ITO, Moradabad V. M/s Moradabad Development Authority, Moradabad

ITA 2276/DEL/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 52997 (ITAT-DELHI)
• Duration Of Justice: 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 11-10-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 06-05-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RA J TANDON
• Keywords: Business income; Charitable institution; Question of law; Difference of opinion; Cancellation of registration; Revenue expenditure; Capital expenditure
• Section: 143(3); 142(1); 12A; 12AA; 12; 28; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E DELHI BEFORE SHRI RAJPAL YADAV AND SHRI K.G. BANSAL ITA NO. 2276(DEL)/2011 ASSESSMENT YEAR: 2007-08 INCOME-TAX OFFICER, MORA DABAD DEVELOPMENT AUTHORITY, WARD 1(1), MORADABAD. VS. KANTH ROAD , MORADABAD. PAN: AAJFM7731M (APPELLANT) (RESPON DENT) APPELLANT BY : SHRI RAJ TANDON, CIT, DR RESPONDENT BY: SH RI PIYUSH KAUSHIK, ADVOCATE DATE OF HEARING : 11.10.2011 DATE OF PRONOUNCEMENT: 21.10.2011. ORDER PER K.G. BANSAL : AM THE REVENUE HAS TAKEN SIX GROUNDS IN THE APPEAL AS UNDER:- 1. THE CIT(A), BAREILLY HAS ERRED IN FACT AS WELL AS LAW IN HOLDING THAT THE FACTS OF THE CASE SAFDURJUNG ENCLAVE EDU CATIONAL SOCIETY VS. MUNICIPAL CORPORATION OF DELHI (1992) 3 SCC 390, IN WHICH IT HAS BEEN HELD THAT THE ACTIVITIES RUN ON COMMERCIAL LINES DO NOT FALL WITHIN THE AMBIT OF CHARITABLE OBJECT, ARE DIF FERENT FROM THE PRESENT CASE WITHOUT DISTINGUISHING THE FACTS OF BOTH TH E CASES. 2. THE CIT(A), BAREILLY ERRED IN HOLDING THAT THE CRITERIA WHICH ENABLE THE RECEIPTS OF A TRUST AS ELIGIBLE I NCOME FOR EXEMPTION U/S 11 & 12 OF THE ACT, ARE FULLY APPLICABLE TO THE FACTS OF THE CASE WHEREAS THE ACTIVITIES OF THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION ARE NOT IN CONFORMITY WITH ITS MAI N OBJECT. ITA NO. 2276(DEL)/2011 2 3. THE CIT(A), BAREILLY ERRED IN HOLDING THAT INCO ME OF THE ASSESSEE IS EXEMPT AS IT IS REGISTERED U/S 12AA WHEREAS THE REGISTRATION U/S 12AA DOES NOT CONFER BLANKET EXEMPTION OF INCOM E. 4. UNDER THE CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN HOLDING THAT THE AO DID NOT GATHER ANY MATERIAL O N RECORD WHICH COULD ESTABLISH THAT THE ASSESSEE WAS ENGAGED IN PROFIT MAKING ACTIVITY AND DID NOT APPLY RECEIPTS FOR MEETING THE PREDOMINANT OBJECTS OF GENERAL PUBLIC UTILITY, WHEREAS THE C OMPARATIVE PERUSAL OF OBJECTS OF THE ASSESSEE AND TRADING AND PROFIT AN D LOSS ACCOUNT CLEARLY REVEALS THAT THE ASSESSEE IS INVOLVED IN BUSINESS ACTIVITY LIKE OTHER PRIVATE BUILDERS AND DEVELOPERS. 5. THE CIT(A), BAREILLY ERRED IN HOLDING THE INCOME OF THE ASSESSEE AS EXEMPT WHEREAS THE ASSESSEE IS AN INSTITUTION A ND NOT A TRUST AS PER DEFINITION OF TRUST PROVIDED IN THE INDIAN TRUST ACT AND HENCE THE INCOME OF THE ASSESSEE DOES NOT FALL UNDER ANY CATEGORY OF SECTION 11(1)(A), (B), (C) OR (D) OR U/S 12(1) O F THE INCOME-TAX ACT, 1961. 6. ANY OTHER GROUND WHICH MAY BE TAKEN DURING THE C OURSE OF THE APPELLATE PROCEEDINGS. 2. THE FACTS OF THE CASE ARE THAT THE ASSESSEE FILED ITS RETURN DECLARING TOTAL INCOME OF RS. 60/-. THE RETURN WAS PICKED UP FOR SCRUTINY BY ISSUING STATUTORY NOTICES U/S 143(2) AND 142(1) OF THE INCOME-TAX ACT, 1961 (THE ACT FOR SHORT). IT WAS FOUND THAT THE AUTHORITY WAS REGISTERED U/S 12AA OF THE ACT BY THE COMMISSIONER OF INCOME-TAX, MO RADABAD WITH EFFECT FROM 01.04.2003 WITH THE OBJECT TO PROMOTE AND SECURE THE DEVELOPMENT OF THE DEVELOPMENT AREA ACCORDING TO PLAN AND FO R THAT PURPOSE THE AUTHORITY HAD THE POWER TO ACQUIRE, HOLD, MAN AGE AND DISPOSE OF LAND ITA NO. 2276(DEL)/2011 3 AND OTHER PROPERTY, TO CARRY OUT BUILDING, ENG INEERING, MINING AND OTHER OPERATIONS, TO EXECUTE WORKS IN CONNECTION WITH THE SUPPLY OF WATER AND ELECTRICITY, TO DISPOSE OF SEWAGE AND TO PROVIDE AND MAINTAIN OTHER SERVICES AND AMENITIES AND GENERALLY TO DO ANYTH ING NECESSARY OR EXPEDIENT FOR PURPOSES OF SUCH DEVELOPMENT AND F OR PURPOSES INCIDENTAL THERETO. THE TOTAL INCOME WAS COMPUTED BY THE ASSESSEE AS UNDER:- INCOME FROM OTHER SOURCES (CHAPTER IVF) 1297376266 GROSS RECEIPTS 1297376266 INCOME BEFORE APPLICATION OF INCOME 1297376266 LESS: APPLICATION OF INCOME REVENUE EXPENDITURE 439004524 CAPITAL EXPENDITURE 11 39242 REPAYMENT OF LOAN 1720000 00 AMOUNT DEEMED TO APPLIED 490626000 DURING THE PREVIOUS YEAR-CLAUSE (2)- - - - - - - - - - OF THE EXPLANATION TO SEC.11(1) 1102769766 INCOME EXEMPT U/S 11(1)(A) INCOME ACCUMULATED OR SET APART UP TO 15% 194606440 1297376206 GROSS TOTAL INCOME: 60 /- ITA NO. 2276(DEL)/2011 4 2.1 THE AO CAME TO THE CONCLUSION THAT THE ACTIVI TIES CARRIED OUT ARE REGARDING PURCHASE OF LAND AND TO SELL IT AFTER DEVELOPING. FURTHER, IT CARRIES ON THE ACTIVITIES OF CONSTRUCTION OF HOUS ES, FLATS, SHOPS ETC. WHICH ARE SOLD. THESE ACTIVITIES ARE SIMILAR TO THE A CTIVITIES CARRIED OUT BY DEALERS, BUILDERS AND DEVELOPERS OF REAL ESTATE . IN OTHER WORDS, THE ACTIVITIES ARE IN THE NATURE OF CARRYING ON OF B USINESS. NO CHARITABLE ACTIVITY HAS BEEN CARRIED ON BY