Income Tax Appellate Tribunal - Cochin
Kerala Industrial Infrastruture Dev ... vs Assessee on 24 December, 2014
ITA No287/Coch/14 & CO 30/C/2014
IN THE INCOME TAX APPELLATE TRIBUNAL
COCHIN BENCH, COCHIN
BEFORE S/SHRI N.R.S. GANESAN, JM & CHANDRA POOJARI, AM
ITA No.287/Coch/2014
(Asst Year 2010-11)
&
Cross Objection No.30/Coch/2014
The Asst Director of Income Tax Vs Kerala Industrial Infrastructure
(Exemption) Development Corpn
Trivandrum TC No.31/2312 KINFRA House
Sasthamangalam PO
Trivandrum 695 010
( Appellant/Respondent) (Respondent/Cross Objector)
PAN No. AABCK0384K
Assessee By Sri G Sarangam/
Sri C Pankajkrishnan
Revenue By Sri M Anil Kumar, CIT-DR
Date of Hearing 13th Nov 2014
Date of pronouncement 24th Dec 2014
ORDER
PER CHANDRA POOJARI, AM:
The appeal by the revenue and the Cross Objection by the assessee are is directed against the order dated 14.2.2014 of the CIT(A)-V Kochi and its relates to the AY 2010-11.
1. The order of the learned Commissioner of Income Tax (Appeals)-V, Kochi in so far as on the points mentioned below are concerned is opposed to law on the facts and circumstances of the case.
2. The learned Commissioner of Income tax(Appeals) ought to have noted that as per the recent amendment in Section 2(15) with effect from A.Y 2009-10, it is clarified the advancement of any other object 1 ITA No287/Coch/14 & CO 30/C/2014 of general public utility shall not be a charitable purpose, " if it involves carrying on activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to trade, commerce or business, for a cess or a fee or any other consideration irrespective of the nature of or on application, or retention of the income from such activities" and receipts exceeds Rs.25 lakhs.
3. The learned Commissioner of Income Tax (Appeals) has erred in allowing the exemption claimed u/s 11 on the basis that their activities are 'charitable' in nature when the assessee itself has admitted that it has received Rs.64.85 crores from sale of land and leasing.
4. For these and other grounds that may be advanced at the time of hearing the order of the learned Commissioner of Income-tax (Appeals)-V, Kochi on the above points may be set aside and that of the Assessing Officer restored."
2 Brief facts of the case are that the assessee is registered u/s 12AA of the Act and has claimed exemption u/s 11. The assessee is wholly and exclusively engaged in development of industrial infrastructure in the State of Kerala and this corporation has been set up as a non plan allocation in the State Budget for undertaking infrastructure development projects in the State. The Assessing Officer examined the claim for exemption u/s 11 of the Act. According to the AO, in view of the provisions of Section 2(15) of the Act, which, defines Charitable purpose" and as the 4th limb of the definition i.e the proviso for the 'advancement of any other object of general public utility,' shall not be charitable purpose, if it involves the carrying on any activity in the nature of trade, commerce or business or any activities of rendering any service in relation to any trade, commerce or business, for a cess or a fee or any other consideration, irrespective of the nature of use or application or retention, of 2 ITA No287/Coch/14 & CO 30/C/2014 the income from such activity. With the amendment brought on the statute, the Assessing Officer has examined the 'advancement of any other object of general public utility', in view of the fact, whether the assessee's income included income from trade or letting of land and building, lease rent and interest, and whether it is in the nature of trade, commerce and business. The Assessing Officer held that the assessee's income should be treated as business income and as such it should not be entitled for claim of exemption u/s 11 of Act. Accordingly, the income from business has been computed by the AO under the normal provisions of Section 15 to 59, and the total income assessed at net profit as per profit and loss account of RS.29,04,84,642/-, along with the disallowance of RS.1 0,01,06,162/-.
2.1 Aggrieved with the disallowance made by the AO, the assessee preferred an appeal before the CIT(A) on the ground that (i) the AO has not been correct in with-
holding the exemption u/s 11 of the Act in view of amendment of section 15 of the Act which is in effect from the AY 2009-10 and (ii) the AO has wrongly added back a sum of Rs.
