authority shall have a CEO who shall act as secretary of such authority.
16.As per sec. 140, signing and verification of return is mandatory, therefore, if a return is filed without signature and verification, it will have to be treated as an invalid return as was held by Hon'ble jurisdictional High Court in Khaildas & Sons vs. CIT (225 ITR 960) (MP). The Hon'ble Allahabad High Court in Dhampur Sugar Mills Ltd. vs. CIT(90 ITR 236) even went to the extent that return in applicable form is not invalid whereas the Hon'ble Calcutta High Court in National Insurance Co. Ltd. vs. CIT(72 Taxman 161) held that non-removal of defect within time allowed will invalided such return. The Hon'ble P & H High Court in Hind Samachar Ltd. vs. Union of India (169 Taxman 302) held that where return of income filed by the 24 company and is signed and verified by the person other than authorized shall be treated as defective which shall be amenable to the provisions of sec. 292B and sec. 139(9). The assessing authority in such circumstances shall provide an opportunity to the assessee to rectify the defect u/s 139(9) before treating the same to be invalid and non-est. In the present appeal, even an application duly signed by the Chairman was filed by the assessee, therefore, on this ground, it can be said that in view of the ratio laid down in the aforesaid decision, though on validity of return, the ld. CIT is not justified to reject the application. The Hon'ble Apex Court in the case of Narendra Kr. J. Modi vs. CIT(105 ITR 109) (SC) clearly held that return of HUF can be signed by junior member. The Hon'ble Calcutta High Court in Sri Sri Sridhar Jiew vs. ITO (63 ITR 192) held that the concept of a Hindu deity is such that it must be taken that the signature of the shebait is the signature of the deity itself. Even otherwise, there is no specific requirement under the Act for signing the application u/s 12A/12AA that it can only be signed by the Chairman. Since the CEO, being statutorily appointed secretary of the IDA, is a "Principal Officer", therefore, very much competent to sign and file an application for registration u/s 12A/12AA on behalf of the IDA, hence, such application, signed by the CEO, cannot be treated as invalid. CEO, appointed u/s 46 of Madhya Pradesh Nagar Tatha Gram Nivesh Adhiniyam, 1993, being the secretary of the IDA, is the Principal Officer of the IDA within the meaning of sec. 2 (35) of the I.T. Act, 1962 and as such, CEO is competent to sign an application for and on behalf of IDA. We have already discussed the position of CEO qua IDA in para no.14 (supra) of this order wherein CEO is appointed by state govt. u/s 46(2) from amongst the members of Development Authority Services belonging to state cadre or from amongst the members of the state technical/administrative services and such CEO is appointed by virtue of sec. 40 (h) of the said Act. Since CEO is statutorily appointed secretary of IDA, he is a "Principal Officer", the requirement of sec. 2(35) of the I.T. Act is fulfilled. Even otherwise, the department has assessed IDA as local authority except for exemption u/s 10(20) of the Act. The mode of making an application is prescribed in Rule 17A, according to which, an application for registration shall be made in Form 10A. Section 12A/12AA does not 25 prescribe any mode of signing the application. Under these circumstances, one may refer to the provisions for signing of return enjoined u/s 140 of the Act. As mentioned earlier, the returns signed by the CEO were duly assessed and accepted by the department, therefore, for signing application u/s 12A/12AA by a person/authority who is competent to sign a return of such authority cannot be said to be invalid. Moreover, the Chairman of IDA has specifically authorized the CEO to take necessary/appropriate steps towards application for registration u/s 12A/12AA which would naturally include signing of prescribed form (Refer copy of note-sheet for such authorization page 264 of compilation), therefore, the order of the ld. CIT dismissing the application as invalid, on this ground, is not justified. During hearing, an alternative plea was raised by the ld. Counsel for the assessee that for curable defect, if any, a duly signed application by the Chairman (page 265 of the compilation) was filed by the assessee during the course of proceedings itself, therefore, the defect was cured and such application should have been treated as date back to the original application, therefore, this ground of the assessee is allowed.
17.Now, we shall take up the next ground which relates to denying registration u/s 12A/12AA. The submissions made on behalf of the assessee are that since the exemption under ss. 10(20)/10(20A) of the Act stands withdrawn w.e.f. from AY 2003-04, the appellant has flied an application u/s 12A/12AA of the IT Act for registration as a charitable institution. The IDA is a successor to the Indore Improvement Trust which was established under the Town Improvement Trust Act, which has been repealed with the coming into force of the MP Nagar Tatha Gram Nivesh Adhiniyam, 1973 by virtue of section 87. Thus, there is a statutory legal obligation upon the authority constituted/established under the said provision to carry on the activities in accordance with Act. The registration, if allowed, would entitle the appellant to claim exemption under ss. 11 & 12 in respect of its income subject to the conditions of the said section. Section 12A provides that provisions of sec.11&12 will not apply unless the person in receipt of income has made an application for registration of the trust or institution and such trust or institution is registered u/s 12AA. Section 12AA lays down procedure for registration and requires the ld. CIT to examine the 26 genuineness of the activities of the trust /institution and its objects. The institution is thus required to satisfy that its activities are wholly for charitable or religious purposes.
18.It was explained that the expression "Charitable Purpose"
has been defined in section 2(15) which is as under: -
(15) 55"charitable purpose"56includes relief of the poor, education , medical relief, 57[preservation of environment (including 56 watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest,] and the advancement of any other 56object 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;] The appellant submitted that the expression "any other object of general public utility" has been subject matter of judicial debate in many judicial pronouncements and the Hon'ble courts have interpreted the said expression in the widest manner. Any object that promotes social/ general welfare as against welfare/gain to a particular person carrying on the activity has been considered as an object that advances objects of general public utility. Recently statutory authorities who are created for general welfare as a whole have also been held to be eligible for registration u/s 12A/12AA. In the context of the said decisions for considering the question whether IDA is entitled to registration or not , it is necessary to find out the object of its activities i.e. whether its activities are aimed at general public utility or not. The ld. Counsel for the assessee submitted that the object of any institution can be found only from the document under which it is created / established. In case of any statutory authority, the legislation under which such authority has been established/created would determine the object of activities of such authority. In the instant case, since the IDA has been established by Govt. of MP in exercise of its powers under the provisions of MP Nagar Tatha Gram Nivesh Adhiniyam, 1973, the object of that Adhiniyam would determine the object of activities of IDA. Scheme of the said Act was explained as under:27
(1) The IDA is a statutory authority established/created by the Government of Madhya Pradesh in exercise of its powers under section 38 of the Madhya Pradesh Nagar Tatha Gram Nivesh Adhiniyam, 1973. According to the applicant, the object of establishment of the IDA is advancement of the causes of general public utility. In this respect, the appellant has already placed on record a detailed note on the various activities undertaken by it IDA (Refer Page No. 8 to 13) along with a detailed note on the admissibility of its claim regarding grant of registration under section 12A/12AA (Refer Page No. 14 to 30). For determining the object for which the institution has been established/created, a reference was made to the preamble of the statute which has been reproduced at Page No. 14 of the compilation (Also given at top of the Page No. 31 of the Compilation). The Act namely, the Madhya Pradesh Nagar tatha Gram Nivesh Adhiniyam has been enacted by the State of Madhya Pradesh for making a provision for planning and development and use of land; to make better provisions for preparation of development plans and zoning plans with a view to ensuring that town planning schemes are made in proper manner and their execution is made effective, to constitute Town and Country Planning Authority for Proper implementation of town and country development plan, to provide for the development and administration of Special Area Development Authority, to make a provision for compulsory acquisition of land required for the purpose of the development plans and for purpose connected with the matters aforesaid. (2) A perusal of the preamble of the Act, thus, would go to show that the Act has been enacted by the legislature of the State of Madhya Pradesh to secure planned, systematic and overall development of different areas within the State by specifying the land use with the help of preparation of regional, zoning and other plans. The first part of the Act contemplates constituting town planning authorities, who are entrusted with the duty to prepare development plans for the respective Ares within their jurisdiction, determination and specification of the land use for different purposes in the said areas and other part of the Act contemplates establishment of the Town and Country Development Authorities for different areas, who are under a duty to implement the plans prepared by the Planning Authority 28 appointed under the Act by preparing schemes for development of the area. The very object of the statue is thus, securing planned, systematic and overall development of various areas of the state by preparation of plans and then implementing through the Development Authorities. The provisions of the Act, if analyzed, in the light of the preamble of the statute, it would be clear that the Act has been enacted in pursuance of the directive principles of the State Policy as enshrined in Article 38 and 39 of the Constitution of India which requires State to strive to promote the welfare of people.
(3) The directive principles of State Policy contemplate a welfare state. This Act has been legislated by the legislature of the State of Madhya Pradesh in exercise of its legislative power available to it under Entry No.5 of List II of the Seventh Schedule to the Constitution of India. The object of the enactment is to secure planned and systematic development of the areas. From the preamble of the Statute or even from the reading of the provisions of the Act, no one can say that the intention of the State of Madhya Pradesh in legislating this law is to carry on the real estate business like a private builder. In any event surplus arising to various Authorities constituted under the legislation is necessarily required to be deployed for its objects only and no part of the surplus can be distributed to any person or agency by way of profit or dividend. The ld. Counsel for the assessee took us to the provisions of the Act of the IDA by explaining the relevant section, which will be discussed while disposing of the issue. It was further submitted that the analysis of the Act and the provisions regarding constitution of the town and country development authority would enable this Hon'ble Tribunal to appreciate the object of the legislation and the object with which the authority has been established.
It would be clear that the object of the legislation is only advancement of general public utility. The act aims at welfare of the public as a whole by planned development of cities, towns etc, by allocating land for various purposes.
19.It was submitted that the aim of the assessee is to determine the land use for overall development in the interest of general public. The object of legislation is not to carry on any activity in the nature of real estate business as alleged by ld. CIT in order refusing to grant registration. In 29 this respect, it is submitted that whenever a statutory authority is appointed, by virtue of provisions of law, the object of activities of such authority can only be appreciated by finding out the object of the legislation under which it has been created. The above analysis of the entire scheme would go to show that the State of Madhya Pradesh for purpose of securing the planned and systematic development of the areas within the State has enacted the law for establishment of the authorities like Director Town and Country Planning who are obliged to prepare the development plans for the entire State namely the regional plans, development plans, zoning plans, etc. and the act further contemplates and provides for establishing authorities like IDA for implementation of such plans prepared by the town and country planning department within the area notified for its purpose. It would be clear from the analysis of the entire scheme of the Act that there is no profit motive behind creation of such authorities and the dominant object or purpose of establishment of such authorities is the implementation and execution of the plans prepared by town and country planning department and regulation of the land use so that the land within the State is not used contrary to the land use declared in the plans. In absence of any profit motive, the statutory authority IDA is, therefore, entitled to registration under section 12A of the IT Act as its objects fall within the definition of the "charitable purpose" as defined in section 2(15) of the IT Act.
20.It was submitted that the fact that the IDA is not established with profit motive finds support also from the fact that its income up to AY 2002-03 qualified for exemption under section 10(20) as a local authority. Had the IDA been a private organization or a commercial organization, as alleged by CIT, its income would not have qualified for exemption under section 10(20)/10(20A). Merely because the IDA is excluded from the ambit of definition of the expression "local authority" by virtue of explanation inserted under section 10(20)/10(20A), the IDA does not become a commercial organization. The statutory status of IDA for all other purposes except section 10(20) still is that of a local authority, being a successor of the improvement trust which was in existence prior to the establishment of the IDA.
30The ld. Counsel for the assessee submitted that in a number of judicial pronouncements the apex court has laid down the test for determining whether the object of an institution are for charitable purpose as defined in section sec.2(15) of the Act . The Courts have interpreted the expression "advancement of objects of general public utility" in the context of statutory authorities. It has also been held that where the predominant object is to carry out charitable purpose and not to earn profit, it would not loss its charitable character merely because some profit arises from the activity. The following cases were relied upon: -
(i) Decision of the Supreme Court in the case of CIT vs. Gujarat Maritime Board reported in 295 ITR page 561 = (2008) 214 CTR (SC) page 81 = (2008) 166 Taxman page 58 (Refer Page No. 1 to 5 of Judgment Compilation Book, in short JCB). It was pleaded that their Lordships, while considering the similar case of Gujarat Maritime Board established under the provisions of Gujarat Maritime Board Act, 1981, have held that the Board has been established for predominant purpose of development of minor ports within the State of Gujarat with no profit motive
- management and control of the Board is essential with the Government and it is under a legal obligation to apply the income arising to it directly and substantially from business held under Trust for development of the minor ports. The Apex Court also at para 9 observed that section 10(20) and section 11 of the Act operate in totally different schemes and even if the Board has ceased to be a local authority it is not precluded from claiming exemption under s. 11(1) of the Act. The Apex Court, therefore held that the board was entitled to registration under section 12A as a charitable institution. For ascertaining the objects of the Gujarat Maritime Board, a statutory authority and for determining whether the objects can be said to advance the objects of general public utility, their Lordships of the Supreme Court have analyzed the Preamble of the statute under which the Board was established and after analyzing the provisions of the Act, under which the maritime board was established.
