The Assistant Commissioner of Income Tax, Amritsar. V. M/s. Improvement Trust, BATALA

ITA 109/ASR/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 0710 (ITAT-AMRITSAR)
• Duration Of Justice: 4 year(s) 2 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-06-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 26-05-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 23-03-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A N MISHRA
• Assessee Lawyers: Y K SUD
• Keywords: Business income; Charitable institution; Rule of consistency
• Section: 43B; 12AA; 68; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. A.D. JAIN, JUDICIAL MEMBER AND SH. T.S. KAPOOR, ACCOUNTANT MEMBER ITA NO.109(ASR)/2012 ASSESSMENT YEAR:2006-07 PAN: AATB9994Q ASSTT. COMMR. OF INCOME TAX, VS. IMPROVEMENT TRUST, CIRCLE-II, AMRITSAR. SHASTRI NAGAR, BATALA. (APPELLANT) (RESPONDENT) APPELLANT BY: SH.A.N. MISHRA, DR RESPONDENT BY: SH. Y.K. SUD, CA DATE OF HEARING: 26/05/2016 DATE OF PRONOUNCEMENT: 03/06/2016 ORDER PER A.D. JAIN,JM: THIS IS THE DEPARTMENTS APPEAL FOR THE ASSESSMENT YEAR 2006-07, AGAINST THE ORDER, DATED 08/12/2011, PASSED BY THE LD. CIT(A), AMRITSAR. THE DEPARTMENT HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A), AMRITSAR WAS NOT JUSTIFIED IN GRANTING THE STATUS TO THE ASSESSEE AS TAT OF TRUST AS AGAINST AOP ADOPTED BY THE A.O. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A), AMRITSAR ERRED IN DELETING THE ADDITION OF RS.1,72,796/- WHICH WAS RIGHTLY MADE BY THE A.O. UN DER THE PROVISIONS OF SECTION 43B OF THE ACT. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A), AMRITSAR ERRED IN DELETING THE ADDITION OF RS.34,59,597/- WHICH WAS RIGHTLY MADE BY THE A.O. BY INVOKING THE PROVISIONS OF SECTION 43B OF THE I.T. ACT, 1961. ITA NO.109(ASR)/2012 A.Y. 2006-07 2 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A), AMRITSAR ERRED IN DELETING THE ADDITION OF RS.4,35,910/- MADE BY THE A.O. FOR UNDER VALUATION OF CLOSING STOCK WHICH WAS BASED ON SPECIAL AUDIT COND UCTED UNDER SECTION 142(2A) OF THE ACT. 2. EARLIER THIS APPEAL WAS DECIDED BY THIS BENCH, V IDE ORDER DATED 21.02.2013 AGAINST THE ASSESSEE AND IN FAVOUR OF TH E REVENUE. THE ASSESSEE WENT IN APPEAL BEFORE THE HONBLE PUNJAB & HARYANA HIGH COURT AGAINST THE ORDER DATED 21.02.2013 OF THE ITA T, AMRITSAR BENCH VIDE ITA NO.229 OF 2013(O&M) WHICH WAS DECIDED BY T HE HONBLE HIGH COURT, VIDE ORDER DATED 06.08.2014 IN ITA NO. 100 OF 2014, IN THE CASE OF AMRITSAR IMPROVEMENT TRUST VS. CIT, WHICH WAS FO LLOWED, VIDE JUDGMENTS OF EVEN DATE, IN THE CASE OF OTHER IMPROV EMENT TRUSTS AS WELL. THEIR LORDSHIPS HAD CONCLUDED AS FOLLOWS: AFTER HEARING LD. COUNSEL FOR THE PARTIES, IN OUR OPINION, THE MATTER REQUIRES TO BE REMITTED TO THE TRIBUNAL TO ADJUDICA TE THE ISSUE REGARDING THE NATURE OF ACTIVITIES OF THE APPELLANT TRUST WHETHER THEY ARE IN THE NATURE OF CHARITABLE WITHIN THE MEANING OF SECTION 2(15) OF THE ACT IN RESPECT OF ASSESSMENT YEARS IN QUESTION OR NOT, KEEPING IN VIEW THE ARGUMENTS RAISED BY THE LD. COUNSEL FOR TH E ASSESSEE AND TO PASS FRESH ORDERS RELATING TO ASSESSMENT PROCEEDING S THEREAFTER IN ACCORDANCE WITH LAW. ACCORDINGLY, THE IMPUGNED ORDERS PASSED BY THE TRIB UNAL IN ALL THE APPEALS ARE SET ASIDE AND THE MATTER IS REMANDED TO THE TRIBUNAL TO DECIDE THE SAME AFRESH IN THE LIGHT OF THE SUBMISSI ONS MADE BY THE LD. COUNSEL FOR THE ASSESSEE AFTER AFFORDING AN OPP ORTUNITY OF HEARING TO THE PARTIES IN ACCORDANCE WITH LAW. NEEDLESS TO SAY, ANYTHING OBSERVED HEREINBEFORE SHALL NOT BE TAKEN TO BE EXPR ESSION OF OPINION ON THE MERITS OF THE CONTROVERSY. SINCERE EFFORTS S HALL BE MADE TO DECIDE THE MATTER EXPEDITIOUSLY. AS A RESULT ALL TH E APPEALS STAND DISPOSED OF. ACCORDINGLY, THIS APPEAL IS AGAIN BEFORE US FRESH A DJUDICATION. ITA NO.109(ASR)/2012 A.Y. 2006-07 3 3. AT THE OUTSET, THE LD. COUNSEL FOR THE ASSESSEE, MR. Y.K.SUD, CA SUBMITTED THAT THE ISSUE INVOLVED IN THE APPEAL OF THE REVENUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE R EVENUE VIDE ORDER DATED 10.09.2015 OF THE THIS BENCH OF THE TRIBUNAL IN ITA NO. 496(ASR)/2013, IN THE CASE OF HOSHIARPUR IMPROVEME NT TRUST AND SIX OTHER TRUSTS, COPY OF WHICH HAS BEEN PLACED ON RECO RD. HE FURTHER DREW OUR ATTENTION TO THE ORDER OF THE LD. CIT(A) WHEREI N IN PARA 7.2 OF THE ORDER, THE CONTENTION OF THE ASSESSEE HAS BEEN NOTE D BY THE LD. CIT(A) WHEREIN THE AOS ACTION OF DENYING THE BENEFIT U/S 11 TO 13 WAS CHALLENGED. TO THIS EFFECT, THE LD. CIT(A) GAVE HIS FINDINGS IN PARA 7.4 OF THE ORDER, HOLDING AS UNDER: I AM OF THE CONSIDERED OPINION THAT THE AO IS NOT JUSTIFIED TO ADOPT THE APPELLANTS STATUS AS THAT OF AOP WITH THE DIRE CTIONS THAT BY FOLLOWING THE PRINCIPLE OF CONSISTENCY, THE STATUS OF THE APPELLANT SHOULD BE ADOPTED AS THAT OF A TRUST/CHARITABLE INS TITUTION SUBJECT TO APPLICATION OF PROVISIONS OF SECTIONS 11 TO 13 B Y ADOPTING THE CONCEPT OF INCOME APPLIED AND NOT INCOME EARNED BY IMPLICATIONS. ACCORDINGLY, THE APPELLANT IS SUCCEEDED IN ITS GROU NDS OF APPEAL NO.1 TO 3 WHICH HAVE BEEN DECIDED IN ITS FAVOUR. 4. THE LD. COUNSEL FURTHER SUBMITTED THAT THE ADDIT IONS MADE BY THE AO WERE CHALLENGED BEFORE THE LD. CIT(A) BY THE AS SESSEE AND THE SAME WERE ALSO DELETED BY THE LD. CIT(A) IN PARA 8.3. OF HIS ORDER. 5. HE FURTHER DREW OUR ATTENTION TO THE ORDER, DATE D 10.09.2015 OF THIS BENCH IN THE CASE OF HOSHIARPUR IMPROVEMENT TRUST WHEREIN IN PARA 39 AFTER CONSIDERING THE ORDER OF PUDA (RELIED ON BY THE AO THE HONBLE BENCH DECIDED THE ISSUE IN FAVOUR OF THE A SSESSEE HELD IN PARA 40 AS UNDER: ITA NO.109(ASR)/2012 A.Y. 2006-07 4 WE ARE OF THE CONSIDERED VIEW THAT THE AUTHORITIES BELOW WERE NOT JUSTIFIED IN DECLINING THE BENEFIT OF SECTION 11 RE AD WITH SECTION 2(15) OF THE ASSESSEE, AND IN HOLDING THAT THE ASSESSEE T RUST WAS NOT COVERED BY ADVANCEMENT OF ANY OBJECT OF GENERAL PUB LIC UTILITY. WE, THEREFORE, DIRECT THE AO TO DELETED THE DISALLOWANC E OF EXEMPTION OF RS.65,20,690/-. THE ASSESSEE GETS THE RELIEF ACCORD INGLY. GRIEVANCES OF THE ASSESSEE ARE UPHELD. 6. IN VIEW OF THE ABOVE SUBMISSIONS, THE LD. COUNSE L FOR THE ASSESSEE PRAYED THAT THE APPEAL OF REVENUE BE DISMISSED REL YING ON THE ORDER OF HOSHIARPUR IMPROVEMENT TRUST (SUPRA). 7. THE LD. DR, ON THE OTHER HAND, RELIED ON THE ORD ER OF THE ASSESSING OFFICER. 8. ON CONSIDERING THE RIVAL CONTENTIONS IN THE LIGH T OF THE MATERIAL PLACED ON RECORD, WE FIND THAT THE ISSUE IN DISPUT E IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY T HE DECISION OF THE ITAT, AMRITSAR BENCH, IN THE CASE OF HOSHIARPUR IM PROVEMENT TRUST VS. INCOME TAX OFFICER, WARD-1, HOSHIARPUR, IN ITA NO.4 96(ASR)2013, FOR THE ASSESSMENT YEAR 2009-10, DATED 10.09.2015, WHEREIN IT HAS BEEN HELD THAT THE AUTHORITIES BELOW WERE NOT JUSTIFIED IN D ECLINING THE BENEFIT OF SECTION 11 READ WITH SECTION 2(15) TO THE ASSESSEE, AND IN HOLDING THAT THE ASSESSEE TRUST WAS NOT COVERED BY ADVANCEMENT O F ANY OBJECT OF GENERAL PUBLIC UTILITY. THE RELEVANT FINDINGS GIVEN BY THE TRIBUNAL IN THE AFORESAID ORDER ARE AS FOLLOWS: 13. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED T HE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE APPLICABLE LEGAL POSITION. 14. BEFORE WE ADDRESS OURSELVES TO THE FACTS OF TH IS CASE, LET US ANALYSE THE RELEVANT LEGAL PROVISIONS. SECTION 2 (15), WHICH ITA NO.109(ASR)/2012 A.Y. 2006-07 5 DEFINES CHARITABLE PURPOSES THOUGH IN AN INCLUSIV E RATHER THAN AN EXHAUSTIVE MANNER, HAD A RATHER QUIET EXIST ENCE, UNAFFECTED BY THE FREQUENT AMENDMENTS TO THE INCOME TAX ACT 1961, TILL 1 ST APRIL 1984. VIDE FINANCE ACT, 2013, AND WITH EFFECT FROM 1 ST APRIL 1984, THE WORDS NOT INVOLVING THE CARRYING ON ANY ACTIVITY FOR PROFIT WERE DELETED FROM SECTION 2(15), AND, WITH THIS AMENDMENT, THIS DEFIN ITION WAS AS FOLLOWS: 'CHARITABLE PURPOSE' INCLUDES RELIEF OF THE POOR, EDUCATION, MEDICAL RELIEF, AND THE ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY: 15. VIDE FINANCE ACT, 2008, THE WORDS PRESERVATION OF ENVIRONMENT (INCLUDING WATERSHEDS, FORESTS AND WILD LIFE) AND PRESERVATION OF MONUMENTS OR PLACES OR OBJECTS OF ARTISTIC OR HISTORIC INTEREST), WERE ADDED AND , ON A MORE RELEVANT NOTE, A NEW PROVISO (I.E. FIST PROVISO) WAS ADDED TO THIS PROVISION, CARVING OUT AN EXCEPTION IN THE CAS ES OF ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL UTILITY , AND, BY THE IMMEDIATELY FOLLOWING FINANCE ACT 2009, THERE W AS YET ANOTHER PROVISO (I.E. SECOND PROVISO) INTRODUCED TO CARVE OUT AN EXCEPTION FROM THE EXCEPTION ITSELF. IN ESSENCE, T HE EFFECT OF THESE PROVISOS WAS THAT EVEN WHEN AN ASSESSEE WAS P URSUING A CHARITABLE PURPOSE IN THE EVENT OF ADVANCEMENT OF ANY OTHER OBJECT OF PUBLIC UTILITY IT WOULD CEASE TO BE FOR CHARITABLE PURPOSES IF IT INVOLVES (A) CARRYING ON AN ACTIVITY IN THE NATURE OF TRADE, COMMERCE OR BUSINESS; OR (B) RENDERING A NY SERVICE IN RELATION TO ANY TRADE, COMMERCE OR BUSINESS, FOR A CESS OR FEE OR ANY OTHER CONSIDERATION, IRRESPECTIVE OF NATURE OF USE OR APPLICATION OR RETENTION OF THE INCOME FROM SUCH A CTIVITY. HOWEVER, THESE PROVISIONS ARE NOT TO APPLY WHEN THE ACTIVITIES ARE SUCH A MODEST SCALE THAT THE VALUE OF RECEIPTS IN RESPECT OF THE SAME ARE LESS THAN RS 25 LAKHS. THESE TWO PROV ISOS, AS THEY STAND