THE ASSESSEE. I N VIEW THEREOF, THE SURPLUS IN THE BUILDING ACTIVITY AMOUNTING TO RS. 85,52,21,3 56/- IS HELD TO BE LIABLE FOR TAX. 3. THE ORDER WAS CHALLENGED IN APPEAL BEFORE THE F IRST APPELLATE AUTHORITY, BAREILLY. VARIOUS ARGUMENTS WERE M ADE BY THE ASSESSEE BEFORE HIM. THE LD. CIT(APPEALS) CAME TO THE CON CLUSION THAT THE ASSESSEE IS ENTITLED TO DEDUCTION U/S 11. FOR THIS PURP OSE, HE MAINLY RELIED ON THE FACT THAT DEDUCTION U/S 11 WAS ALLOWED IN PAST . FOR THE SAKE OF COMPLETENESS, HIS FINDINGS ARE REPRODUCED BELOW:- I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND THE SUBMISSION OF THE AR OF THE APPELLANT. THE FACTS OF THE DECISION (SUPRA) RELIED BY THE ASSESSING OFFIC ER WERE ALSO GONE THROUGH. THE DECISION RELIED BY THE A.O. WAS HAVING ENTIRELY DIFFERENT FACTS AND IT WAS DELIVERED IN A DIFFERENT CONTEST. THEREFORE, THE CITATION OF THE AO DOES NOT HAVE ANY BEARING TO THE FACTS OF THE CASE UNDER CONSIDERAT ION. ITA NO. 2276(DEL)/2011 5 ADMITTEDLY, THE STATUS OF THE APPELLANT IN THE EA RLIER YEAR WAS ACCEPTED AS A CHARITABLE TRUST HAVING INCOME EL IGIBLE FOR EXEMPTION U/S 11 OF THE ACT. AS A MATER OF FA CT, THERE WAS NO CHANGE IN THE FACTS AND CIRCUMSTANCES OF THE C ASE DURING THE YEAR UNDER CONSIDERATION. THE AO DID NOT GATH ER ANY MATERIAL ON RECORD WHICH COULD ESTABLISH THAT TH E APPELLANT WAS ENGAGED IN PROFIT MAKING ACTIVITY AND DID N OT APPLY RECEIPTS FOR MEETING THE PREDOMINANT OBJECTS OF GENERAL PUBLIC UTILITY. HIS DECISION WAS BASED ON TWO PO INTS, I.E., THE ASSESSEE WAS CONSTRUCTING AND SELLING THE IMMOVA BLE PROPERTIES TO THE PUBLIC AT COMPETITIVE MARKET PRI CE AND INCOME FROM THIS ACTIVITY WAS NOT INCOME FROM PROPERTY HELD BY THE TRUST. HOWEVER, HE DID NOT CITE EVEN A SINGLE EXAMPLE TO SUBSTANTIATE HIS FINDING AS TO HOW, THE ACC OMMODATION PROVIDED TO THE PUBLIC FOR RESIDENTIAL AND COMMERC IAL PURPOSES, WAS AT COMPETITIVE MARKET PRICE. IT SEEMS THAT THIS VIEW WAS TAKEN WITHOUT ANY MATERIAL ON RECORD. THE AIMS MENTIONED IN THE OBJECTS WERE BEING FULFILLED BY THE ASSESSEE IN THE FORM OF TOWN PLANNING, ROADS, HOUSES, COMM ERCIAL SHOPS, SEWERAGE ETC. THEREFORE, IN MY VIEW, THE DECISION OF THE AO WAS NOT JUSTIFIED AND IT WAS CONTRARY TO TH E FACTS OF THE CASE. HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE, SUBMISSION OF THE APPELLANT AND THE RULINGS OF THE APEX COURT ON THE ISSUE, IT IS MY CONSIDERED VIEW THAT THE C RITERIA WHICH ENABLE THE RECEIPTS OF A TRUST AS ELIGIBLE INC OME FOR EXEMPTION U/S 11 & 12 OF THE ACT, ARE FULLY APPLI CABLE TO THE FACTS OF THE CASE UNDER CONSIDERATION. ACCORDINGLY , THE CLAIM OF THE ASSESSEE OF HAVING ITS INCOME AS EXEMPT U/S 11 IS ALLOWED. 3.1 AGGRIEVED BY THIS ORDER, THE REVENUE IS IN APP EAL BEFORE US. ITA NO. 2276(DEL)/2011 6 4. AT THE OUTSET, THE LD. COUNSEL SUBMITTED THAT THE ISSUE STANDS DECIDED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL IN ITS OWN CASE IN ITA NO. 1986(DEL)/2008, DATED 09.03.2009, FOR ASSESSM ENT YEAR 2005-06, A COPY OF WHICH HAS BEEN PLACED IN THE PAPER BOOK ON PAGE NOS. 1 TO 4. THEREFORE, IT IS AGITATED THAT THE VARIOUS ISSUE S MAY BE DECIDED IN THE FAVOUR OF THE ASSESSEE BY FOLLOWING THE AFORESAID ORDER. THE FINDINGS RECORDED BY THE TRIBUNAL IN PARAGRAPH 7 ARE AS UNDER:- 7. WE HAVE HEARD THE LD. DR AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. LD. CIT, DR FAIRLY CONCEDED THAT THE CIT, MORADABAD HAS GRANTED REGISTRATION UNDER SECTION 12A W.E.F. 01.04.2003, THEREFORE, ASSESSMENT COULD NOT BE MADE UNDER SECTION 143(3) IN THE STATUS OF AOP. THERE IS NO DISPUTE THAT THE ASSESSEE WAS GRANTED REGISTRATION UNDER SECTION 12A(A) VIDE REGISTRATION VIDE LETTER DATED 02.0 5.2005 W.E.F. 01.04.2003. PRIOR TO 01.04.2003, THE ASSESSEE WAS ENJOYING EXEMPTION UNDER SECTION 10(20A) OF THE ACT. SINC E THE ASSESSEE HAS BEEN GRANTED REGISTRATION UNDER SEC TION 12A, THE INCOME OF ASSESSEE WILL BE EXEMPT UNDER SECTION 1 1 SUBJECT TO FULFILLMENT OF OTHER CONDITIONS SPECIFIED IN THE SECTIONS 11 AND 13 OF THE ACT. IN THE CASE BEFORE US, THE CONTENT ION OF ASSESSING OFFICER IS THAT THE ACTIVITIES OF ASSES SEE IN SO FAR AS THEY RELATE TO PURCHASE, DEVELOPMENT AND SALE O F PLOTS/SHOPS, HOUSES COULD NOT BE TREATED FOR CHA RITABLE PURPOSES AND, THEREFORE, ASSESSEE WAS NOT ENTIT LED FOR EXEMPTION U/S 11 OF THE ACT AS PROVISIONS OF SECT ION 11 WERE APPLICABLE IN THE CASE OF CHARITABLE INSTITUTION S. IN THE CASE BEFORE US, THE ACTIVITIES OF ASSESSEE ARE CHARIT ABLE IN NATURE. THE PROPERTIES OF THE TRUST ARE HELD UNDER TRUST FOR CHARITABLE PURPOSES. THE MORADABAD DEVELOPMENT AUTHORITY HA S BEEN CONSTITUTED FOR THE DEVELOPMENT OF ROADS, TOWN PL ANNING, PROVIDING CHEAPER RESIDENTIAL AND COMMERCIAL PROPER TIES TO ITA NO. 2276(DEL)/2011 7 THE PUBLIC. THE MANAGEMENT OF THE DEVELOPMENT AU THORITY IS BY OFFICERS AND EMPLOYEES APPOINTED BY THE STATE GOVERNMENT. IN CASE OF DISSOLUTION, THE SURPLUS AFTER MEETING THE LIABILITIES WILL GO TO THE STATE GOVERNMENT. T HEREFORE, THE CHARITABLE ACTIVITIES ARE NOT IN DOUBT. IN FAC T, THE