Income Tax Appellate Tribunal - Hyderabad
Andhra Pradesh State Housing ... vs Assessee on 25 September, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH 'B', HYDERABAD
BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER
AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER.
ITA No. 1845/Hyd/2012
(Assessment Year - 2007-08)
Andhra Pradesh State Director of Income-tax
Housing Corporation Ltd., (Exemption), Hyderabad
Hyderabad.
(PAN - AABCA7206L
(Appellant) (Respondent)
Appelllant by : Shri K.A. Subba Raoji
Department by : Smt. Amisha S. Gupt
Date of Hearing 13/03/2013
Date of 19/04/2013
Pronouncement
O R D E R
Per Chandra Poojari, A.M.,
This appeal filed by the assessee is directed against the order of the DIT(Exemptions), Hyderabad dated 25/09/2012 for the assessment year 2007-08.
2. The assessee filed this appeal before us with a delay of 25 days. The assessee filed an affidavit before us affirming the reasons for delay in filing the appeal on account of administrative reasons and requested for condonation of the said delay and admission of the appeal. After hearing the parties, we condone the delay and admitted the appeal for adjudication.
3. The grievance of the assessee in this appeal is with regard to non-granting of registration u/s 12A of the IT Act, 1961.
2 ITA No. 1845/Hyd/12Andhra Pradesh State Housing Corporation Ltd.
4. Briefly the facts of the case are that the assessee had filed an application in Form No. 10A on 26/10/2006, which was rejected by the DIT(E) vide his order dated 24/04/2007.
5. The assessee went in appeal before this Tribunal and the Tribunal vide its order dated 19/12/2008 remitted the issue back to the file of the DIT(E) with a direction to re-examine the application of the assessee for registration u/s 12A of the IT Act.
6. While examining the issue, which was set-aside by the Tribunal with a direction to decide the same on merits, the DIT(E) observed that the activity carried on by the assessee cannot be considered as charitable activity in terms of section 2(15) of the Act, as the main objective of the assessee company is to promote and execute housing schemes for the public in general with emphasis in rural areas. Such activity is not covered under 'charitable purposes' as defined in section 2(15) of the IT Act. The DIT(E) further observed that the other main objects as contained in the object clauses 2 to 4 relate to construction of building and development activities in the field of building construction and the object clause 5 pertains to rural development programme to be undertaken by the assessee corporation. Further, he observed that in addition to the above the assessee intended to enter into partnership with other organizations for sharing of profits and such partnership including joint-venture arrangement are for the purpose of carrying business transactions. Further, the DIT(E) observed as follows:
"7.1 On a careful reading of such object clauses, it may be seen that the same refute the claim of the assessee regarding a charitable organisation. Further, from the objects of the assessee corporation, it is seen that, it intends to carry on business in construction materials, apart from carrying on business as a builder. In this context, it is relevant to 3 ITA No. 1845/Hyd/12 Andhra Pradesh State Housing Corporation Ltd.
reproduce the following objects as mentioned under (c) other Objects' in the said Memorandum of Association, which is as under:
"To carry on the business of builders and contractors of all descriptions, decorators, manufacturers and dealers in stone, sand, lime, soorkey, bricks, timber, hardware, paints and other building materials and of brick and tile and terra-cotta makers, job makers, carriers, furnishers and house agents."
From the foregoing objects stipulating to carry on trading in construction materials, apart from engaging in construction of buildings, it clearly shows that the assessee corporation cannot be considered as a charitable organisation. In fact, such object clause negates the claim of the assessee as a charitable institution.
8. Further, as seen from the said Memorandum of Association, there is stipulation for Reserve Fund and also Dividend. Under Article 98 of the said Memorandum of Association, which pertains to Reserve Fund, it says 'Subject to such directions as may, from time to time, be issued by the . Government in this behalf, the Directors may, before recommending any dividend, set aside out of the profits of the company such sums as they think proper as a reserve fund. .... ' Further, in Article 99 of that Memorandum of Association, which relates to Dividends, it says 'The profits of the company available for payment of dividend subject to any special rights relating thereto created or authorised to be created by these presents and subject to the provisions of these presents as to the reserve fund and amortization of capital shall, with the approval of the Government, be divisible among the members in proportion to the amount of capital held by them, respectively.' 8.1 From such stipulation, it shows that the basic intention of the assessee company is to earn profit out of its activities and to make payment of dividend out of the same to the concerned persons / authorities. Under these circumstances, the assessee company cannot be considered as non- profit organisation. It may be mentioned here that though the A.R has submitted that the corporation since inception has not earned profit, the same is not material. It is the primary intention of the assessee corporation which is important and has to be kept in mind while deciding such issue. The primary intention, as discussed above, is to earn profit and to declare dividend out of the same. Under these facts, the assessee corporation cannot be considered as a charitable institution and hence is not entitled for registration u/s.12AA of the Act.