NOW, ARE AS FOLLOWS: PROVIDED THAT THE ADVANCEMENT OF ANY OTHER OBJECT O F GENERAL PUBLIC UTILITY SHALL NOT BE A CHARITABLE PURPOSE, I F IT INVOLVES THE CARRYING ON OF ANY ACTIVITY IN THE NATURE OF TRADE, COMMERCE OR BUSINESS, OR ANY ACTIVITY OF RENDERING ANY SERVICE IN RELATION TO ANY TRADE, COMMERCE OR BUSINESS, FOR A CESS OR FEE OR ANY OTHER CONSIDERATION, IRRESPECTIVE OF THE NATURE OF USE OR APPLICATION, OR RETENTION, OF THE INCOME FROM SUCH ACTIVITY; ITA NO.109(ASR)/2012 A.Y. 2006-07 6 PROVIDED FURTHER THAT THE FIRST PROVISO SHALL NOT A PPLY IF THE AGGREGATE VALUE OF THE RECEIPTS FROM THE ACTIVITIES REFERRED TO THEREIN IS TWENTY FIVE LAKH RUPEES OR LESS IN THE P REVIOUS YEAR. 16. EXPLAINING THE SCOPE OF THESE PROVISIONS, A COO RDINATE BENCH OF THIS TRIBUNAL, IN THE CASE OF HIMACHAL PRADESH ENVIRONMENT PROTECTION AND POLLUTION CONTROL BOARD VS CIT [(2010) 9 ITR TRIB 204 (CHANDIGARH)], HAS OBSERVED AS FOLLOWS: 13. IT IS ALSO IMPORTANT TO BEAR IN MIND THAT THE I NSERTION OF PROVISO TO S. 2(15) DOES NOT MEAN THAT IN CASE A N ASSESSEE IS TO RECEIVE ANY PAYMENT FOR ANYTHING DON E FOR TRADE, COMMERCE OR BUSINESS, THE ASSESSEE WILL BE H IT BY THE SAID PROVISO. IT MAY BE RECALLED THAT ELABORATI NG THE SCOPE OF THIS AMENDMENT, CBDT, VIDE CIRCULAR NO. 11 , DT. 19TH DEC., 2008 [(2009) 221 CTR (ST) 1], HAS OBSERV ED AS FOLLOWS : '3. THE NEWLY AMENDED S. 2(15) WILL APPLY ONLY TO THE ENTITIES WHOSE PURPOSE IS ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY I.E., THE F OURTH LIMB OF DEFINITION OF CHARITABLE PURPOSE CONTAINE D IN S. 2(15). HENCE, SUCH ENTITIES WILL NOT BE ELIGI BLE FOR EXEMPTION UNDER S. 11 OR UNDER S. 10(23C) OF TH E ACT, IF THEY CARRY ON COMMERCIAL ACTIVITIES. WHETHE R SUCH AN ENTITY IS CARRYING ON AN ACTIVITY IN THE NATURE OF TRADE, COMMERCE OR BUSINESS IS A QUESTION OF FACT WHICH WILL BE DECIDED BASED ON THE NATURE, SCOPE, EXTENT AND FREQUENCY OF ACTIVITY. 3.1 THERE ARE INDUSTRY AND TRADE ASSOCIATIONS WHO CLAIM EXEMPTION FROM TAX UNDER S. 11 OR ON THE GROUND THAT THEIR OBJECTS ARE FOR CHARITABLE PURPOSES AS THESE ARE COVERED UNDER THE ANY OTHER OBJECT OF PUBLIC UTILITY. UNDER THE PRINCIPLE OF MUTUALITY, IF TRADING TAKES PLACE BETWEEN THE PERSONS WHO ARE ASSOCIATED TOGETHER AND CONTRIBUTE TO A COMMON FUND FOR THE FINANCING OF SOME VENTURE OR OBJECT, AND IN THIS RESPECT HAVE NO DEALINGS OR RELATIONS WITH ANY OUTSIDE BODY, THEN THE SURPLUS RETURNED TO SUCH PERSONS IS NOT CHARGEABLE TO TAX. THEREFORE, WHERE INDUSTRY OR TRADE ASSOCIATIONS CLAIM BOTH TO BE CHARITABLE INSTITUTIONS AS WELL AS MUTUAL MEMBERS, THESE WOULD NOT FALL UNDER THE PURVIEW OF S. 2(15) OWING TO THE PRINCIPLE OF ITA NO.109(ASR)/2012 A.Y. 2006-07 7 MUTUALITY. HOWEVER, IF SUCH ORGANIZATIONS HAVE DEALINGS WITH THE NON-MEMBERS, THEIR CLAIM FOR CHARITABLE INSTITUTION WOULD NOW BE GOVERNED BY THE ADDITIONAL CONDITIONS STIPULATED IN PROVISO TO S. 2(15) . 3.2 IN THE FINAL ANALYSIS, WHETHER THE ASSESSEE HAS FOR ITS OBJECT THE ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY IS A QUESTION OF FACT. I F SUCH ASSESSEE IS ENGAGED IN ANY ACTIVITY IN THE NATURE OF TRADE, COMMERCE OR BUSINESS OR RENDERS ANY SERVICE IN CONNECTION TO TRADE, COMMERCE OR BUSINESS, IT WOULD NOT BE ENTITLED TO CLAIM THAT IT S OBJECT IS FOR CHARITABLE PURPOSES. IN SUCH A CASE, THE OBJECT OF GENERAL PUBLIC UTILITY WILL ONLY BE A M ASK OR A DEVICE TO HIDE THE TRUE PURPOSE WHICH IS TRADE , COMMERCE, OR BUSINESS OR RENDERING OF ANY SERVICE IN RELATION TO TRADE, COMMERCE OR BUSINESS. EACH CASE WOULD, THEREFORE, HAVE TO BE DECIDED ON ITS OW N FACTS, AND GENERALIZATIONS ARE NOT POSSIBLE. AN ASSESSEE WHO CLAIMS THAT THEIR OBJECT IS CHARITABL E PURPOSE WITHIN THE MEANING OF S. 2(15) WOULD BE WELL ADVISED TO ESCHEW ANY ACTIVITY WHICH IS IN THE NATURE OF TRADE, COMMERCE OR BUSINESS OR RENDERING OF ANY SERVICE IN RELATION TO ANY TRADE, COMMERCE O R BUSINESS . (EMPHASIS, ITALICIZED IN PRINT, SUPPLIED BY US) 14. AS THE ABOVE CBDT CIRCULAR, WHICH IS BINDING ON THE CIT UNDER S. 119(1)(A) OF THE ACT, APTLY PUTS IT, W HETHER THE ASSESSEE HAS, AS ITS OBJECT, ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY IS ESSENTIAL LY A QUESTION OF TO BE DECIDED ON THE FACTS OF THE ASSES SEES OWN CASE AND WHERE OBJECT OF GENERAL PUBLIC ACTIVIT Y IS ONLY A MASK OR DEVICE TO HIDE THE TRUE PURPOSE OF T RADE, BUSINESS OR COMMERCE, OR RENDERING OF ANY SERVICE I N RELATION THERETO, THE ASSESSEE CANNOT BE SAID TO BE ENGAGED IN A CHARITABLE ACTIVITY WITHIN MEANINGS OF S. 2(15) OF THE ACT. AS A COROLLARY TO THIS APPROACH A DOPTED BY TAX ADMINISTRATION, IN OUR CONSIDERED VIEW, IT C ANNOT BE OPEN TO LEARNED CIT TO CONTEND THAT WHERE AN OBJ ECT OF GENERAL PUBLIC UTILITY IS NOT MERELY A MASK TO HIDE TRUE PURPOSE OR RENDERING OF ANY SERVICE IN RELATION THE RETO, AND WHERE SUCH SERVICES ARE BEING RENDERED AS PUREL Y INCIDENTAL TO OR AS SUBSERVIENT TO THE MAIN OBJECTI VE OF ITA NO.109(ASR)/2012 A.Y. 2006-07 8 GENERAL PUBLIC UTILITY, THE CARRYING ON OF BONA F IDE ACTIVITIES IN FURTHERANCE OF SUCH OBJECTIVES OF GE NERAL PUBLIC UTILITY WILL ALSO BE HIT BY THE PROVISO TO S. 2(15). 15. AS CBDT RIGHTLY PUTS IT, SWEEPING GENERALIZATI ONS ARE NOT POSSIBLE AND EACH CASE WILL HAVE TO DECID ED ON ITS FACTS. THE QUESTION THEN ARISES WHETHER ON THE PRESENT SET OF FACTS IT CAN BE SAID THAT THE ASSESS EE WAS ENGAGED IN TRADE, COMMERCE OR BUSINESS OR IN RENDER ING OF A SERVICE TO TRADE, COMMERCE OR BUSINESS. 17. THEREFORE, AS THE LEGAL POSITION STANDS AS ON NOW, EVEN AFTER THE INSERTION OF THE ABOVE TWO PROVISOS, AS L ONG AS THE OBJECT OF GENERAL PUBLIC UTILITY IS NOT MERELY A MA SK TO HIDE TRUE PURPOSE OR RENDERING OF ANY SERVICE IN RELATION THE RETO, AND WHERE SUCH SERVICES ARE BEING RENDERED AS PURELY IN CIDENTAL TO OR AS SUBSERVIENT TO THE MAIN OBJECTIVE OF GENERAL PUBLIC UTILITY, THE CARRYING ON OF BONAFIDE ACTIVITIES IN FURTHERANCE OF SUCH OBJECTIVES OF GENERAL PUBLIC UTILITY CANNOT BE HIT BY THE PROVISO TO S. 2(15). BY THE FINANCE ACT 2015, THE SE TWO PROVISOS ALSO STAND SUBSTITUTED, WITH EFFECT FROM 1 ST APRIL 2016, A NEW PROVISO TO SECTION 2(15). THIS NEW PROVISO IS AS FOLLOWS: PROVIDED THAT THE ADVANCEMENT OF ANY OTHER OBJECT O F GENERAL PUBLIC UTILITY SHALL NOT BE A CHARITABLE PURPOSE, I F IT INVOLVES THE CARRYING ON OF ANY ACTIVITY IN THE NATURE OF TRADE, COMMERCE OR BUSINESS, OR ANY ACTIVITY OF RENDERING ANY SERVICE IN RELATION TO ANY TRADE, COMMERCE OR BUSINESS, FOR A CESS OR FEE OR ANY OTHER CONSIDERATION, IRRESPECTIVE OF THE NATURE OF USE OR APPLICATION, OR RETENTION, OF THE INCOME FROM SUCH ACTIVITY, UNL ESS (I) SUCH ACTIVITY IS UNDERTAKEN IN THE COURSE OF AC TUAL CARRYING OUT OF SUCH ADVANCEMENT OF ANY OTHER OBJECT OF GENE RAL PUBLIC UTILITY; AND (II) THE AGGREGATE RECEIPTS FROM SUCH ACTIVITY OR A CTIVITIES DURING THE PREVIOUS YEAR, DO NOT EXCEED TWENTY PER CENT. O F THE TOTAL RECEIPTS, OF THE TRUST OR INSTITUTION UNDERTAKING S UCH ACTIVITY OR ACTIVITIES, OF THAT PREVIOUS YEAR 18. IT MAY BE NOTED THAT WHILE THE EARLIER PROVISO SIMPLY STATED THAT EXCLUSION FROM CHARITABLE PURPOSES WI LL COME INTO PLAY IF IT INVOLVES THE CARRYING ON OF ANY ACTIVITY IN T HE NATURE OF TRADE, COMMERCE OR BUSINESS, OR ANY ACTIV ITY OF RENDERING ANY SERVICE IN RELATION TO ANY TRADE, COM MERCE OR BUSINESS , THE REQUIREMENT OF EXCLUSION CLAUSE EXTENDS ITA NO.109(ASR)/2012 A.Y. 2006-07 9 EVEN TO SITUATIONS IN WHICH SUCH ACTIVITY IS UNDERTAKEN IN THE COURSE OF ACTUAL CARRYING OUT OF SUCH ADVANCEME NT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY . IN OTHER WORDS, THE EXCLUSION CLAUSE, BY PROVISO TO SECTION 2 (15), WAS EARLIER TRIGGERED BY INVOLVEMENT IN ANY ACTIVITY IN THE NATURE OF TRADE, COMMERCE OR BUSINESS ETC BUT, POST FINANCE ACT 2015 AMENDMENT, IT WILL BE TRIGGERED EVEN IF SUCH AN ACTIVITY IN THE NATURE OF TRADE, COMMERCE OR BUSINE SS ETC IS UNDERTAKEN IN THE COURSE OF CARRYING OUT SUCH ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY . 19. THIS SUBSTITUTION OF PROVISO TO SECTION 2(15), IN OUR CONSIDERED VIEW, MAY BE VIEWED AS REPRESENTING A PA RADIGM SHIFT IN THE SCOPE OF THE EXCLUSION CLAUSE. 