1,01,06,162/- as capital expenditure incurred during the year which has not been debited to profit and loss account at all.
2.3 The CIT(A) observed that the AO has not gone into into analyzing the facts as well as merit of the case as to how the assessee corporation could be held to have been engaged in the commercial activities in pursuit of earning profits.
3ITA No287/Coch/14 & CO 30/C/2014 According to the CIT(A), the advancement of any other object of "General public utility" is a question of fact, if the appellant is engaged in activities in the nature of trading, commercial or business or renders any services in relation to trade, commerce or business, is to be decided on the basis of facts and not on certain notions which is based on sweeping generalizations. The CIT(A) further observed that the assessee is a corporation, which is wholly owned by the Government, which is a sub sovereign and for that matter, the assessee gets the status of the statutory corporation having wide objectives for promotion of infrastructure in the state of Kerala, as a precursor to Industrial growth and promotion. According to the CIT(A), the provisions of funds are made available by the State, as well as the Central Government, in the form of grant-in-aid or budgetary support or under any other scheme. It has been submitted by the assessee that on the net profit status which has arisen on account of, monthly interest earned on deposits of surplus fund. As a matter of fact, the assessee corporation has been working in order to achieve a wider social objective to make conducive environment for the infrastructure growth in the state of Kerala and as, in accordance with the policies of the Government. The activities are not designed to earn profit and to divert the same to other purposes. Even the profits, whatsoever earned, has not been utilized for distributing dividends etc. Since this is a question of fact, as to whether the activities of the assessee are in the nature of trade, business etc., the same has to be established at the strength of analysis of its financials. Accordingly, the CIT(A) observed that in the instant 4 ITA No287/Coch/14 & CO 30/C/2014 case, the Assessing Officer has disallowed the assessee's claim without making a clear case established on facts. On analyzing the activities of the assessee Corporation and accordingly, it has been held that it is a deserving case for claiming exemption u/s 11 of the Act and their nature of activities are nothing but for charitable purpose. Accordingly, the CIT(A) deleted the addition made by the AO. Aggrieved, the revenue is in appeal before us. The other issues raised by the assessee was not dealt by the CIT(A) and dismissed that grounds as infructuous, against which the assessee has filed Cross objection.
5 The ld DR relied on the order of the coordinate Bench of this Tribunal in the case of the Greater Cochin Development Authority in ITA Nos 792 & 793/Coch/2013 vide order dated 8th Aug 2014.
5.1 On the other hand, the ld AR of the assessee submitted that the respondent is a statutory corporation established under Kerala Industrial Infrastructure Development Act, 1993 (KIID act 1993). The ld AR invited our attention to para 48 of the order passed in the case of GCDA(supra) wherein it has been held by the held by the Bench as under:
"charitable institution provides services either at free cost or on cost to basis and not for profit"5
ITA No287/Coch/14 & CO 30/C/2014 "If the activities of the assessee are analyzed, it has turned into a huge profit making agency for which it is taking money from 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 public at large and the money is coming from the coffer of the government. It can be said that objects/activities of the assessee are more commercialized in nature and said that the objects of the assessee though claimed to be charitable, but are actually are purely commercial nature where profit motive is involved. It is a known fact that the assessee is acquiring land at very low prices and selling the same land on very high rates and is also earning huge profit therefrom. A new trend has also emerged that the assessee has started auctioning the plots by way of bidding at the market rate and sometimes more than that and charging interest on belated payments. In such a situation, we are of the view that no charity is involved. Further the assessee has converted itself into a huge business house. Similar developments/infrastructure facilities are also provided by private developers, these days, then they will also claim the status of charitable institution".