Their Lordships have held that there is no profit motive behind establishment of the maritime board and since the board is under legal obligation to apply its income towards the purpose for which it is created, namely, the development of ports, the objects constituted objects of advancement of 31 general public utility, entitling the Board to registration under section 12AA. Their Lordships have, with approval, referred to the earlier decisions rendered in the case of CIT vs. Ahmedabad Rana Caste Association reported in 140 ITR page 1, the decision in the case of CIT vs. Andhra Chamber of Commerce 55 ITR page 722 and the decision in the case of Addl. CIT vs. Surat Art Silk Cloth Manufacturers Association 121 ITR page 1. According to Their Lordships, the expression "any other object of general public utility" is of the widest connotation and the word "general" in the said expression means "pertaining to the whole class" therefore, the advancement of the object of benefit to the public or a section of public as distinguished from the benefit to an individual or group of individuals would be a charitable purpose. Their Lordships have further held that the said expression would prima facie include all objects which promote welfare of the public and it cannot be said that a purpose would cease to be charitable even if the public welfare is intended to be served. If the primary purpose and dominant objects are to promote welfare of the general public, the purpose would be charitable purpose. It has further been held when an object is to promote or protect the interest of a particular trade or industry, that object becomes an object of public utility but not so if it seeks to promote the interest of those who promote or conduct the said trade or industry. Their Lordships after applying the ratio of the earlier decisions and in particular the ratio of decision in the case of Andhra Pradesh State Road Transport Corpn (supra) came to the conclusion that the Gujarat Maritime Board was established for the dominant purpose of development of minor ports within the State of Gujarat, the management and control of board is essential with the Government and there is no profit motive. The income of the board is deployed for the development of the ports in India and hence according to Their Lordships, the board was entitled to registration as a charitable institution.
21.It was submitted by the ld. Counsel for the assessee that the decision of the Supreme Court squarely applies to the case on hand. An analysis of the preamble and other provisions of the Act clearly shows that the object of enactment is to promote the welfare of general public and there is no object to promote or protect interest of any particular trade or industry. There is no provision from 32 which it can be held that the object of the Act and the object of the activity carried on by the IDA is to promote the interest of those who conduct the activity. The activity is carried on by the authority, namely, IDA as an instrumentality of the State. The IDA is an authority/instrumentality of the State within the meaning of Article 12 of the Constitution of India. The provisions would go to show that the income of the authority or profit derived from the activities (if any) is again to be utilized for the purpose of public welfare and nothing else. The profit is not divided, distributed or shared by any private individuals or entities. It is again deployed for the purpose of object of the development of the areas. The fact that the funds/profits remain with the authority and are not handed over/distributed to any one who conducts the activity, is further clear from the provision regarding dissolution of the authority. In case the authority is dissolved, all assets and liabilities of the authority shall vest in the Municipality of the area concerned. Reference in this respect may be made to the provisions of section 76. Needless to say that the Municipality is a local authority. Further alike the Gujarat Maritime Board, the Management and Control of the IDA is also with the State Government.
22.The following cases were also relied upon: -
(i) CIT vs. Andhra Pradesh State Road Transport Corporation 159 ITR page 1 (SC)
(ii) CITvs. Ahmedabad Rana Caste Association 140 ITR page 1 (SC)
(iii) CITvs. Bar Council of Maharasthra 130 ITR page 128 (SC).
(iv) Additional CITvs. Surat Art Silk Cloth Manufacturers Association 121 ITR page 1 (SC)
(v) CITvs. Andhra Chamber of Commerce 55 ITR page 722 (SC)
(vii) M.P. Madhyam vs. CIT(2004) 89 TTJ (Ind) 770 In the above decision, the Hon'ble Jurisdictional ITAT, Indore Bench following the decision of the Apex Court in the case of CIT vs. Surat Art and Silk Association (1980) 121 ITR 1 (SC) held that when the predominant object is to carry out charitable purpose and not to earn profit, it would not lose its charitable character merely because some profit arises from the activity.
33(viii) Himachal Pradesh Environment Protection and Pollution Control Board vs. CIT(2009) TTJ (Chd) 98 The ld. Advocate explained that the following cases are also in favour of the assessee: -
(i) CITvs. Improvement Trust, Moga (2008) 15 DTR (P & H) 217
(ii) Lucknow Development Authority vs. ITO (Tech.) (Luck) - unreported judgment copy.
(iii) Improvement trust vs. CIT(2007) 12 SOT Page 307 (Del.)
(iv) Mormugao Port Trust vs. CIT(2007) 112 TTJ (Panaji) 681.
KRISHI UPAJ MANDI SAMITIS CONSTITUTED UNDER THE STATUTORY PROVISIONS HAVE BEEN HELD TO BE ENTITLED TO REGISTRATION UNDER SECTION 12A BY THE JURISDICTIONAL HIGH COURT AND THE JURISDICTIONAL ITAT.
(i) CIT vs. Krishi Upaj Mandi Samiti 170 Taxman page 515 (MP-Indore Bench of the High Court of Madhya Pradesh), (Refer Page No. 107 to 110 of JCB) after analyzing the preamble of the statute under which the krishi upaj Mandi samitis are established, held - that the object of Mandi samiti is benevolent and as such it is entitled to registration under section 12A/12AA. Their Lordships have in para 4 observed, that merely because Mandi Samiti is charging fees it does not militate against the altruistic purpose for which the mandis are established.
(ii) Decision of M.P. High Court, Jabalpur Bench (Main Seat) of the Madhya Pradesh High Court in the case of CIT vs. Krishi Upaj Mandi Samiti reported in (2008) 11 ITJ page 553 (MP) = 218 CTR page 512 (Refer Page No. 111 to 124 of JCB) - Their Lordships have followed the earlier decision in the case of CIT vs. Krishi Upaj Mandi Samiti, Morena as also the decision of the Apex Court in the case of Gujarat Maritime Board (Supra). Their Lordships in para 15 of the judgement have referred to the tests laid down by the Constitution Bench of the Apex Court in the case of Adll. CIT vs. Surat Art Silk Cloth Manufacturers Association (Supra) and have held that the test which has now to be applied is whether the predominant object of the activity involved in carrying out object of general public utility is to sub-serve the charitable purpose or to earn profit. Where profit making is dominant object of the activity, the 34 purpose, though an object of general public utility would cease to be charitable purpose. But where the predominant object of the activity is to carry out charitable purpose and not to earn profit it would not loose its characters of a charitable purpose merely because some profit arises from such activity.
23.It was submitted that their Lordships have also referred to the recent judgment of the Apex Court in the case of Gujarat Meritime Board and the tests laid down therein and in para 20 Their Lordships have applied the ratio of these decisions and have come to the conclusion on the basis of the analysis of the scheme of the act under which the Krishi Upaj Mandi Samitis have been established, that when the scheme of the act clearly reveals and evidence that the Samities are established for marketing and protecting the interest of the agricultural producers there can be no scintilla of doubt that it is established for charitable purpose.
(iii) CITvs. Krishi Upaj Mandi Samiti, Morena and others (2008) 215 CTR (MP) page 54, (Gwalior Bench of the MP High Court) (Refer Page No. 125 to 134 of JCB)
(iv) CIT vs. Agricultural and Market Committee Hinganghat (291) ITR page 419 (Refer Page No. 135 to 144 of JCB)
(v) Krishi Upaj Mandi Samiti, Sehore vs CIT(2007) 9 ITJ page 325 ITAT, Indore Bench. ITAT, Indore Bench, Indore has also followed the above decisions and held that Krishi Upaj Mandi Samities are entitled to registration under section 12A/12AA.
(vi) CIT vs. Krishi Upaj Mandi Samiti, Khargone (2009) 13 ITJ page 504 (MP), Indore Bench of M.P. High Court.
24.The ld. Counsel for the assessee submitted that if the impugned order passed by ld. CIT is examined in the light of these principles laid down by the judicial pronouncement , it would be clear that the order suffers from the vice being affected by irrelevant considerations rather than deciding the applications according to ratio of these decisions. The ld. CIT has not at all applied its mind to the object of legislation under which IDA has been established but laid unnecessary stress upon the fact that the IDA sells developed plots of land at prevailing market value as if sell of real estate is the only activity carried on by IDA. The CIT has completely lost sight of the fact that apart from 35 development & sell of developed land etc IDA as a part of its of development of the planning area within its jurisdiction, carries on many other projects for the overall development of the entire area. The details of such activities have already been placed on record by the appellant.
25.A query was raised by the Bench regarding the activities of the assessee, the ld. Counsel for the assessee explained the same as under:
i) Construction of bridges and such construction has even been made at places where the IDA has not developed any property for sale such as Juni Indore Bridge, Manak Bag Bridge, Kesar Bag Bridge, Chhawni Bridge, Lal Bag Bridge, Karbala Bridge, Bhagirathpura to Sukhliya Bridge etc. and therefore, it cannot be said that the construction of roads and bridges was aimed to increase the value of the properties held by the IDA.
ii) Construction of roads in areas which has no link or nexus with the schemes of the IDA such as (a) Road from Shivaji Statute to By-pass (b) MR 9 (c) BRTS -
from Rajeev Gandhi Square to Dewas Naka (d) Western Ring Road for Dhar Road to Airport etc..
Such roads have been constructed under JNNURM Scheme and the IDA has contributed Crores of Rupees in construction of such roads.
iii) Development, maintenance and improvement of traffic circles such as at LIG Square, Lasudiya Square, Musakhedi Square, Navlakha Square, Asharam Bapu Square, Choithram Square and others.
iv) Rehabilitation of poors and slums - various slum inhibiters of rivers blanks such as Piplyapala Talab, Khan Nadi have been rehabilitated in houses constructed at Scheme No. 103, 140, 114 Part-II, 94 & 104 of IDA for a very very nominal price within the reach of weaker section under 'Valmiki Ambedkar Aawas Yojna'. It has undertaken project to rehabilitate more than 86,000 slums in Indore.
v) The IDA is also constructing OPD at M.Y. Hospital. It is also undertaking project of renovation of M.Y. Hospital and Robert Nursing Home. Such hospitals are Government Hospitals and where poor and a common man is getting medical facilities.
vi) Activities of plantation in the whole city of Indore and it is not restricted only to the schemes of the IDA. More than 43,000 Trees have been planted so far.
36The project of development of regional park on 150 Acres Land having cost of more than 50 Crores is under progress. In any case, such development of park will not improve price of the properties held by the IDA.
vii) Activities of preservation of heritage and culture - granting aid for 'Anant Chaturdarshi Jhanki' to workers of closed textile mills of Indore, It has also established statues of national heroes and divine historical personalities such as Shahid Chandrashekhar Azad, Rani Avantibai, Chandragupta Mourya etc.
viii) A project of old age homes for old aged persons is also under progress.
It was pointed out that the sale proceeds of commercial plot sold to Reliance Industries for substantial amount have also been mainly deployed for above activities.
26.The Bench directed the ld. Counsel for the assessee to differentiate the activities of the assessee as from a private colonizer, these were explained as under:
Sno. Particulars Qua a private Qua IDA
colonizer
1 Constitution May be a sole A statutory authority
proprietorship firm, constituted under an
partnership firm, AOP or a enactment of the State company 2 Pre-dominant object Is to make maximum profit Is to implement proposal by selling its properties for planning and development of notified area. It is instrumental to achieve the objects of the State to make better provision for planning and development and use of land with no profit motive.
In three years, earlier to the year of application for registration i.e. F.Y. 2004-
05 to F.Y. 2006-07, it has
utilized its entire funds for
its activities and a very
meager surplus was
generated [Refer Page No.
235 of Compilation].
Even, the surplus accruing
during the F.Y. 2007-08,
37
which is mainly
attributable to sale of
property at a handsome
price to Reliance
Industries, has been
utilized for public utility
purposes during the
subsequent years.
3 Social objects Has no social object to Has many objects for
provide for infrastructure development of
facilities needed by a infrastructure facilities and
common man. amenities such as
construction of roads and
bridges, development of
land for playgrounds,
parks, airports, railway
stations; improvement of
environment, provision for
amenities such as roads,
drains, sewage lines,
stadium, parks even in the
non-planning areas,
undertaking rehabilitation
programme for slum
people etc.
4 Ultimate use of the It is taken away by the No person is having any surplus from person/s who own the vested interest in the activities entity carrying on surplus of the IDA. Its colonizing activities surplus cannot be distributed but it has to be redeployed for its core activities.
5 Accountability to Private colonizer is at IDA has to follow the set the public liberty to purchase or sale rules and procedures for its property from/to any acquisition/sale of its person of his choice property. Such activities are carried on only by wide publicity in newspapers and each and every activity is very transparent and according to prescribed policies, rules and regulations 38 6 Constitution of the The management of a The Board of the IDA is Management Board private colonizer is statutorily required to be constituted according to constituted in accordance choice of the owners. with section 40. It is consisting of public servants like a Chairman nominated by State Government, Collector, Municipal Commissioner, heads of various public amenity departments etc..