20. THE PARADIGM SHIFT IS THIS. SO FAR AS THE SCOPE OF EARLIER PROVISOS IS CONCERNED, THE CBDT ITSELF HAS, DEALING WITH AN ASSESSEE PURSING THE ADVANCEMENT OF ANY OBJECT OF GENERAL PUBIC UTILITY , OBSERVED THAT IF SUCH ASSESSEE IS ENGAGED IN ANY ACTIVITY IN THE NATURE OF TRADE, COM MERCE OR BUSINESS OR RENDERS ANY SERVICE IN CONNECTION TO TRADE, COMMERCE OR BUSINESS, IT WOULD NOT BE ENTITLED TO C LAIM THAT ITS OBJECT IS FOR CHARITABLE PURPOSES BECAUSE IN SUCH A CASE, THE OBJECT OF GENERAL PUBLIC UTILITY WILL ONLY BE A MASK OR A DEVICE TO HIDE THE TRUE PURPOSE WHICH IS TRADE, COMMERCE, OR BUSINESS OR RENDERING OF ANY SERVICE IN RELATION TO TRADE, COMMERCE OR BUSIN ESS. THE ADVANCEMENT OF ANY OBJECTS OF GENERAL PUBLIC UT ILITY AND ENGAGEMENT IN TRADE, COMMERCE AND BUSINESS ETC. WER E THUS SEEN AS MUTUALLY EXCLUSIVE IN THE SENSE THAT EITHER THE ASSESSEE WAS PURSUING THE OBJECTS OF GENERAL PUBLIC UTILITY OR PURSUING TRADE, COMMERCE OR BUSINESS ETC. IN THE GA RB OF PURSING THE OBJECTS OF GENERAL PUBLIC UTILITY. AS T HE CBDT CIRCULAR ITSELF DEMONSTRATES, THERE COULD NOT HAVE BEEN ANY SITUATION IN WHICH THE ASSESSEE WAS PURSING THE OBJ ECTS OF GENERAL PUBLIC UTILITY AS ALSO ENGAGED IN TRADE, CO MMERCE OF BUSINESS ETC. IN THE NEW PROVISO, HOWEVER, EVEN WHE N THE ASSESSEE IS ENGAGED IN THE ACTIVITIES IN THE NATURE OF TRADE, COMMERCE OR BUSINESS ETC. AND SUCH ACTIVITY IS UNDERTAKEN IN THE COURSE OF ACTUAL CARRYING OUT OF SUCH ADVANC EMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY IT IS EXCLUDED FROM THE SCOPE OF CHARITABLE PURPOSES ONLY WHEN THE AGGREGATE RECEIPTS FROM SUCH ACTIVITY OR ACTIVITIES DURING THE PREVIOUS YEAR, DO NOT EXCEED TWENTY PER CENT OF THE ITA NO.109(ASR)/2012 A.Y. 2006-07 10 TOTAL RECEIPTS, OF THE TRUST OR INSTITUTION UNDERTA KING SUCH ACTIVITY OR ACTIVITIES, OF THAT PREVIOUS YEAR . IN OTHER WORDS, EVEN WHEN THE ACTIVITIES ARE IN THE COURSE O F ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC U TILITY, BUT IN THE NATURE OF TRADE, COMMERCE OR BUSINESS ETC, THE PROVISO SEEKS TO EXCLUDE IT ONLY WHEN THE THRESHOLD LEVEL O F ACTIVITY IS NOT SATISFIED. WHETHER SUCH A STATUTORY PROVISION S TANDS THE LEGAL SCRUTINY OR NOT IS ANOTHER ASPECT OF THE MATT ER, AND THAT IS NONE OF OUR CONCERN AT PRESENT ANYWAY, IT IS BEYOND DOUBT THAT THE NEW PROVISO, WITH EFFECT FROM 1 ST APRIL 2016, SEEKS TO EXCLUDE, FROM THE SCOPE OF SECTION 2(15), THE SITUA TIONS IN WHICH EVEN IN THE COURSE OF PURSUING ADVANCEMENT OF ANY O BJECTS OF GENERAL PUBLIC UTILITY WHEN ANY ACTIVITIES IN THE N ATURE OF TRADE, COMMERCE OR BUSINESS ETC IS UNDERTAKEN IN THE COURSE OF ACTUAL CARRYING OUT OF SUCH ADVANCEMENT OF ANY OTHE R OBJECT OF GENERAL PUBLIC UTILITY , UNLESS, OF COURSE, THE ACTIVITY LEVEL REMAINS WITHIN THE THRESHOLD LIMIT I .E. RECEIPTS FROM SUCH ACTIVITIES ARE LESS THAN TWENTY PERCENT O F TOTAL RECEIPTS OF THAT YEAR. 21. AS THE ABOVE PROVISIONS, WHICH, IN OUR HUMBLE UNDERSTANDING, SEEKS TO RESTRICT THE SCOPE OF SECTI ON 2(15) IS EFFECTIVE FROM THE ASSESSMENT YEAR 2016-17, IN OUR CONSIDERED VIEW, THESE PROVISIONS ARE ONLY PROSPECTIVE IN EFFE CT. AS A COROLLARY TO THIS LEGAL POSITION, IN OUR CONSIDERED VIEW, EVEN IF THE ACTIVITIES IN THE NATURE OF TRADE, COMMERCE OR BUSINESS ETC ARE UNDERTAKEN IN THE COURSE OF ACTUAL CARRYING OUT OF ADVANCEMENT OF ANY OBJECT OF GENERAL PUBLIC UTILITY , TILL THE END OF THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEA R 2016-17, THE ACTIVITIES WILL CONTINUE TO BE COVERED BY THE S COPE OF SECTION 2 (15). AS WE HOLD SO, WE MAY ONLY REFER TO THE OBS ERVATIONS OF A FIVE MEMBER BENCH OF HONBLE SUPREME COURT, IN TH E CASE OF CIT VS VATIKA TOWNSHIPS PVT LTD [(2014) 367 ITR 466 (SC)] , AS FOLLOWS: 31. OF THE VARIOUS RULES GUIDING HOW LEGISLATION HA S TO BE INTERPRETED, ONE ESTABLISHED RULE IS THAT UNLESS A CONTRARY INTENTION APPEARS, LEGISLATION IS PRESUMED NOT TO BE INTENDED TO HAVE A RETROSPECTIVE OPERATION. T HE IDEA BEHIND THE RULE IS THAT A CURRENT LAW SHOULD G OVERN CURRENT ACTIVITIES. LAW PASSED TODAY CANNOT APPLY T O THE EVENTS OF THE PAST. IF WE DO SOMETHING TODAY, WE DO IT KEEPING IN VIEW THE LAW OF TODAY AND IN FORCE AND N OT TOMORROWS BACKWARD ADJUSTMENT OF IT. OUR BELIEF IN THE NATURE OF THE LAW IS FOUNDED ON THE BED ROCK THAT E VERY HUMAN BEING IS ENTITLED TO ARRANGE HIS AFFAIRS BY R ELYING ITA NO.109(ASR)/2012 A.Y. 2006-07 11 ON THE EXISTING LAW AND SHOULD NOT FIND THAT HIS PL ANS HAVE BEEN RETROSPECTIVELY UPSET. THIS PRINCIPLE OF LAW IS KNOWN AS LEX PROSPICIT NON RESPICIT: LAW LOOKS FORW ARD NOT BACKWARD . . .. 33. WE WOULD ALSO LIKE TO POINT OUT, FOR THE SAKE O F COMPLETENESS, THAT WHERE A BENEFIT IS CONFERRED BY LEGISLATION, THE RULE AGAINST A RETROSPECTIVE CONST RUCTION IS DIFFERENT. . 34. .. IN THE INSTANT CASE, THE PROVISO ADDED T O SECTION 113 OF THE ACT IS NOT BENEFICIAL TO THE ASS ESSEE. ON THE CONTRARY, IT IS A PROVISION WHICH IS ONEROUS TO THE ASSESSEE. THEREFORE, IN A CASE LIKE THIS, WE HAVE T O PROCEED WITH THE NORMAL RULE OF PRESUMPTION AGAINST RETROSPECTIVE OPERATION. (EMPHASIS, BY UNDERLINING, SUPPLIED BY US NOW) 22. SINCE IN THE ORDERS OF THE AUTHORITIES BELOW, S OME REFERENCES HAVE BEEN MADE TO THE JUDICIAL PRECEDENT S AND THE CBDT INSTRUCTIONS IN THE CONTEXT OF THE LEGAL POSIT ION WHEN THE WORDS NOT INVOLVING THE CARRYING ON ANY ACTIVITY F OR PROFIT [I.E. CBDT INSTRUCTION NO. 1024 DATED 7 TH NOVEMBER 1976 AND HONBLE SUPREME COURTS JUDGMENTS IN THE CASES OF L OK SHIKSHAN TRUST VS CIT (SUPRA) INDIAN CHAMBER OF COM MERCE & ORS VS CIT (SUPRA)], IT MAY ALSO BE APPROPRIATE TO BRIEFLY DEAL WITH THE RELEVANT DEVELOPMENTS. THE CBDT INSTRUCT ION NO. 1024 DATED 7 TH NOVEMBER 1976 WAS ISSUED IN THE LIGHT OF THE TWO SUPREME COURT RULINGS REFERRED TO ABOVE AND IT STATED AS FOLLOWS: BOARD'S INSTRUCTION NO. 1024 DT. 7TH NOVEMBER, 1976 7 TH NOVEMBER 1976 SEC. 2(15) OF THE IT ACT, 1961, DEFINES 'CHARITABLE PURPOSES' AS UNDER: 'CHARITABLE PURPOSE' INCLUDES RELIEF OF THE POOR, EDUCATION, MEDICAL RELIEF AND THE ADVANCEMENT OF AN Y OTHER OBJECT OF GENERAL PUBLIC UTILITY NOT INVOLVIN G THE CARRYING ON OF ANY ACTIVITY FOR PROFIT. 2. IN THE DEFINITION OF 'CHARITABLE PURPOSE' THE EX PRESSION 'NOT INVOLVING THE CARRYING ON OF ANY ACTIVITY FOR PROFIT' ITA NO.109(ASR)/2012 A.Y. 2006-07 12 WAS ADDED IN THE 1961 ACT. THE SIGNIFICANCE OF THIS EXPRESSION HAS BEEN EXAMINED BY THE SUPREME COURT I N THE GREAT DETAIL IN THE CASES OF SOLE TRUSTEE, LOK SHIKSHANA TRUST VS. CIT (1975) 101 ITR 234 (SC) AND INDIAN CHAMBER OF COMMERCE VS. CIT (1975) 101 ITR 796 (SC) . COMMENTING ON THIS EXPRESSION, THEIR LORDSHI PS, IN THE CASE OF THE INDIAN CHAMBER OF COMMERCE VS. CIT ETC., OBSERVED : 'NOTWITHSTANDING THE POSSIBILITY OF OBSCURITY AND O F DUAL MEANING WHEN THE EMPHASIS IS SHIFTED FROM 'ADVANCEMENT' TO 'OBJECT' USED IN S. 2(15), WE ARE CLEAR IN OUR MINDS THAT BY THE NEW DEFINITION THE BENEFIT OF EXCLUSION FROM TOTAL INCOME IS TAKEN AWAY WHERE IN ACCOMPLISHING A CHARITABLE PURPOSE THE INSTITUTION ENGAGES ITSELF IN ACTIVITIES FOR PROFIT.' THE SUPREME COURT EMPHASISED THAT IF IN THE ADVANCEMENT OF THE OBJECTS OF GENERAL PUBLIC UTILIT Y A TRUST RESORTS TO CARRYING ON OF ANY ACTIVITY FOR PR OFIT, THEM NECESSARILY S. 2(15) CANNOT CONFER EXEMPTION. IN LOK SHIKSHANA TRUST, THEIR LORDSHIPS KHANNA, J. AND GUP TA, J. OBSERVED: 'ORDINARILY, PROFIT MOTIVE IS A NORMAL INCIDENT OF BUSINESS ACTIVITY AND IF THE ACTIVITY OF A TRUST CONSISTS OF CARRYING ON OF A BUSINESS AND THERE ARE NO RESTRICTIONS ON ITS MAKING PROFIT, THE COURT WOULD BE WELL JUSTIFIED IN ASSUMING IN THE ABSENCE OF SOME INDICATION TO THE CONTRARY THAT THE OBJECT OF THE TRUST INVOLVES THE CARRYING ON OF ANY ACTIVITY FOR PROFIT...' 3. THE TEST WHICH HAS BEEN LAID DOWN BY THE SUPREME COURT FOR DETERMINING WHETHER A PARTICULAR ACTIVITY OF GENERAL PUBLIC UTILITY IS COVERED BY THE DEFINITION OF 'CHARITABLE PURPOSE' OR NOT IS: (A) IS THE OBJECT O F THE ASSESSEE ONE OF GENERAL PUBLIC UTILITY? (B) DOES TH E ADVANCEMENT OF THE OBJECT INVOLVE ACTIVITIES BRINGI NG IN MONEYS? (C) IF SO, ARE SUCH ACTIVITIES UNDERTAKEN, (I) FOR PROFIT, OR (II) WITHOUT PROFIT? IT WAS OBSERVED BY THE SUPREME COURT THAT IF (A) AND (B) ARE ANSWERED AFFIRMATIVELY, AND CL. (I) IS ALSO ANSWERED AFFIRMA TIVELY, THE CLAIM FOR EXEMPTION COLLAPSES AND THE BENEFIT O F S. 11 WILL NOT BE AVAILABLE TO THE ENTIRE INCOME. HOWEVER , IF ITA NO.109(ASR)/2012 A.Y. 2006-07 13 SUCH ACTIVITY IS UNDERTAKEN WITHOUT PROFIT MOTIVE, THE OBJECT WILL BE CHARITABLE PURPOSE WITHIN THE MEANIN G OF S. 2(15). 4. THESE TWO DECISIONS OF THE SUPREME COURT MAY KIN DLY BE BROUGHT TO THE NOTICE OF THE OFFICERS WORKING IN YOUR CHARGE. YOU MAY ALSO KINDLY DIRECT THEM TO CARRY OU T A REVIEW OF THE COMPLETED CASES IN THE LIGHT OF THE PRONOUNCEMENT OF THE SUPREME COURT AND TAKE REMEDIA L ACTION WHEREVER CALLED FOR AND FEASIBLE. A REPORT INDICATING THE RESULT OF THE REVIEW MAY PLEASE BE S ENT TO THE BOARD BY 1ST JAN., 1977 WITHOUT FAIL. 23. HOWEVER, THE JUDICIAL VIEWS RELIED UPON IN THE ABOVE INSTRUCTIONS (I.E. VIEWS EXPRESSED IN INDIAN CHAMBE R OF COMMERCE DECISION AND THE MAJORITY VIEWS, EXPRESSED BY HONBLE JUSTICE KHANNA AND HONBLE JUSTICE GUPTA, I N THE CASE OF LOK SHIKSHAN TRUST) DID NOT MEET THE APPROVAL OF A LARGER BENCH OF HONBLE SUPREME COURT IN THE CASE OF CIT VS SURAT ART SILK CLOTHES MANUFACTURERS ASSOCIATION [(1980) 121 ITR 1 (SC)] . WHILE DOING SO, HONBLE JUSTICE BHAGWATI, IN HIS ORDER REPRESENTING MAJORITY VIEWS, OBSERVED AS FOLL OWS: THERE IS, HOWEVER, ONE COMMENT WHICH IS NECESSARY T O BE MADE WHILST WE ARE ON THIS POINT AND THAT ARISES OU T OF CERTAIN OBSERVATIONS MADE BY THIS COURT IN SOLE TRU STEE, LOKA SHIKSHANA TRUST'S CASE (SUPRA) AS WELL AS INDI AN CHAMBER OF COMMERCE'S CASE (SUPRA). IT WAS SAID BY KHANNA J. IN SOLE TRUSTEE, LOKA SHIKSHANA TRUST'S C ASE : '...IF THE ACTIVITY OF A TRUST CONSISTS OF CARRYING ON A BUSINESS AND THERE ARE NO RESTRICTIONS ON ITS MAKIN G PROFIT, THE COURT WOULD BE WELL JUSTIFIED IN ASSUMI NG IN THE ABSENCE OF SOME INDICATION TO THE CONTRARY THAT THE OBJECT OF THE TRUST INVOLVES THE CARRYING ON OF AN ACTIVITY FOR PROFIT.' AND TO THE SAME EFFECT, OBSERVED KRISHNA IYER J. IN INDIAN CHAMBER OF COMMERCE'S CASE (SUPRA) WHEN HE S AID : 'AN UNDERTAKING BY A BUSINESS ORGANISATION IS ORDIN ARILY ASSUMED TO BE FOR PROFIT UNLESS EXPRESSLY OR BY NEC ESSARY IMPLICATION OR BY ELOQUENT SURROUNDING