5.2 Accordingly, the ld AR further submitted that the assessee is a statutory corporation established without any profit motive vested with the task of carrying out sub-sovereign functions on behalf of the State Govt. This clearly distinguishes the activities of the assessee corporation from that of GEDA dealt with by the co-ordinate Bench of this Tribunal. It was further submitted that as observed by Bench, the transfer of land on 6 ITA No287/Coch/14 & CO 30/C/2014 lease basis has been effected at or below cost in most cases at the rates approved by the pricing committee constituted by the Govt.
for facilitating and accelerating development of industrial infrastructure in the state of Kerala. It is a widely known fact that poor infrastructure is acting as a serious obstacle for industrial development and there was no option but to develop the industrial infrastructure at any cost. Hence land is being acquired at rates fixed by revenue authorities at fair prices and developed into industrial parks by investing in external / internal infrastructure and offered to public for long lease of 90 years at subsidised rates utilizing the government grants. This by no stretch of imagination can be termed as carrying on activities of trade, industry or commerce and services in relations to trade industry or commerce as provided in the proviso to Sec.2( 15) of the Income-tax Act, 1961. The respondent corporation is only undertaking sub sovereign functions on behalf of the State government as its agent as per objectives spelt out in the KIID Act, 1993 .
5.3 The ld AR explained the preamble to the KIID Act, 1993 and establishment / functional objectives as detailed in Section 4 of the Act clearly throws light on the main objective of setting up the 7 ITA No287/Coch/14 & CO 30/C/2014 respondent corporation which is reproduced below:
Preamble WHEREAS it is expedient to provide the establishment of industrial areas and for the organization of industrial growth centres in the state of Kerala and for setting up infrastructure facilities for industries and for that purpose to constitute an industrial infrastructure development corporation and for matters connected therewith.
Section 4 - Establishment and incorporation For the purposes of securing and assisting in the rapid and orderly establishment and organisation of industrial areas and industrial estates in the state and for the purpose of establishing growth centres and infrastructure facilities connection with the establishment and organisation of such industries, there shall be established a corporation by name Kerala Industrial infrastructural development corporation Section 9 The functions of the corporation are detailed in Section 9 of the Act is as under:
"generally to promote and assist in the rapid and orderly establishment, growth and development of industries and to meet other ancillary objectives as detailed in Sub section (2) of the above section".
5.4 Accordingly, it was submitted that the corporation is only an extended wing or arm of the Govt. to implement and achieve the objectives laid down in the KIID Act and this by no means is carrying on any activity in the nature of trade, business or commerce and much less a service for trade, business or commerce as provided in 8 ITA No287/Coch/14 & CO 30/C/2014 Section 2 (15) of the IT Act. In support of its contention, the ld AR mrelied on the following case laws:
i) In the case of ICAI vs DG of ITO(Exmp) 347 ITR 99 (Del)
ii) In the case of Bureau of Indian Standards vs Dir Gen of Income Tax (Exemp.) 358 ITR 78(Del)
iii) In the case of Jodhpur Devp Authority vs CIT 27 Taxmann.coim. 183
iv) In the case of Jalandhar Development Authority vs CIT 35 SOT 15 (ASR)
v) In the case of DCIT vs Aligarh Development Authority in ITA No.255/Agra/2013 etc
vi) In the case of ICAI vs DG of ITO (Exemp) 358 ITR 91 (Del)
vii) In the case of CIT vs Lucknow Devp Authority-ITA 149 of 2009 Laws(All) 2013-9-161
viii) In the case of Himachal Pradesh Environment Protection and Pollution Control Board vs CIT 42 SOT 343
ix) In the case of Agra Devep Authority vs CIT in Appeal 166 of 2012 dt 11.1.2013
x) In the case of Haridwar Devp Authority ITA No 3056/Del/2012 dt 25.7.2014
xi) In the case of Jodhpur Devp Authority vs CIT 145 TTJ (Jd) 221
xii) In the case of AhmedabadUrban Dep Authority ITA No 754/Ahd/2010 dt21.5.2010
xiii) In the case of Director of Income Tax (Exp vs Sabarmati Ashram Gaushala Trust 223 Taxman 43 (Guj)
6 We have heard the rival submission and perused the relevant material on record. In this case the assessee has been constituted by the Govt of Kerala to provide for the establishment of Industrial areas and for the organization of industrial growth centers in the state of Kerala and for setting up infrastructure facilities for industries. The arguments of the ld AR is that the assessee was established for the purpose of carrying out charitable activity as defined in sec.