All the decisions are taken
by such Board only. The
term of office of the
members of the Board is at
pleasure of State
Government under s. 42(2)
7 Control of the State A private colonizer is not IDA under s. 52 is bound accountable to State by the directions given by Government. the State Government from time to time. Under s. 24 the overall control of development and use of land in the State shall vest in the State Government only. Thus the land owned by the IDA is under the control of State Government only under s.
76BB, the State
Government can enquire
into the constitution,
working and financial
conditions of a
development authority.
8 Acquisition of Land A private colonizer is not IDA under s. 55 is entitled
authorized to compulsorily to acquire land for public
acquire any land for purposes. If the object is
carrying on its activities. It not to serve the public than is for the reason that land IDA cannot acquire any is not used by him for land. Further, if the land is 39 public cause but for not used for the purpose it serving his own interest of was acquired then it has making profit. been to be returned to previous owner.
9 Price for purchase/ A private colonizer can Under s. 56, IDA can acquisition of land buy land for any price as is acquire the land only at the negotiated between him rates prescribed as per the and the seller. rules of Land Acquisition Act, 1894. Such price is determined by the Collector and it is subject to upward revision by the Courts from time to time. 10 Sale of property A private colonizer would IDA can dispose of its always attempt to sale his property only in property for maximum accordance with the rules price. There is no framed by State restriction for a private Government as per section
colonizer to sale a plot to a 50 of the Act. IDA sales person who is already property to poor section of owning more than one plot. the society at concessional / subsidized rate by way of lottery or any other prescribed procedure. It also provides plots to housing societies for allotment of the same to their registered members at nominal price. It provides land for educational institution, hospital, stadium at nominal price.
However, to whom who can afford to pay a higher price it makes sales of plots by way of tenders, with an aim to generate resources for its activities, from those who are able to pay so the benefit can be passed on to weaker section of the society by way of providing plots at 40 subsidized rates. The sale of property to Reliance Industries, a very big and rich company with ample of funds [As referred to by CITat Page No. 27 of her Order] is an example of policy of IDA to fetch more price from affluent class for subsidizing low price to poor people. The IDA cannot sale plot to a person who is already having a plot in the city.
11 Control on A private colonizer can get IDA cannot award contact procuring services its activities performed by for carrying on its required for any agency without any construction activities activities restriction as regard to without calling for tenders.
calling the tenders.
12 Statutory Many times but not private IDA being a public body compliance in colonizer make violation of cannot make even a slights construction various permissions and variation from its plans activities approvals as regard to and approved maps.
sanction of map,
permissible built-up area
etc. with a motive to
maximize their profit
13 Audit by local fund Not Applicable Each and every in flow and
auditors out flow of funds of IDA is
pre-vouched by local fund
auditors of the
Government.
14 Appointment and No binding It has to be strictly in
termination of staff accordance with the rules
and regulations of the State
Government under s. 80.
Every member and officer
of the authority is deemed
to be a public servant
within the meaning of
section 21 of the Indian
Penal Code, 1860
41
15 Utilization of the A private colonizer can IDA can utilize its fund
funds utilize the funds in any only for the objects for
manner of his choice. which it has been
established.
16 Investment of the A private colonizer can IDA has to make
funds invest his surplus fund in investment of its surplus
any manner he likes. He funds, if any, only in the can invest funds even in Government Securities and shares of private Fixed Deposit with companies. Scheduled Banks.
17 Status of Income- Income of a private Income of the IDA was Tax Exemptions colonizer was not exempted under s. 10(20)/ exempted even up till A.Y. 10(20A) up till A.Y. 2002- 2002-03. Such exemption 03.
was not granted as the activities of colonizers were not considered to be for public purposes.
18 Recovery of dues A private colonizer cannot IDA can recover its arrear recover his dues as arrear as land revenue under s.
of land revenue. 63-A. Such a right is
conferred to it only
because it is carrying on
objects of the State.
19 Distribution of On dissolution of the In case of dissolution, the
funds on dissolution entity, the owners take entire funds of IDA would away entire funds vest with the local generated by them from Municipal Corporation the activities only
27.The assessee was directed to produce the relevant record of rates of acquisition of lands from the landowners/farmers and the rates at which these lands were sold/allotted to various persons, the assessee deliberately and reasons best known to it did not furnish such details inspite of opportunities provided to the assessee. On the objects and genuineness of the activities of the assessee, following cases were relied upon by Mr. Choudhary:
CITvs. Red Rose School (2007) 212 CTR (All.) page 394 Sanjivamma Hanumanthe Gowda Charitable Trust vs. DIT (Exemption) (2006) 285 ITR 327 (Kar) 42 Pujya Shri Umesh Muni, Jhabua vs. CIT, Ujjain (2008) 10 ITJ page 30 (ITAT-Ind) Mahakoshal Shaheed Smarak Trust vs. CIT(1983)140 ITR page 795 (MP) Shri Haridevji Gaushala Trust vs. CIT(2009) 12 ITJ 263 (Agra-Tribunal) Acharya Sewa Niyas Uttaranchal vs. CIT(2006) 105 TTJ (Del.) 761 St. Don Bosco Educational Society vs. CIT(2004) 84 TTJ (Lucknow) 805 Aggarwal Mitra Mandal Trust vs. Director of Income-Tax (Exemption) (2007) 109 TTJ (Del.) 128 Dream Land Educational Trust vs. CIT(2007) 109 TTJ (Asr) 850.
Dharma Sansthapak Sangh (Niyas) vs. CIT(2008) 118 TTJ (Del.) 823 Modern Defence Shikshan Sansthan vs. CIT(2007) 108 TTJ (Jd) 732 Shiya Dawoodi Bohra Jamat, Neemuch vs. CIT(2007) 9 ITJ 409 (Ind Tri.) DIT vs. Garden City Educational Trust (2009) [28 DTR (Kar) 139] H.P. E.P. & P.C.B. vs. CIT(2009) [125 TTJ (Chd) 98] Adl. CIT vs. Vatsalya Senior Secondary School (2010) [130 TTJ/Indore/UO/27]
28. The ld. Counsel for the assessee further contended that the decision in the case of Adityapur Industrial Area Development Authority vs. UOI & others (2006) 283 ITR 97 (SC) is not a binding precedent in the present matter rather the decision in CIT vs. Gujarat Maritime Board (295 ITR 561) (SC) is applicable.
29. On the other hand, the ld. CCIT, DR Shri Girish Dave strongly defended the impugned order and explained the facts of the case, the provisions of the Adhiniyam, Rules framed thereunder as well as various forms prescribed under the Adhiniyam. Mr. Dave took us to various paras of the impugned order along with sec. 10 clause (20A) of the Act. Circular no.8 of 2002 dated 27.8.2002 reported in 258 ITR (Statute) 13 and the provisions of sec. 80G was also 43 explained along with sec. 11 and 12 of the I.T. Act. Our attention was specifically invited to from no.3CB wherein it was pointed out that the assessee authority has admitted that it is engaged in carrying in business along with observation made by the learned CIT in the impugned order for sec. 12AA. It was duly explained by Mr. Dave that at the time of granting of registration u/s 12AA, the ld. CIT is very much empowered to make necessary enquiries. It was specifically pointed out that the assessee did not respond to the query made by the Bench for the transactions of sale of plot to Reliance Industries and emphatically asserted that the cases relied upon by the ld. Counsel for the assessee are not applicable to the facts of the present appeal. Placing of reliance in the case of Aditypur Industrial Area Development Authority vs. UOI (supra) by ld. CIT was strongly defended. It was further pointed out that the facts in the case of Punjab Urban Development Authority and Jalandhar Development Authority are directly applicable to the facts of the present appeal.
30. We have considered the rival submissions of ld. representatives of both sides and perused the material available on the file. Before coming to any conclusion, we are reproducing hereunder the provisions of sec. 12A of the Act which prescribes certain conditions for applicability of sec. 11 & 12 which are to be fulfilled:
9112A. 92[(1)] 93 The provisions of section 11 and section 12 shall not apply in relation to the income of any trust or institution unless the following conditions are fulfilled, namely:--
(a) the person in receipt of the income has made an application for registration of the trust or institution in the prescribed form94 and in the prescribed manner to the 95 [***] Commissioner before the 1st day of July, 1973, or before the expiry of a period of one year from the date of the creation of the trust or the establishment of the institution, 96 [whichever is later and such trust or institution is registered under section 12AA] :97
[Provided that where an application for registration of the trust or institution is made after the expiry of the period aforesaid, the provisions of sections 11 and 12 shall apply in relation to the income of such trust or institution,--
(i) from the date of the creation of the trust or the establishment of the institution if the 98[***] Commissioner is, for reasons to be recorded in writing, satisfied that the person in receipt of the income was 44 prevented from making the application before the expiry of the period 99 aforesaid for sufficient reasons;
(ii) from the 1st day of the financial year in which the application is made, if the 1[***] Commissioner is not so satisfied:] 2 [Provided further that the provisions of this clause shall not apply in relation to any application made on or after the 1st day of June, 2007;] 2 [(aa) the person in receipt of the income has made an application for registration of the trust or institution on or after the 1st day of June, 2007 in the prescribed form 3 and manner to the Commissioner and such trust or institution is registered under section 12AA;]
(b) where the total income of the trust or institution as computed under this Act without giving effect to 4[the provisions of section 11 and section 12 exceeds the maximum amount which is not chargeable to income-
tax in any previous year], the accounts of the trust or institution for that year have been audited by an accountant as defined in the Explanation below sub-section (2) of section 288 and the person in receipt of the income furnishes along with the return of income for the relevant assessment year the report of such audit in the prescribed form 5 duly signed and verified by such accountant and setting forth such particulars as may be prescribed.] 6
(c) [***] 7 [(2) Where an application has been made on or after the 1st day of June, 2007, the provisions of sections 11 and 12 shall apply in relation to the income of such trust or institution from the assessment year immediately following the financial year in which such application is made.] Sec. 12AA is a procedural sec. which prescribes about procedure for registration which is also reproduced hereunder:
12AA. (1) The 9 [***] Commissioner, on receipt of an application for registration of a trust or institution made under clause
(a) 7[or clause (aa) of sub-section (1)] of section 12A, shall--
(a) call for such documents or information from the trust or institution as he thinks necessary in order to satisfy himself about the genuineness of activities of the trust or institution and may also make such inquiries as he may deem necessary in this behalf; and
(b) after satisfying himself about the objects of the trust or institution and the genuineness of its activities, he--
(i) shall pass an order in writing registering the trust or institution;
(ii) shall, if he is not so satisfied, pass an order in writing refusing to register the trust or institution, and a copy of such order shall be sent to the applicant :
Provided that no order under sub-clause (ii) shall be passed unless the applicant has been given a reasonable opportunity of being heard.45 10
[(1A) All applications, pending before the Chief Commissioner on which no order has been passed under clause (b) of sub-section (1) before the 1st day of June, 1999, shall stand transferred on that day to the Commissioner and the Commissioner may proceed with such applications under that sub-section from the stage at which they were on that day.] (2) Every order granting or refusing registration under clause (b) of sub-section (1) shall be passed before the expiry of six months from the end of the month in which the application was received under clause (a) 11[or clause (aa) of sub-section (1)] of section 12A.] 12 [(3) Where a trust or an institution has been granted registration under clause (b) of sub-section (1) 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 institution, as the case may be, he shall pass an order in writing cancelling the registration of such trust or institution:
Provided that no order under this sub-section shall be passed unless such trust or institution has been given a reasonable opportunity of being heard.] In the light of the aforesaid provisions of the Act, we are framing certain questions and deliberate upon them:
31.Whether the quantum of income be permitted to be the determinative factor for the status of the appellant-authority? The assessee authority is in existence since May 1977. It was enjoying exemption from income tax under section 10(20A) of the I T Act, 1961 on its income. Clause (20A) of section 10 was omitted from the statute by the Finance Act, 2002 with effect from 1st April 2003 relatable to assessment year 2003-04. From the said assessment year, that is, 2003- 04 onwards, it started filing its returns of income and paid taxes on the income returned for those years. Assessments for assessment years 2003-04, 2004-05, 2005-06 and 2006- 07 have already been completed which are placed in the paper book filed by the department. The appellant-authority filed appeals for these years and ld. CIT(Appeals) have after hearing the appellant-authority passed appellate orders in respect of assessment years 2003-04, 2004-05 and 2005-06. The assessment year-wise position of status claimed, income returned, status in which assessment made, nature and amount of addition made to the returned income, income assessed, date of assessment order and revised income consequent to appellate order of the ld. CIT(Appeal) is given 46 at page of 5 of the 'impugned' order under section 12AA of the Act passed by the respondent.