CIRCUMSTANCE S THE MAKING OF PROFIT STANDS LOUDLY NEGATIVED...A PRAGMATIC CONDITION, WRITTEN OR UNWRITTEN, PROVED B Y A PROSCRIPTION OF PROFITS OR BY LONG YEARS OF INVARIA BLE PRACTICE OR SPELT FROM SOME STRONG SURROUNDING ITA NO.109(ASR)/2012 A.Y. 2006-07 14 CIRCUMSTANCES INDICATIVE OF ANTI-PROFIT MOTIVATION SUCH A CONDITION WILL NULLIFY FOR CHARITABLE PURPOSE.' NOW, WE ENTIRELY AGREE WITH THE LEARNED JUDGES WHO DECIDED THESE TWO CASES THAT ACTIVITY INVOLVED IN CARRYING OUT THE CHARITABLE PURPOSE MUST NOT BE MOTIVATED BY A PROFIT OBJECTIVE BUT IT MUST BE UNDE RTAKEN FOR THE PURPOSE OF ADVANCEMENT OR CARRYING OUT OF T HE CHARITABLE PURPOSE. BUT WE FIND IT DIFFICULT TO ACC EPT THEIR THESIS THAT WHENEVER AN ACTIVITY IS CARRIED O N WHICH YIELDS PROFIT, THE INFERENCE MUST NECESSARILY BE DRAWN, IN THE ABSENCE OF SOME INDICATION TO THE CON TRARY, THAT THE ACTIVITY IS FOR PROFIT AND THE CHARITABLE PURPOSE INVOLVES THE CARRYING ON OF AN ACTIVITY FOR PROFIT. WE DO NOT THINK THE COURT WOULD BE JUSTIFIED IN DRAWING A NY SUCH INFERENCE MERELY BECAUSE THE ACTIVITY RESULTS IN PROFIT. IT IS IN OUR OPINION NOT AT ALL NECESSARY T HAT THERE MUST BE A PROVISION IN THE CONSTITUTION OF THE TRUS T OR INSTITUTION THAT THE ACTIVITY SHALL BE CARRIED ON N O PROFIT NO LOSS BASIS OR THAT PROFIT SHALL BE PROSCRIBED. E VEN IF THERE IS NO SUCH EXPRESS PROVISION, THE NATURE OF T HE CHARITABLE PURPOSE, THE MANNER IN WHICH THE ACTIVIT Y FOR ADVANCING THE CHARITABLE PURPOSE IS BEING CARRIED O N AND THE SURROUNDING CIRCUMSTANCES MAY CLEARLY INDICATE THAT THE ACTIVITY IS NOT PROPELLED BY A DOMINANT PROFIT MOTIVE. WHAT IS NECESSARY TO BE CONSIDERED IS WHETHER HAVIN G REGARD TO ALL THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE DOMINANT OBJECT OF THE ACTIVITY IS PROFIT MAKING OR CARRYING OUT A CHARITABLE PURPOSE. IF IT IS THE FOR MER, THE PURPOSE WOULD NOT BE A CHARITABLE PURPOSE, BUT, IF IT IS THE LATTER, THE CHARITABLE CHARACTER OF THE PURPOSE WOULD NOT BE LOST . (EMPHASIS, BY UNDERLINING, SUPPLIED BY US NOW) 24. IT WAS IN THIS BACKDROP, AND SHORTLY AFTER THE ABOVE JUDGMENT WAS DELIVERED BY HONBLE SUPREME COURT WAS RENDERED, THAT THE WORDS NOT INVOLVING THE CARRYIN G ON ANY ACTIVITY FOR PROFIT WERE DROPPED FROM SECTION 2(15 ). 25. IN VIEW OF THE ABOVE DISCUSSIONS, THE RELIANCE PLACED BY THE AUTHORITIES BELOW ON THE CBDT INSTRUCTION NO. 1 024 (SUPRA) AND ON HONBLE SUPREME COURT DECISIONS IN THE CASES OF INDIAN CHAMBER OF COMMERCE (SUPRA) AND LOK SHIKSHAN SANSTH AN (SUPRA) IS DEVOID OF ANY LEGALLY SUSTAINABLE MERITS . THESE DECISIONS ARE NO LONGER GOOD LAW, THE RELEVANT PROV ISION IN THE ITA NO.109(ASR)/2012 A.Y. 2006-07 15 CONTEXT OF WHICH THE DECISIONS WERE GIVEN DOES NO L ONGER EXIST ON THE STATUTE, AND THE JUDICIAL PRECEDENT, WHICH T HE CBDT INSTRUCTION HAS INTERPRETED, HAS ALREADY FADED INTO OBLIVION. 26. IT IS, HOWEVER, IMPORTANT TO BEAR IN MIND THE F ACT THAT, GOING BY THE CIRCULAR NO.372 DATED 8 TH DECEMBER 1983 ISSUED BY THE CENTRAL BOARD OF DIRECT TAXES EXPLAINING THE AMENDMENTS MADE BY THE FINANCE ACT 1983, DROPPING O F THE WORDS NOT INVOLVING THE CARRYING ON ANY ACTIVITY F OR PROFIT DID NOT REPRESENT ANY PARADIGM SHIFT OR SUBSTANTIVE AME NDMENT IN LAW INASMUCH AS THIS AMENDMENT WAS STATED TO BE ONL Y CONSEQUENTIAL TO SIMILAR RESTRICTION NOW PLACED UND ER SECTION 11 ITSELF. IT WAS EXPLAINED, IN THE AFORESAID CIRCU LAR, AS FOLLOWS: AMENDMENT OF THE DEFINITION OF 'CHARITABLE PURPOSE' SEC. 2(15) 8. UNDER S. 2(15) OF THE IT ACT, 'CHARITABLE PURPOS E' INCLUDES RELIEF OF THE POOR, EDUCATION, MEDICAL REL IEF AND THE ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBL IC UTILITY NOT INVOLVING THE CARRYING ON OF ANY ACTIVI TY FOR PROFIT. SEC. 3(A) OF THE FINANCE ACT HAS OMITTED TH E WORDS 'NOT INVOLVING THE CARRYING ON OF ANY ACTIVITY FOR PROFIT' FROM THE DEFINITION. THIS AMENDMENT IS CONSEQUENTIA L TO THE AMENDMENT MADE IN S. 11 OF THE IT ACT BY S. 6(B ) OF THE FINANCE ACT WHEREUNDER PROFITS AND GAINS OF BUS INESS IN THE CASE OF CHARITABLE OR RELIGIOUS TRUSTS AND INSTITUTIONS WILL NOT BE ENTITLED TO EXEMPTION UNDE R THAT SECTION EXCEPT IN CASES WHERE THE BUSINESS FULFILS THE CONDITIONS SPECIFIED IN S. 11(4) OF THE ACT. THE AMENDMENT TAKES EFFECT FROM 1ST APRIL, 1984 AND WIL L, ACCORDINGLY, APPLY IN RELATION TO THE ASST. YR. 198 4-85 AND SUBSEQUENT YEARS. 27. THE CORRESPONDING AMENDMENT WAS INSERTION OF SE CTION 11(4A). THIS SECTION, AS IT WAS ORIGINALLY INTRODUC ED, IS SET OUT BELOW, FOLLOWED BY CBDT CIRCULARS (SUPRA) EXPLANAT ION ABOUT THE NATURE OF THIS AMENDMENT: SECTION 11 (4A)- AS INSERTED BY THE FINANCE ACT 198 3 (4A) SUB-SECTION (1) OR SUB-SECTION (2) OR SUB-SECT ION (3) OR SUB-SECTION (3A) SHALL NOT APPLY IN RELATION TO ANY INCOME, BEING PROFITS AND GAINS OF BUSINESS, UNLESS ITA NO.109(ASR)/2012 A.Y. 2006-07 16 (A) THE BUSINESS IS CARRIED ON BY A TRUST WHOLLY FO R PUBLIC RELIGIOUS PURPOSES AND THE BUSINESS CONSISTS OF PRI NTING AND PUBLICATION OF BOOKS OR PUBLICATION OF BOOKS OR IS OF A KIND NOTIFIED BY THE CENTRAL GOVERNMENT IN THIS BEH ALF IN THE OFFICIAL GAZETTE ; OR (B) THE BUSINESS IS CARRIED ON BY AN INSTITUTION WH OLLY FOR CHARITABLE PURPOSES AND THE WORK IN CONNECTION WITH THE BUSINESS IS MAINLY CARRIED ON BY THE BENEFICIARIES OF THE INSTITUTION, AND SEPARATE BOOKS OF ACCOUNT ARE MAINTAINED BY THE TRUST OR INSTITUTION IN RESPECT OF SUCH BUSINESS CBDT CIRCULAR DATED 8 TH DECEMBER 1983 EXPLAINING THE ABOVE AMENDMENT IN LAW- BUSINESS INCOME OF CHARITABLE AND RELIGIOUS TRUSTS AND INSTITUTIONS 19.1 THE FINANCE ACT HAS INSERTED A NEW SUB-S. (4A) IN S. 11 OF THE IT ACT TO PROVIDE THAT THE PROVISIONS OF SUB-S. (1) OF THAT SECTION RELATING TO EXEMPTION OF INCOME DERIVED FRO M PROPERTY HELD UNDER TRUST FOR CHARITABLE OR RELIGIOUS PURPOS ES; OR OF SUB- S. (2) THEREOF RELATING TO ACCUMULATION OF SETTING APART OF SUCH INCOME FOR APPLICATION TO SUCH PURPOSES; OR THE CON NECTED PROVISIONS OF SUB-SS. (3) AND 3(A) OF THE SAID SECT ION WILL NOT APPLY IN RELATION TO PROFITS AND GAINS OF BUSINESS. THIS PROVISIONS WILL APPLY IRRESPECTIVE OF WHETHER THE P ROFITS AND GAINS ARE DERIVED FROM A BUSINESS CARRIED ON BY THE TRUST OR INSTITUTION OR FROM A BUSINESS UNDERTAKING WHICH IS HELD IN TRUST FOR SUCH PURPOSES . AN EXEMPTION HAS, HOWEVER, BEEN MADE IN RELATION TO PROFITS AND GAINS OF BUSINESS I N THE FOLLOWING CASES: (A) WHERE THE BUSINESS IS CARRIED ON BY A TRUST WHO LLY FOR PUBLIC RELIGIOUS PURPOSES AND THE BUSINESS CONSISTS OF PRINTING AND PUBLICATION OF BOOKS OR PUBLICATION OF BOOKS OR THE BUSINESS IS OF A KIND NOTIFIED BY THE CENTRA L GOVERNMENT IN THIS BEHALF IN THE OFFICIAL GAZETTE; (B) THE BUSINESS IS CARRIED ON BY AN INSTITUTION WH OLLY FOR CHARITABLE PURPOSES AND THE WORK IN CONNECTION WITH THE BUSINESS IS MAINLY CARRIED ON BY THE BENEFICIARIES OF THE INSTITUTION. ITA NO.109(ASR)/2012 A.Y. 2006-07 17 19.2 THE EXCEPTIONS MENTIONED UNDER (A) AND (B) ABO VE WILL NOT BE AVAILABLE UNLESS SEPARATE BOOKS OF ACCOUNT ARE M AINTAINED BY THE TRUST OR INSTITUTION IN RESPECT OF SUCH BUSI NESS. IN CONSEQUENCE OF THE NEW PROVISIONS MADE IN SUB-S. (4 A) OF S. 11, CL. (BB) OF S. 13(1) OF THE IT ACT (WHICH RESTRICTE D THE EXEMPTION OF BUSINESS INCOME IN THE CASE OF CHARITABLE TRUSTS AND INSTITUTIONS FOR THE RELIEF OF THE POOR, EDUCATION OR MEDICAL RELIEF, ONLY IN CASES WHERE THE BUSINESS IS CARRIED ON THE COURSE OF THE ACTUAL CARRYING OUT OF A PRIMARY PURP OSE OF THE TRUST OR INSTITUTION) HAS BEEN OMITTED. 19.3 IT IS RELEVANT TO NOTE THAT THE PROVISIONS OF NEW SUB-S. (4A) OF S.11 DO NOT OVERRIDE THE PROVISIONS OF S. 10 OF THE IT ACT, AND AS SUCH, PROFITS DERIVED BY ANY TRUST, INSTITUTION, ASSOCIATION, ETC. REFERRED TO IN CLS. (21), (22), (22A), (23), ( 23A), (23B) (23BB)AND (23BC) WILL CONTINUE TO BE EXEMPT FROM IN COME TAX. 19.4 THE FINANCE ACT HAS ALSO AMENDED S. 164 OF THE IT ACT TO CLARIFY THAT PROFITS AND GAINS OF BUSINESS WHICH AR E NOT EXEMPT UNDER S. 11 OF THE IT ACT WILL BE CHARGED TO INCOME -TAX AS IF SUCH PROFITS AND GAINS (INCLUDING ANY OTHER INCOME, IF ANY, WHICH IS ALSO NOT EXEMPT UNDER S. 11) WERE THE INCO ME OF ANY ASSOCIATION OF PERSONS. A19.5 THE AFORESAID AMENDMENTS TAKE EFFECT FROM 1S T APRIL, 1984 AND WILL, ACCORDINGLY, APPLY IN RELATION TO TH E ASST. YR. 1984-85 AND SUBSEQUENT YEARS. [SECS. 6, 7 AND 37 OF THE FINANCE ACT] 28. HOWEVER, THE JUDICIAL INTERPRETATION ASSIGNED T O THE ABOVE AMENDMENT WAS NOT IN CONSONANCE WITH THE UNDERSTANDING OF THE CBDT, AS REFLECTED IN THE ABOV E CIRCULAR, INASMUCH AS THIS LIMITATION DID NOT, AS PER HONBLE MADRAS HIGH COURT IN THE CASE OF THANTHI TRUST VS CBDT [(1995) 213 ITR 639 (MAD)], APPLY TO THE INCOME DERIVED FROM PROPERTY HELD UNDER THE TRUST FOR CHARITABLE PURPOS ES. TO THAT EXTENT, PARAGRAPH 13.1 OF THE ABOVE CIRCULAR WAS HE LD TO INCONSISTENT WITH SECTION 11(4A). THIS UNCERTAINTY DID NOT LAST LONG AS THERE WAS YET ANOTHER AMENDMENT IN SECTION 11, AND THE NEW SUB SECTION 4A WITH EFFECT FROM 1 ST APRIL 1992, WHICH WAS TO SUBSTITUTE FOR THE THEN EXISTING SUB SECTION 4A, PROVIDED AS FOLLOWS: (4A) SUB-SECTION (1) OR SUB-SECTION (2) OR SUB-SECT ION (3) OR SUB-SECTION (3A) SHALL NOT APPLY IN RELATION TO ANY INCOME ITA NO.109(ASR)/2012 A.Y. 2006-07 18 OF A TRUST OR AN INSTITUTION, BEING PROFITS AND GAI NS OF BUSINESS, UNLESS THE BUSINESS IS INCIDENTAL TO THE ATTAINMENT OF THE OBJECTIVES OF THE TRUST OR, AS TH E CASE MAY BE, INSTITUTION, AND SEPARATE BOOKS OF ACCOUNT ARE MAINTAINED BY SUCH TRUST OR INSTITUTION IN RESPECT OF SUCH BUSINESS. 