4 ITA No. 1845/Hyd/12Andhra Pradesh State Housing Corporation Ltd.
9. In view of the foregoing discussions, the assessee company ie., Andhra Pradesh State Housing Corporation Ltd, thus, cannot be granted registration u/s.12AA of the Act. Hence, registration sought for u/s.12AA of the Act is refused to the assessee company in this case."
7. Aggrieved, once again, the assessee is in appeal before us.
8. Before us, the learned counsel for the assessee submitted that the main object of the assessee is to undertake or regulate construction of buildings and create or cause to be created other infrastructural facilities required for the said house scheme. It is submitted that the assessee's ancillary objects to enter into partnership of any agreement sharing profits etc. on the main objects of the assessee. According to the learned counsel, the assessee has not derived any income from construction activities and if any dividend is declared it is from the profit of the assessee and it does not carry any interest. According to the learned counsel, the assessee is carrying on the activities, which are giving relief to the poor people. He relied on the following judgments:
1. Dharmaphoshanam Co. Kerala Vs. CIT, SC 114 ITR 463
2. Ecumenical Christian Centre Vs. CIT 139 ITR 226 (Karn.)
3. CIT Vs. Mahendra Mohta Sewa Nidi, 152 ITR 516 (P&H)
4. CIT Vs. Ootacamund Gymkhana Club, 110 ITR 392 (Mad.)
5. CIT Vs. Sarvhitkari Education Society, 318 ITR 92 (P&H)
6. Sri Venkateswara Bhakti Channel Vs. ACIT, 131 ITD 84 (Hyd.)
9. On the other hand, the learned DR relied upon the order of the DIT(E).
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10. We have heard both the parties, perused the record and gone through the order of the DIT(E). In this connection, we refer to the decision of the coordinate bench "B", where the AM was the author of the order, in ITA No. 230/H/10 for AY 2003- 04 in Tirupathi Urban Development Authority, Tirupathi order dated 28/03/2013 wherein the coordinate bench held as under:
10. We heard both sides and perused the impugned order of the Commissioner of Income-tax and other material on record. Admittedly, the assessee has been constituted by the Government of Andhra Pradesh under Andhra Pradesh Urban Areas (Development) Act, 1975. S.3 of the said Act enabling the constitution of an urban Development Authority, to the extent relevant for our purpose, reads as follows-
"3. Constitution of urban development Authority:- (1) As soon as may be after an urban area or a group of urban area is declared to be a development area, under sub- section (1) of Section 13 the Government shall, by notification, constitute for the said development area, an Urban Development Authority with effect from such date as may be specified therein.
(2)......
(3)Every Authority so constituted shall be a body corporate by the name of the development area for which it is constituted having perpetual succession and a common seal with power to acquire, hold and dispose of property, both movable, immovable and to contract; and shall by the said name sue and be sued."
Section 5 of the said Act dealing with the objects and powers of an authority so constituted, reads as follows-
"5. Objects and powers of the Authority - The object of Authority shall be to promote and secure the development of all or any of the areas comprised in the development area concerned according to plan and for that purpose, the Authority shall have the power to acquire, by way of purchase or otherwise, hold, manage, plan, develop and mortgage or otherwise dispose of land and other property, to carry out by or on its behalf building, engineering, mining and other operations, to execute works in connection with supply of water and electricity, disposal of sewerage and control of pollution, other services and amenities and generally to do anything necessary or expedient for purposes incidental thereof.