It is interesting to note that the appellant-authority preferred application under section 12AA of the Act only after a notice under section 210(3) was issued to it for deposit of advance tax on 11th December 2007 on the basis of calculation of its liability towards advance tax indicated in the said notice and on the basis of information whereby the department came to know that the assessee had had sold a commercial plot in a prime location adjacent to Sayaji Hotel for a consideration of about Rs 270 Crores. A notice was issued to the assessee which was replied by the IDA on 14th December 2007 objecting to the notice and filed Form No 28B on the same date estimating its income at Rs 2, 78, 00, 000/- and tax payable thereon at Rs 93, 92, 570/-. In this estimate, it indicated its liability towards tax at Rs 63, 92, 570/- after deducting Rs 30, 00, 000/- towards prepaid taxes, such as TDS and further reduction of Rs 40, 00, 000/- paid by way of advance tax. The balance liability was shown at Rs 23, 92, 570/- as against the demand of Rs 90, 88, 06, 287/- worked out by the department. The assessee authority chose to file an application u/s 12AA of the Act on 27.12.2007 and before that, might be examining the possibility of registration. It was explained before the ld. CIT that the assessee authority was under the bonafide ignorance of the possible fall out of the omission of clause (20A) of section 10. It has further stated that there was bonafide ignorance of other sections 11and 12 and therefore the necessity of making an application for registration under section 12A was never felt.
32.One would wonder as to the correctness and truthfulness of this explanation as from the conduct of the appellant- authority, it is clear that from assessment year 2003-04 onwards, it started filing its return of income and it was this period when the effect of the omission of clause (20A) of section 10 commenced. It was also clear from the amendments that certain authority which was claiming exemption under the said clause were included in the amended clause (20) of section 10 by the same Finance Act with effect from 1st April 2003.
Knowing fully well that with the amendment in law by the Finance Act, 2007, it was not open for it to make an application under clause 12A (1) (a), it sought to make such 47 an application under clause (aa) of the said section though it knew that this provision would allow it an exemption only for one assessment year, that is, assessment year 2008-09. From the next assessment year 2009-10, section 2(15) has further been amended so as to exclude such entities who are engaged in trade, commerce or business from exemption under section 11of the Act.
At page 231 of its compilation, the appellant-authority has enclosed a copy of the letter dated 3rd June 2008 addressed to the respondent-CIT. In this letter, inter alia, it has sought to explain the reasons for the delay in filing application for registration under section 12AA. The excerpts from Para 2.2 of this letter are reproduced hereunder:
"It was only after a serious thought given to the issue that the applicant-authority came out of the aforesaid bonafide ignorance of the relevant legal provisions and this transformation arose after an opinion in that behalf was sought from our present representative Shri Anil Garg, FCA. He, after going through the judicial pronouncements from various benches of income-Tax Appellate Tribunals and also authoritative decisions from higher judiciary i.e. from the Hon High Courts and the Apex Court, apprised this applicant-authority of the correct legal position about the eligibility of exemption u/ss 11and 12, as aforesaid. It was on receipt of such an opinion that the subject application was submitted on 27-12- 2007."
33.There is no evidence led for such a situation existing nor has it been affirmed by any responsible /authorized person. It is a fact that after withdrawal of exemption in Clause (20) and (20A) by the amendments brought out by the Finance Act, 2002, a number of such entities made application for the grant of registration under section 12AA on the basis of some statement made by the then Finance Minister but were denied registration by the department, Appeals filed by such entities before various benches of the Hon'ble Tribunal decided such appeals on the merits of the matter. Therefore to argue that the appellant-authority was ignorant of the effect of changes by the Finance Act, 2002 is unbelievable. In fact, appellant-authority is under the guidance, instructions and advice of a chartered accountant from so many years and it is rather unbelievable that it is only after the issue of notice under section 210(3) of the Act for the payment of advance tax that the appellant-authority woke from slumber. Moreover, one Chartered Accountant, namely, Shri Anil Garg, has also been advising the 48 appellant-authority much before the filing of application on 26-12-2007. This fact can be noticed from his appearance before CIT(A) in relation to appellate proceedings for assessment year 2003-04 onwards. Shri Garg was aware of the fact that in the past, the appellant-authority was claiming exemption under clause (20) of section 10 as can be noticed from orders of ld. CIT(A). Thus, this explanation is completely untrue. In fact, by such a conduct the appellant- authority cannot be said to be coming with clean hands before this honorable forum. How can a responsible organization of this nature that is entrusted with the development of a vast city plead that it was ignorant of law, particularly when it was enjoying exemption under section 10(20A) and that exemption was withdrawn. Consequent to this amendment, the appellant-authority started filing returns of income for succeeding years and paid taxes thereon. It was only when the liability increased to a substantial extent that it sought to object for the imposition and attempted to seek exemption by filing application for registration under section 12AA. Such an action on its part suggests that till the extent of income was up to a particular level, it never thought that it can claim exemption or should file an application under section 12AA, but when income rose to a substantially high level with the sale of big chunk of land on a purely commercial basis, it was reminded of exemption which it may like to claim.
34. Whether the relevant law should be construed as a whole or in piecemeal as is being sought to be canvassed on the part of the appellant-authority and the law as amended by the Finance Act, 2002 with effect from 01 April 2003 makes the issue clear as to disentitling the appellant-authority from claiming exemption under the Income tax Act, 1961?
It is essential to know the background for the amendments introduced in the relevant law. In his budget speech, the Hon'ble Finance Minister while introducing the amendment in section 10(20), in Para 177 explained:
"Sir, some of the exemptions and deductions currently provided in the Income tax Act have become redundant and are not in harmony with the moderate tax regime that we have in India. The advisory group on tax policy and tax administration for 10th Plan has recommended deletion of a number of such exemptions. I have carefully examined each 49 recommendation of the Group and I have come to the conclusion that some of these exemptions are indeed unnecessary. I, therefore, propose to withdraw or discontinue the exemptions which are not required any longer."
In the memorandum explaining the provisions in the Finance Bill. 2002, in Clause 4(1), 4(m), 4(y), clauses 150, 152, and 153, we find that a number of such exemptions have been withdrawn and many more such organizations have been brought under the tax net. All these clauses have been incorporated under the Chapter "WIDENING OF TAX BASE". Thus the legislative intent is very clear that such authorities are to be brought in to the tax net. CBDT consequently issued a Circular No 8 of 2002, dated 28th August, 2002 explaining it further in Para No 12 under the heading "Income of certain authorities to become taxable". In Para 12.1, it has been stated that "under the existing provisions contained in clause (20) of section 10, the income of the local authority chargeable under the head "Income from House Property", Capital Gains", "Income from Other Sources" or from the "trade or business" carried on by it which accrues or arises from the supply of a commodity or service within its jurisdictional area or from supply of water or electricity within or outside its own jurisdictional area is exempt from payment of income-tax.
In Para 12.2, it is stated that through Finance Act, 2002 this exemption has been restricted to the Panchayats and Municipalities as referred to in Articles 243(d) and 243(p)
(e) of the Constitution of India respectively, Municipal Committees and District Boards legally entitled to or entrusted by the Government with the control or management of a Municipal or Local Fund and Cantonment Board as defined under section 3 of the Cantonment Act, 1924. These entities are included in clause (20) of section 10 by way of an explanation inserted by the Finance Act, 2002 with effect from 1st April 2003 as these were getting exemption along with other local authorities like urban improvement trusts, development authorities, agricultural marketing societies and agricultural market boards etc., under clause (20A) of section 10 which was omitted from the statute by the Finance Act, 2002 with effect from 1st April 2003.
50Para 12.3 states that "exemption under clause 20 of section would, therefore , not to be available to agricultural marketing societies and agricultural market boards, etc., despite the fact that they may be deemed to be treated as Local Authorities under any other Central or State Legislation. Exemption under this clause would not be available to port trusts also.
35.Clause (20A) of section 10 as it stood prior to its omission by the finance Act 2002 is reproduced as under:
"Any income of an authority constituted in India by or under any law enacted either 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 or for both."
In order to secure the benefit that these authorities were enjoying and to ensure that these entities get funds, amendment was inserted in sub-clause (vi) of sub-section(2) of section 80G to provide that the sums referred to in sub- section(1) of section 80G would also include as under:
"(vi) an authority constituted in India by or under any law enacted either 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 or for both."
Prior to its substitution, sub-clause (vi) read as under:
"(vi) any authority referred to in clause (20A) of section
10."
36.It may be seen that some of the authorities like Panchayats, Municipality, Municipal Committee and District Boards, Cantonment Board were included in clause (20) of section 10 which were otherwise claiming exemption under clause (20A) of section 10 and those engaged in developmental work for cities, towns and villages were brought in section 80G.
Circular No 8 of 2002 dated 27th August 2002: (2002) 258 ITR (St.) 13 explains the object of this omission as under:
"13. Income of certain Housing Boards, etc., to become taxable- 13.1 Under the existing provisions contained in clause (20A) of section 10, income of the Housing Boards or other statutory authorities set up for the purpose of dealing with or satisfying the need for housing accommodations or for the purpose of planning, 5-development or improvement 51 of cities, towns and villages is exempt from payment of income-tax.
13.2 Through the Finance Act 2002, clause (20A) of section 10 has been deleted so as to withdraw exemption available to the above mentioned bodies. The income of Housing Boards of the States and of Development Authorities would therefore, also becomes taxable. (Emphasis supplied) 13.3 Under section 80G, donation made to housing authorities, etc., referred to in clause (20A) of section 10 is eligible for 50% deduction from total income in the hands of the donors. Since clause (20A) of section 10 has been deleted, donation to the housing authorities, etc., would not be eligible for deduction in the hands of donors and this may result in drying up of donations. To continue the incentive to donation made to housing authorities, etc., section 80G has been amended so as to provide that 50% of the sum paid by an assessee to an authority constituted in India by or under any law enacted either 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, or for both, shall be deducted from the total income of such assessee.
13.4 These amendments will take effect from 1st April 2003 and will, accordingly, apply to the assessment year 2003-04 and subsequent assessment years."
37.The issue is whether the appellant-authority is permitted to seek registration only for one year and to draw advantage of its own gross negligence and ignore the scheme of the Act. The legislature's intention is clear that these entities are not entitled to exemption from tax on their total income for and from assessment year 2003-04 onwards and the comprehensive legislation brought out by changes in clauses (20) and (20A) of sections 10 and corresponding insertion of sub-clause (vi) in sub-section (2) of section 80G reflects that intention.
A press note was also released by the Central Government on 13 June 2007 under the title "Tax Rules providing tax exemption to charitable and religious entities modified", and the same is reproduced as under:
"Sections 11 and 12 of the Income-tax Act, 1961 provide for exemption of income of charitable and religious entities. In order to avail such exemption, the entity is required to make 52 an application for registration under section 12A in Form No 10A to the commissioner of Income-tax. Prior to 1st June 2007, the application had to be made by the entity within one year from the date of its creation/establishment and the commissioner had discretion to condone the delay if the application was filed belatedly. However, the Finance Act, 2007 has removed the requirement of filing the application for registration by the entity within one year and has also removed the power vested with the commissioner for condonation of delay in respect of any application made on or after 1st day of June 2007. A new clause (aa) to sub- section (1) of section 12A of the income-tax Act, 1961 has been inserted in this regard.
Consequent to this, in order to harmonize existing Rule 17A and the Form No 10A Appendix II to the said Rule with the new provision, notification has been issued on 30th May 2007 amending this rule and Form to enable filing of application for registration by charitable and religious entities on or after the 1st day of June, 2007."
38.From the above, it would be seen that these changes were necessitated to redress the mischief/ inconvenience caused to charitable trusts/ institutions due to varying decisions by the ld. CITs with the exercise of the discretion vested in them to condone the delay in the filing of applications for the grant of registration. These changes were made to withdraw the discretionary power of the CITs and to avoid the compulsion of such entities of filing applications within one year. The purpose of the amendments would get defeated if such an abuse of the law is permitted. It is therefore submitted that a purposive construction of the provisions must be preferred than what is being sought to be canvassed by the appellant- authority.
It may not be out of place to mention that the Legislature having felt the need of providing exemption to Agricultural Produce Marketing Committees and Boards, inserted clause (26AAB) in section 10 by the Finance Act, 2008 with effect from 1st April 2009 to provide such exemption and Development Authorities were still kept out of such exempted category of persons.
The intention of the legislature is clear from amendment whereby Clause (15) of section (2) is substituted by the Finance Act, 2008 with effect from 1st April 2009 providing 53 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.
On a conjoint reading of all these provisions, it becomes clear that because of dominant purpose being carrying on of business, the development authorities are not considered to be persons involved in charitable activities.
39.Whether the activities of the appellant-authority fits in to the over-all scheme of the provisions relating to charitable institutions contained in the Income-tax Act, 1961? Here we are not concerned with the assessments in relation to those years when it enjoyed exemption under clause (20A) of section 10 of the Act. We are concerned with the activities noticed during course of assessment proceedings for assessment years 2003-04, 2004-05 and 2005-06 after it lost the exemption with the deletion of clause (20A) of section 10 of the Act and whether it had any effect on the decision by the respondent in the refusal to grant the registration and the activities the relevant legislation permits to the appellant-authority that the scope, power and level of authority it enjoys under the relevant statute.