29. EXPLAINING THIS AMENDMENT IN LAW, THE CBDT CIRC ULAR NO. 621 DATED 19 TH DECEMBER 1991 [(1992 195 ITR (ST) 154], READ WITH CIRCULAR NO 642 DATED 15 TH DECEMBER 1992 [(1993) 199 ITR (ST) 7] STATED AS FOLLOWS: CBDT CIRCULAR NO. 621 DATED 19 TH DECEMBER 1991 [(1992 195 ITR (ST) 154 @165 ] 15.8 IN ORDER TO BRING EXEMPTION OF CHARITABLE OR RELIGIOUS TRUSTS IN LINE WITH THE CORRESPONDING PROVISIONS IN SECTION 10(23C)(IV) OR (V) OF SUB-SECTION (4A) OF SECTION 1 1 HAS BEEN AMENDED TO PERMIT TRUST AND INSTITUTIONS TO CARRY O UT BUSINESS ACTIVITIES IF THE BUSINESS ACTIVITIES ARE INCIDENTA L TO THE ATTAINMENT OF ITS OBJECTIVE. THE CHARITABLE OR RELI GIOUS TRUST WILL NO LONGER LOSE COMPLETE EXEMPTION FROM INCOME-TAX. HOWEVER, THE PROFITS AND GAINS FROM SUCH BUSINESS ACTIVITY W ILL BE SUBJECTED TO TAX. CBDT CIRCULAR NO 642 DATED 15 TH DECEMBER 1992 [(1993) 199 ITR (ST) 7 @7 ] IN PARTIAL MODIFICATION TO PARA 15.8 (AS EXTRACTED ABOVE) OF THE CIRCULAR NO. 621, DT. 19TH DEC., 1991 ISSUED FROM F . NO. 133/389/91-TPL, IT IS CLARIFIED THAT ACCORDING TO T HE PROVISIONS OF SECTION 11(4A) OF THE INCOME-TAX ACT, AS AMENDED THROUGH THE FINANCE (NO. 2) ACT, 1991, WITH EFFECT FROM 1ST APRIL, 1992, PROFITS AND GAINS OF BUSINESS IN THE CASE OF A TRUS T OR INSTITUTION WILL NOT BE LIABLE TO TAX IF THE BUSINE SS IS INCIDENTAL TO THE ATTAINMENT OF THE OBJECTIVES OF THE TRUST OR INSTITUTION, AS THE CASE MAY BE. IN ADDITION, SEPARATE BOOKS OF ACC OUNT ARE TO BE MAINTAINED BY THE TRUST OR INSTITUTION IN RESPEC T OF SUCH BUSINESS. INCOME OF ANY OTHER BUSINESS WHICH IS NOT INCIDENTAL TO THE ATTAINMENT OF THE OBJECTIVES OF THE TRUST OR INSTITUTION WILL NOT BE EXEMPT FROM TAX . 30. THE ABOVE DISCUSSIONS CLEARLY SHOW THAT SO FAR AS MAKING PROFITS FROM A BUSINESS ACTIVITY INCIDENTAL TO THE ATTAINMENT OF OBJECTIVES OF THE TRUST IS CONCERNED, THE LEGAL POSITION ALWAYS WAS THAT, AS LONG AS SEPARATE BOOKS OF ACCOUNTS HAVE BEEN MAINTAINED BY THE ASSESSEE, THE SAME ITA NO.109(ASR)/2012 A.Y. 2006-07 19 WERE EXEMPT FROM TAX UNDER SECTION 11. THERE IS NO SUBSTANTIVE CHANGE IN LAW VIS--VIS THE LAW PREVAIL ING AS AT THE POINT OF TIME IN THE CONTEXT OF WHICH HONBLE SUPRE ME COURTS FIVE JUDGE BENCH HAD DELIVERED THE JUDGMENT IN THE CASE CIT VS SURAT ART SILK CLOTHES MANUFACTURERS ASSOCIATION (SUPRA). IN THE SAID CASE, THEIR LORDSHIPS HAD, INTER ALIA, HELD, BY MAJORITY VIEW, THAT WHAT IS NECESSARY TO BE CONSIDERED IS WHETHER HAVING REGARD TO ALL THE FACTS AND CIRCUMSTANCES OF THE CASE, THE DOMINANT OBJECT OF T HE ACTIVITY IS PROFIT MAKING OR CARRYING OUT A CHARITA BLE PURPOSE. IF IT IS THE FORMER, THE PURPOSE WOULD NOT BE A CHARITABLE PURPOSE, BUT, IF IT IS THE LATTER, THE C HARITABLE CHARACTER OF THE PURPOSE WOULD NOT BE LOST . OF COURSE, AS THE LAW WAS SO LAID DOWN, THE SCHOOL OF THOUGHT TO THE EFFECT HOWEVER, IF THE OBJECT OF THE TRUST IS ADVANCEMENT OF AN OBJECT OF GENERAL PUBLIC UTILITY AND IT CARRIED ON ANY ACTIVITY FOR PROFIT, IT IS EXCLUDED FROM THE AMBIT OF CHARITABLE PURPOSE DEFINED IN S. 2(15) WAS ARTICULATED IN THE SAID ORDER BUT THAT WAS PART OF THE MINORITY VI EW STATED BY JUSTICE A P SEN, AS HE THEN WAS. HIS LORDSHIP DID P ROCEED TO OBSERVE, AS IS THE STAND TAKEN BY THE AUTHORITIES B ELOW, AS FOLLOWS: WITH RESPECT, I VENTURE TO SAY THAT IF AN OBJECT O F GENERAL PUBLIC UTILITY IS ENGAGED IN AN ACTIVITY FOR PROFIT , IT CEASES TO BE A CHARITABLE PURPOSE AND, THEREFORE, THE INCOME IS NOT EXEMPT UNDER S. 11(1)(A). IN CASE OF A TRUST FALLING UNDER ANY OF THE FIRST THREE HEADS OF CHARITY, VIZ., 'RELIEF OF THE POOR', 'EDUCATION' AND 'MEDICAL RELIEF' IT MAY ENGAGE IN ANY ACTIVITY FOR PROFIT, AND THE PROFITS WOULD NOT BE TAXABLE IF THEY WERE U TILIZED FOR THE PRIMARY OBJECT OF THE TRUST. IN OTHER WORDS, TH E BUSINESS CARRIED ON BY THEM IS INCIDENTAL OR ANCILLARY TO TH E PRIMARY OBJECT, VIZ., RELIEF OF THE POOR, EDUCATION AND MED ICAL RELIEF. TO ILLUSTRATE, A CHARITABLE HOSPITAL HOLDING BUILDINGS ON TRUST MAY RUN A NURSING HOME. THE PROFITS OF THE NURSING HOME OWNED AND RUN BY THE TRUST WILL BE EXEMPT UNDER S. 11(4), BECAUSE THE BUSINESS IS CARRIED ON BY THE TRUST IN THE COURSE O F THE ACTUAL CARRYING OUT OF THE PRIMARY PURPOSE OF THE TRUST. T HE CONCEPT OF 'PROFITS TO FEED THE CHARITY', THEREFORE, IS APPLIC ABLE ONLY TO THE FIRST THREE HEADS OF CHARITY AND NOT THE FOURTH. IT WOULD BE ILLOGICAL AND, INDEED, DIFFICULT TO APPLY THE SAME CONSIDERATION TO INSTITUTIONS WHICH ARE ESTABLISHED FOR CHARITABL E PURPOSES OF ANY OBJECT OF GENERAL PUBLIC UTILITY. ANY PROFIT-MA KING ACTIVITY LINKED WITH AN OBJECT OF GENERAL PUBLIC UTILITY WOU LD BE TAXABLE. THE THEORY OF THE DOMINANT OR PRIMARY OBJECT OF THE TRUST ITA NO.109(ASR)/2012 A.Y. 2006-07 20 CANNOT, THEREFORE, BE PROJECTED INTO THE FOURTH HEA D OF CHARITY, VIZ., 'ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL P UBLIC UTILITY', SO AS TO MAKE THE CARRYING ON OF A BUSINESS ACTIVIT Y MERELY ANCILLARY OR INCIDENTAL TO THE MAIN OBJECT. IN FACT, IF ANY OTHER VIEW WERE TO PREVAIL, IT WOUL D LEAD TO AN ALARMING RESULT DETRIMENTAL TO THE REVENUE. 31. CLEARLY, THEREFORE, SO FAR AS PRE INSERTION OF EXPLANATIONS TO SECTION 2 (15), I.E. PRIOR TO 1 ST APRIL 2009, IS CONCERNED, THE STAND TAKEN BY THE AUTHORITIES BELOW CANNOT BE SUST AINED IN LAW. ASSUMING THAT ALL THE ALLEGATIONS OF THE ASSES SING OFFICER, WITH RESPECT TO PRESENCE TO PROFIT MOTIVE IN ACTIVI TIES OF THE ASSESSEE ARE CORRECT, SINCE THESE ACTIVITIES WERE C ARRIED OUT WITH THE LARGER AND PREDOMINANT OBJECTIVE OF GENERA L PUBLIC UTILITY. IT IS ONLY WHEN, TO USE THE WORDS OF THE C BDT CIRCULAR CITED EARLIER IN THIS ORDER AND THE BENEFICIAL IMPA CT OF WHICH HAS THE BINDING FORCE ON THE FIELD AUTHORITIES UNDE R SECTION 119 OF THE ACT, THE ASSESSING OFFICER FINDS THAT THE IN COME IS INCOME OF ANY OTHER BUSINESS WHICH IS NOT INCIDENTA L TO THE ATTAINMENT OF THE OBJECTIVES OF THE TRUST OR INSTITUTION THAT THE SUCH AN INCOME WILL NOT BE EXEMPT FROM TAX . THERE IS NO FINDING TO THAT EFFECT BY ANY OF THE AUTHORITY BELOW. IN ANY CASE, IT IS NOT EVEN THE C ASE OF REVENUE AUTHORITIES THAT THE ACTIVITIES OF THE TRUSTS DO NO T SERVE THE OBJECTS OF THE GENERAL PUBLIC UTILITY BUT THE CASE IS CONFINED TO THE STAND THAT THESE ACTIVITIES HAVE BEEN CARRIED O UT IN SUCH A MANNER AS TO MAKE PROFIT AND NO ACTIVITIES DIRECTLY OF ANY GENERAL PUBLIC UTILITY ARE CARRIED OUT. THE REGIST RATION GRANTED TO THE ASSESSEE EVIDENCES THAT THE OBJECTS OF THE A SSESSEE TRUST WERE ADVANCEMENT OF OBJECTS OF GENERAL PUBLIC UTILI TY, AND THERE IS NOTHING TO DEMONSTRATE ANY PARADIGM SHIFT FROM THIS FUNDAMENTAL POSITION. THE ALLEGATION IS ONLY OF THE PROFIT MAKING BUT THAT DOES NOT OBLITERATE THE OVERALL OBJ ECTS OF GENERAL PUBLIC UTILITY. AS REGARDS THE MAINTENANCE OF THE SEPARATE BOOKS OF ACCOUNTS FOR THE BUSINESS ACTIVIT IES PURSUED BY THE ASSESSEE TRUST, SINCE ALL THE ACTIVITIES OF THE ASSESSEE TRUST ARE SAID TO BE OF THE BUSINESS NATURE, THE BO OKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE TRUST MEET THIS REQUIREMENT AS WELL. OF COURSE, WE WILL DEAL WITH THE ISSUE OF ACTIVITIES BEING IN THE NATURE OF PROFIT MAKING AC TIVITIES A LITTLE LATER, BUT, SUFFICE TO SAY, THAT ON THE ADMITTED FA CTS OF THIS CASE, SO FAR PERIOD PRIOR TO 1 ST APRIL 2009 IS CONCERNED AND FOR THE REASONS SET OUT ABOVE, THE BENEFIT OF SECTION 1 1 READ WITH SECTION 2(15) COULD NOT HAVE BEEN DECLINED AT ALL. ITA NO.109(ASR)/2012 A.Y. 2006-07 21 32. TURNING ONCE AGAIN TO THE AMENDMENTS BROUGHT ON THE STATUE WITH EFFECT FROM 1 ST APRIL 2009, WE HAVE TO UNDERSTAND THAT THERE ARE THE TWO MUTUALLY EXCLUSIVE SITUATION S IN WHICH BUSINESS ACTIVITIES ARE CARRIED OUT BY THE ASSESSE TRUST ONE, IN WHICH THE OBJECT OF GENERAL PUBLIC UTILITY WILL ONLY BE A MASK OR A DEVICE TO HIDE THE TRUE PURPOSE WHICH I S TRADE, COMMERCE, OR BUSINESS ETC [REFERRED TO IN THE CBDT CIRCULAR NO. 11 DATED 19 TH DECEMBER 2008 ISSUED AT THE POINT OF TIME WHEN FIRST PROVISO TO SECTION 2(15) WAS INTROD UCED]; AND SECOND, IN WHICH ANY ACTIVITIES IN THE NATURE OF T RADE, COMMERCE OR BUSINESS ETC ARE UNDERTAKEN IN THE COURSE OF ACTUAL CARRYING OUT OF SUCH ADVANCEMENT OF ANY OTHE R OBJECT OF GENERAL PUBLIC UTILITY , [INSERTION OF NEW PROVISO TO REPLACE FIRST AND SECOND PROVISO TO SECTION 2(15)- EFFECTIVE 1 ST APRIL 2016 I.E. ASSESSMENT YEAR 2016-17]. AS FOR TH E FIRST CATEGORY, POST 1 ST APRIL 2009 AMENDMENT, THIS CATEGORY CANNOT BE TREATED AS COVERED BY SECTION 2(15) BUT THEN THA TS NOT THE CASE BEFORE US. IT IS NOT, AND IT CANNOT BE, THE CA SE THAT THE GOVERNMENT FORMED THESE TRUSTS BY LEGISLATING THE P UNJAB TOWNS IMPROVEMENT ACT 1922 BECAUSE IT WANTED TO CAR RY ON THE BUSINESS AS COLONIZER OR DEVELOPER. THEREFORE, BY NO STRETCH OF LOGIC, FORMATION OF TRUSTS CAN BE SAID T O A MASK OR DEVICE TO HIDE THE TRUE PURPOSE OF THE DOING BUSINE SS. THE CASE OF THE REVENUE AT BEST IS THAT THE MANNER IN WHICH THE ACTIVITIES ARE CARRIED OUT IS OF A PROFIT SEEKING ENTITY THAT A BUSINESS INHERENTLY IS. IN OTHER