ASSESSEE HAS BEEN GRANTED REGISTRATION U/S 12A. THEREFORE , IN OUR CONSIDERED VIEW, ASSESSING OFFICER WAS NOT JUSTIF IED TO DENY THE EXEMPTION UNDER SECTION 11 OF THE ACT ON THE BASIS OF ACTIVITIES BY HOLDING THAT THE PURCHASE, DEVELO PMENT AND SALE OF PROPERTIES WERE NOT CHARITABLE ACTIVITIE S. REGISTRATION UNDER SECTION 12A HAS BEEN GRANTED W.E.F. 01.04 .2003. THEREFORE, ONCE REGISTRATION HAS BEEN GRANTED TO INSTITUTION THAT IT CANNOT BE WITHDRAWN IN ASSESSMENT PROCEEDI NGS. ONE OF THE GROUNDS OF APPEAL RAISED BY ASSESSEE IS THAT T HE ASSESSING OFFICER HAD ADOPTED STATUS OF AOP AS CLAIMED IN THE RETURN OF INCOME. HOWEVER, WE NOTE THAT LD. CIT(A) HAS A NNULLED THE ASSESSMENT. IN OUR VIEW, ASSESSMENT CANNOT BE AN NULLED UNDER GIVEN CIRCUMSTANCES OF THE CASE. LD. CIT(A ) SHOULD HAVE EXAMINED THE CASE FROM THE ANGLE OF EXEMPT ION UNDER SECTION 11 OF THE ACT AND DECIDED THE MATTER ACCORDINGLY. WE, THEREFORE, SET ASIDE THE MATTER TO THE FILE OF ASSESSING OFFICER WITH THE DIRECTIONS TO DECIDE THE CLAIM O F ASSESSEE FOR EXEMPTION UNDER SECTION 11 OF THE ACT TREATING TH E ACTIVITIES OF ASSESSEE AS CHARITABLE IN NATURE. NEEDLESS TO SAY THE ASSESSING OFFICER SHALL PROVIDE OPPORTUNITY OF B EING HERD TO THE ASSESSEE. WE ORDER ACCORDINGLY. 4.1 THE LD. CIT (DR) REFERRED TO PAGE NO.7 OF THE ASSESSMENT ORDER. IN PARAGRAPH NO. 11, THE AO REFERRED TO THE ACTIVI TIES CARRIED OUT BY THE ASSESSEE VIS--VIS THE OBJECT FOR WHICH REGISTRATIO N WAS GRANTED U/S 12AA. IT IS MENTIONED THAT THE ASSESSEE EARNED INCOME MAINLY FROM SALE OF HOUSES IN DIFFERENT RESIDENTIAL COLONIES. THIS A CTIVITY HAS NOT BEEN INCLUDED IN THE OBJECT CLAUSE. IT WAS GRANTED R EGISTRATION FOR DEVELOPMENT ITA NO. 2276(DEL)/2011 8 OF THE AREA OF THE CITY BY CARRYING OUT BUILDIN G ENGINEERING, MINING AND OTHER OPERATIONS, TO EXECUTE WORKS IN CONNECTION WITH SUPPLY OF WATER AND ELECTRICITY, TO DISPOSE OFF SEWERAGE, TO PROVIDE A ND MAINTAIN OTHER SERVICES ETC. NO SUCH ACTIVITY HAS BEEN CARRIED OUT AS ASCERTAINED FROM THE CONTENTS OF THE PROFIT AND LOSS ACCOUNT. IT HAS MAINLY E NGAGED ITSELF IN CONSTRUCTION AND SALE OF IMMOVABLE PROPERTIES TO T HE GENERAL PUBLIC AND THIS IS SIMILAR TO THE ACTIVITIES CARRIED OUT BY DEALERS, BUILDERS AND DEVELOPERS. THEREFORE, THE ACTIVITIES ARE NOT IN PURSUANCE OF THE OBJECT OF DEVELOPMENT OF TOWN PLANNING AND PUBLIC UTILITY S YSTEM AND ALSO NOT WITHOUT ANY PROFIT MOTIVE. ON THE OTHER HAND, THE ACTIVITIES ARE COMMERCIAL IN NATURE AND THE APARTMENTS ETC. HAD BEEN SOLD AT COMPETITIVE RATES. THEREFORE, THE ASSESSEE IS NOT ENTITLED TO DEDUCT ION U/S 11(1)(A) OF THE ACT. 4.2 THEREAFTER, HE REFERRED TO PAGE NO. 72 OF T HE PAPER BOOK, BEING REPRESENTATION MADE BY THE ASSESSEE BEFORE THE AO, IN WHICH IT IS INTER-ALIA MENTIONED THAT THE RECEIPTS HAVE BEEN APPLIED FOR CHARITABLE PURPOSE: PURCHASES, ADMINISTRATIVE AND OTHER EXPENDITURE, CAPITAL EXPENDITURE AND REPAYMENT OF LOAN OF THE OUTSTAN DING OF RECEIPTS. ADVANCE OF RS. 250,00,000/- GIVEN TO I RRIGATION FOR CONSTRUCTION OF BRIDGE IS COVERED UNDER RULE 17C(II I) OF THE I.T. RULE. DEPOSITED IN BANK AND INVESTMENT IN BANK FDR ARE IN ACCORDANCE WITH THE PROVISION OF SECTION 11(5)(I II) OF I.T.ACT, ITA NO. 2276(DEL)/2011 9 1961. THE CASH IN HAND OF RS. 13,975/- IS A NEG LIGIBLE AMOUNT, WHICH IS .004%, WHICH IS MUCH LESS THAN 15% ALLOWABLE IS AS A SURPLUS. 4.3 OUR ATTENTION HAS ALSO BEEN DRAWN TO PAGE NO . 74, BEING THE INCOME AND EXPENDITURE DRAWN FOR THIS YEAR. THE CREDIT SIDE CONTAINS SALE PROCEEDS OF ABOUT RS. 108.48 CRORE AND THE OTHER RECEIPTS OF ABOUT RS. 21.45 CRORE. THE DEBIT SIDE CONTAINS PURCHASES O F ABOUT RS. 28.07 CRORE, ADMINISTRATIVE AND OTHER EXPENDITURE OF ABOUT RS. 6 .42 CRORE. FOR THE SAKE OF READY REFERENCE, THE ACCOUNT IS REPRODUCED HER EUNDER:- EXPENDITURE/INVESTMENT AMOUNT(RS.) GROSS RECEIPTS AMOUNT (RS.) PURCHASE 280743870.04 SALE 1084794330.86 ADMINISTRATIVE & OTHER EXPENDITURE 64151794.04 OTHER RECEIPTS 212581935.22 CAPITAL EXPENDITURE 1139242.00 ADVANCE FOR IRRIGATION 25000000.00 DEPOSITS IN BANK 34800632.00 CASH IN HAND 13975.00 REPAYMENTS OF LOANS 172000000.00 INVESTMENTS IN BANK FDRS 719526753 TOTAL: 1297376266.08 1297376266.08 4.4 THE CASE OF THE LD. DR IS THAT THE DEVELOPMEN T AUTHORITY HAS ENGAGED ITSELF IN ACTIVITIES WHICH ARE IN THE NAT URE OF BUSINESS ACTIVITIES. IT HAS NOT CARRIED OUT ANY ACTIVITY OF CHARITABLE N ATURE, AS UNDERSTOOD U/S ITA NO. 2276(DEL)/2011 10 2(15) OF THE ACT. THEREFORE, THE WHOLE OF THE QUES TION OF REGISTRATION, EXPENDITURE INCURRED TOWARDS THE OBJECTS AND DEDU CTIBLE U/S 11(1)(A) CAN BE LOOKED INTO AT THE TIME OF ASSESSMENT. THE AO IS NOT BOUND TO FOLLOW THE POSITION OBTAINED IN EARLIER YEARS BLINDLY AN D IT IS OPEN TO HIM TO TAKE AN INDEPENDENT VIEW IN CASE ANY GRAVE ERROR OF LA W HAS BEEN COMMITTED EARLIER. IT IS ARGUED THAT THE POSITION AS AFO RESAID IS OBTAINED IN THIS CASE AND, THEREFORE, THE ORDER OF THE TRIBUNAL FOR AS SESSMENT YEAR 2005-06 (SUPRA) MAY NOT BE FOLLOWED BLINDLY. 