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(2) The Authority may, for the purpose of efficient performance of its functions, constitute as many committees as it thinks fit, in such manner as may be prescribed, and provide by regulations made in this behalf for rules of procedure at the meeting of the Committees and allowances to members thereof."
As noted above, the Tribunal, in its earlier round has set aside the matter to the file of the Commissioner of Income- tax for consideration of the assessee's application for registration under S.12AA of the Act afresh, in the light of the case-law in favour and against the assessee, brought to its notice, as in Gujarat Maritime Board (supra) and Adityapur Industrial Area Development Authority (supra).
11. In the fresh round of proceedings before him, after taking note of the above two decisions, the Commissioner of Income-tax followed the decision of Punjab Urban Planning and Development Authority V/s. CIT (supra), in which case also, the assessee was an urban development authority constituted under Punjab Regional and Town Planning and Development Act, 1995, which is analogous to Andhra Pradesh Urban Areas (Development) Act, 1975 under which the assessee before us was constituted, and declined to grant registration to the assessee, vide order dated 16.12.2009. In that case of Punjab Urban Planning and Development Authority (supra), followed by the Commissioner of Income-tax in the impugned order, the Chandigarh Bench of the Tribunal has held as follows-
"4. In the present appeal there is no dispute to the fact that the assessee moved application in Form No. 10A and furnished relevant information to the learned. Asstt. CIT, 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 for the assessee is that PUDA is of general public utility and was established to satisfy the need for housing accommodation of various sections of the people of Punjab and specially for planning and development in the cities, town and villages and is of charitable nature.
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 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 for the assessee that the assessee/PUDA is also executing the development of following works/infrastructures:7 ITA No. 1845/Hyd/12
Andhra Pradesh State Housing Corporation Ltd.
(a) Development of rehri 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
(j) Development of parks
(k) Cremation grounds
(l) Construction of schools, etc. Regarding the purpose of the Act, which is available at p. 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 mentioned in Section 2(b) of the said Act. The learned 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, dt.
28th Sept., 2005 by the CIT, 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 Patiala authority is part of the State and when registration has been granted to Patiala authority, then no two yardsticks should be adopted. At the outset, we are of the view that we are not agreeable with the contention of the learned 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, res judicata is not applicable in income-tax proceedings. We do not want to comment as to 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) (P) Ltd. v. Union of India and Ors. 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 Patiala authority. At the same time, the 8 ITA No. 1845/Hyd/12 Andhra Pradesh State Housing Corporation Ltd.
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 learned Counsel for the assessee that funds are provided by the Punjab 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.
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 and CIT v. Bar 9 ITA No. 1845/Hyd/12 Andhra Pradesh State Housing Corporation Ltd.
Council of Maharashtra , 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-
The major thrust of the learned 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 agreeable with the argument of the learned 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 chanty 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 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 his 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 both 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 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 also provided by private developers these days, then they will also claim the status of a charitable institution.
10 ITA No. 1845/Hyd/12Andhra Pradesh State Housing Corporation Ltd.
During argument, the learned Counsel relied upon the decision of the Hon'ble apex Court pronounced in the case of Addl. CIT v. Surat Art Silk Cloth Manufactures 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, 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 v. Andhra Pradesh State 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 Government 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 Government 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 of CIT v. Bar Council of Maharashtra (supra) 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 for which reliance was placed upon the decisions pronounced in Union of India and Ors. v. Kaumudini Narayan Dalai and Anr. ,CTT v. Shivsagar Estate , CIT v. Federation of Indian Chambers of Commerce and Industry and also the decision in the case of Dy. CIT v. United Vanaspati Ltd. (2004) 83 TTJ (Chd)(TM) 201 : (2004) 88 ITD 313 (Chd)(TM). 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 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. The Hon'ble High Court of Delhi in the case of Daulat Ram Public Trust v. CIT wherein on scrutiny of 11 ITA No. 1845/Hyd/12 Andhra Pradesh State Housing Corporation Ltd.
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 p. 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 juxtaposition 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 v. CIT 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. During arguments, the learned Counsel for the assessee invited our attention to the case of Maharashtra Housing & Area Development Authority wherein registration was granted. The learned CIT-Departmental Representative contended that in the case of Market Committee, the ownership remains with the committee but in the case of the assessee it goes to individual and the learned CIT was not satisfied with the explanation of the assessee. Likewise in the judicial pronouncements in New Life in Christ Evangelistic Association (NLC) v. CIT 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 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 12 ITA No. 1845/Hyd/12 Andhra Pradesh State Housing Corporation Ltd.