WORDS, THUS, THE CASE OF TH E REVENUE IS THAT THE ACTIVITIES IN THE NATURE OF TRADE, COMMERC E AND BUSINESS ARE CARRIED OUT FOR ADVANCEMENT OF OBJECTS OF GENERAL PUBLIC UTILITY. THIS SITUATION AT BEST FALLS IN THE SECOND CATEGORY. HOWEVER, THESE CASES, FOR THE DETAILED RE ASONS SET OUT ABOVE, THE EXCLUSION OF THESE CASES FROM SECTIO N 2(15) IS ONLY EFFECTIVE 1 ST APRIL 2016, I.E. ASSESSMENT YEAR 2016-17. THE LAW IS WELL SETTLED BY A FIVE JUDGE BENCH OF HONBL E SUPREME COURT, IN THE CASE OF VATIKA TOWNSHIP PVT LTD (SUPRA), THAT, FOLLOWING THE MAXIM LEX PROSPICIT NON RESPICI , THE LAW, PARTICULARLY WITH RESPECT TO A REQUIREMENT WHICH IS MORE ONEROUS ON THE ASSESSEE, CANNOT BE TREATED AS RETRO SPECTIVE IN EFFECT UNLESS IT IS SPECIFICALLY LEGISLATED TO BE S O. IN OUR CONSIDERED VIEW, THEREFORE, THIS AMENDMENT CANNOT B E TREATED AS CLARIFICATORY OR RETROSPECTIVE IN EFFECT. IN V IEW OF THESE DISCUSSIONS, EVEN POST INSERTION OF PROVISO TO SECT ION2(15) BUT BEFORE 1 ST APRIL 2016, WHEN BUSINESS ACTIVITIES ARE CARRIED BY THE ASSESSEE TRUST IN THE COURSE OF ACTUAL CARRYIN G OUT OF SUCH ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC U TILITY, THE ITA NO.109(ASR)/2012 A.Y. 2006-07 22 BENEFIT OF SECTION 11 READ WITH SECTION 2 (15) CANN OT BE DECLINED. NOTHING, THEREFORE, TURNS ON THE ASSESSEE CARRYING OUT, EVEN IF THAT BE ACTUALLY SO, ACTIVITIES IN THE NATURE OF TRADE, COMMERCE OR BUSINESS ETC AS LONG AS THESE ACTIVITIE S ARE CARRIED OUT IN THE COURSE OF ACTUAL CARRYING OUT OF ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY. THE PLANNED DEVELOPMENT OF CITIES AND TOWNS IS AN OBJECT OF GEN ERAL PUBLIC UTILITY, AND THAT IS AN OBJECT CONSISTENTLY FOLLOWE D BY THE ASSESSEE IN ALL ITS ACTIVITIES. FOR THIS SHORT REAS ON ALONE, THE STAND OF THE AUTHORITIES BELOW MUST BE HELD TO BE UNSUSTAINABLE IN LAW. 33. WE MUST, HOWEVER, ALSO DEAL WITH THE FUNDAMENTA L ALLEGATION OF THE REVENUE AUTHORITIES THAT THE ASSE SSEE HAS SOLD RESIDENTIAL AND COMMERCIAL UNITS AND RESIDENTIAL AN D COMMERCIAL LANDS JUST TO EARN PROFIT 34. THIS PROFITEERING, AS LEARNED DEPARTMENTAL REPRESENTATIVE PUTS IT, IS THE CORE ISSUE IN THESE APPEALS. AS WE DEAL WITH THIS ASPECT OF THE MATTER, WE MAY REPR ODUCE THE FOLLOWING WRITTEN SUBMISSIONS FILED BY LEARNED DEPA RTMENTAL REPRESENTATIVES: A: IN ALL IMPROVEMENT TRUST CASES IT IS SUBMITTED THAT THE LEARNED COUNSEL NAMELY SHR I Y.K. SOOD, CA AND SHRI J.S. BHASHI, ADVOCATE HAVE ARGUED THESE APPEALS . MY COUNTER-SUBMISSIONS ARE AS UNDE R :- IT IS SUBMITTED THAT THERE ARE TWO SITUATIONS I.E. A) WHERE THE ASSESSEES ARE RENDERING GENERAL PUBLIC UTILITY SERVICES AND IN RENDERING SUCH SERVICES AND DUE TO EXIGENCY OF RENDERING SUCH SERVICE SOME SURPLUS (NOT PROFIT) RESULTS SUCH ASSESSEE ARE NOT HIT BY THE PROVISO TO SECTION 2(15) EVEN IF RENDERING O F SUCH SERVICES PARTAKE THE CHARACTER OF TRADE, COMMERCE OR BUSINESS OR RENDERING SERVICES IN RELATION TO ANY TRADE COMMERCE OR BUSINESS. B) WHERE THE ASSESSEE HAVE THE OBJECTIVE OF RENDERING GENERAL PUBLIC UTILITY SERVICES BUT FOR DOING SO TH EY FIRST EARN INCOME BY ENGAGING THEMSELVES IN ACTIVITIES IN THE NATURE OF TRADE, COMMERCE OR BUSINESS OR RENDERING ANY SERVICE IN RELATION TO AN Y TRADE AND THEN APPLY SUCH INCOME TO THE CHARITABLE OBJECTS. ITA NO.109(ASR)/2012 A.Y. 2006-07 23 WHEREAS IN THE FORMER SITUATION, REGISTRATION UNDER SECTION 12AA WOULD BE ALLOWABLE AND ALSO THE EXEMPT ION UNDER SECTION 11 & 12 BUT FOR THE LATTER SITUATION, NO SUCH PRIVILEGE WOULD BE ALLOWED AS DOING OF TRADE, COMMERCE OR BUSINESS OR RENDERING ANY SERVICE IN RELATION TO TRADE COMMERCE OR BUSINESS NOT TREATED AS CHARITABLE ACTIVITIES WITH THE INSERTION OF PROVISO TO SECTION 2(15) OF THE INCOME TAX ACT, 1961. VIEWED IN THIS CONTEXT, IT IS SUBMITTED THAT OUT OF THE EIGHTEEN JUDGMENTS RELIED UPON BY SHRI Y.K. SOOD, C A THE JUDGEMENT AT S.NO.1 TO 5, 7, 10, 11,14, 15, 16, 17 & 18 FALLEN IN THE FORMER CATEGORY AND THE JUDGEMENT AT S. NO.9 HAD NOT BEEN PRESSED BY SHRI SOOD. THE JUDGEM ENT AT S.NO.12 PERTAINS TO PRE-AMENDED PROVISIONS OF SE CTION 2(15) AND IS THUS NOT APPLICABLE. AS REGARDS THE JUDGEMENT AT S.NO.6 & 13, THE SAME RUN COUNTER TO T HE JUDGEMENT OF THE JURISDICTIONAL TRIBUNALS ORDER IN THE CASE OF JAMMU DEVELOPMENT AUTHORITY WHICH HAS BEEN CONFIRMED BY THE J&K HIGH COURT AND THE SLP FILED B Y THE ASSESSEE HAS ALSO BEEN DISMISSED BY THE HONBLE SUPREME COURT. IT IS PERTINENT TO MENTION HERE IN THE CASE OF INDIA TRADE PROMOTION VS. DGIT (EXEMPTIONS) , IT HAS BEEN EXPRESSLY MENTIONED: 45. TO BE CLEAR, OF ANY ACTIVITY IN THE NATURE OF TRADE, COMMERCE OR BUSINESS IS CARRIED ON AND IT GENERATES INCOME, THE FACT THAT SUCH INCOME IS APPLIED FOR CHARITABLE PURPOSES, WOULD NOT MAKE ANY DIFFERENCE AND THE ACTIVITY WOULD NONETHELESS NOT BE REGARDED BEING CARRIED ON FOR A CHARITABLE PURPOSE. THIS FINDING OF THE HONBLE DELHI HIGH COURT CLEARL Y SUPPORTS THE CAUSE OF THE REVENUE AS THE PRECISE NA TURE OF THE ACTIVITIES IS THE SAME AS ARTICULATED BY THE HONBLE DELHI HIGH COURT IN THE ABOVE PARAGRAPH. IT IS FUR THER SUBMITTED THAT AT PARA 58, THE COURT HAS OBSERVED T HAT THE PROVISIONS OF SECTION 2(15) NEED TO BE READ DOW N BUT SUCH READING HAS BEEN CONTEMPLATED IN THE CONTEXT O F SECTION 10(23C)(IV) OF THE INCOME TAX AT, 1961 AND WHEN READ IN ITS TOTALITY, THE JUDGEMENT SUPPORT THE CAS E OF THE REVENUE AS IT SQUARELY SUPPORTS A CASE WHERE TH E ITA NO.109(ASR)/2012 A.Y. 2006-07 24 INTENTION IS TO DO CHARITY BY ACTIVITIES WHICH MAY EMBARK UPON ANY TRADE COMMERCE OR BUSINESS OR RENDERING AN Y SERVICE IN THE NATURE OF TRADE, COMMERCE OR BUSINES S AND NOT THAT INCOME ACCRUES DUE TO THE EXIGENCY OF UNDERTAKING GENERAL PUBLIC UTILITY ACTIVITIES. IT IS FURTHER SUBMITTED THE JUDGEMENT IN THE CASE O F CITY & IND. DEV. CORP. OF MAHARASHTRA VS. ACIT REPORTED AT S. NO.2 IS PROJECT SPECIFIC AND FURTHER IT HAS BEEN HE LD BY THE HONBLE TRIBUNAL MUMBAI C BENCH THAT ASSESSEE IS AN AGENT OF THE GOVERNMENT AND DOES NOT HOLD ANY INDEPENDENT ENTITY WHEREAS THE TRUSTS ARE A CORPORA TE BODY AND HAVE PERPETUAL SUCCESSION AND COMMON SEAL AND CAN SUE AND BE SUED IN ITS NAME AS PER SECTION 3 OF THE PUNJAB TOWN IMPROVEMENT TRUST ACT, 1922. IN VI EW OF THIS DIFFERENCE ALSO, THE SAID JUDGMENT IS NOT APPLICABLE TO THIS CASE. IT IS FURTHER SUBMITTED THAT THE TRUSTS DO NOT GET ANY GRANT IN AID FROM THE STATE GOVERNMENT. THE TRUSTS HAVE TO FIRST DO BUSINESS LIKE A BUILDER TO EARN MONEY I .E. IT PURCHASES (ACQUIRES) PROPERTY AND DIVIDES THE SAME INTO PLOT OR BUILD THE SAME AND SELLS THE PLOT OR THE BU ILDINGS WHICH IT RAISES BOTH BY WAY OF RESERVE PRICE (RESID ENTIAL BUILDINGS OR PLOTS) AND COMMERCIAL PLOTS OR COMMERC IAL BUILDINGS BY AUCTION. THERE IS ABSOLUTELY NO DOUBT THAT WHEN LAND OR BUILDINGS ARE PUT ON AUCTION BY THE TR UST, THE INTENT IS TO MAKE MAXIMUM PROFIT AND WHEN IT SE LLS RESIDENTIAL PLOTS OR RESIDENTIAL BUILDINGS, IT SELL S THE SAME AT RESERVE PRICE. IT IS SUBMITTED THAT RESERV E PRICE SO FIXED IS FIXED IN SUCH A MANNER A MAY TAKE WITHI N ITS SWEEP HUGE PROFIT A WOULD BE SEEN FROM THE ANNEXURE AT PAGE 9 OF THE PAPER BOOK FILED BY SHRI Z.S. BHASIN, ADVOCATE WHICH INCLUDES THE FOLLOWING : A) CONSERVANCY CHARGES FOR 5 YEARS @ 10 PERCENT PER MONTH PER ACRE. B) PROVISIONS FOR UNFORESEEN CHARGES @ 15% PER CENT OF TOTAL RESERVE PRICE A COMPUTED AS PER THE SAID ANNE XURE. THIS CLEARLY SHOWS THAT EVEN THE RESERVE PRICE AT W HICH RESIDENTIAL PLOTS OR BUILDINGS ARE SOLD, THERE IS H UGE ELEMENT OF PROFIT IN THE GARB OF CONSERVANCY CHARGE S FOR FIVE YEARS @ 10% OF THE TOTAL RESERVE PRICE AND ALS O PROVISION FOR UNFORESEEN CHARGES @ 15% OF THE RESER VE PRICE SO DETERMINED. IT IS PERTINENT TO MENTION HE RE THAT ITA NO.109(ASR)/2012 A.Y. 2006-07 25 ALL THE UNFORESEEN CHARGES HAVE ALREADY BEEN CONTEMPLATED IN THE COMPUTATION OF RESERVE PRICE UN DER THE HEAD OVERHEAD CHARGES AT SUB-PARA (V) WHERE PROVISION FOR OTHER PUBLIC UTILITY HAS ALREADY BE EN CONSIDERED. IT IS FURTHER SUBMITTED THAT ALONG WITH COPY OF THE PUNJAB TOWN IMPROVEMENT (UTILISATION OF LAND AND ALLOTMENT OF PLOTS) RULES, 1983, SHRI BHASIN HAS APPENDED A REPO RT DATED 04.06.2015 WHICH IS IN GURMUKHI SCRIPT AND IT S ENGLISH TRANSLATION AS UNDER :- IT IS WORTH MENTIONING HERE THAT IMPROVEMENT TRUST GETS NO GRANT FROM THE GOVERNMENT. TRUST GETS ITS INCOM E FROM SALE OF PLOTS/SHOPS/COMMERCIAL SITES ONLY. OT HER THAN THIS, THE TRUST HAS NO OTHER ADDITIONAL SOURCE OF INCOME. THE TRUST SPENDS THE INCOME GENERATED OUT OF THE SAID ACTIVITIES ON THE PUBLIC UTILITY SERVICES. IT CLEARLY SHOWS THAT THERE IS ADMISSION THAT THE T RUST WITH THE INTENTION OF PROVIDING PUBLIC UTILITY SERV ICES FIRST DOES BUSINESS OF PURCHASE AND SALE OF LANDED PROPERTY LIKE A BUILDER AND AFTER EARNING AS HUGE P ROFIT S POSSIBLE I.E. BY PUTTING THE RESERVE PRICE AT A HIG H PITCHED FIGURE AND ALSO PUTTING THE COMMERCIAL PLOT S AND COMMERCIAL BUILDING ON AUCTION, IT SPENDS ON SUCH P UBLIC UTILITY SERVICES WHICH IS EMINENTLY HIT BY THE PROV ISO TO SECTION 2(15) OF THE INCOME TAX ACT, 1961. IT CLEA RLY FALSIFIES THE CLAIM OF MR. BHASIN THAT TRUSTS HAVE INCOME FROM OTHER SOURCES AS CONTEMPLATED IN SECTION 68 OF THE ACT. THIS SHOWS THAT THE GOVERNMENT DOES NOT GIVE TO TRUSTS WHAT IT ITSELF HAS ASSURED THE