5. IN REPLY, THE LD. COUNSEL SUBMITS THAT THE ASSE SSEE IS AN AUTHORITY CONSTITUTED UNDER A STATUTE AND IT HAS BEEN IN E XISTENCE SINCE THE YEAR 1973. ITS INCOME WAS NOT LIABLE TO TAX EARLIER U/ S 10(20A). HOWEVER, ON DELETION OF THE PROVISION, THE ASSESSEE APPLIED FOR REGISTRATION, WHICH HAS BEEN GRANTED WITH EFFECT FROM 01.04.2003. THE OBJ ECT IS TO PROMOTE AND SECURE DEVELOPMENT OF THE DEVELOPMENT AREA ACCOR DING TO THE PLAN AND FOR THIS PURPOSE IT HAS THE POWER TO ACQUIRE, HOL D, MANAGE AND DISPOSE OF LAND AND OTHER PROPERTIES TO CARRY OUT BUILDING, E NGINEERING, MINING AND OTHER OPERATIONS, TO EXECUTE WORKS IN CONNECTION WITH SUPPLY OF WATER AND ELECTRICITY, TO DISPOSE OFF SEWERAGE AND TO PROV IDE AND MAINTAIN OTHER SERVICES AND AMENITIES AND IN GENERAL TO DO ANYT HING NECESSARY OR ITA NO. 2276(DEL)/2011 11 EXPEDIENT FOR THE PURPOSE OF SUCH DEVELOPMENT AND FOR PURPOSES INCIDENTAL THERETO. THEREFORE, THE DEVELOPMENT OF TOWNSHIP OR COLONY IS AN INTEGRAL PART OF THE OBJECT OF THE ASSESSEE-AUTHORITY. THE CONSTITUTION OF THE AUTHORITY PROVIDES THAT THE FUNDS OF THE AUTHORITY SHALL B E APPLIED ONLY TOWARDS MEETING THE EXPENSES INCURRED BY IT IN THE ADMIN ISTRATION OF THE ACT. THUS, THE ASSESSEE IS NOT AUTHORIZED TO EARN PROFIT A ND DISTRIBUTE IT TO THE MEMBERS. IT HAS BEEN SHOWN BEFORE THE ASSESSING OFF ICER THAT ALL THE RECEIPTS HAVE BEEN UTILIZED FOR THE OBJECTS OF TH E ASSESSEE-AUTHORITY. HOWEVER, THE AO DENIED EXEMPTION BY RELYING ON THE CASE OF SAFDARJUNG ENCLAVE EDUCATIONAL SOCIETY VS. MUNICIPAL CORPORAT ION OF DELHI, 3 SCC 390. THE MATTER HAS BEEN DECIDED BY THE LD. CIT( A) IN THE FAVOUR OF THE ASSESSEE BY FOLLOWING THE EARLIER DECISION OF THE TRIBUNAL. 5.1 IT IS ARGUED THAT THE CASE OF THE ASSESSEE IS DISTINGUISHABLE FROM THE CASE OF A PRIVATE BUILDER ON GROUNDS- (I) THE FUND S OF THE ASSESSEE CAN BE APPLIED ONLY FOR THE ADMINISTRATION OF THE ACT AND FOR NO OTHER PURPOSE, AND (II) IT IS NOT ENTITLED TO EARN PROFIT OR DISTRIBU TE SURPLUS TO MEMBERS, AND (III) IN CASE OF DISSOLUTION, ALL ITS PROPERTIES S TAND VESTED IN THE STATE GOVERNMENT. THEREFORE, IT HAS BEEN ARGUED THAT SINCE THE OBJECTS ARE CHARITABLE IN NATURE AND MONIES HAVE BEEN APPLIED TOWARDS THE ITA NO. 2276(DEL)/2011 12 ADMINISTRATION OF THE ACT, THE LD. CIT(APPEALS) H AS RIGHTLY ALLOWED THE APPEAL OF THE ASSESSEE. 6. WE HAVE CONSIDERED THE FACTS OF THE CASE AND SU BMISSIONS MADE BEFORE US. THE FACTS ARE THAT THE ASSESSEE HAS BEEN CONSTITUTED UNDER U.P. URBAN PLANNING AND DEVELOPMENT ACT, 1973. AS PER SECTION 4(2) OF THAT ACT, THE AUTHORITY IS A BODY CORPORATE, BY THE N AME GIVEN TO IT IN THE SAID NOTIFICATION, HAVING PERPETUAL SUCCESSION AND A COMMON SEAL WITH POWER TO ACQUIRE, HOLD AND DISPOSE OF PROPERTY, BOTH MO VABLE AND IMMOVABLE AND TO CONTRACT AND SHALL BY THE SAID NAME SUE AND BE SUED. IT WILL BE SEEN FROM THIS PROVISION THAT THE STATUS OF THE ASSES SEE-AUTHORITY IS A BODY CORPORATE, I.E., A COMPANY. ACCORDINGLY, IT IS H ELD THAT THE INCOME, IF ASSESSABLE, IS ASSESSABLE IN THE STATUS OF A COM PANY. 6.1 IT IS ALSO SEEN THAT THE RATIO OF DECISION IN THE CASE OF SAFDARJUNG ENCLAVE EDUCATIONAL SOCIETY (SUPRA) IS NOT APPLICA BLE FOR THE REASON THAT THE DEFINITION OF CHARITABLE OBJECT IS DIFFERENT. T HEREFORE, WE HAVE TO EXAMINE THE WHOLE CASE IN THE LIGHT OF THE DEFINITION OF THE TERM CHARITABLE PURPOSE FURNISHED IN SECTION 2(15) OF THE ACT. ITA NO. 2276(DEL)/2011 13 7. THE FURTHER FACTS ARE THAT THE ASSESSEE HAD APPLIED FOR ITS REGISTRATION WHICH HAD BEEN GRANTED WITH EFFECT F ROM 01.04.2003. THE REGISTRATION HAS NOT BEEN CANCELLED TILL DATE. IN OTHER WORDS, THE REGISTRATION IS EFFECTIVE FOR THIS YEAR. THE GRA NT OF REGISTRATION IS NOT AN EMPTY FORMALITY AS IT HAS TO BE GRANTED AFTER S ATISFYING THAT THE OBJECTS ARE CHARITABLE IN NATURE. SINCE THE REGISTRATION H AS EFFECT FOR THIS YEAR ALSO, THE OBJECT OF THE DEVELOPMENT AUTHORITY WILL HAVE TO BE TAKEN AS CHARITABLE IN NATURE. 8. THE FURTHER FACTS ARE THAT IN THIS YEAR THE ASSESSEE HAS CARRIED ON THE ACTIVITY OF SALE OF IMMOVABLE PROPERTIES, FRO M WHICH SURPLUS OF RS. 85,52,21,356/- HAS BEEN DERIVED. THIS REPRESENT S THE DIFFERENCE BETWEEN RECEIPTS OF RS. 129,73,76,266/- AND THE REVENUE EXPENDITURE OF RS. 43,90,04,524/-. THE CASE OF THE REVENUE IS THAT I TS ACTIVITY IS PURELY COMMERCIAL IN NATURE AND IN NO WAY DIFFERENT FROM THE ACTIVITIES UNDERTAKEN BY ANY PRIVATE BUILDER. ON THE OTHER HA ND, THE LD. COUNSEL HAS POINTED OUT TWO ESSENTIAL DIFFERENCES-(I) THE PR OFIT FROM THE ACTIVITY CANNOT BE DISTRIBUTED IN ANY MANNER TO THE MEMBERS, (II) IN CASE OF DISSOLUTION, THE ASSETS ARE TO BE VESTED IN THE STATE GOVERNMENT, AND (III) THE ACTIVITY HAS BEEN UNDERTAKEN IN PURSUANCE OF THE MAIN OBJECT, I.E., TO PROMOTE AND ITA NO. 2276(DEL)/2011 14 SECURE THE DEVELOPMENT OF THE DEVELOPMENT AREA A CCORDING TO THE PLAN. IN THIS CONNECTION, THE ASSESSEE HAS BEEN EMPOWERED TO ACQUIRE, TO DISPOSE OFF, TO CONSTRUCT ETC. IMMOVABLE PROPERTIES. THEREFORE, THIS ACTIVITY HAS BEEN UNDERTAKEN IN PURSUANCE OF THE MAIN OBJ ECT. SINCE THERE IS NO MOTIVE TO MAKE PROFIT, THE ACTIVITY CANNOT BE SAI D TO BE A BUSINESS ACTIVITY. 