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. We agree with the conclusion of the learned GIT, as contended by learned CIT-Departmental Representative, 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 (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 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 learned CIT. The stand of the learned CIT is upheld. Appeal of the assessee is, therefore, dismissed."
12. The coordinate Bench of the Tribunal at Amritsar, following the decision in the case of Punjab Urban Planning and Area Development Authority(supra), 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 13 ITA No. 1845/Hyd/12 Andhra Pradesh State Housing Corporation Ltd.
direction of the State Government, for carrying out the purposes of the Act."
13. 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 S.5 of the Andhra Pradesh Urban Areas (Development) Act, 1975, under which the assessee was created, and which we have already extracted hereinabove. Considering the contention of the assessee with regard to the charitable 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 its 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. It is a 14 ITA No. 1845/Hyd/12 Andhra Pradesh State Housing Corporation Ltd.
known fact that the assessee is acquiring the land at very low prices and selling the same land on very higher rates and is earning as profit therefrom. A new trend has also emerged that the assessee has started auctioning the plots by way of bidding at the market rate and sometimes more than that and charging interest on belated payments In such a situation, no charity is involved. Rather the assessee has converted itself into a big businessman. Similar development/infrastructure/facilities are also provided by private developers these days, then they will also claim the status of a charitable institution. The facilities which are provided to the plot holders are incidental to the commercial activity carried out by the assessee and if certain facilities like parks, community center, school are provided, it is not only basic requirement, rather a tool attracting the investors wherein the hidden cost of these facilities is already included. In the absence of these facilities, normally the purchaser may not invest and the prices may be less. In view of these facts, the assessee's activities not being of charitable nature, the application of registration under s. 12A has been rightly rejected by CIT, - Asstt. CIT Vs Thanthi Trust (2001), 165 CTR (SC) 681:
(2001) 247 ITR 785 (SC) and Bihar State Forest Development Corporation Vs CIT (1997) 224 ITR 757 (Pat) reline on : Addl. CIT Vs Surat Silk Cloth Manufacturers Association (1979) 13 CTR (SC) 378: (1980) 121 ITR 1 (SC), CIT Vs Andhra Pradesh State Road Transport Corporation (1986) 52 CTR (SC) 75: (1986) 159 ITR 1 (SC) and New Life in Christ Evangelistic Association (NLC) Vs CIT (2001) 165 CTR (Mad) 446: (2000) 246 ITR 532 (Mad) distinguished."
The Tribunal, distinguishing among others, the decision of the Apex Court in the case of Gujarat Maritime Board (supra), the Tribunal in that case observed in para 6.4 of its order as follows-
"6.4 The major trust of the learned counsel for the assessee is that JDA is a general public utility as it satisfies the need for housing accommodation. For the section (section) of the people of State of Punjab 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 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 objects 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 centres are crated/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 15 ITA No. 1845/Hyd/12 Andhra Pradesh State Housing Corporation Ltd.
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 crated 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 his 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 form the public itself, so where is the charity? If the activities of the assessee and the arguments of both 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 high rates and is earning a profit therefrom. A new trend has also emerged that JDA, 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 also provided by private developers these days, then they will also claim the status of a charitable institution."
For the above reasons, among others, discussed at length and also observing that the Chandigarh Bench of the Tribunal in the case of Punjab Urban Planning and Development Authority V/s. CIT (supra) squarely applies to the facts of that case, the Tribunal in that case held that the assessee was not entitled for registration under S.12AA of the Act.