2(15) of the I T Act which includes relief to the poor, education, medical relief and advancement of any other object of general public utility. In support of his 9 ITA No287/Coch/14 & CO 30/C/2014 contention, the ld AR relied various judgments as mentioned above. Further, he submitted that the assessee has been granted with registration u/s 12AA of the Act vide order dated 31.10.2005 of the CIT and the registration has not been cancelled till the date. In other words, the registration is effective in this assessment year also. The grant of registration is not an empty formality as it has to be granted after satisfying that the objects are charitable in nature. Since the registration has effect for the assessment under consideration also, the object of the assessee will have to be considered as a charitable in nature. Further, we noticed that for the AY, the assessee carried out various activities.
6.1 In this case, the Corporation has no capital as per the provisions of the above Act and funds required for meeting the objectives laid down in the Act are allotted by the State Govt.
under Plan and Non-plan Scheme in the State Budget and the total funds so disbursed to the Corporation to-date is Rs 405.41 crores.
6.2 Further, the funds are also provided by the Central Govt. for investment in industrial infrastructure projects from time to time by specifically naming the project, the details of which given to date is Rs.134.67 crores (including the amount received from subsidiary company 10 ITA No287/Coch/14 & CO 30/C/2014 6.3 Apart from the above, funds are provided by the Central Govt.under other Schemes like ASIDE, etc. details of which are given so far to-date is as under: ASIDE Scheme - Rs.129.47 crores.
6.4 From the above particulars, it could be noted that the substantially long term funding of the investment needs of the Corporation for industrial infrastructure development is by way of grants / loans from the Central and State Govt. only.
6.5 The funds so received as above are accounted under separate grant account in the balance sheet as Corpus Funds given to meet special purpose public utility projects and the provision of such large funds by the Central / State Govt. makes it clear that the activities of the Corporation are of a non-profit motive nature. The funds given as above which remain unutilised will revert back to the Govt. at the time of winding up of the Corporation after meeting its objectives for which it is established / set-up.
6.7 The Corporation has made surplus from various activities as could be noted from the audited accounts for the past four years, if the surplus from sale of 63 Acres of land given at Re.1 by the Govt. of Kerala at Hi-Tech Park in industrial belt of Kalamassery in Cochin Corporation credited to Profit and 11 ITA No287/Coch/14 & CO 30/C/2014 Loss account of the year and interest income on deposits with banks, out of surplus funds temporarily invested as under is excluded as per details given below:
Rs.
Net surplus as per P&L A/c. for the 29,10,83,866
Net surplus as per P&L A/c. for the F.Y.2010-11 9,33,41,419
Net surplus as per P&L A/c. for the F.Y.2011-12 10,09,32,464
Net surplus as per P&L A/c. for the F.Y.2012-13 2,10,26,135
6.8 According to the ld AR, the interest income partakes the
nature of grant as surplus fund is out of grant of State Government only. The very fact that Govt. of Kerala has transferred 240 acres of prime land in the industrial belt of Kalamassery having market value of crores of rupees makes it clear that Corporation is only an extended arm / wing of the Govt. of Kerala and that by no stretch of imagination it is a commercial entity.
7 Thus, the ld AR pleaded that the activity has been undertaken in pursuance of the main object and there is no motive to make profit and the activity cannot be said to be business activity. In support of his contention, the ld AR relied on various judgments as mentioned above.
7.1 To grant deduction u/s 11, the assessee is required to fulfill the 12 ITA No287/Coch/14 & CO 30/C/2014 necessary conditions mentioned in the provisions. In this connection, the provision contained in section 11(4A) assumes importance, which is to the effect that the provisions contained in sub-section (1), sub-section (2), subsection (3) or sub-section (3A) shall not apply in relation to any income of a trust or an institution being profits and gains of business, unless the business is incidental to attainment of objective of the trust, or, as the case may be, institution, and separate books of account are maintained by such trust or institution in respect of such business. The submission of the revenue is that the activities carried out by the assessee are in no way different from the activities carried out by a builder developing a large colony. The submission of the ld. counsel is that there is no profit motive and the activities have been carried out in pursuance of the object clause. In this connection, the definition of the term "business" furnished in section 2(13) was also discussed. The word "business" has been defined in an inclusive manner to include any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture. The case of the ld.
counsel is that this provision is not applicable. However, he has not elaborated it any further in this matter. Therefore, it will be appropriate for us to examine this definition in a greater detail.