40.Assessment proceedings and its effect on decision:
(i) Claim under Clause (20) of section 10:
The appellant-authority claimed exemption under clause (20) of section 10 of the Act, as can be seen from the order of ld. CIT(A) for the assessment years 2003-04 2004-05 and not under clause (20A) of section 10 of the Act. The learned CIT(A) has confirmed additions made by the assessing officer on a number of issues on the ground that proper records and basis of accounting are found to be lacking.
Similarly, additions made to the total income in relation to the assessment year 2005-06 have been confirmed by the learned CIT(A) on similar basis.
(ii) Filing of audit reports under section 44AB:
The appellant-authority has filed copies of its accounts for the year ending on 31st March, 2005, 31st March, 2006 and 31st March, 2007 along with its application in Form 10A for the grant of registration under section12AA of the Act. It has 54 enclosed copies of the audit reports in Form No 3CB under Rule 6G (1) (b) read with Section44AB of the Act for these years. Rule 6G for the sake of convenience is reproduced as under:
6G. (1) The report of audit of the accounts of a person required to be furnished under section 44AB shall-
(a) in the case of a person who carries on business or profession and who is required by or under any other law to get his accounts audited, be in Form No 3CA;
(b) in the case of a person who carries on business or profession, but not being a person referred to in clause (a), be in Form No 3CB.
From the filing of Form No 3CB for all the aforesaid years, it is admitted by the appellant-authority that it is engaged in carrying on of business. This fact is further confirmed in Columns (8) and (17) of Form No 3CD for all these years. Whether this carrying on of business is incidental to the attainment of the objectives of the appellant-authority would be discussed separately.
(iii) Filing of the reports of audit of the accounts in Form No 10B:
Appellant-authority has also filed audit reports in respect of the years ending on 31st March 2005, 31st March 2006, and 31st March 2007 in Form No's 10B under Rule 17B read with section 12A (b) of the Act. It can be seen from the information available in these Forms that except information in Columns (1) and (3), in every other column, the remarks are "Not required", "Not Applicable", "No" or "Not Noticed". Information in column (1) is the figure of total expenditure incurred during the year and column (3) provides the net profit earned after the payment of tax which has been carried over to the balance sheet of that year.
(iv) Observations in the order under section12AA:
The factual aspects noticed from the above documents have been gone through by the respondent and certain conclusions have been drawn there from. From this, it becomes evident that appellant-authority is more a business organization than a charitable institution. This inference can also be drawn from a study of the annual accounts of various years produced before the respondent and the respondent cannot put blinkers when these facts and circumstances are existent in the case of the appellant-authority. In fact, the 55 respondent cannot ignore these facts while making decision on the application for the grant of registration under section 12AA of the Act.
41.Scope of authority and competence of the appellant- authority in the relevant legislation:
In this regard, it would be preferable to peruse the scheme of the Act, that is, "Madhya Pradesh Nagar Tatha Gram Nivesh Adhiniyam, 1973". In fact, a brief summary of the Act is discussed by Hon'ble Supreme Court in its decision in the case of CHAIRMAN, INDORE VIKAS PRADHIKARAN, PETITIONER v. M/S. PURE INDUSTRIAL COCK & CHEM. LTD. & ORS., RESPONDENT, reported in 2007- (094)-AIR -2458 -SC. In the object of this law, it is stated to be, "An Act for planning and development and use of land; to make better provision for the preparation of development plans and Zoning plans with a view to ensuring town planning schemes are made in a proper manner and their execution is made effective, to constitute Town and Country Planning Authority for proper implementation of town and country development plan, to provide for the development and administration of special areas through Special Area Development authority, to make provision for the compulsory acquisition of land required for the purpose of the development plans and for purposes connected with the matters aforesaid. "
With the promulgation of this Act, the Madhya Pradesh Town Planning Act, 1948 and the Madhya Pradesh Town Improvement Trust Act, 1960 were repealed.
The Act is divided into several chapters. It proceeds on the basis that steps are required to be taken before a town planning scheme is given effect to. The State Government is in overall control of the matter relating to town and country planning.
The Director of Town and Country Planning, however, subject to the control and supervision of the State, exercises such statutory powers which are conferred upon him. A State is divided into several regions. A regional plan is 56 finalized whereupon restrictions on use of land or development thereof can be imposed. Such regional plan is subject to review.
Chapter IV of the Act provides for carving out planning areas and preparation of development plans. Development plans are required to be prepared and finalized only in relation to the planning areas. An area, however, which is notified, can be sub-divided into planning areas and non- planning areas.
Chapter V of the Act deals with the preparation, finalization, review and modifications of the zonal plan wherewith we are not concerned much in these appeals.
Chapter VI of the Act provides for control of development and use of land. In terms of Section 24 of the Act, the Director is to control land use. Preparation of development plan, prohibition of development without permission and matters connected therewith and incidentals thereto are also dealt with in Chapter VI.
Chapter VII of the Act, however, provides for shift of control in respect of land use and development for the hands of the Director and, consequently of the State to the Town and Country Development Authority.
Section 38(1) of the said Act provides that the State Government may, by notification, establish a Town and Country Development Authority by such name and for such area as may be specified in the notification and sub-section (2) thereof envisages that the duty of implementing the proposal in the development plan, preparing one or more town development schemes and acquisition and development of land for the purpose of expansion or improvement of the area specified in the notification under sub-section (1) shall, subject to the provisions of this Act vest in the Town & Country Development Authority established for the said area.
By virtue of the enabling provision in section 38 of the Adhiniyam, the State Government, by Notification No 1688- XXXXII dated 9th May 1977 established Indore Nagar Tatha Vikas Pradhikari for the comprised area within the Indore 57 Planning Area as specified in the former Town and Country Planning Departments Notification No 515-F. 1-20-XXXII- 74, dated the 13th February, 1974 and this Pradhikari was to be known as "Indore Vikas Pradhikari".
Section 85 of the 1973 Act provides for rule making power.
The State of Madhya Pradesh in exercise of its power conferred upon it under Sections 58 and 85 of the 1973 Act made rules known as "Madhya Pradesh Nagar Tatha Gram Nivesh Vikasit Bhoomiyo, Griho, Bhavano tatha Anya Sanrachnaon Ka Vyayan Niyam, 1975".
Rules 3, 4, 5, 19 and 20 of the 1975 Rules which are material for our purpose read as under:
"3. No Government land vested in or managed by the Authority shall be transferred except with the general or special sanction of the State Government given in that behalf.
4. All other land (hereinafter called the "Authority land") shall be transferred in accordance with the following rules.
5. Transfer of the Authority land shall be as under:
(a) By direct negotiation with the party; or
(b) By public auction; or
(c) By inviting tenders; or
(d) Under concessional terms.
19. The Authority may with the previous approval of the State Government lease out on concessional terms any land to any public institution or body registered under any law for the time being in force.
20. Ordinarily, no lease on concessional terms shall be allowed for the purposes of other than charitable purposes such as for hospital educational institutions and orphanages."
58The State in terms of the provisions of the 1973 Act and the 1975 Rules is a statutory authority. Its jurisdiction to oversee functions of the authorities of the Board as also power to issue directions are circumscribed by the provisions contained in Sections 72 and 73 of the 1973 Act.
42.The Act envisages the following steps which are required to be complied with:
(a) Constitution of a planning area by notification under Section 13.
(b) Compliance of the detailed procedure set out under Sections 14 to 19, leading to sanction of the development plan under Section 19. The said procedure envisages compliance of principles of natural justice.
(c) Section 38 provides for establishment of a Town and Country Development Authority, by notification "for such areas as may be specified in the notification". Under sub-
section (2) thereof, duties of implementation of the development plan and preparation of the town development scheme have been cast on the Town and Country Development Authority.
(d) The town development scheme is to be prepared upon following the procedure set out under Section 50. The said scheme can be prepared only when there exists a development plan, prepared in accordance with the procedure prescribed under the Act as envisaged under Sections 14 to 19 and after notification under Section 38(1). In this regard, reference may be also be made to Section 2(u) of the Act, which describes a town development scheme to mean a scheme prepared for implementation of the provisions of the development plan.
43.Some significant facts which emerge from a scanning of these provisions of the relevant Act are:
1. The authority is constituted as a body corporate with a perpetual succession, common seal and with power to acquire and hold property.
2. It can sue and be sued in its own name.59
3. It has its own fund and an annual budget.
4. It can borrow money in its own name from State Government or open market.
5. It is the Director who is overall empowered to administer the Act and control the various authorities set up by virtue of enabling power conferred under section 38 of the Act
6. The decision of the authority is subject to moderation, review and substitution by the decision of the State Government.
7. It is subject to superintendence and control of the State Government.
8. It can grant permission to others to develop its own land.
9. The authority can incur pecuniary loss on account of acts of omission or commission by its officers, servants or other persons including chairman and State Government can order such person to make good such of the loss as well in addition to recovery, it may initiate any other action against such person as it may deem fit.
10.Authority land can be transferred by way of direct negotiations with the party, public auction, inviting tenders or under concessional terms.
44.In this scenario, the issue arises whether the appellant- authority being a mere implementing authority can be treated as an institution though it is a body corporate with a perpetual succession, common seal and with power to acquire and hold property, It can sue and be sued in its own name, It has its own fund and an annual budget and It can borrow money in its own name from State Government or open market but the overall control lies either with the Director of Town and Country Planning appointed under the Act and with the State Government in terms of sections 72 to 76 contained in Chapter IX of the Act. In a way, the appellant-authority sub serves the functions as an agency only on behalf of the State Government under its supervision and control which is exercised either through the Director of Town Planning or directly. The relevant provisions with regard to the appointment of Chief Executive Officers 60 contained in Chapter IX A and control over them exercised by the State Government also confirms this conclusion.
In Reserve Bank of India vs. Peerless General Finance and Investment Co. Ltd. [(1987) 1 SCC 424] this Court stated:
"... If a statute is looked at, in the context of its enactment, with the glasses of the statute-maker, provided by such context, its scheme, the sections, clauses, phrases and words may take color and appear different than when the statute is looked at without the glasses provided by the context. With these glasses we must look at the Act as a whole and discover what each section, each clause, each phrase and each word is meant and designed to say as to fit into the scheme of the entire Act. ..."
45.Whether ld. CIT can make enquiry at the time of grant of registration under section 12AA:
It has been held by Hon'ble High Court of Madhya Pradesh in the case of Shri Sarafa Association v CIT reported in (2007) 163 Taxman 228 (MP) that enquiries can be made by the CIT. Similar view is expressed by Hon'ble High Court of Delhi as well by the Delhi Bench of ITAT in the case of Kirtichand Tarawati Charitable Trust and in the case of Aryan Educational Society v CIT reported in (1999) 105 Taxman 686 9Del) and (2006) 281 ITR (AT) 72 (Del) respectively.
46. Whether the contention that the profits earned by the appellant-authority is ploughed back shall alone be the decisive factor in holding that the law of charities is applicable to the appellant-authority, is acceptable in law and on facts?
As could be seen that the profit after the payment of tax is carried over to the balance sheet of that year which increases the reserve and surplus of the appellant-authority. It is not accumulating or setting apart any specific fund for its objectives and the reason ascertainable from Form No 10B is that surplus is less than 15%. Since it is carrying on business, the surplus may always be less than 15%. Further, there is no year-wise segregation available in respect of reserve and surplus. It is indeed surprising that the appellant failed to satisfy the query made by Hon'ble Bench in connection with certain facts relating to the 61 particular transaction of the sale of plot of land to Reliance Industries Limited which Hon'ble required it to place before them.
Some institutions including a funeral house or an animal welfare organization or a superbazar charges large sums and makes huge profits. It is true that they render services of general public utility. Take another example of a blood bank which collects blood on payment and supplies blood for a higher price thereby making profit. Undoubtedly, the blood bank may be said to be a general public utility but if it advances its public utility by sale of blood as an activity for (making) profit, it is difficult to call its purpose charitable. It is just blood business. So is the situation in the case of the appellant-authority, it is just land business as can be seen from its accounts as well.
47. Whether reliance by the appellant-authority, being placed on certain decisions purportedly rendered in similar cases need to be followed?
Now, we shall briefly deal with the cases relied upon by the ld. Counsel for the assessee. In so far as the cases of market committees and Agriculture Produce marketing committees are concerned, the ratio of these cases is distinguishable in the sense that the context is entirely different. The Act under which these entities are established and the purpose for which established cannot be equated with the object and purpose of the appellant-authority. This would be evident from a comparison of relevant statutes establishing an Agriculture Produce Marketing Committee and the appellant-authority. In fact, the law has been amended with the insertion of Clause 26AAB in section 10 of the Act, whereby exemption earlier available to Agriculture Produce Market Committees has been restored by the Finance Act, 2008 with effect from 1/04/2009.
In so far as decisions in the cases of UP Awas & Vikas Parishad and others (2007) 162 Taxman 173 (Lucknow) is concerned, the issue was decided in favour of the appellants by holding that the land was being acquired by the State Government only for public purposes and that in case of dissolution of the authority, all the properties, funds and dues which were vested in or realizable by the authority, shall vest in or to be realizable by the State Government. There was no consideration of the issue as to what would be a public purpose. It is not necessary that every acquisition 62 can be held to be a public purpose. The affected person can always challenge such a decision in any court of law and therefore such a consideration, in humble submission could not be a relevant consideration for holding that the entity is a charitable institution involved in the advancement of an object of general utility.