14. Similarly, following the order of the Tribunal in the case of Jalandhar Development Authority (supra), in similar circumstances, in the case of Jammu Development Authority V/s. CIT (ITA 30/Asr/2011), the Amritsar Bench of the Tribunal, vide its order dated 14.6.2012, the Tribunal considered the legality and validity of the action of the Commissioner of Income-tax in withdrawing the registration granted in favour of the assessee, by invoking the provisions of S.12AA(3) of the Act. The Tribunal, besides following the coordinate Bench decision in the case of Jalandhar Development Authority (supra), considered at length the various contentions urged before it in the light of the case law relied upon by the parties, and ultimately upheld the action of the Commissioner of Income-tax in withdrawing the registration. Relevant portion of the order of the Tribunal dated 14.6.2012 in that case is reproduced below-
16 ITA No. 1845/Hyd/12Andhra Pradesh State Housing Corporation Ltd.
"7. We have heard the rival contentions and perused the facts of the case, including section 12AA(3) of the Act, where Trust or Institution has been granted registration and subsequently the Commissioner is satisfied that the activities of such trust or institution are not genuine or are not being carried out in accordance with the objects of the trust or institution of such trust or institution, as the case may be , he shall, pass an order in writing canceling the registration of such trust or institution. Section 2(15) of the Act defines "charitable purpose" to include the advancement of any other object of general public utility. It is also not disputed that the Ld. CIT while granting registration u/s 12AA(3) of the act to the assessee had observed that he is satisfied that instrument does not exist in any trade, commerce or business. The order is dated 30.09.2009 whereas the amendment by Finance Act, 2008 is w.e.f. 01.04.2009, where as per Finance Act, 2008, following proviso had been added w.e.f. 01.04.2009:
"Provided that the advancement of any other object of generally public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use of application, or retention, of the income from such activity."
7.1. Further, as per Finance Act, 2010, after first proviso, second proviso has been added w.e.f. 01.04.2009, which is read as under:
"Provided further that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is ten lakh rupees or less in the previous year".
7.2 As a matter of fact from the perusal of the order of the Ld. CIT, it appears that first proviso so inserted by the Finance Act, 2008 w.e.f. 01.04.2009 was not taken into consideration while granting registration vide order dated 30.09.2009. Therefore, in the facts and circumstances of the case, we concur with the views of the Ld. CIT, who had placed reliance on the decision of five Member Bench of Hon'ble Supreme Court in the case of A Distributors (Baroda) P. Ltd. vs. Union of India & Ors. reported in 155 ITR120 (SC), wherein it has been held to perpetuate an error is no heroism. To rectify it is the compulsion of the judicial conscience. In this, we derived comfort and strength from the wise and inspiring words of Justice Bronson in Pierce v. Delameter (A.M.Y at page 18). Therefore, the Ld. CIT in view of the decision of the Hon'ble Supreme Court in the case of A Distributors (Baroda) P. Ltd. vs. Union of India & Ors.(supra) is within his power to decide the issue as per insertion of the first proviso by the Finance Act, 2008 w.e.f. 01.04.2009 and also the second proviso inserted by the Finance Act, 2010 w.e.f. 01.04.2009 whereas the aggregate value of the receipts in the 17 ITA No. 1845/Hyd/12 Andhra Pradesh State Housing Corporation Ltd.
present assessee are Rs. 10 lakhs. Also on the principle of consistency, we concur with the views of the ld. CIT relying upon the decisions of various courts of law that an erroneous view in law could not be allowed to be perpetuated on the ground of consistency. Therefore, in the facts and circumstances of the present case, the Ld. Counsel for the assessee was put a question by the Bench how the facts in the present case are different from the facts in the case of M/s. Jalandhar Development Authority. The ld. counsel for the assessee argued and replied that the difference in the facts and circumstances of the present case with M/s.Jalandhar Development Authority is not there except that the registration had been granted in the case of M/s. Jalandhar Development Authority whereas in the present case, registration having been granted cannot be cancelled. Since the order of the CIT dated 30.09.2009 in the present case is after amendment to section 2(15) i.e. introduction of the first proviso was well before the Ld. CIT. 7.3. Considering the arguments of the ld. counsel for the assessee and on perusal of the facts of the present case with the facts in M/s. Jalandhar Development Authority (supra), we are of the view that facts in the present case are identical to the facts as in the case of Jalandhar Development Authority. As regards the first proviso inserted in section 2(15) of the Act, we have given our views hereinabove that the Ld. CIT had not considered the first proviso to section 2(15) as well as the second proviso to section 2(15) while making the order for grant of registration on 30.09.2009. Therefore, the Ld. CIT is well within his power to decide the issue by his order in view of the decision of the Hon'ble Supreme Court in the case of A. Distributors (Baroda) P. Ltd. vs. Union of India and Ors. 155 ITR 120 (SC). Therefore, in the facts and circumstances of the present case and following our order in the case of M/s. Jalandhar Development Authority (supra) being on identical facts, the registration u/s 12AA cannot be granted to the assessee and the Ld. CIT has rightly cancelled the registration so granted.