13ITA No287/Coch/14 & CO 30/C/2014 7.2 The Hon'ble Orissa High Court the case of CIT v. M.P. Bajaj [1993] 200 ITR 131 /[1992] 65 Taxman 91 have examined the definition and after considering a number of decisions, it has been held by that an activity carried on continuously in an organized manner with a set purpose and with a view to earn profit is "business". The relevant portion of the order of the Hon'ble Orissa High Court reads as under:-
"The word "business" is a word of large and indefinite import. It is something which occupies the attention and labour of a person for the purpose of profit. Section 2(13) of the Act defines" business" to include "... any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture". When a word is defined to "mean" something, the definition is prima facie restrictive and exhaustive as was indicated by the Supreme Court in the case of Vanguard Fire and General Insurance Co. Ltd. v. Fraser and Ross [1960] 30 Comp Cas (Ins) 13 ; AIR 1960 SC 971. Where, however, the word defined is declared to "include" certain things, the definition is extensive. (See Ardeshir H. Bhiwandiwala v. State of Bombay [1961-62] 20 FJR 113 ; AIR 1962 SC 29). In Smith v. Anderson [1880] 15 Ch. D. 247, 258 (CA), Jessel M.R., after citing definitions of "business" from several dictionaries, said, "anything which occupies the time and attention and labour of a man for the purpose of profit is business." Further on, he remarks (at page 260) : "There are many things which in common colloquial English would not be called a business, even when carried on by a single person, which would be so called when carried on by a number of persons." For instance, a man who is the owner of a house divided into several floors and used for commercial purposes, e.g., offices, would not be said to carry on a business because he let the offices as such. But, suppose a company was formed for the purpose of buying a building, or leasing a house, to be divided into offices and to be divide into offices and to be let out - should not we say, if that was the object of 14 ITA No287/Coch/14 & CO 30/C/2014 the company, that the company was carrying on business for the purpose of letting offices? The same observation may be made as regards a single individual buying or selling land, with this addition, that he may make it a business, and then it is a question of continuity. When you come to an association or company formed for a purpose, you would say at once that it is a business, because there you have that from which you would infer continuity. The word "business" has a more extensive meaning than the word "trade". In Narasingha Kar and Co. v. CIT [1978] 113 ITR 712, this court had occasion to deal with almost a similar controversy. It was held that the income of the assessee in that case from the shops was assessable under section 28 of the Act as income from business, and since the assessee was carrying on a business, it was entitled to registration. The decisions on which reliance has been placed by learned counsel for the Revenue were also considered by this court in Narasingha Kar's case [1978] 113 ITR 712 (Orissa). The tests indicated in those two cases were applied and conclusions were arrived at. In Karnani Properties Ltd. v. CIT [1971] 82 ITR 547 , the apex court has observed that, an activity carried on continuously in an organised manner with a set purpose and with a view to earn profits is "business".
Similarly, when the assessee took a plot of land on lease, constructed some structures thereon and let them out to shopkeepers and stall-holders, the apex court construed the activity to be business. (See S. G. Mercantile Corporation P. Ltd. v. CIT [1972] 83 ITR 700 (SC). Keeping in view the decisions of the apex court in Karnani Properties case [1971] 82 ITR 547 and S. G. Mercantile Corporation's case [1972] 83 ITR 700 and also the decision of this court in Narasingha Kar's case [1978] 113 ITR 712 (Orissa), the Tribunal held that the activities carried on by the assessee amounted to business. The conclusion is essentially one of fact, and, in our considered opinion, does not give rise to a question of law. Accordingly, our answer to the reframed question is in the affirmative, in favour of the assessee and against the Revenue."