9. IN ORDER TO SUPPORT THE RIVAL CONTENTIONS A S AFORESAID AND OTHERS, A NUMBER OF CASES HAVE BEEN CITED WHICH ALSO INCL UDE THE CASES DECIDED UNDER THE 1922 ACT. IN ORDER TO AVOID DUPLICATIO N, WE ARE OF THE VIEW THAT IT WILL BE SUFFICIENT TO BRIEFLY DISCUSS THE CAS ES HEREUNDER: (I) IN THE CASE OF CIT VS. ANDHRA PRADESH STATE ROAD TRANSPORT CORPORATION, (1986) 159 ITR 1, DECIDED ON 07.03 .1986 UNDER THE 1922 ACT, IT HAS BEEN HELD THAT THE CORPORATION WAS UND ER OBLIGATION TO PROVIDE SECURE AND PROMOTE PROVISION OF AN EFFICIENT, A DEQUATE ECONOMICAL AND PROPERLY COORDINATED SYSTEM OF ROAD TRANSPORT SERVICES IN THE STATE. SUCH ACTIVITIES CANNOT BE CARRIED OUT EFFICIENTLY , ADEQUATELY AND ECONOMICALLY UNLESS IT IS CARRIED ON BUSINESS PRINCIPLES, AS HELD BY THE COURT IN SURAT ART SILK CLOTH MANUFACTURERS ASSOC IATIONS CASE, (1980) 120 ITR 1 (SC). IF THE ACTIVITIES CARRIED ON BUSINESS PRINCIPLES IT WOULD ITA NO. 2276(DEL)/2011 15 RESULT INTO PROFIT. HOWEVER, WHAT IS TO BE SEEN IS WHETHER WHAT IS THE PREDOMINANT OBJECT OF THE ACTIVITY-WHETHER IT IS TO CARRY OUT A CHARITABLE PURPOSE OR TO EARN PROFIT? IF THE PREDOMINANT O BJECT IS NOT TO EARN PROFIT BUT TO CARRY OUT A CHARITABLE PURPOSE, THE PURPO SE WOULD NOT LOOSE ITS CHARITABLE CHARACTER MERELY BECAUSE SOME PROFIT AR ISES FROM THE ACTIVITY. (II) IN THE CASE OF NEW LIFE IN CHRIST EVANGELISTI C ASSOCIATION VS. CIT & ANOTHER, (2000) 246 ITR 532 (MAD.), REGARDING REGISTRATION U/S 12A, IT HAS BEEN HELD THAT TWO CONDITIONS ARE PRESCRIBE D FOR REGISTRATION OF TRUST- (I) THE PERSON CONCERNED SHOULD MAKE AN APPLICAT ION FOR REGISTRATION IN PRESCRIBED FORM AND IN PRESCRIBED MANNER, AND (II) THE ACCOUNT SHOULD BE MAINTAINED IN A PARTICULAR MANNER AND SUCH ACC OUNT SHOULD BE AUDITED. THESE CONDITIONS HAVE BEEN SATISFIED AND THE OBJ ECTIONS RAISED ARE ONLY TECHNICAL IN NATURE. THEREFORE, THE COMMISSIONER O F INCOME-TAX WAS DIRECTED TO PASS THE ORDER IN THE LIGHT OF AFORESAI D OBSERVATIONS. (III) IN THE CASE OF M. VISVESVARAYA INDUSTRIAL R ESEARCH & DEVELOPMENT CENTRE VS. ITAT & OTHERS, (2001) 251 ITR 852 (BOM. ), IT HAS BEEN MENTIONED THAT IT IS THE COMMISSIONER WHO HAS TO EXAMINE WHETHER THE APPLICATION IS MADE IN ACCORDANCE WITH SECTION 12 A, I.E., IT IS FOR HIM TO ITA NO. 2276(DEL)/2011 16 SEE WHETHER OBJECTS OF THE TRUST ARE CHARITABLE O R NOT. AT THIS STAGE, HE IS NOT REQUIRED TO EXAMINE THE APPLICATION OF INCOME . HENCE, IN THE PRESENT MATTER, THE TRIBUNAL WAS CERTAINLY ENTITLED TO A SCERTAIN WHETHER THERE WAS A PROPER APPLICATION OF INCOME FOR CHARITABLE PU RPOSE. ACCORDINGLY, IT WAS HELD THAT THE TRIBUNAL SHOULD HAVE CONSIDERED THE MISCELLANEOUS APPLICATION FILED BY THE ASSESSEE. IN THE CONTE XT OF THE CONTENTION RAISED THAT THERE IS NO LEGAL CONCEPT PROPOUNDED BY THE T RIBUNAL, VIZ., SALE OF LEASE-HOLD RIGHTS OF THE USE OF SPACE. THE COMM ISSIONER HAD GRANTED REGISTRATION U/S 12A, HOWEVER, SUCH REGISTRATION DID NOT PREVENT THE TRIBUNAL FROM ASCERTAINING WHETHER THERE WAS P ROPER APPLICATION OF INCOME DURING THE YEARS UNDER CONSIDERATION. (IV) IN THE CASE OF MADHYA PRADESH MADHYAM VS. CIT & ANOTHER, (2002) 256 ITR 277 (MP), IT HAS BEEN HELD THAT PR OCEEDINGS FOR REGISTRATION AND CANCELLATION OF REGISTRATION OF C HARITABLE INSTITUTION ARE DIFFERENT FROM ASSESSMENT PROCEEDINGS. ONCE AN INSTITUTION HAS BEEN REGISTERED, THE INCOME-TAX AUTHORITIES ARE BOUND B Y IT. (V) IN THE CASE OF DY. CIT VS. RAJNEESH FOUNDATIO N, (2003) 262 ITR (AT) 60, IT HAS BEEN HELD THAT GRANT OF REGISTRAT ION U/S 12A HAS TO BE TAKEN ITA NO. 2276(DEL)/2011 17 AS CONCLUSIVE EVIDENCE THAT THE OBJECTS ARE CHARI TABLE IN NATURE, HOWEVER, THE TRIBUNAL IS COMPETENT TO EXAMINE THE CORRECT NESS OF CLAIM U/S 11 OF THE ACT. (VI) IN THE CASE OF PUNJAB URBAN PLANNING AND DEV ELOPMENT AUTHORITY VS. CIT, (2006) 156 ITD 37 (CASE DIGEST), IT HAS BEEN MENTIONED THAT THE ASSESSEE ACQUIRED LAND AT NOMINAL RATE AND AFTER DEVELOPING THE SAME, SOLD THE LAND AT HIGH PROFIT. THIS ACTIVITY COULD NOT BE SAID TO BE A CHARITABLE ACTIVITY. IF REGISTRATION IS GRANTED IN SUCH A CASE, THEN EVERY PRIVATE COLONIZER WOULD CLAIM CHARITY. THE FACI LITIES WHICH WERE PROVIDED TO THE PLOT HOLDER WERE INCIDENTAL TO THE COMMERC IAL ACTIVITY. CERTAIN FACILITIES LIKE PARKS, COMMUNITY CENTRE, SCHOO L WERE PROVIDED WHICH WAS NOT ONLY BASIC REQUIREMENT BUT ALSO A TOOL FOR ATT RACTING THE INVESTORS. THE HIDDEN COST OF THESE FACILITIES WAS INCLUDED IN T HE SALE PRICE OF PLOT. SINCE THE ASSESSEE WAS GENERATING INCOME, SO NO CHARITY WAS INVOLVED. THEREFORE, IT WAS HELD THAT THE COMMISSIONER RIG HTLY CONCLUDED THAT SINCE NO CHARITABLE ACTIVITY WAS CARRIED OUT FOR PUBLIC AT LARGE, THE ASSESSEE WAS NOT ENTITLED TO GET REGISTRATION U/S 12A. ITA NO. 2276(DEL)/2011 18 (VII) IN THE CASE OF CANE DEVELOPMENT COUNCIL VS. CIT, (2010) 35 SOT 308 (DEL), THE ASSESSEE HAD BEEN GRANTED REGIST RATION U/S 12AA ON 15.11.2007. IN VIEW OF AMENDMENT IN SECTION 2(1 