7.4. Also, we concur with the views of the Ld. CIT(A) vide para 3.2 to 6.2 of his order that prior to insertion of these provisos i.e. first and second proviso to section 2(15) of the Act, certain bodies were treated as 'charitable' on the ground of advancement of object of general public utility. However, after the insertion of the above proviso, the advancement of any other object of general public utility shall not be a 'charitable purposes' if it involves the carrying on of :-
a) Any activity in the nature of trade, commerce or business;
b) Any activity of rendering any service in relation to any trade, commerce or business.
d) For a cess or fee or any other consideration, irrespective of the nature of use or application or retention of income from such activity.18 ITA No. 1845/Hyd/12
Andhra Pradesh State Housing Corporation Ltd.
7.4.1. Therefore, the Institutions/Trusts/Societies which are involved in the activities in (a)(, (b) & (c) mentioned hereinabove and aggregate value of the receipt of the activities referred to in the first and second proviso is more than Rs. ten lakhs in the previous year, they shall not be eligible to continue with registration u/s 12A and the same is required to be withdrawn. 7.5. The main objects of the assessee's institution has been mentioned in Para 4.1. of Ld. CIT's order, as mentioned hereinabove. It has rightly been mentioned by the Ld. CIT in para 4.2 mentioned hereinabove that till the financial year 2002- 03, the income of such Authorities were exempt u/s 10(20A) of the Act. However, in view of omission of section 10(20A) of the Act, an Explanation was added to section 10(20), which has been mentioned hereinabove. The income of Local Authority is chargeable under the head 'Income from House property', 'Capital gains' or "Income from other sources" or from a trade or business carried on by it was earlier excluded in computing the total income of the Authority of a previous year. However, in view of the amendment, with effect from 01.04.2003, the Explanation "Local Authority" was defined to include only the Authorities enumerated in the Explanation to include Panchayat, Municipal Committee and District Board and Cantonment Board as referred in the said Explanation.
7.6. Also, at the same time, section 10(20A) which related to income of and Authority constituted in India by or under any law enacted for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages which before the amendment was not included in computing the total income, was omitted. Consequently, the benefit conferred by clause (20A) on such an Authority was taken away. Thus, in view of the fact that section 10(20A) was omitted and an Explanation was added to section 10(20) of the Act, enumerating the "Local Authorities" contemplated by section 10(20), the assessee could not claim any benefit under those provisions after April 1, 2003. The assessee subsequently claimed that its objects falls under the provisions of section 2(15) of the Act and has complied with all the eligibility criteria for grant of registration under section 12A of the Act, which was allowed vide order dated 30.09.2009. It is at this juncture that the first proviso and second proviso were added by the Finance Act, 2008 w.e.f. 01.04.2009, as mentioned hereinabove. Therefore, after insertion of the said proviso, any institution carrying on of any activity in the nature of trade, commerce or business etc. as mentioned hereinabove, shall not be a charitable purpose. As per objects of the assessee, it is observed that the main object of the assessee is to promote and secure the development of local area and there is no charitable purpose or any activity for general public utility. The activities of the assessee are aimed at earning profit as it is carrying on activity in the nature of trade, commerce or 19 ITA No. 1845/Hyd/12 Andhra Pradesh State Housing Corporation Ltd.
business. Further profit making by the assessee is not mere incidental or by product of the assessee. There is no real object of the assessee and there is no spending of the income exclusively for the purpose of charitable activities and profits of the assessee are not used for charitable purpose under the terms of the object and there is no obligation on the part of the assessee to spend on 'charitable purpose' only. Also as per clause 53 of the Jammu & Kashmir Development Act, on dissolution of all properties and funds to vest in the Government and for the purpose of realizing properties, the function of the Authority shall be discharged by the Government. We concur with the views of the Ld. CIT on transfer of the properties, funds and dues and liabilities etc. will vest in the Govt. There is no restriction, how the same are to be utilized by the Government. There are other objects like sale and purchase, which makes the Authority a commercial organization. Therefore, in the facts and circumstances of the case, even on dissolution or winding up by not having any restriction on application of asset for charitable purpose, the objects pursued by the assessee cannot be said to be a charitable in nature.