7.3 Therefore, the question before us is whether, the activity of construction and sale/lease of immovable property constitutes "business"?. We may clarify that the question is not whether, all 15 ITA No287/Coch/14 & CO 30/C/2014 object clause of the assessee constitutes business or not? The only objection of the assessee in regard to the first mentioned question is that there is no profit motive. In other words, there is no doubt that the activity has been carried on continuously in an organized manner with a set purpose. The question is only regarding the profit motive. It is clear from the accounts that this activity has been undertaken with a view to earning profit so as to use the profit for the object of the authority. Thus, the assessee has consistently earned substantial profit. Therefore, the activity has been carried on with profit motive and in the same manner in which a private builder of large township will conduct his business.
8 In view of the above discussion, in our opinion, the issue raised in the revenue's appeal is squarely covered by the order of the coordinate Bench of this Tribunal in the case of The Greater Cochin Development Authority in ITA No 792 & 793/Coch.2013 vide order dated 8th Aug 2014 wherein it has been held as under:
43. We heard both sides and perused the impugned order of the Commissioner of Income-tax(A) and other material on record. Admittedly, the assessee has been constituted by the Government of Kerala. There is also no dispute that the assessee was constituted under the Act of the Government for making better planning and regulating development and use of land in planning areas delineated for the purpose, preparation of regional plans/master plans and implementation thereof and also for guiding and directing the planning and development process in the State.
The major thrust of argument on behalf of the learned Counsel is that the 16 ITA No287/Coch/14 & CO 30/C/2014 assessee is of general public utility and was established to satisfy the need for housing accommodation of various sections of the people of Kerala and specially for planning and development in the cities, town and villages and is of charitable nature.
44. 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 to the poor, education, medical relief and advancement of any other object of general public utility. A strong contention was raised by the learned Counsel that the assessee is also executing the development of following works/infrastructures:
(a) Development of market
(b) Water supply and sewerage
(c) Development of sports complexes
(d) Bridges
(e) Bus queue shelters
(f) Bus stands
(g) Swimming pools (h) Community centres (i) Public toilets
(h) Development of parks
(i) Cremation grounds
(j) Construction of schools, etc.
45. The learned Counsel during argument took a strong plea that on identical facts registration under Section 12A of the Act was accorded to Lucknow Development Authority and Jodhpur Development Authority wherein the objects are identical to the present assessee. According to the Ld. AR if the Act under which the assessee was constituted is analysed, it is the same as in the above cases and when registration has been granted to those authorities, then no two yardsticks should be adopted.
46. At the outset, we are of the view that we are not agreeable with the contention of the learned Counsel. At the same time, res judicata is 17 ITA No287/Coch/14 & CO 30/C/2014 not applicable in income-tax proceedings. We do not want to comment as to why and how the registration was granted to these authorities 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) (P) Ltd. v. Union of India and Ors. (155 ITR 120) 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 reconsidered. 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 effect in the case of other assessees. At the same time, 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 Kerala 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 learned Counsel for the assessee that funds are provided by the Kerala Government 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 apply 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 Asstt. CIT v. Thanthi Trust (2001) 165 CTR (SC) 681 : (2001) 247 ITR 785 (SC) has deliberated upon the issue of charitable purposes wherein the founder of a daily newspaper created a trust in March, 1954 and 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 Anr. 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.
18ITA No287/Coch/14 & CO 30/C/2014
47. The Hon'ble Apex Court also considered various judicial pronouncements which were referred to it by the respective counsel as are available in the said order specially at p. 787. However, there is a major shift in the law with regard to institutions who are claiming charities. It 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 provision to misuse the provision. Therefore, for the broad development of the nation/society a strict and positive vigil is required so that the provision can be saved from its misuse in any manner. 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 be allowed to become richer and richer under the garb of charity by making it a non-tax payable organization. In the cases of Addl. CIT v. Surat Silk Cloth Manufacturers Association (121 ITR 1) and CIT v. Bar Council of Maharashtra, 22 CTR (SC) 106, it was held that what is predominant object of the activity- whether, it is to carry out a charitable purpose and not to earn profit-the purpose should be that it should not lose its charitable character.