5) DEFINING THE PHRASE CHARITABLE PURPOSE, COMING INTO FORCE WITH EFFEC T FROM 01.04.2009, THE REGISTRATION WAS WITHDRAWN ON THE GROUND THAT FOR EACH AND EVERY DEVELOPMENT ACTIVITY, IT CHARGED FEE IN THE SHAPE OF CONTRIBUTION. IT WAS FOUND THAT THE ASSESSEE DID NOT HAVE POWER TO LEV Y CONTRIBUTION ON SUGAR FACTORIES AND CANE GROWERS COOPERATIVE SOCIETY, TH E ASSESSEE CARRIED OUT VARIOUS FUNCTIONS LIKE DEVELOPMENT OF ZONE, EXECU TION OF DEVELOPMENT PLANS IN THE FIELD OF CANE SEEDS, CANE VARIETIES, SOWING PROGRAM, FERTILIZERS AND MANURES, DEVELOPMENT OF IRRIGATION FACILITIES ETC. IT WAS HELD THAT THE FUNCTIONS WERE OF CHARITABLE NATURE AND THE R EGISTRATION COULD NOT BE CANCELLED. REFERRING TO SECTION 11(4A), IT WAS M ENTIONED THAT THE PROFIT AND GAIN OF ANY BUSINESS CARRIED ON BY THE ASSESSEE WILL NOT BE ELIGIBLE FOR DEDUCTION U/S 11(1)(A) UNLESS SEPARATE BOOKS OF ACCOUNT WERE MAINTAINED AND THE BUSINESS ACTIVITY WAS INCIDENTAL TO ATTAI NMENT OF OBJECTS. (VIII) IN THE CASE OF JALLANDHAR DEVELOPMENT AUTH ORITY VS. CIT, (2010) 35 SOT 15 (ASR.), IT HAS BEEN MENTIONED THAT THE A SSESSEE WAS NOT ENGAGED IN THE ACTIVITIES OF RELIEF TO THE POOR, EDUCATI ON OR MEDICAL RELIEF AND ITA NO. 2276(DEL)/2011 19 ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC U TILITY AS DEFINED IN SECTION 2(15). THE ACTIVITIES OF THE ASSESSEE W ERE TO CARRY ON BUSINESS AND THERE WAS NO RESTRICTION IN ITS OBJECT OF MAKING P ROFIT. THERE IS NO EVIDENCE TO SUGGEST THAT THE ASSESSEE WAS NOT ENGAGED IN THE ACTIVITIES OF MAKING PROFIT. IT IS A KNOWN FACT THAT THE ASSESSEE WAS ACQUIRING THE LAND AT A VERY LOW PRICE AND SELLING THE SAME AT A VERY PRICE AND WAS EARNING PROFIT THEREFROM. THE ASSESSEE HAD ALSO STARTED AUCTIO NING PLOTS AT MARKET RATE AND SOMETIMES MORE THAN THAT AND IT WAS ALSO CH ARGING INTEREST ON BELATED PAYMENT. THEREFORE, THE PRE-DOMINANT PURPOSE W AS TO MAKE PROFIT AND THERE WAS NO SPENDING EXCLUSIVELY FOR CHARITA BLE PURPOSE. THEREFORE, IT WAS HELD THAT THE COMMISSIONER WAS RIGHT IN REF USING REGISTRATION. (IX) IN THE CASE OF ACIT VS. SURAT CITY GYMKHANA, (2008) 300 ITR 214 (SC), IT HAS BEEN HELD THAT NO FURTHER PROBE INTO OBJECTS WAS PERMISSIBLE AFTER REGISTRATION U/S 12A AND THE DECISION IN THE CASE OF HIRA LAL BHAGWATI VS. CIT, (2000) 246 ITR 188 HOLDS THE FIELD IN THIS MATTER. (X) IN THE CASE OF OXFORD ACADEMY FOR CAREER DEV ELOPMENT VS. CHIEF COMMISSIONER OF INCOME-TAX & OTHERS, (2009) 315 IT R 382 (ALL.), IT WAS MENTIONED THAT THE ASSESSEE WAS PROVIDING CO ACHING AND GUIDELINES TO ITA NO. 2276(DEL)/2011 20 THE STUDENTS FOR GETTING ADMISSION IN PROFESSION AL INSTITUTIONS. THE WORD EDUCATION, USED IN SECTION 2(15), MEANS THE SYS TEMATIC INSTRUCTION, SCHOOLING OR TRAINING GIVEN TO YOUNG PERSONS FOR PREPARING THEM FOR THE WORK OF LIFE. SIMILARLY, EXTENDING FINANCIAL ASS ISTANCE, SCHOLARSHIP ETC. TO STUDENTS FOR EDUCATIONAL PURPOSES WOULD FALL WIT HIN THE MEANING OF THE TERM EDUCATION. THUS, THE ASSESSEE HAD BEEN E NGAGED IN EDUCATIONAL ACTIVITY. ACCORDINGLY, IT HAS BEEN HELD THAT THE COMMISSIONER WAS NOT WITHIN HIS RIGHT TO CANCEL THE REGISTRATION ALREA DY GRANTED. (XI) IN THE CASE OF CIT VS. HARYANA URBAN DEVELO PMENT AUTHORITY, (2010) 322 ITR 61 (P&H), THE ASSESSEE HAD BEEN ENGAGED IN THE ACTIVITIES OF IMPROVEMENT, DEVELOPMENT AND PLANNIN G OF CITIES AND TOWNS. IT WAS DERIVING RENTAL INCOME WHICH WAS SOUGHT TO BE ASSESSED AS BUSINESS INCOME. THE HONBLE COURT HELD THAT AS PER FINDING OF THE TRIBUNAL, THE MAIN BUSINESS OF THE ASSESSEE IS NO T RENTING OF PROPERTY BUT DEVELOPMENT AND SALE OF PROPERTY. THEREFORE, THE ASSESSEE COULD CLAIM RENTAL INCOME AS INCOME FROM PROPERTY INSTEAD OF INCOME FROM BUSINESS. ACCORDINGLY, THE DECISION OF THE TRIBUNAL WAS UPH ELD. ITA NO. 2276(DEL)/2011 21 (XII) IN THE CASE OF GHAZIABAD DEVELOPMENT AUTHOR ITY VS. CIT, (2011) 201 TAXMAN 252, IT HAS BEEN HELD THAT THE FIRST AND FOREMOST PRINCIPLE OF INTERPRETATION OF A STATUTE IS THE LITERAL RULE O F INTERPRETATION. THE OTHER RULE I.E., THE MISCHIEF RULE, PURPOSIVE INTERPRETATI ON ETC. CAN ONLY BE RESORTED TO WHEN THE PLAIN WORDS OF A STATUTE ARE AMBIGUOUS OR DO NOT LEAD TO INTANGIBLE RESULTS OR WOULD NULLIFY THE OBJECT O F THE STATUTE. (XIII) IN THE CASE OF PRAGATI CONSTRUCTION CO. VS . ACIT, (2004) 89 ITD 271 (DEL), IT HAS BEEN HELD THAT THERE IS NO DISP UTE THAT IN CASE THE AO DEPARTS FROM THE CONSISTENT STAND, THEN HE IS REQUIRED TO SPELL OUT THE REASONS FOR THE DEPARTURE. HE HAS ALSO TO HEAR T HE ASSESSEE TO CLEAR THE DOUBT IN THE MATTER AND TO BRING ON RECORD ANY EVIDENCE TO SHOW THAT DEPARTURE FROM THE CONSISTENT STAND SHOULD NOT BE MADE. HOWEVER, WHERE HE FEELS THAT A GRAVE ERROR OF LAW HAS BEEN COMMITTED, HE CAN MAKE A DEPARTURE BECAUSE THE BONA FIDE ACCEPTAN CE OF ASSESSEES VERSION WOULD NOT VEST IN HIM ANY RIGHT WHICH WOULD C ONTINUE AD-INFINITUM. (XIV) IN THE CASE OF NAPAR DRUGS (P) LTD. VS. DCI T, (2006) 98 ITD 285, IT HAS BEEN HELD THAT THE DECISION OF A COORDINATE BENCH DOES NOT CONSTITUTE A BINDING PRECEDENT ON ANY SUBSEQUENT BENCH. H OWEVER, IF IT IS ONLY A ITA NO. 2276(DEL)/2011 22 CASE OF DIFFERENCE OF OPINION BEING HELD ON THE SA ME FACTS, MATERIAL AND ASPECT ALREADY CONSIDERED, THE SUBSEQUENT BENCH SHOULD NOT PROCEED ON ITS OWN TO MAKE A CONTRARY DECISION AND INSTEAD RE FER THE MATTER TO THE PRESIDENT FOR CONSIDERATION OF A LARGER BENCH. AT THE SAME TIME, IT IS NEITHER PRACTICABLE NOR NECESSARY TO MAKE A RE FERENCE FOR CONSTITUTION OF A LARGER BENCH WHEN THERE IS A QUALITATIVE DIF FERENCE IN RESPECT OF ISSUES, FACTS, EVIDENCE AND MATERIAL. 