7.7 As regards the reliance on the decisions of various courts of law by the Ld. CIT, most of the decisions have been dealt by the Tribunal in the case of M/s. Jalandhar Development Authority vs. ITO (supra). In the facts and circumstances of the present case, we concur with the views of the ld. CIT that Jammu Development Authority is an Authority established with the motive of profit constituted under the Jammu & Kashmir Development Act, 1970 and that the activities of such Authority are hit by section 2(15) of the Act read with first and second proviso and are not in line with the objects of the Authority/Trust so far as the activities relating to purchase and sale of properties, as mentioned hereinabove. Hence, the activities are not genuine to the extent, mentioned hereinabove and the Ld. CIT, Jammu, has rightly being satisfied held that the Jammu Development Authority is not entitled to registration and accordingly cancelled the registration so granted."
15. In the light of the foregoing discussion, following the consistent view taken by the various Benches of the Tribunal in the cases of various other Urban Development Authorities constituted under analogous statutes, we uphold the action of the Commissioner of Income-tax in rejecting the assessee's application for registration under S.12AA of the Act, as the primary objects of assessee are of profit motive as considered by the Tribunal in similar cases discussed above, and therefore, we find no infirmity in the order of the Commissioner of Income-tax, Tirupathi. We accordingly uphold his order and reject the grounds of the assessee in this appeal."
11. The issue under consideration is identical to that of the said case decided by the coordinate bench in the case of 20 ITA No. 1845/Hyd/12 Andhra Pradesh State Housing Corporation Ltd.
Tirupathi Urban Development Authroity (supra). Further, as seen from the Memorandum of Association and Articles of Association filed by the assessee before us, the object of the assessee cannot be said that it is in the nature of general public utility and the objects stated therein make the assessee a commercial orginsation and there is no stipulation on utilization of income only for the purpose of charitable activities. The assessee being a commercial organisation just like any business entity engaged in the real estate business. The surplus funds generated by the assessee throughout various activities could be distributed as dividend and there is no restriction for declaration of dividend to the members of the assessee company as is evident from the Clause No. 99 of the Articles of Association. As the dominant object of the assessee was not charity, either its commercial activity carried on with profit motive and also there is no clause for application of income for charitable activities including relief to poor, education or medical relief and advancement of any other object of general public utility. There is nothing in this case which provides services to the mankind on charity basis. The argument of the learned counsel is not tenable because a charitable institution provides services for charitable purposes free of cost and not for gain. The object of the assessee is similar to activities performed by big developers, who are earning profit . If the registration is granted to the assessee u/s 12A of the Act, then, it will open pandora's box and everybody will claim exemption from tax, who are incidentally doing some charitable activities in providing parks or roads. The activities of the assessee is nothing but profit making activities for which it is taking money from general public and no charity activities are carried on for the public. Considering all these facts brought on record by the DIT(E), in our considered view, the assessee is not entitled for grant of registration u/s 12A of the Act. Being so, we do not find any 21 ITA No. 1845/Hyd/12 Andhra Pradesh State Housing Corporation Ltd.
infirmity in the order of the DITE) in refusing to grant registration u/s 12A to the assessee and accordingly, the order of the DIT(E) is hereby confirmed dismissing the appeal of the assessee.
12. In the result, appeal of the assessee is dismissed.
Order pronounced in the court on 19/04/2013
Sd/- Sd/-
(Saktijit Dey) (Chandra Poojari)
Judicial Member. Accountant Member.
Hyderabad, Dt. 19 th April, 2013.
kv
Copy forwarded to:
1. Andhra Pradesh State Housing Corporation Ltd., 3-6- 184, Urdugally, Road No. 17, Himayatnagar, Hyderabad
- 500 029.
2. DIT(E), Aayakar Bhavan, Basheerbagh, Hyderabad.
3. ADIT(E), Hyderabad
4. The D.R., ITAT, Hyderabad.