48. The major thrust of the learned Counsel for the assessee is that the assessee is of general public utility as it satisfies the need for housing accommodation for the section of the people of State of Kerala, specifically Cochin and is also doing planning and development of the cities, towns and villages. We are not agreeable with the argument of the learned Counsel because a charitable institution provides services for charitable purposes either at free of cost or on cost to cost basis and not for profit. In the present scenario, the similar activities are performed by big colonizers/developers who are earning a huge profit. If this income is exempted u/s. 11, then we will open a pandora box and anybody will claim the exemption from tax. If the activities 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 and the money is coming from the coffer of the Government. It can be said that objects/activities of the assessee are more of commercialized nature and 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 19 ITA No287/Coch/14 & CO 30/C/2014 assessee can be said to be an authority created to help it to achieve certain objects. It can be said that it is the duty of the Government to create/provide all these facilities to public 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 Government 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 the learned Counsel are put in a juxtaposition, 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 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 business house. Similar development/infrastructure/facilities are also provided by private developers these days, then they will also claim the status of a charitable institution.
49. During argument, the Ld. Counsel relied upon the decision of the Hon'ble Apex Court in the case of Addl. CIT vs. Surat Art Silk Cloth Manufacturers Association (supra) 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 cls. (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, in the present case there is a profit motive of the assessee, so it will not help in any manner.
50. The Hon'ble Apex Court in the case of CIT v. Bar Council of Maharashtra, 22 CTR (SC) 106 where the prime dominant purpose was for the advancement of object of public utility, it was held to be entitled to exemption. The learned 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 Government 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. We are of the view that principles of res judicata do not apply to income- tax proceedings. However, we agree with the learned Counsel to the extent that equally 20 ITA No287/Coch/14 & CO 30/C/2014 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 are not going to help the assessee. Further, on scrutiny 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. The trust deed empowered the authorities 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. 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 juxtaposition with the various 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 v. CIT, 224 ITR 757 where the Government company was formed for promotion and development of forestry. The assessee- corporation was 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. 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 learned 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 v. CIT , 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 form of hidden cost. Rather the assessee is generating income, so no charity is involved. 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 21 ITA No287/Coch/14 & CO 30/C/2014 rates and after developing the same, the same land (is sold) 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 commercial developers/builders 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.
51. In view of these facts and judicial pronouncements, we are of the view that the claim of the assessee has been rightly rejected by the CIT(A). The stand of the CIT(A) is upheld. Accordingly, the appeals of the assessee are, therefore, dismissed.
52. The coordinate Bench of the Tribunal at Amritsar, following the decision in the case of Punjab Urban Planning and Area Development Authority vs. CIT, 156 Taxman 37 (Chd.) held, in the case of Jalandhar Development Authority V/s.CIT (2009)124 TTJ (Asr) 598, to which one of us, viz. author member, is a party, that denial of registration under S.12AA(a) of the Act to that assessee, which was also constituted under Punjab Regional And Town Planning and Development Act, 1995, was justified. The objects of the Authority in that case as noted by the Tribunal in para 3 of its order reads as follows:
"The objects of the authority shall be to promote and secure better planning and development of any area of the State and for that purpose the authority shall have the powers to acquire by way of purchase transfer, exchange or gift or to hold, manage, plan, develop and mortgagee or otherwise dispose of land or other property or to carry out itself or in collaboration with any other agency or through any other agency on its behalf, building, engineering, mining and other operations to execute works in connection with supply of water, disposal of sewerage, control of pollution and other services and amenities and generally to do anything with the prior approval or on direction of the State Government, for carrying out the purposes of the Act."