The decision in the case of Improvement Trust (2007) 12 SOT 307 (Del), is also distinguishable as the decision is in the context of an altogether different statute and the activities carried out were also different. During hearing, the ld. Counsel for the assessee strongly placed reliance upon the decision in DIT vs. Garden City Educational Trust (2009) 28 DTR (Kar) 139. We are of the view that in this case, there was no finding of the ld. CIT that the assessee did not comply with any of the procedural requirements for registration and the assessee was imparting education for charitable purposes and there is a finding that it was not the case that the activities were not of charitable nature, therefore, this judicial pronouncement may not help the assessee.
The ld. Counsel for the assessee further placed reliance upon the decision in Himachal Pradesh Environment Protection and Pollution Control Board vs. CIT(2009) 125 TTJ (Chd) 98 by further pointing out that one of us (Judicial Member) is signatory to the order. We are making it clear that while rendering this decision, it has been observed as under:
"where an object of general public utility is not a mere mask to hide true purpose or rendering of any service in relation thereto, and where such services are rendered as purely incidental to or as sub subservient to be main object of general public utility, the carrying on of bona fide activities in furtherance of such object is not hit by the proviso to sec. 2 (15)."
Further, there is a finding that the activities of the assessee were genuine and preservation of environment has specifically been included in "charitable purposes" in the Act itself and since the Himachal Pradesh Environment Protection and Pollution Board is actively engaged in protecting the forest/environment, therefore, in that situation, the Chandigarh Bench in the aforesaid case decided in favour of the assessee. However, in the case of the present assessee, some objects/activities, though have 63 been mentioned, but practically the assessee is not doing any charity and is working like a businessman with the intention to earn maximum profit in a commercial manner.
48. This appeal was fixed and re-fixed on various dates for clarification. On 5.3.2010 the ld. Counsel for the assessee was directed to produce the relevant material to substantiate its submission which were claimed at page 42 of the written synopsis to which on 29.3.2010 the ld. Counsel for the assessee filed almost 20 documents wherein details of productive work in public trust were filed. The details are very lengthy which are summarized as under :-
[Details of unproductive work in public trust] Sr. Particulars Page No. Remarks No.
1. Audited A/cs. for F.Y. 2008-09 270-287 Not relevant since for & fromA.Y.2009-10,
2. Allocation of Tatal Exp. F.Y. 2008-09 288-290 the definition of the term "Charitable Purpose" in Section Sec.2 (15) is amended.
3. Details of Exp. F.Y. 2008-09 291-293 Since, IDA is engaged in business activities, it is not entitled for exemption under the amended law for & from the said assessment
4. Ledger A/cs. of city Environment & 294-312 year.
Development F.Y. 2008-09
5. Juni Indore ROB work*** 313-323 Photographs Nos. 188, 190, 193 of American Contractor M/s. Arvind Techno-Engineers Pvt.
Color Lab - Page No. 313-315 Ltd. Delhi.
Important Note -- Page No. 316.
6. M.Y.Hospital OPD Building*** (Hospital belongs 324-337
to the State Govt.) M/s. R.K.Patel & Co., Indore
Photographs Nos. 123-126 by American Color Lab - Page No. 324-325 Page No. 326 A.Yr. 2009-10 3.96 Crores -
A.Yr. 2010-11 4.19 Crores -
A.Yr. 2008-09 1.90 Crores
10.05 Crores
7. Bridge Extension & New Bridge on Khan River*** 338-353
Photographs - Page no. 338 Contractor M/s. K.G.Gupta, Indore
Page no. 339-
8. Gangour Ghat on Khan River*** 354-361 Contractor M/s. Parshwa Builders, Indore
No Photographs
Page no. 354
A.Yr. 2008-09 0.17 Crores
A.Yr. 2009-10 0.12 Crores
A.Yr. 2010-11 0.59 Crores
0.88 Crores
9. Suspension Bridge*** 362-368 M/s. Ramdin Ultratech Pvt.Ltd., Indore
64
Photographs Sr. No. 175 - Page no. 362
Page no. 363
A.Yr. 2009-10 0.30 Crores
A.Yr. 2010-11 0.25 Crores
0.55 Crores
10. Bhagirathpura to Sukhliya Road Bridge*** 369-373 Contractor: Sunil Chaudhary, Indore
No Photographs
Page no. 369
A.Yr. 2010-11 1.09 Crores
11. Kesharbagh ROB Work*** 374-382
Photographs Sr. No. 180, 182 of American Color Contractor M/s. Arvind Techno-Engineers Pvt.
Lab - Page No. 374-376 Ltd. Delhi.
Page no. 377
A.Yr. 2008-09 2.40 Crores
A.Yr. 2009-10 7.06 Crores
9.46 Crores
12. BRTS 14.05 km. Corridor*** 383-409 M/s. Niraj Pratibha JV, Mumbai
Photographs Sr. Nos. - 7,22,25,28,31,34, 10,13,16,19 Page No. 383-394 - American Color Lab Page no. 395 Under JNNURM Plan A.Yr. 2007-08 0.32 Crores A.Yr. 2008-09 18.82 Crores A.Yr. 2009-10 10.49 Crores A.Yr. 2010-11 16.97 Crores 46.60 Crores
13. BRTS 06.50 km. Corridor*** 410-423 Photographs Page No. 410-414 M/s. Niraj Cement Strictures Pvt. Ltd., Page no. 415 Mumbai
14. BRTS 04.75 km. Corridor*** 424-439 Photographs Page No. 424-427 M/s. Niraj Cement Strictures Pvt. Ltd., Page no. 428 Mumbai Under JNNRUM Plan 30% is contributed from own sources A.Yr. 2007-08 0.08 Crores A.Yr. 2008-09 2.34 Crores A.Yr. 2009-10 3.26 Crores A.Yr. 2010-11 3.11 Crores 8.79 Crores
15. Western Ring Road*** 440-441 A.Yr. 2009-10 (No further details)
16. Building for Old Aged Homes*** 442-450 Photographs Sr. No. - 207 Page No. 442 - M/s. Aditi Builders, Indore American Color Lab Page no. 443 A.Yr. 2008-09 0.76 Crores A.Yr. 2009-10 0.18 Crores 0.94 Crores
17. Building for Slums Inhabitants*** 451-456 No work order issued to Photographs Sr. No. 54, 48 - American Color Lab M/s.Dharam Das Tirath Das Construction
- Page No. 451-452 Pvt.Ltd., Indore.
Page no. 453
A.Yr. 2006-07 1.34 Crores
A.Yr. 2007-08 4.07 Crores
A.Yr. 2008-09 1.19 Crores
6.60 Crores
18. Building for Slums Inhabitants***-JNNRUM 457-470 M/s.Dharam Das Tirath Das Construction
Plan Pvt.Ltd., Indore.
Photographs Sr. No. 43 - American Color Lab -
Page No. 457 M/s. Tirath Das Shukab Das Construction
Page no. 458 Pvt.Ltd., Indore
JNNRUM Plan
A.Yr. 2007-08 0.09 Crores Ashutosh Sharma
A.Yr. 2008-09 2.00 Crores 11, Menon Colony, Indore
2.09 Crores
19. Pipliyapala Regional Park Development Work*** 480-533
Photographs - Page No. 480-487
65
Page 488
A.Yr. 2008-09 2.81 Crores
A.Yr. 2009-10 25.12 Crores
A.Yr. 2010-11 16.49 Crores
44.42 Crores
20. Constituency wise details of Non-plan 534
exp.(Unproductive work)
A.Yr. 2009-10
A.Yr. 2010-11
NOTE:- In respect of all the works included above and marked with (***), it is noticed that there are remarks by the appellant in Hindi which when translated in English would mean "that there will be no income to the Authority from this work".
If the above details are analysed following facts are emerging: -
• In all, total expenditure in respect of the works included in the compilation for the assessment year 2008-09 aggregates to Rs 36.47 Crores only.
• The purpose of filing these papers can be likened with the conduct of a businessman who after giving donation of some amount or spending on some philanthropic purpose, claims that he should be treated as a charitable organization & his entire income should therefore be exempt from tax.
• This conduct becomes more obvious when each & every work included in this compilation is qualified on behalf of & by appellant with narration in Hindi which when translated in English would mean that from this work, no income would generate to the Authority. All the 20 documents forming part of the compilation itself are 'interestingly' marked with the title "unproductive work" and thus convey the "real" intention of the appellant that it is primarily engaged in business activities with profit motive.
• For some of these works Grant-in-Aid is received either from the Central or the State Government. All these works are executed by the contractors and not by the Authority.
• These facts go against any avowed object of charity.
• The appellant has sought to furnish this bulky information in support of its claim that it is engaged in activities which may fall within the ambit of the term 66 'Object of general public utility', but has failed to furnish any information required by Hon'ble Bench in respect of the 'impugned' plot sold to the Reliance industries Ltd. It is pertinent to mention here that on earlier occasion also the Bench directed the assessee to furnish the details of cost of acquisition of the said plot paid by the Authority to the 'original' owner(s), the purpose for which it was earmarked in the 'Master Plan' of the city at the time of acquisition, whether any change was made in the 'stated' purpose subsequently and if so when. The assessee was also directed to furnish the details of cost of acquisition of land from the farmers at-least in the recent past, cost of development charges incurred by the assessee and at what rate, after development was sold. The assessee perhaps deliberately or reasons best known to it did not furnished these details, therefore, this proves the mala-fide intention of the assessee.
49.The Chandigarh Bench of the Tribunal in the case of Punjab Urban Planning and Development Authority (2006) 156 Taxman 37 (Chd) wherein one of us (Judicial Member) is signatory to the order, identically, deliberated upon the issue. The relevant portion of the order is reproduced hereunder:
"5. Before coming to any conclusion, we are supposed to see the meaning of the word 'charitable purpose' which has been defined in Section 2(15) of the act which includes relief of the poor, education, medical relief and advancement of any other object of general public utility. A strong contention was raised by the ld. counsel for the assessee that the assessee/PUDA is also executing the development of following works/infrastructures :
a) Development of rehri market.
b) Water supply & sewerage.
c) Development of Sports Complexes.
d) Bridges.
e) Bus queue shelters.
f) Bus Stands.
g) Swimming Polls
h) Community Centres
i) Public Toilets
j) Development of Parks.
k) Cremation Grounds.
l) Construction of schools etc. If the purpose of the Act, which is available at Page 13 of the paper book of the assessee and to which our attention was also drawn, it speaks about various amenities and utilities as has been 67 mentioned in Section 2 (b) of the said Act. The ld. counsel for the assessee during argument took a strong plea that on identical facts registration under section 12A of the Act was accorded to Patiala Urban Planning & Development Authority, Patiala vide Order under section 12AA of the Act dated 28.9.2005 by the Commissioner of Income Tax, Patiala, the objects of which are identical to the present assessee. If the Act under which the assessee was constituted is analysed, it includes the state of Punjab excluding Patiala. Shri Ajay Vohra contended that it can be said that Patriala authority is part of the state and when registration has been granted to Patiala authority, then no two yard sticks should be adopted. At the outset, we are of the view that we are not agree with the contention of the ld counsel because 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, resjudicata is not applicable in income tax proceedings. We do not want to comment as why and how the registration was granted to Patiala authority as the same is not pending before us for adjudication. Reliance can be placed upon the decision pronounced by the Hon'ble Apex Court in the case of Distributors (Baroda) Private.
Ltd. Vs. UOI & Others wherein the Hon'ble Apex Court held that "It is almost as important that the law should be settled permanently as that it should be settled correctly but there may be circumstances where public interest demands that the previous decision be reviewed and re-considered. The doctrine of stare decises should not deter the court from overruling an earlier decision, if it is satisfied that such decision is manifestly wrong or precedes upon a mistaken assumption in regard to the existence or continuation of a statutory provision or is contrary to another decision of the court." However, two views reasonably may be possible. Perpetuation of error is not a heroism. However, we make it clear that this observation of ours should not be treated to bear any affect in the case of Patiala authority. At the same time, the order passed by a lower authority is not binding on the Tribunal. However, it may be a good arguable point by the parties, This issue requires deliberation from a different angle whether the assessee was constituted to provide any charity to the public at large or to satisfy the needs for housing accommodation for the people of Punjab and also planning and development of the cities, towns and villages or whether the development in such a way is of charitable nature. A plea was raised by the ld. counsel for the assessee that funds are provided by the Punjab Govt. or generated by the assessee itself. To generate its funds for carrying out its objects, the assessee is acquiring lands, developing them and selling the plots to the general public who applies for the same. Even the economically weaker strata of the society is generally applying. It is not the case that the assessee is allotting houses to the poor masses free of cost. The Hon'ble Apex Court in the case of CITVs. Thanthi Trust (247 ITR
785) has deliberated upon the issue of charitable purposes wherein the founder of a daily newspaper created a Trust in March, 1954 and 68 the objects of the trust were originally to establish newspaper as an organ of educated public opinion for the Tamil reading public. In July, 1957, a supplementary deed making the trust irrevocable and another supplementary deed for establishing and running a school/college for teaching Journalism were added. The question before the Hon'ble Court was whether the income of the Trust was exempt from income tax during the relevant period. The Hon'ble Apex Court while coming to a particular conclusion reversed the decision of the Hon'ble High Court of Madras and held that the trust did not fall within the provisions of Section 11(4A), as it then stood, and was not entitled to exemption from tax.