TRUSTS IN THE ACT. IT MAY FURTHER BE MENTIONED THAT TRUSTS ARE NOT AGE NT OF THE STATE AS IF IT WERE SO, THERE WOULD NOT HAVE BE EN ANY PROVISION AS SECTION 70 IN THE ACT WHICH EMPOWERS T HE STATE GOVERNMENT TO ATTACH THE RENTS AND OTHER INCO ME OF THE TRUST. AIT IS SUBMITTED THAT THE FACTUM OF THE TRUSTS MAKI NG EXORBITANT PROFIT IS BEST ELUCIDATED FROM THE WAY T HE IMPROVEMENT TRUST PATHANKOT HAS SOLD A PLOT OF LAND TO INCOME TAX DEPARTMENT. THE PRICE IT HAD INFORMED T O THE DEPARTMENT IN 2011 WAS RS.5,03,30,800/- BUT IN THE YEAR 2014, THE PRICE FOR THE SAME PLOT WAS INTIMATE D AT RS.10,43,65,946/-. THUS IN A PERIOD OF THREE YEAR AND A HALF, IT HAD MORE THAN DOUBLED THE PRICE OF ITS PLO T MEASURING 60.35 MARLAS. AN AFFIDAVIT OF SHRI CHARA N ITA NO.109(ASR)/2012 A.Y. 2006-07 26 DASS, ACIT, PATHANKOT IS ENCLOSED IN SUPPORT OF THI S FACT. IF THIS IS THE WAY THE TRUST DOES CHARITY BY WAY OF DEVELOPING CITIES AND TOWN THEN CERTAINLY, IT AMOUN TS TO ROBBING PETER TO PAY PAUL AND SURELY SUCH AN ACTIVI TY CANNOT BE CLOTHED AS CHARITABLE ACTIVITY. IN VIEW OF ABOVE, IT IS PRAYED THAT THE APPEALS OF THE ASSESSEE BE DISMISSED B: IN THE CASE OF AMRITSAR IMPROVEMENT TRUST IT IS SUBMITTED THE ABOVE APPEALS HAVE BEEN RESTORE D BY THE HONBLE PUNJAB & HARYANA HIGH COURT TO THE TRIB UNAL VIDE ITS ORDER IN ITA NO.100 OF 2014 (O&M) DATED 06.08.2014 AS PER THE DIRECTIONS CONTAINED IN PARA 8 OF THE ORDER. IT IS SUBMITTED THAT THOUGH THE HONBLE PUNJAB & HARYANA HIGH COURT HAS DIRECTED THE TRIBUNAL TO ADJUDICATE THE ISSUE REGARDING THE NATURE OF ACTIVI TIES OF THE APPELLANT TRUST WHETHER THEY ARE IN THE NATURE OF CHARITABLE WITHIN THE MEANING OF SECTION 2(15) OF T HE ACT IN RESPECT OF ASSESSMENT YEARS IN QUESTION OR NOT, KEEPING IN VIEW THE ARGUMENTS RAISED BY THE LEARNED COUNSEL FOR THE APPELLANT-ASSESSEE. IT IS SUBMITTED THAT THE ACTIVITIES OF THE TRUST AR E NOT IN THE NATURE OF CHARITABLE FOR MULTIPLE REASONS, I.E. A. THE ASSESSEE TRUST IS ENGAGED IN THE SALE AND PURCHASE OF PROPERTIES WITH A COMMERCIAL MOTIVE. FI RST, IT PURCHASES LANDED PROPERTIES INCLUDING PLOTS AND SELLS THE PLOT IN TWO CATEGORIES I.E. RESIDENTIAL AND COMMERCIAL. THE RESIDENTIAL PLOTS ARE SOLD AT RESE RVE PRICE WHICH IS FIXED BY INCLUDING ABNORMAL PROFITS IN THE GARB OF : A) CONSERVANCY CHARGES FOR 5 YEARS @ 10% PER MONTH PER ACRE B) PROVISIONS OF UNFORESEEN CHARGES @ 15% PER CENT OF TOTAL RESERVE PRICE IS COMPUTED AS PER THE ANNEXURE TO THE PUNJAB TOWN IMPROVEMENT (UTILISATION OF LAND AN D ALLOTMENT OF PLOTS) RULES, 1983 (COPY ALREADY SUBMI TTED IN JALANDHAR IMPROVEMENT TRUSTS CASE IN ITA NO.402/ASR/2014). ITA NO.109(ASR)/2012 A.Y. 2006-07 27 IT IS CLEAR THAT THE RESIDENTIAL PLOTS/BUILDINGS AR E SOLD WITH PROFIT MOTIVE AND THUS PARTAKE THE COMMERCIAL CHARACTER THOUGH FOR THE ALLOTTEES THE SAME IS FOR RESIDENCE PURPOSES. THUS, IT IS CLEAR THAT THIS AC TIVITY IS COMMERCIAL ACTIVITY FOR THE ASSESSEE TRUST. THE TRUST SELLS THE PLOTS/BUILDINGS BY WAY OF OPEN AUCTION WITH A FIXED RESERVE PRICE AND TRIES TO GET AS MUCH AS PROFIT AS IS POSSIBLE AND IF THE BIDDERS DO RAISE THE BID BEYOND THE RESERVE PRICE, THE AUCTION IS CANCELLED. THUS, IT IS CLEAR THAT IN THIS ACTIVITY ALSO NO CHARITY IS INVOLVED. RELIANCE IN THIS REGARD IS PLACED ON THE JUDGEMENT OF THE HONBLE ANDHRA PRADESH HIGH COURT IN THE CASE OF ANDHRA PRADESH STATE SEED CERTIFICATION AGENCY V CH IEF COMMISSIONER OF INCOME TAX & OTHERS REPORT 83 DTR 0023 (COPY ENCLOSED FOR KIND PERUSAL). IN THIS JUDGEMENT, THE HONBLE COURT HAS HELD :- THAT THE PETITIONER WAS ENGAGED IN CERTIFYING THE VARIETIES OF SEEDS GROWN BY THE CLIENTS WHO FINALLY CARRY OUT TRADE OR COMMERCE IN CERTIFIED SEEDS GROWN BY THE CLIENTS WHO FINALLY CARRY OUT TRADE OR COMMERCE IN CERTIFIED SEEDS. THUS, PETITIONER HAD RENDERED ITS SERVICES NOT DIRECTLY TO FARMERS BUT WAS RENDERING ITS SERVICES DIRECTLY TO ITS CLIENTS/AGENTS WHO ARE ENGAGED IN TRADING OF THE CERTIFIED SEEDS WITH PROFIT MOTIVE. ACTIVITIES OF THE PETITIONER HAD NOT INDICTED INVOLVEMENT OF ANY CHARITABLE ACTIVITY OR ADVANCE OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY. FUNCTIONING OF THE PETITIO NER WAS AKIN TO A CORPORATE PROFIT EARNING SERVICE PROVIDER. THE TRUST ALSO SELLS PLOTS AND BUILDING FOR COMMERC IAL PURPOSES TO PERSONS WHO DO BUSINESS FOR THEIR OWN G AIN AND LIKEWISE THE TRUST CANNOT BE SAID TO BE DOING A NY ACTIVITY OF CHARITABLE NAME AS ITS ACTIVITIES FALL, STRUCO SENSU, IN THE SAME DOMAIN AS THE ACTIVITIES OF THE ANDHRA PRADESH STATE SEED CERTIFICATE AGENCY (SUPRA ) FALL. ITS ACTIVITY OF SELLING PLOT AND BUILDING FO R RESIDENCE TO PERSONS THOUGH FOR THE ALLOTTEE IT MAY NOT FOR COMMERCIAL PURPOSE BUT THE WAY THE TRUST FIXES ITS RESERVE PRICE AS DISCUSSED ABOVE, IT IS CLEAR THAT THE ITA NO.109(ASR)/2012 A.Y. 2006-07 28 ACTIVITY IS COMMERCIAL IN NATURE FOR THE TRUST AND NOT CHARITABLE. IT IS FURTHER PERTINENT TO MENTION HERE THAT WHEN T HE TRUST FIXES THE RESERVE PRICE FOR RESIDENTIAL AS WE LL COMMERCIAL PLOTS OR BUILDINGS, IT INCLUDES IN ITS C OST ALL THE AMENITIES WHICH IT PROMISES TO THE PEOPLE INCLU DING ALL DEVELOPMENT CHARGES LIKE ROADS, SEWERAGE, WATER SUPPLY, STORM WATER DRAINAGE, STREET LIGHTING AND L OCAL DISTRIBUTION SYSTEM AND UNJUSTIFIED COST AS PER ROU GH COST ESTIMATE OF PUNJAB STATE ELECTRICITY BOARD AND ALSO PROVISION FOR LANDSCAPING AND FURTHER INCREASED BY OVERHEAD CHARGES AS MENTIONED AT PARA 2 & 3 OF THE ANNEXURE. THUS, IT IS CLEAR THAT THE TRUST PROVIDES NO AMENI TY WHICH IS THE SOLE CLAIM OF THE ASSESSEE TRUST. IT MAY BE SUBMITTED THAT THIS ANNEXURE HAS ALREADY BEEN BROUG HT TO THE NOTICE OF THE HONBLE BENCH IN THE CASE OF JALANDHAR IMPROVEMENT TRUST IN ITA NO.402/ASR/2014. NOW COMING TO THE TWO DECISIONS WHICH THE HONBLE B ENCH ASKED THE UNDERSIGNED TO COMMENT UPON. IT IS SUBMI TTED IN THE CASE OF STOCK EXCHANGE AHMEDABAD V ASSISTANT COMMISSIONER OF INCOME TAX REPORTED AT 74 ITD 0001, IT MAY BE SUBMITTED THAT AS DISCUSSED ABOVE, THERE IS NO ELEMENT OF CY PRESS INVOLVED IN THE ACTIVITIES OF T HE TRUST. IT MAY BE MENTIONED HERE THAT THE MOST DISTINGUISHA BLE FEATURE IS THE TRUST IS IT IS RENDERING NO GENERAL PUBLIC UTILITY AS WHATEVER PUBLIC UTILITY SERVICE IT IS PR OVIDING, IT FIRST RECOVERS ITS COST FROM THE BUYERS AS DISCU SSED ABOVE. FURTHER, IT IS SUBMITTED THAT THE DECISION IN THE CASE OF ITO VS. TRILOK TIRATH VIDYAVATI CHUTTANI CHARITABLE TRUST OF CHANDIGARH B BENCH REPORTED A T 90 ITD 569 DOES NOT HOLD GOOD FOR TWO REASONS: THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE ABOV E ORDER HAD RESTORED THE ISSUE TO THE BENCH BEING WEL L AWARE OF THE FACT THAT THE TRUST HAD BEEN GRANTED REGISTRATION BY THE BENCH. THE HIGH COURT CLEARLY DID NOT HOLD THAT ONCE THE REGISTRATION IS GRANTED, EXE MPTION UNDER SECTION 11 CANNOT BE DENIED TO THE ASSESSEE O N THE GROUND THAT IT WAS NOT A CHARITABLE INSTITUTION. I F THIS DECISION OF THE TRIBUNAL IS TO PREVAIL THEN RESTORA TION OF THE ISSUE TO THE TRIBUNAL BY THE HIGH COURT WOULD B ECOME REDUNDANT. ITA NO.109(ASR)/2012 A.Y. 2006-07 29 IT IS SUBMITTED THAT SUBMISSIONS MADE IN THE CASE O F JALANDHAR IMPROVEMENT TRUST AND OTHER TRUST DURING THE COURSE OF HEARING OF TRUSTS CASES ARE ALSO PRESSED INTO SERVICE IN THESE APPEALS. IN VIEW OF THE ABOVE SUBMISSIONS, IT IS PRAYED THAT THE ISSUE MAY KINDLY BE DECIDED IN FAVOUR OF THE REVENUE. 35. WHILE DEALING WITH THE PROFIT MOTIVE ALLEGATION OF THE REVENUE AUTHORITIES, IT IS ESSENTIAL TO APPRECIATE THE DIFFERENCE THAT PROFIT ON SALE DOES NOT ESSENTIALLY AND NECESS ARILY IMPLY PROFIT MOTIVE IN ACTIVITIES OF THE ASSESSEE TRUST. WHAT IS IMPORTANT IS THE MOTIVE OR PREDOMINANT OBJECT OF TH E ACTIVITIES. AS WE DO SO, WE MAY ONLY MAKE A NOTE OF THE FOLLOWI NG OBSERVATIONS MADE BY A COORDINATE BENCH DECISION IN THE CASE OF DEVKI DEVI FOUNDATION VS DIT [(2015) 56 TAXMANN.COM 56 (DELHI)] : 29THE SOUL OF CHARITY IS BENEVOLENCE AND GENEROSITY TOWARDS OTHERS AND THE COMMUNITY AT LARGE. OF COURSE, IT IS IMPORTANT AS TO WHAT ARE TH E ACTIVITIES OF A CHARITABLE INSTITUTION BUT WHAT IS EVEN MORE IMPORTANT IS WHAT IS THE PREDOMINANT MOTIVATIO N FOR SUCH ACTIVITIES. NO ACTIVITY, BY ITSELF, COULD BE CHARITABLE IN NATURE WHEN IT IS DOMINATED AND TRIGG ERED BY ECONOMIC GREED. THERE IS NO DIFFERENCE IN WHAT A SOLDIER AND A MERCENARY DOES, BOTH USE BULLETS TO D EFEND THEIR INTERESTS, BUT WHILE A SOLDIER DOES IT OUT OF PATRIOTISM, A MERCENARY DOES IT FOR MONETARY GAIN. THE ACTION IS THE SAME, AND YET MOTIVATION FOR THE ACTI ONS ARE SO MATERIALLY DIFFERENT THAT THE CHARACTER OF A CTIVITY IS ALTOGETHER CHANGED. CLEARLY, UNDERLYING MOTIVE A ND TRIGGER FOR DOING WHAT A PERSON DOES IS, IS IMPORTA NT FOR DETERMINING WHETHER SUCH AN ACTION IS IN THE COURSE OF BUSINESS OR CHARITY. WHAT IS REALLY, THEREFORE, REQ UIRED TO BE CAREFULLY EXAMINED, IN ORDER TO FIND WHETHER AN ACT OF THE INSTITUTION IS CHARITABLE OR NOT, IS NOT ONLY T O ASSESS THE WORK BEING DONE BY THE INSTITUTIONS, WHICH CLAI M TO BE PURSUING CHARITABLE ACTIVITIES, BUT ALSO THE ECO NOMIC DYNAMICS AND MOTIVATIONS OF SUCH ACTIVITIES. 