53. At this juncture, it may be observed that the above objects noted by the Amritsar Bench of the Tribunal in the context of Jalandhar Development Authority, is almost identical to the assessee's case. Considering the contention of the assessee with regard to the charitable 22 ITA No287/Coch/14 & CO 30/C/2014 nature involved in its activities, and also taking into account the case-law cited before it in that behalf, held in conclusive portion of para 6.1 of that order as follows-
"It is a well known fact that in some of the situations the provisions of law are misused in the names of charities. If an expanded /broader latitude is extended to the word charity, then there are so many institutions / departments who will try to come under the umbrella of this provision to misuse the provision. Therefore, for the broad development of the nation / society, a strict and positive vigil is required so that the provision can be saved from its misuse in any manner. No activity can be carried on efficiently, properly unless and until it is carried out on business principle but it does not mean that the provision is misused in any manner under the grab of charity and any institution be allowed to become richer and richer under the grab of charity by making it a non-tax payable organization. A charitable institution provides services for charitable purposes free of cost and not for a gain. In the present scenario, similar activities are performed by big colonizers/developers who are earning a huge profit. If this registration is granted, then anybody will claim the exemption from tax. If the accounts of the assessee are analysed, it has turned into a huge profit-making agency for which it is taking money from the general public. If any institution of public importance like schools, community centers are created /developed, the assessee is charging the cost of it from the public at large and the money is coming from the coffer of the Government. It can be said that objects/activities of the assessee are more of commercialized nature and no charity is involved in it. At the time, if these facilities are not provided, then nobody will purchase a plot. It can be said that it is a means of attracting the people so that maximum people may apply for the same and the hidden cost is already added, so no charity is involved. At best, the assessee can be said to be an authority created to help it to achieve certain objects. It can be said that it is the duty of the Government to create / provide all these facilities to public large, which is being done through is agency in a particular area. At the same time, the funds which are provided to the assessee by the Government is again a public money or generated from public itself. The objects of the assessee, though claimed to be charitable, but actually are of purely commercial nature where profit motive is involved.
54. In view of the above discussion, we are inclined to hold that the CIT(A) is justified in rejecting the claim of exemption u/s. 11 of the I.T. Act.
Therefore, respectfully following the decision of the coordinate Bench of this Tribunal (supra), we decide this issue in favour of the revenue and against the assessee.
23ITA No287/Coch/14 & CO 30/C/2014 9 Now we will take up the CROSS OBJECTION filed by the assessee.
10 The assessee has raised the following grounds in its Cross Objection.
1 The CIT(A)has erred in not adjudicating on the addition disallowance towards capital expenditure amounting to Rs.10,0 1 ,06, 162 on the ground that this has become infractous on allowing the main ground covered by the appeal i.e., admissibility of exemptions from income tax u/S.11 and 12 of the Income Tax Act, 1961 on facts of the case and provisions of law.
2 The CIT(A) ought to have noted that capital expenditure has not been debited to the Income and Expenditure AI c. for the year of the appellant at all and if for any reason it is ultimately held that the appellant is not entitled to exemption ss] S.ll and 12 of the Act, the addition I disallowance of the capital expenditure should have been directed to be deleted. For the above and other grounds that may be adduced at the time of hearing, the order of the CIT(A) may be modified to the extent prayed for as above.
11 We find that the issues raised by the assessee are not adjudicated by the CIT(A) for the reasons that the main claim of exemption u/s 11 has been allowed. Since we have reversed the order of the CIT(A) upholding the exemption u/s 11, the grounds raised by the assessee in the Cross Objection would go back to the file of the CIT(A) for fresh adjudication.
12 In the result the appeal filed by the revenue is allowed 24 ITA No287/Coch/14 & CO 30/C/2014 whereas the Cross Objection of the assessee is allowed for statistical purpose.
Order pronounced in the open Court on this 24 day of Dec 2014
sd/- sd/-
(N.R.S. GANESAN) (CHANDRA POOJARI)
Judicial Member Accountant Member
Cochin: Dated 24th Dec 2014
Raj*
Copy to:
1. Appellant -
2. Respondent -
3. CIT(A)
4. CIT,
5. DR
6. Guard File
By order
Assistant Registrar
ITAT, COCHIN
1 Date of dictation 8 Dec 2014
2 Dt on which the typed draft is placed before the dictating Member 10 Dec 2014
3 Dt on which the approved draft comes to the Sr PS/PS
4 Dt on which the fair order is placed before the dictating Member
5 Dictation paid placed in the original file (no.of pages)
6 Dt of pronouncement
7 Dt on which the file goes to the Bench Clerk 29th Dec 2014
8 Dt on which the file goes to the Head Clerk
9 Dt on which the file goes to AR
10 Dt of dispatch of the order
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