10. COMING TO THE FACTS OF THIS CASE, WE HAVE ALR EADY HELD THAT THE ASSESSEE HAS BEEN REGISTERED U/S 12AA OF THE ACT. THEREFORE, IT FOLLOWS THAT THE ASSESSEE WILL BE ENTITLED TO DEDUCTION U/S 11 ON FULFILLMENT OF NECESSARY CONDITIONS MENTIONED IN THIS PROVISION. IN THIS CONNECTION, THE PROVISION CONTAINED IN SECTION 11(4A) ASSUMES IMPOR TANCE, WHICH IS TO THE EFFECT THAT THE PROVISIONS CONTAINED IN SUB-SECTIO N (1), SUB-SECTION (2), SUB- SECTION (3) OR SUB-SECTION (3A) SHALL NOT APPLY I N RELATION TO ANY INCOME OF A TRUST OR AN INSTITUTION BEING PROFITS AND GAINS OF BUSINESS, UNLESS THE BUSINESS IS INCIDENTAL TO ATTAINMENT OF OBJECTIVE OF THE TRUST, OR, AS THE CASE MAY BE, INSTITUTION, AND SEPARATE BOOKS OF ACCOU NT ARE MAINTAINED BY SUCH TRUST OR INSTITUTION IN RESPECT OF SUCH BUSINESS. THIS PROVISION WAS DISCUSSED IN THE COURSE OF PROCEEDINGS BEFORE US A ND WE HAVE SUMMARIZED ITA NO. 2276(DEL)/2011 23 THE RIVAL SUBMISSIONS. THE SUBMISSION OF THE REVENUE IS THAT THE ACTIVITIES CARRIED OUT BY THE ASSESSEE ARE IN NO WAY DIFFER ENT FROM THE ACTIVITIES CARRIED OUT BY A BUILDER DEVELOPING A LARGE COL ONY. THE SUBMISSION OF THE LD. COUNSEL IS THAT THERE IS NO PROFIT MOTIVE AND THE ACTIVITIES HAVE BEEN CARRIED OUT IN PURSUANCE OF THE OBJECT CLAUSE. IN THIS VERY CONNECTION, THE DEFINITION OF THE TERM BUSINESS FURNISHED IN SEC TION 2(13) WAS ALSO DISCUSSED. THE WORD BUSINESS HAS BEEN DEFINED IN AN INCLUSIVE MANNER TO INCLUDE ANY TRADE, COMMERCE OR MANUFACTURE OR ANY ADVENTURE OR CONCERN IN THE NATURE OF TRADE, COMMERCE OR MANUFACTURE. THE CASE OF THE LD. COUNSEL IS THAT THIS PROVISION IS NOT APPLICABLE. HOWEVER, HE HAS NOT ELABORATED IT ANY FURTHER IN THIS MATTER. THEREFOR E, IT WILL BE APPROPRIATE FOR US TO EXAMINE THIS DEFINITION IN A GREATER DET AIL. THE DEFINITION HAS BEEN EXAMINED BY THE HONBLE ORISSA HIGH COURT IN THE CASE OF CIT VS. M.P. BAJAJ & OTHERS, (1993) 200 ITR 131. AFTER CONSI DERING A NUMBER OF DECISIONS, IT HAS BEEN HELD THAT AN ACTIVITY CA RRIED ON CONTINUOUSLY IN AN ORGANIZED MANNER WITH A SET PURPOSE AND WITH A VI EW TO EARN PROFIT IS BUSINESS. THE MATTER HAS BEEN DISCUSSED ON PAGE NOS. 135 AND 136, WHICH READS AS UNDER:- THE WORD 'BUSINESS' IS A WORD OF LARGE AND INDEFIN ITE IMPORT. IT IS SOMETHING WHICH OCCUPIES THE ATTENTION AND LA BOUR OF A PERSON FOR THE PURPOSE OF PROFIT. SECTION 2(13) OF THE ACT DEFINES' BUSINESS' TO INCLUDE ... ANY TRADE, COMME RCE OR ITA NO. 2276(DEL)/2011 24 MANUFACTURE OR ANY ADVENTURE OR CONCERN IN THE NATU RE OF TRADE, COMMERCE OR MANUFACTURE'. WHEN A WORD IS DEF INED TO 'MEAN' SOMETHING, THE DEFINITION IS PRIMA FACIE RES TRICTIVE AND EXHAUSTIVE AS WAS INDICATED BY THE SUPREME COURT IN THE CASE OF VANGUARD FIRE AND GENERAL INSURANCE CO. LTD. V. FRA SER AND ROSS [1960] 30 COMP CAS (INS) 13 ; AIR 1960 SC 971. WHERE, HOWEVER, THE WORD DEFINED IS DECLARED TO 'INCLUDE' CERTAIN THINGS, THE DEFINITION IS EXTENSIVE. (SEE ARDESHIR H. BHIWANDIWALA V. STATE OF BOMBAY [1961-62] 20 FJR 11 3 ; AIR 1962 SC 29). IN SMITH V. ANDERSON [1880] 15 CH. D. 247, 258 (CA), JESSEL M.R., AFTER CITING DEFINITIONS OF 'BUS INESS' FROM SEVERAL DICTIONARIES, SAID, 'ANYTHING WHICH OCCUPIE S THE TIME AND ATTENTION AND LABOUR OF A MAN FOR THE PURPOSE O F PROFIT IS BUSINESS.' FURTHER ON, HE REMARKS (AT PAGE 260) : 'THERE ARE MANY THINGS WHICH IN COMMON COLLOQUIAL ENGLISH WOUL D NOT BE CALLED A BUSINESS, EVEN WHEN CARRIED ON BY A SING LE PERSON, WHICH WOULD BE SO CALLED WHEN CARRIED ON BY A NUMBE R OF PERSONS.' FOR INSTANCE, A MAN WHO IS THE OWNER OF A HOUSE DIVIDED INTO SEVERAL FLOORS AND USED FOR COMMERCIAL PURPOSES, E.G., OFFICES, WOULD NOT BE SAID TO CARRY ON A BUSI NESS BECAUSE HE LET THE OFFICES AS SUCH. BUT, SUPPOSE A COMPANY WAS FORMED FOR THE PURPOSE OF BUYING A BUILDING, OR LEASING A HOUSE, TO BE DIVIDED INTO OFFICES AND TO BE DIVIDE INTO OFFICES AND TO BE LET OUT - SHOULD NOT WE SAY, IF THAT WAS THE OBJECT OF THE COMPANY, THAT THE COMPANY WAS CARRYING ON BUSINESS FOR THE PURPOS E OF LETTING OFFICES? THE SAME OBSERVATION MAY BE MADE AS REGAR DS A SINGLE INDIVIDUAL BUYING OR SELLING LAND, WITH THIS ADDITION, THAT HE MAY MAKE IT A BUSINESS, AND THEN IT IS A QUESTIO N OF CONTINUITY. WHEN YOU COME TO AN ASSOCIATION OR COMP ANY FORMED FOR A PURPOSE, YOU WOULD SAY AT ONCE THAT IT IS A BUSINESS, BECAUSE THERE YOU HAVE THAT FROM WHICH YO U WOULD INFER CONTINUITY. THE WORD 'BUSINESS' HAS A MORE EX TENSIVE MEANING THAN THE WORD 'TRADE'. IN NARASINGHA KAR