36. LEARNED DEPARTMENTAL REPRESENTATIVE HAS POINTED OUT THAT THE COMMERCIAL PLOTS AND UNITS ARE AUCTIONED O FF WHICH SHOWS THAT THE IDEA IS TO MAKE MAXIMUM PROFITS BUT WHAT HE CLEARLY OVERLOOKS IS THE FACT THAT SINCE IT IS NOT A DESIRABLE STATE OF AFFAIRS FOR THE STATE TO SUBSIDIZE BUSINES SES, AND TO ITA NO.109(ASR)/2012 A.Y. 2006-07 30 ENSURE HIGHEST DEGREE OF TRANSPARENCY IN MAXIMISING RETURNS FROM PUBLIC ASSETS, COMPETITIVE BIDDING FOR COMMERC IAL UNITS IS A SAFE OPTION, AND THAT THE USE OF BIDDING PROCESS IS JUSTIFIED FOR THE LARGER CAUSES. THE BIDDING PROCESS ENSURES TRANSPARENCY IN FUNCTIONING OF THE IMPROVEMENT TRUS TS AND THAT, BY ITSELF, DOES NOT MAKE THE FUNCTIONING OF T HE IMPROVEMENT TRUST A COMMERCIAL VENTURE. IT IS ALSO IMPORTANT THAT THIS USE OF BIDDING PROCESS IS ONLY IN THE CO NTEXT OF COMMERCIAL UNITS ETC. THE DEVELOPMENT OF COMMERCIAL AREAS IS IN THE INTEREST OF PLANNED GROWTH OF AN AREA AND WH EN SUCH COMMERCIAL AREAS DEVELOP, ALL THE STAKEHOLDERS IN T HE DEVELOPMENT OF THAT AREA BENEFIT. IN ORDER OF THIS BENEFIT TO THE COMMON CAUSE, IT IS NOT NECESSARY THAT THE BUSINESS MEN, BUYING SUCH UNITS, MUST ALSO BENEFIT. THE DENIAL OF ANY ADVANTAGE, AT THE COST OF GENERAL PUBLIC, TO THE BU SINESS ENTITIES BUYING THE COMMERCIAL AREAS, IN OUR CONSID ERED VIEW, DOES NOT AMOUNT TO AN DEFEATING AN OBJECT OF GENERA L PUBLIC UTILITY. IN THIS CONTEXT, IT IS IMPORTANT TO UNDER STAND THE BENEFIT FROM DEVELOPING COMMERCIAL AREAS, WHICH IS FOR PUBL IC GOOD, AND BENEFIT TO THE BUSINESS PERSONS IN BUYING THESE UNITS FROM THE ASSESSEE TRUST, WHICH CAN ONLY BE FOR THE GOOD OF BENEFIT OF THESE ENTREPRENEURS. AS FOR THE SALE OF RESIDENTIA L UNITS, IT IS AN ADMITTED POSITION THAT IN TERMS OF THE PUNJAB TOWN IMPROVEMENT (UTILIZATION OF LAND AND ALLOTMENT OF PLOTS) RULES, 1983, THERE IS A FORMULAE ON THE BASIS OF WHICH THE PRICE IS WORKED OUT. LEARNED DEPARTMENTAL REPRESENT ATIVE DOES NOT DISPUTE THAT ASPECT BUT HE ALLEGES PROFIT MOTIVE EMBEDDED IN THIS FORMULA AS SHOWN BY ADJUSTMENTS FO R (A) CONSERVANCY CHANGES FOR 5 YEARS @ 10% PER MONTH PER ACRE; AND (B) PROVISION FOR UNFORESEEN CHARGES @ 15% OF T OTAL RESERVE PRICE. FIRSTLY, EVEN IF THIS ALLEGATION ABOUT PRE SENCE OF THE TWO ELEMENTS ONLY TO MAXIMIZE THE PROFIT BE TAKEN AS CO RRECT, IT IS IMPORTANT TO BEAR IN MIND THE FACT THAT THIS IS NOT THE PRESENCE OF PROFIT ELEMENT IN THE ACTIVITIES WHICH VITIATES CHARITABLE CHARACTER OF THE ACTIVITIES BUT IT IS THE ABSENCE O F RESTRICTIONS ON MAKING PROFITS WHICH VITIATES THE CHARITABLE CHA RACTER OF THE ACTIVITIES. IN THE INDIAN CHAMBER OF COMMERCE (SUPRA), WHICH HAS BEEN RELIED UPON BY THE ASSESSING OFFICER AND REFERRED TO IN CBDT INSTRUCTION NO. 1024 (SUPRA), I T HAS BEEN STATED THUS: ORDINARILY PROFIT MOTIVE IS A NORMAL INCIDENT OF BUSINESS ACTIVITY AND IF THE ACTIVITY OF A TRUST CONSISTS OF CARRYING ON OF A BUSINESS AND THERE ARE NO RESTR ICTIONS ON ITS MAKING PROFIT, THE COURT WOULD BE WELL JUSTI FIED IN ASSUMING IN THE ABSENCE OF SOME INDICATION TO THE CONTRARY THAT THE OBJECT OF THE TRUST INVOLVES THE CARRYING ITA NO.109(ASR)/2012 A.Y. 2006-07 31 ON OF AN ACTIVITY FOR PROFIT. . THAT APART, MERE PRESENCE OF THESE TWO ITEMS DOES NOT SHOW THAT THE UNDERLYING O BJECT OF INCLUDING THESE TWO ITEMS IN THE FORMULA WAS PROFIT MAXIMISATION. THE INCLUSION FOR PROVISION FOR UNFOR ESEEN CHARGES, IN OUR UNDERSTANDING, IS A FAIR AND CONSER VATIVE APPROACH TO ENSURE THAT THE COSTS INCURRED BY THE A SSESSEE TRUST ARE RECOVERED FROM THE END BUYERS OF THE RESI DENTIAL UNITS OR LAND. THE ELEMENT OF CHARITY IS NOT IN GIVING A WAY THE RESIDENTIAL UNITS AT SUBSIDIZED OR LOW PRICES BUT I N PURSING THE OBJECT OF ADVANCEMENT OF OBJECT OF GENERAL PUBLIC U TILITY IN PLANNED DEVELOPMENT OF THE ARE IN ACCORDANCE WITH T HE POLICIES OF THE STATE GOVERNMENT. 37. A LOT OF EMPHASIS HAS BEEN MADE BY THE LEARNED DEPARTMENTAL REPRESENTATIVE ON THE FACT THAT NOTHIN G, OR VERY LITTLE, HAS BEEN DONE BY THE TRUSTS FOR THE POOR PE OPLE BUT WHAT THIS ARGUMENT OVERLOOKS IS THAT THE ASSESSEE TRUST IS NOT GRANTED REGISTRATION UNDER SECTION 2 (15) FOR IMPL EMENTING POVERTY ALLEVIATION PROGRAMS OR DOING OTHER ACTS OF CHARITY BUT IT IS GRANTED REGISTRATION BECAUSE WHAT IT IS PURSU ING, BY FOLLOWING THE STATE GOVERNMENT POLICIES FOR PLANNED DEVELOPMENT OF CITY, IS ADVANCEMENT OF AN OBJECT OF GENERAL PUBLIC UTILITY. PURSUING AN OBJECT OF GENERAL PUBLI C UTILITY DOES NOT NECESSARILY INVOLVE MORE NOTICEABLE DIRECT ACTS OF CHARITY DRIVEN BY COMPASSION AND BENEVOLENCE. THERE IS SO MUCH TO BE DONE BY THE GOVERNMENT AGENCIES, AS THESE ASSESSEE TRUSTS ARE PERCEIVED TO BE, THAT NO MATTER WHAT THESE AGEN CIES DO, THERE IS STILL LOT LEFT TO BE DONE. JUST BECAUSE TH ESE AGENCIES COULD HAVE DONE MORE, SUCH EXPECTATIONS, NO MATTER HOW LEGITIMATE, DO NOT OBLITERATE THE WORK DONE BY THES E AGENCIES AND THE ROLE PLAYED BY THESE AGENCIES FOR PUBLIC GO OD IN FURTHERANCE OF ADVANCEMENT OF OBJECTS OF GENERAL PU BLIC UTILITY. 38. LEARNED DEPARTMENTAL REPRESENTATIVE HAS ALSO PO INTED OUT THAT THE ASSESSEE TRUSTS DO NOT GET ANY GRANT F ROM THE STATE GOVERNMENT WHICH SHOWS THAT FIRST THEY MAKE P ROFITS FROM LAND DEALS AND THEN USE THE INCOME SO EARNED F OR THE PUBLIC CAUSES STATED. IT IS FOR THIS REASON, ACCORD ING TO THE LEARNED DEPARTMENTAL REPRESENTATIVE, THAT THE ASSES SEE TRUST CANNOT BE SAID TO BE ANYTHING OTHER THAN A BUSINESS SIMPLICITOR. ON THE CONTRARY, ACCORDING TO THE LEAR NED DEPARTMENTAL REPRESENTATIVE, IT IS LIKE ROBBING PET ER TO PAY PAUL. WE ARE UNABLE TO SHARE THESE PERCEPTIONS OF THE LEARNED DEPARTMENTAL REPRESENTATIVE. AN OBJECT OF GENERAL P UBLIC UTILITY DOES NOT NECESSARILY REQUIRE THAT THE ACTIVITIES OR THE BENEFICIARIES MUST BE FUNDED OR SUBSIDIZED BY THE S TATE. AS ITA NO.109(ASR)/2012 A.Y. 2006-07 32 LONG AS BROADER PUBLIC CAUSE IS SERVED, WHETHER BY THE STATE FUNDING OR BY EFFICIENT REGULATION OF THE AFFAIRS, IT IS AN OBJECT OF GENERAL PUBLIC UTILITY. IT IS ALSO IMPORTANT TO BEAR IN MIND THAT COSTS OF PROPER DEVELOPMENT OF AREA ARE ALSO C OSTS INCIDENTAL TO THE PLOTS AND UNITS SOLD BY THE ASSES SEE AND, THEREFORE, THESE TWO THINGS SHOULD NOT BE SEEN IN I SOLATION. AS FOR THE SPECIFIC INSTANCE OF INORDINATE HIKE IN PRI CES WITHIN A SHORT PERIOD OF THREE AND A HALF YEARS, WE ARE UNAB LE TO COMMENT UPON THE SAME AS FULL FACTS RELATING THERET O ARE NOT ON RECORD. THAT ASPECT, HOWEVER, FOR THE DETAILED REAS ONS SET OUT ABOVE, DOES NOT AFFECT OUR CONCLUSION ANYWAY. 39. AS FOR THE DECISION OF THE COORDINATE BENCH IN THE CASE OF THE PUNJAB URBAN DEVELOPMENT AUTHORITY VS CIT [(2006) 103 TTJ 988 (CHANDIGARH)] , IT IS A CASE IN WHICH THERE IS NO MENTION ABOUT SELLING THE RESIDENTIAL UNITS AND PLO TS AT THE PRICE ON THE BASIS OF A FORMULAE LAID DOWN BY THE S TATUTE. IN THE PRESENT CASE, THERE IS NO DISPUTE ON THIS ASPEC T, AND THAT IS A CRUCIAL ASPECT HAVING BEARING ON THE CONCLUSIONS. THERE WAS ALSO NO, AND COULD NOT HAVE BEEN ANY, OCCASION TO C ONSIDER THE IMPACT, WHAT IS REFERRED TO AS KILL EFFECT, OF TH E AMENDMENTS BY THE FINANCE ACT 2015. THE REVENUE, THUS, DERIVE S NO ADVANTAGE FROM THIS JUDICIAL PRECEDENT. AS REGARDS THE DECISION OF THE COORDINATE BENCH IN THE CASE OF AMRITSAR IMPROVEMENT TRUST (SUPRA), ON WHICH SO MUCH RELIANCE HAS BEEN PLACED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE, IT IS ALRE ADY SET ASIDE BY HONBLE JURISDICTIONAL HIGH COURT. AS A MA TTER OF FACT, IN THE COURSE OF PROCEEDINGS BEFORE HONBLE HIGH CO URT IN THE CASES OF OTHER IMPROVEMENT TRUSTS, LEARNED COUNSEL FOR THE REVENUE HAS FAIRLY ACCEPTED THAT THE DECISIONS OF T HE TRIBUNAL, FOLLOWING THE AFORESAID DECISION, ARE REQUIRED TO B E SENT BACK TO THE TRIBUNAL FOR FRESH DETERMINATION ON THE SCOP E OF PROVISIONS OF SECTION 2 (15). THE REVENUE, THUS, DE RIVES NO ADVANTAGE FROM THIS JUDICIAL PRECEDENT EITHER. 40. FOR THE REASONS SET OUT ABOVE, WE ARE OF THE CO NSIDERED VIEW THAT THE AUTHORITIES BELOW WERE NOT JUSTIFIED IN DECLINING THE BENEFIT OF SECTION 11 READ WITH SECTION 2(15) T O THE ASSESSEE, AND IN HOLDING THAT THE ASSESSEE TRUST WA S NOT COVERED BY ADVANCEMENT OF ANY OBJECT OF GENERAL PUB LIC UTILITY. WE, THEREFORE, DIRECT THE ASSESSING OFFICER TO DELE TE THE DISALLOWANCE OF EXEMPTION OF RS 65,20,690. THE ASSE SSE GETS THE RELIEF ACCORDINGLY. GRIEVANCES OF THE ASSESSEE ARE UPHELD. 41. IN THE RESULT, ITA NO. 496/ASR/ 2013 IS THUS ALLOWE D IN THE TERMS INDICATED ABOVE. ITA NO.109(ASR)/2012 A.Y. 2006-07 33 9. THEREFORE, RESPECTFULLY FOLLOWING THE DECISION O F THIS BENCH OF THE TRIBUNAL, IN THE CASE OF HOSHIARPUR IMPROVEMEN T TRUST VS. INCOME TAX OFFICER, WARD-1, HOSHIARPUR, IN ITA NO.496(ASR) 2013, FOR THE ASSESSMENT YEAR 2009-10, DATED 10.09.2015, WE DISMI SS THE APPEAL OF THE DEPARTMENT, FILED U/S 11 OF THE ACT. 10. AS REGARDS GROUNDS NOS. 2, 3 & 4, SINCE WE HAVE DISMISSED THE APPEAL OF THE REVENUE UNDER SECTION 11 OF THE I.T. ACT, THERE IS NOT NEED FOR THEIR ADJUDICATION AND THE SAME ARE DI SMISSED AS INFRUCTUOUS. 11. IN THE RESULT, THE APPEAL OF THE DEPARTMENT IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 03/06/ 2016. SD/- SD/- (T.S. KAPOOR) (A.D. JAIN) ACCOUNTANT MEMBER JUDICIAL MEMBER /SKR/ DATED: 03/06/2016 COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE: IMPROVEMENT TRUST BATALA. 2. THE ACIT CIR.II, ASR. 3. THE CIT(A), ASR 4. THE CIT, ASR 5. THE SR DR, ITAT, AMRITSAR. TRUE COPY BY ORDER INCOME TAX APPELLATE TRIBUNAL, AMRITSAR BENCH: AMRITSAR.