The Hon'ble Apex Court also considered various judicial pronouncements which were referred to it by the respective counsels as are available in the said order specially at Page 787. However, there is a major shift in the law with regard to institutions who are claiming charities. This is a well known fact that in some of the situations the provisions of law is 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 provisions 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. We are aware that 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 garb of charity and any institution is allowed to become richer and richer under the garb of charity by making it a non-tax payable organization. In the case of Surat Art Silk Cloth Manufactures Association and Bar Council of Maharashtra cases, it was held that what is predominant object of the activity - whether r it is to carry out a charitable purpose and not to earn profit - the purpose should be that it should not loose its charitable character ---------.
The major thrust of the ld. counsel for the assessee is that PUDA is of general public utility as it satisfies the need for housing accommodation for the section of the people of state of Punjab and is also doing planning and development of the cities, towns and villages. We are not agree with the argument of the ld counsel because a charitable institution provides services for charitable purposes free of cost and not for a gain. In the present scenario, the similar activities are performed by big colonizers/developers who are earning a huge profit. If this registration is granted, then we will open a Pandora Box and 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. In such a situation, we are of the view that no charity is involved and 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 or the money is coming from the coffer of the Govt.
69It can be said that objects/activities of the assessee are more of commercialized nature and we do not find any charity in it. At the same 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 Govt. to create/provide all these facilities to public at large, which is being done through this agency in a particular area. At the same time, the funds which are provided to the assessee by the govt. is again a public money or generated from the public itself, so where is the charity? If the activities of the assessee and the arguments of both the ld counsels are put in a juxta position, it can be said that 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 a profit therefrom. A new trend has also emerged that PUDA, i.e. 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, we are of the view that no charity is involved. Rather the assessee has converted itself into a big businessman. Similar development/infrastructure/facilities are provided by big developers these days, then they will also claim the status of a charitable institution.
During argument the ld counsel relied upon the decision of the Hon'ble Apex Court pronounced in the case of Adldl. CIT Vs. Surat Art Silk Cloth Manufactures Association (121 ITR 1) (SC) where the assessee was incorporated under the Companies Act wherein the dominant or the primary purpose of the assessee was to promote commerce and trade in art silk yarn, raw silk, cotton yarn, art silk cloth, silk cloth and cotton cloth as set out in Clause (a) and the object specified in Clauses (b) to (e) and the object was found to be public utility not involving the carrying on of any activity for profit within the meaning of Section 2(15), the assessee was held to be entitled for exemption under section 11 (1)(a) of the Act. However, Hon'ble Justice Sen passed a dissenting order but in the present case there is a profit motive of the assessee, so will not help in any manner.
Reliance was also placed on the decision of the Hon'ble Apex Court pronounced in the case of CIT Vs. Andhra Pradesh Road Transport Corporation wherein the object of the assessee was development of roads, improving facilities for road transport and providing efficient and economical system of road transport service, the entire capital was provided by the State Govt. and the profits were utilized for providing amenities to the passengers and welfare of labour and approved expansion program and the remainder to be made over to the state govt. for road development, it was held to be of charitable purposes and thus income was exempted but it is not so in the case of the present assessee. The Hon'ble Apex Court in the case 70 of CIT Vs. Bar Council of Maharashtra (130 ITR 28) (SC) where the primary/dominant purpose was for the advancement of object of public utility, it was held to be entitled to exemption.
The ld. counsel for the assessee, during argument raised a plea that totality of circumstances has to be seen specially that all money goes with the state govt. and not in private hands, the prices are fixed and the assessee is not a commercial organization and the predominant activity of the assessee is to develop infrastructure and contended that rule of consistency has to be seen for which reliance was placed upon the decisions pronounced in 249 ITR 219, 257 ITR 59, 130 ITR 186 and also the decision in the case of CIT Vs. United Vanaspati Ltd. (2004) 88 ITD 313 (Chd.)™. We are of the view that principles of resjudicata do not apply to income tax proceedings. However, we are agree with the ld counsel to the extent that equally important is the rule of consistency. We are of the view that consistency has to be seen in totality of circumstances which depends upon facts of each case in the light of primary object and real activities done by the assessee, so these judicial pronouncements in our humble opinion is not going to help the assessee. The Hon'ble High Court of Delhi in the case of Daulat Ram Public Trust Vs. CIT 244 ITR 514 (Delhi) wherein on scrutiny of objects of the assessee Trust, there was no defined dominant charitable purpose in the Trust Deed to which the said objects would serve as ancillary objects and which were meant to feed the dominant purpose. Clause 21 of the Trust Deed empowered the Chairman of the trust to spend the funds of the Trust for the purchase of immovable property and since no part of the income of the Trust was applied on any specific charitable purposes, the exemption under section 11 of the Act was denied. The Hon'ble court relied upon various judicial pronouncements which are available at Page 515 of the said order and then came to a particular conclusion. In view of these facts and judicial pronouncements, we are supposed to see the predominant object of the assessee. If all the objects and activities actually carried out by the assessee are analysed and kept in juxta position with the aforesaid judicial pronouncements, we are of the view that activities of the assessee are more of commercial nature with profit oriented intent, so no leniency should be shown to the assessee. The department may also get support from the decision of the Hon'ble Patna High Court as pronounced in the case of Bihar State Forest Development Corporation Vs. (224 ITR 757) where the govt. company was formed for promotion and development of forestry. The assessee Corporation permitted under Memorandum of Association to engage in commercial activities and there was no restriction on application of money, the Corporation was not held to be a charitable trust and consequently not entitled to exemption. Similar is the case in the present appeal of the assessee. During arguments, the ld. counsel for the assessee invited our attention to the case of Maharshtra Housing & Area Development Authority wherein registration was granted. The ld CIT DR contended that in the case of Market Committee, the ownership remains with the Committee but in the case of the assessee it goes to 71 individual and the ld CIT was not satisfied with the explanation of the assessee. Likewise, in the judicial pronouncements in 165 CTR 446 as relied by the assessee, it can be said that it is a religious Trust, so not applicable to the present facts as the assessee is auctioning the plots on huge profits and even the Hon'ble courts are intervening to enhance compensation on petitions filed by land owners. However, if the argument of the assessee is analysed on point of general public utility, still it can be said that commercial angle with profit motive is involved which has become predominant object of the assessee. Even if this issue is analysed as contended by the ld. counsel for the assessee that application of income is not the criteria in the light of the decision of Hon'ble High Court of Allahabad in the case of Fifth Generation Education Society Vs. CIT(1990) 185 ITR 634 (All.), still we are of the view that if the objects and real situation is analysed, the objects are not of charitable nature. Almost in every activity there is a scent of commercialization/profit motive but in the charitable institution no profit motive is involved and the service is done mainly with the intent of social/religious upliftment of the masses in general. Admittedly, the assessee is doing some activities like housing/infrastructure development and the public is also benefited but for the same the assessee has already charged in the from of hidden cost. Rather the assessee is generating income, so no charity is involved. We are agree with the conclusion of the ld CIT, as contended by ld. CIT DR, that a charitable institution provides services for charitable purposes free of cost and for no gain and are for the benefit of public at large. As we have discussed in the preceding para, the assessee acquires land at nominal rates and after developing the same, the same land on high profit which cannot be said to be a charitable activity. Even just for argument sake, under the present facts, if registration is granted then every private colonizer will claim charity. The facilities which are provided to the plot holders are incidental to the commercial activity carried out by the PUDA and if certain facilities like parks, community center school are provided is not only basic requirement, rather a tool of 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 and judicial pronouncements, we are of the view that the application of the assessee has been rightly rejected by ld CIT. The stand of the ld CIT is upheld. Appeal of the assessee is therefore dismissed."
50.In the aforesaid case, the Chandigarh Bench of the Tribunal on identical facts has considered various judicial pronouncements and ultimately decided the issue in favour of the revenue. Likewise, the Amritsar Bench of the Tribunal in the case of Jalandhar Development Authority vs. CIT(ITA No.562/Asr/2008) placed reliance upon the aforesaid decision of the Chandigarh Bench in the case of 72 PUDA and also considered various other decisions like Gujarat Maritime Board (295 ITR 561) (SC), CITvs. Market Committee (294 ITR 563) (P & H), CIT vs. Improvement Trust (308 ITR 361 (P & H) and CIT vs. Market Committee (294 ITR 563) and ultimately, decided the issue in favour of the revenue. The Hon'ble P & H High Court in the case of Market Committee (supra) held:
"The sources of income of a market committee are statutorily defined under sections 10 and 23 of the Markets Act. The manner of utilization of the funds of the market committees, namely, the market committee fund, has been statutorily expressed in section 28 of the Markets Act. The obligations discharged by a market committee include the regulation of purchase, sale, storage and processing of agricultural produced, with the intention of benefitting the producers, as well as the consumers of agricultural products. A market committee is obliged to provide conveniences for persons visiting a market area, like providing for shelter, shade and parking facilities. A market committee is also obliged to look after the safety, health and convenience of persons visiting the market area. A market committee is also obliged to construct and repair link roads, approach roads, culvert and bridges etc. One of the many specified activities of a market committee is to extend loans to financially weak communities, as well as in the repayment of such loans and the interest thereon. The activities of the market committee were non-profit oriented. The activities of the market committee specially in view of the provisions of the Markets Act, statutorily delineating the activities, duties and responsibilities of a market committee, are certainly activities which fell within the framework of through words ".. any other object of general public utility", contained in the definition of the term "public purpose" in section 2(15). Thus, the market committee in question was a charitable trust u/s 11."
The ld. Counsel for the assessee mainly relied upon the decision in Gujarat Maritime Board (supra), therefore, we are reproducing hereunder the relevant portion of the order:
"14. We have perused number of decisions of this Court which have interpreted the words, in section 2(15), namely, 'any other object of generally public utility'. From the said decisions it emerges that the said expression is of the widest connotation. The word 'general' in the said expression means pertaining to a whole class. Therefore advancement of any object of benefit to the public or a section of the 73 public as distinguished from benefit to an individual or a group of individuals would be a charitable purpose - CITv. Ahmedabad Rana Caste Association (1983) 140 ITR 1 (SC). The said expression would prima facie include all objects which prom ote the welfare of the general public. It cannot be said that a purpose would cease to be charitable even if public welfare is intended to be served. If the primary purpose and the predominant object are to promote the welfare of the general public the purpose would be charitable purpose. When an object is to promote the interest of a particular trade or industry that object becomes an object of public utility, but not so, if it seeks to promote the interest of those who conduct the said trade or industry -CIT v. Andhra Chamber of Commerce (1965) 55 ITR 722 (SC). If the primary or predominant object of an institution is charitable, any other object which might not be charitable but which is ancillary or incidental to the dominant purpose, would not prevent the institution from being a valid charity - Addl. CIT v. Surat Art Silk Cloth Mfrs. Association (1980) 121 ITR 1 (SC)
15. The present case in our view is squarely covered by the judgment of this Court in the case of CIT v. Andhra Pradesh State Road Transport Corpn. (1986) 159 ITR 1 in which it has been held that since the Corporation was established for the puirpose of providing efficient transport system, having no profit motive, though it earns income in the process, it is not liable to incometax.
16. Applying the ratio of the said judgment in the case of Andhra Pradesh State Road Transport Corpn. (supra), we find that, in the present casae, Gujarat Maritime Board is established for the predominant purpose of development of minor ports within the State of Gujqaarat, the management and control of the Board is essentially with the State Government and there is no profit motive, as indicated by the provisions of sections 73, 74 and 75 of the 1981 Act. The income earned by the Board is deployed for the development of minor ports in India. In the circumstances, in our view, the judgment of this Court in Andhra Pradesh State Road Transport Corpn's case (supra) squarely applies to the facts of the present case.
17. Before concluding we may mention that under the scheme of section 11(1) of the 1961 Act, the source of income must be held under trust or under other legal obligation. Applying the said test it is clear that Gujarat Maritime Board is under legal obligation to apply the income which arises directly and substantially from the business held under trust for the development of minor port in the State of Gujarat. Therefore, they are entitled to be registered as 'Charitable Trust' under section 12A of the 1961 Act.
18. For the aforestated reasons, we see no infirmity in the impugned judgments of the High Court and Tribunal and consequently Civil Appeal stand dismissed with no order as to costs."
The Hon'ble Apex Court in the case of CIT vs. Surat Art Silk Cloth Manufactures Association (1980) 121 ITR 1 held as under:
74"The true meaning of the last ten words in S. 2(15), viz, "not involving the carrying on of any activity for profit", is that when the purpose of a trust or institution is the advancement of an object of general public utility, it is that object of general public utility and not its accomplishment or carrying out which must not involve the carrying on of any activity for profit. So long as the purpose does not involve the carrying on of any activity for profit, the requirement of the definition would be met and it is immaterial how the monies for achieving or implementing such purpose are found, whether by carrying on an activity for profit or not."
51.If the aforesaid observation of the Hon'ble Apex Court is analysed then business income of the assessee institution became entitled to exemption because such business was carried on to advance an object of general public utility notwithstanding the words "not involving the carrying on of any activity for profit". In section 2(15) the said decision resulted in the amendment to section 2(15) & 11 by Finance Act, 1983 w.e.f. 1st April a1984 and the words "not involving the carrying on of any activity for profit" omitted by Finance Act, 1983 w.e.f. 1.4.1984 in section 2(15) and profits and gains from business or profession were made expressly taxable through insertion of sub-section (4A) in section 11. Therefore, the case of the assessee is not on sound footing because of amendment. The Hon'ble Apex Court in the case of Surat Art Silk Cloth Manufactures Association (supra) further held (Head Note):
"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 utilised for their benefit either during its operation existence or on its winding up or dissolution. The assessee's income was derived primarily from two sources; (i) an annual subscription collected from its members at the rate of 3 per powerloom, in regard to which it was conceded by the Department that it was exempt from tax; and (ii) commission of a certain percentage of the value of licenses for import for foreign yarn and quotas for purchase or indigenous yarn obtained by the assessee for its members. This commission was credited separately in a building account and out of this amount the assessee constructed a building. The Tribunal held that the primary 75 purpose for which the assessee was established was to promote commerce and trade in art silk, silk yarn and cloth as set out in clause (a) and the other objects in clauses (b) to
(e) were merely subsidiary objects; that the primary purpose was plainly advancement of an object of general public utility and did not involve the carrying on of any activity for profit within the meaning of section 2(15) of the Income Tax Act, 1961, because whatever activity was carried on by the assessee in fulfillment of the primary purpose was for advancement of an object of general public utility and not for profit; and that, therefore, the assessee's income was exempt from under section 11(1)."
52.If the aforesaid decision from the Hon'ble Apex Court is kept in juxta-position with the facts of the present appeal, it can be said that the aforesaid decision is distinguishable on facts because the objects for which the assessee was formed may appear to be of general public utility whereas in the case of the assessee, it is purely a commercial organization and there is no restriction as to how its income is to be utilised. Considering the principle set out by the Hon'ble Apex Court, we find that the assessee is a commercial organization just like any business firm engaged in any real estate business. Further, in the case of Indian Chamber of Commerce vs. CIT(101 ITR 796) (SC), the Hon'ble Apex Court 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. Section 2(15) must be interpreted according to the language used therein and against the background of Indian 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."
Commercial education activity and private coaching institutes are therefore not covered within the provisions of sec. 2 (15) for which reliance can be placed in CIT vs. National Institute of Aeronautical Engg. Education Society 76 (2009) 184 Taxman 264 (Uttarakhand) and Bihar Institute of Mining and Mining Surveying vs. CIT(1994) 208 ITR 608 (Pat). Even otherwise, the onus on the assessee to prove that the objects are of charitable nature as was held by Hon'ble Apex Court in Indian Chamber of Commerce vs CIT(101 ITR 796) (SC). The word "general public utility" though very wide, would exclude objects of private gain, such as an undertaking for commercial profit though all the same it would serve general public utility [All India Spinners Association vs. CIT- (1994) 12 ITR 482) (PC)]. The ratio laid down in following cases further fortifies the case of the revenue:
a. CITvs. Indian Sugar Mills Association (97 ITR 486) (SC), the income of a trade union, however, exempt u/s 10(24).
b. Madras Hotel Association vs. CIT(111 ITR 241) (Mad), an association of hotel proprietors formed for procuring articles on permit and supply them to its members and protecting the interest of its members.
c. Bangalore Race Club vs. CIT(77 ITR 435) (Mys). d. Cricket Association of Bangal vs. CIT(37 ITR 277) (Cal).
e. South Indian Athletic Association vs. CIT( 107 ITR 108) (Mad).
f. CITvs. Andhra Pradesh Riding Club (168 ITR 393) (AP). g. Delhi Stock Association vs. CIT(91 Taxman 273) (SC). h. CITvs. Ernakulam District Cement Association (253 ITR
198) (Ker).
i. Hyderabad Race Club vs. CIT(153 ITR 521) (AP) (FB). j. CIT vs. Kamla Town Trust (84 Taxman 248) (SC).
52.To sum up, if the totality of facts/case-laws as narrated above and the arguments advanced by the ld. respective counsel are kept in juxta-position and analysed, in our humble opinion , the assessee is not engaged in activities of relief to poor, education, medical relief and/or advancement of any other objects of general public utility as defined in sec. 2(15) of the Act. Rather the assessee is actually not 77 carrying out any activity of advancement of objects of general public utility which can be considered to be "charitable" rather the primary object of the assessee is to earn profit only. In other words, the purpose of the assessee is not an advancement of object of general public utility rather the activities involve activity of profit, therefore, these cannot fall within the purview of sec. 2(15) rather the assessee is engaged in active business and there is no restriction in its objects of making profit. There is a possibility that at the time of creation of these authorities like the present assessee i.e. Indore Development Authority, Punjab Urban Development Authority, Jalandhar Urban Development Authority or like any other may be pious but ultimately, these authorities turned into a commercial organization with the sole intention to earn maximum profit even at the cost of poor farmers whose lands are acquired, for namesake considered to be backbone of this great country, are paid negligible amount as compensation and after incurring development cost, the same land is sold at commercial rates. The helpless farmers sometimes have no means of even livelihood. Further, the profit motive of the assessee is not incidental to the objects of the assessee authority rather there is a systematic commercial activity with the intention to earn maximum profit. It is not the case that the assessee, after earning huge profit from such commercial activities, is spending such profit on charitable activities rather there is no obligation on the assessee to spend its earnings for charitable purposes. These authorities have become a great source of earning income in itself and the assessee authority is no exception to it. It is common knowledge/fact that the assessee authority is selling the developed plots on auction to the highest bidder and one such example is sale to Reliance near Sayaji Hotel as asserted by the learned CCIT DR which was not controverted by the assessee. Now a days because of this trend of auction, it has become very difficult for a common man to purchase a plot for shelter from the assessee authority. As far as the contention of the ld. Counsel for the assessee that the IDA is providing roads, schools, parks, clubs, etc., these facilities are provided by private builders rather these have become a source of attraction for getting maximum application that too on a high premium. Even when applications are invited by the assessee authority, lacs 78 of people are applying and the cost of the application form which may be in thousand/thousands, is never returned to the applicants who do not get the plots. Even the security/advance money taken with the application forms is returned after a long time without interest to the persons not getting plots, resulting into huge profit to the assessee authority and loss the public at large. In such a situation, what charity the assessee is doing is not known/beyond imagination. If registration is granted to the assessee, it will open a pandora box wherein every colonizer/builder will ask for registration under section 12AA of the Act, which would be very much indifference to the intention of the legislature. In fact, the assessee authority is working on commercial pattern like a big businessman. Even otherwise, if some plots are reserved for economically weaker sections of the society, firstly, there is no parameter that these are actually allotted to such poor persons and secondly, the hidden cost is already added to such plots. It is pertinent to mention here that the legislature in their wisdom amended sec. 2(15) through the Finance Act, 2008 in the case of Trade Association claiming both to be charitable institution and mutual organization by adding a proviso which states that "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 or (b) 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 huge or application or retention or the income from such activity. By circular no.11 of 2008 dated 19.12.2008, it has been further clarified whether the assessee has for its object, "the advancement of any other objects of general public utility" is a question of fact. If such assessee engages in any activity in the nature of trade, commerce or business or render any service in relation to trade, commerce or business, it would not be entitled to claim that its objects are of charitable purposes. In such a case, the objects of "general public utility" will only be a "mask" or a device to hide the true purpose which is trade, commerce or business or the rendering of any service in relation to such trade, commerce or business. Each case would, therefore, be decided on its own facts and no generalization is possible, therefore, any misuse was intended to be removed by this 79 circular. The very concept of "charity" denotes altruistic thought and action. It objects must necessarily be to benefit others rather than one's self. The action which follows from charitable thinking is always directed as benefit to others. It is this direction of thought and efforts and not the result what is done in term of financially measurable gain which determines that it is charitable [quoted from Sole Trustee Lok Shikshan Trust vs. CIT(101 ITR 234) (SC)]. Since the main predominant object of the assessee is profit making, therefore, we find no infirmity in the impugned order in denying registration u/s 12A/12AA of the Act to the assessee. Thus, on this issue, we affirm the stand taken by the ld. first appellate authority. Before part with, we record our appreciations to Shri P.M. Choudhari along with Shri Anil Kamal Garg, ld. Counsels for the assessee and Mr. Girish Dave, ld. CCIT, DR for properly assisting the Bench by their valuable, tempting and useful arguments.
Finally, the appeal of the assessee is partly allowed. Order pronounced in the open Court on 6th July, 2010."
5. If the totality of facts advanced before us by the learned respective counsels and the discussion made in the aforesaid case of Indore Development Authority which is also an extended arm of the State Government, as claimed in the present appeal, are kept in juxtaposition and analysed, we find that in fact the roads are constructed by the private contractors on behalf of the assessee Corporation and such private contractors are charging huge toll tax from the public at large, therefore, what charity is done by the assessee is beyond imagination. We tried our best to persuade ourselves to 80 consider the submissions of the assessee but ultimately found that the objects of the assessee on papers may be good but now the question arises whether these objects are really fulfilled. The obvious reply is "No" because it is the claim of the assessee itself that these roads are built by the private contractors and toll tax is charged by them from the public at large for using such roads. There was a time when the roads were directly constructed by the Government and no toll tax was charged from the public and as such may be a charity by the Government to the public. Here the position is reverse. We have perused the following balance-sheet of the assessee as on 31st March, 2010 which has been made part of the paper book of the assessee (pages 25 and 26 i.e. accounts for the year 2009-10).
Particulars Sch. Current year Previous Year
No. (In rupees) (in rupees)
(I)INCOME 14531329 11792441
Project Monitoring Fees
Establishment Charges on 18577755 14503408
BOT Projects
Supervision Charges on 116505800 161665895
General Contract 8 56307779 68869548
Other Income 76001633 160913669
Interest on Deposits (606595) (1818837)
Prior Period Income (Exp.)
281317701 415926124
81
(II) EXPENDITURE
Salary & Other benefit to 9 54467661 32559039
employees
Administrative & other 10 80877909 68800462
expenses
3674801 4704854
Depreciation 139020371 106064355
Profit before Tax 142297330 3 309861769
Provision for income tax 22220221 116766756
Deferred Tax liabilities/Assets (552598) (506125)
Profit After Tax 120629707 193601138
Proposed dividend
36000000 23000000
Tax on Dividend
6118200 3908850
Balance Profit carried to
balance-sheet 78511507 166692288
Earnings Per Share
(Weighted Average)
Basic Rupees 4.36 14.49
Diluted Rupees 10.27
3.28
Applying the proposition as laid down in the case of Indore Development Authority (supra), we find that even as per the audited statement of accounts as placed on record, there is profit of Rs. 14.22 crores in the year ending on 31st March, 2010 and Rs. 30.98 crores during the year ending on 31st March, 2009. Not only this, the assessee itself has also made 82 provision for income tax on such income at Rs. 2.22 crores and Rs. 11.67 crores in the year ending on March 31, 2010 and 31st March, 2009 respectively. Under these facts, by no stretch of imagination, it can be said that the assessee is meant for any charitable purpose. Thus, we do not find any infirmity in the order of the Commissioner of Income Tax in declining registration u/s 12A/12AA read with section 2(15) of the Act.
Even as per the audited report, nowhere the auditor has certified the assessee Corporation as charitable whereas the audited accounts themselves indicate that it is carrying on the organized activity of business and trade with a motive to earn profit. Since it was a business enterprise, the auditors in their report dated 15th September, 2010 had clearly mentioned that they have audited the profit and loss account of the assessee Corporation. However, in case of charitable institution, only income and expenditure account is prepared and verified by the auditor and not profit and loss account.
Nowhere in its audited report, the auditor has identified the assessee Corporation as charitable organization not for profit 83 whereas he has certified that the accounts maintained by the assessee declared huge profits and made provision for income tax thereon as per the Income Tax Act. In this view of the matter, we do not find any infirmity in the impugned order in declining grant of registration u/s 12A/12AA of the Act and confirm the same.
Finally, the appeal of the assessee is dismissed.
Order pronounced in the open Court in the presence of learned representatives of both the sides at the conclusion of the hearing on 20th June, 2011.
(R.C.SHARMA) (JOGINDER SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 20.6.2011
Copy to: Appellant, Respondent, CIT, CIT(A), DR, Guard File Dn/-