AN D CO. V. CIT [1978] 113 ITR 712, THIS COURT HAD OCCASION TO DEAL WITH ALMOST A SIMILAR CONTROVERSY. IT WAS HELD THAT THE INCOME OF THE ASSESSEE IN THAT CASE FROM THE SHOPS WAS ASSESSABLE UNDER SECTION 28 OF THE ACT AS INCOME FROM BUSINESS, AND SINCE THE ASSESSEE WAS CARRYING ON A BUSINESS, IT WAS ENTITLE D TO REGISTRATION. THE DECISIONS ON WHICH RELIANCE HAS B EEN PLACED BY LEARNED COUNSEL FOR THE REVENUE WERE ALSO CONSID ERED BY ITA NO. 2276(DEL)/2011 25 THIS COURT IN NARASINGHA KAR'S CASE [1978] 113 ITR 712 (ORISSA). THE TESTS INDICATED IN THOSE TWO CASES WE RE APPLIED AND CONCLUSIONS WERE ARRIVED AT. IN KARNANI PROPERT IES LTD. V. CIT [1971] 82 ITR 547, THE APEX COURT HAS OBSERVED THAT, AN ACTIVITY CARRIED ON CONTINUOUSLY IN AN ORGANISED MA NNER WITH A SET PURPOSE AND WITH A VIEW TO EARN PROFITS IS 'BUS INESS'. SIMILARLY, WHEN THE ASSESSEE TOOK A PLOT OF LAND ON LEASE, CONSTRUCTED SOME STRUCTURES THEREON AND LET THEM OU T TO SHOP- KEEPERS AND STALL-HOLDERS, THE APEX COURT CONSTRUED THE ACTIVITY TO BE BUSINESS. (SEE S. G. MERCANTILE CORPORATION P . LTD. V. CLT [1972] 83 ITR 700 (SC). KEEPING IN VIEW THE DECISIO NS OF THE APEX COURT IN KARNANI PROPERTIES CASE [1971] 82 ITR 547 AND S. G. MERCANTILE CORPORATION'S CASE [1972] 83 ITR 7 00 AND ALSO THE DECISION OF THIS COURT IN NARASINGHA KAR'S CASE [1978] 113 ITR 712 (ORISSA), THE TRIBUNAL HELD THAT THE AC TIVITIES CARRIED ON BY THE ASSESSEE AMOUNTED TO BUSINESS. TH E CONCLUSION IS ESSENTIALLY ONE OF FACT, AND, IN OUR CONSIDERED OPINION, DOES NOT GIVE RISE TO A QUESTION OF LAW. A CCORDINGLY, OUR ANSWER TO THE REFRAMED QUESTION IS IN THE AFFIR MATIVE, IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 10.1 THEREFORE, THE QUESTION BEFORE US IS-WHETHER, THE ACTIVITY OF CONSTRUCTION AND SALE OF IMMOVABLE PROPERTY CONST ITUTES BUSINESS? WE MAY CLARIFY THAT THE QUESTION IS NOT WHETHER, ALL O BJECT CLAUSE OF THE ASSESSEE CONSTITUTES BUSINESS OR NOT? THE ONLY OBJECTION OF THE ASSESSEE IN REGARD TO THE FIRST MENTIONED QUESTION IS THAT THERE IS NO PROFIT MOTIVE. IN OTHER WORDS, THERE IS NO DOUBT THAT THE ACTIVITY HAS BE EN CARRIED ON CONTINUOUSLY IN AN ORGANIZED MANNER WITH A SET PURPOSE. THE QU ESTION IS ONLY REGARDING THE PROFIT MOTIVE. IT IS CLEAR FROM THE ACCOUN TS THAT THIS ACTIVITY HAS BEEN UNDERTAKEN WITH A VIEW TO EARNING PROFIT SO AS TO USE THE PROFIT FOR THE ITA NO. 2276(DEL)/2011 26 OBJECT OF THE AUTHORITY. THIS BECOMES ABUNDANTLY C LEAR THAT PROFIT OF MORE THAN RS. 85.52 CRORE HAS BEEN EARNED IN THIS ACT IVITY. THE AMOUNT OF PROFIT IS NO DOUBT SUBJECT TO FURTHER VERIFICATION ON T HE BASIS OF ACTUAL ACCOUNTS OF THIS ACTIVITY. IN THE ORDER OF THE TRIBUNAL FO R ASSESSMENT YEAR 2005-06 (SUPRA), IT IS MENTIONED THAT THE AO COMPUTED T HE INCOME AT RS. 6,42,41,460/-. THUS, THE ASSESSEE HAS CONSISTEN TLY EARNED SUBSTANTIAL PROFIT IN THIS ACTIVITY. THEREFORE, THE ACTIVITY HAS BEEN CARRIED ON WITH PROFIT MOTIVE AND IN THE SAME MANNER IN WHICH A PRIVATE BUILDER OF LARGE TOWNSHIP WILL CONDUCT HIS BUSINESS. APART FROM T HIS, THE ACTIVITY OF CONSTRUCTION AND SALE OF IMMOVABLE PROPERTY CANNOT BE THE OBJECT BUT ONLY A MEAN TO ACHIEVE THE OBJECT OF DEVELOPMENT OF AREA IN ACCORDANCE WITH THE PLAN. THEREFORE, WHILE THE OBJECT IN A GIVEN CA SE MAY BE A CHARITABLE PURPOSE, NOT INVOLVING PROFIT, SOME OF THE ACTIVIT IES UNDERTAKEN IN PURSUANCE OF THE OBJECT, MAY ATTAIN THE COLOUR OF BUSINESS, AS IN THE AFORESAID ACTIVITY OF THE ASSESSEE-AUTHORITY. WE ARE ALSO OF THE VI EW THAT EACH INDIVIDUAL RECEIPT FROM DISPOSAL OF THE PROPERTY CANNOT BE SAI D TO BE INCOME OF THE ASSESSEE AVAILABLE FOR CHARITABLE PURPOSE BECAUSE EXPENDITURE HAS TO BE INCURRED AND HAS BEEN INCURRED IN ACQUIRING LAND AND CONSTRUCTION THEREON. THEREFORE, ONLY THE SURPLUS FROM THIS ACTIVITY CAN BE SAID TO BE THE INCOME DERIVED FROM PROPERTY HELD UNDER TRUST. THERE IS YET ANOTHER ANGLE, ITA NO. 2276(DEL)/2011 27 NAMELY, THAT SOME MEANING HAS TO BE PLACED ON THE CONTENT OF SUB-SECTION (4A) OF SECTION 11 AND ESPECIALLY ON THE WORDS UNLESS THE BUSINESS IS INCIDENTAL TO ATTAINMENT OF THE OBJECTIVE OF THE T RUST. THE LEGISLATURE POSTULATES THAT A CHARITABLE INSTITUTION MAY HA VE TO CARRY ON INCIDENTAL BUSINESS FOR ATTAINMENT OF OBJECTIVE. IF THE ARG UMENT OF THE LD. COUNSEL THAT THERE IS NO PROFIT MOTIVE IN SO FAR AS THE DEVELO PMENT AUTHORITY IS CONCERNED AND, THEREFORE, THERE IS NO QUESTION OF CARRYING ON ANY BUSINESS, THEN NO MEANING CAN BE PLACED ON THE CONTENTS OF THIS PROVISION. IT HAS BEEN MENTIONED EARLIER THAT THE ASSESSEE HAS CARR IED ON SYSTEMATIC ACTIVITIES IN A REGULAR MANNER FOR CONSTRUCTION OF IMMOVABLE PROPERTIES AS PER PLAN, WHICH HAVE LED TO PROFIT, AND SUCH ACTIVITY IS I NCIDENTAL TO THE MAIN OBJECT OF TOWN PLANNING, THEREFORE, IT IS CLEAR THAT THE ASSESSEE HAS CARRIED ON A BUSINESS WHICH IS INCIDENTAL TO ATTAINMENT OF OBJ ECTS OF THE AUTHORITY. SUB- SECTION (4A) PROVIDES THAT NO DEDUCTION SHALL BE ALLOWED UNDER SUB- SECTIONS (1), (2), (3) OR (3A) FROM SUCH PROFIT. HOWEVER, THE INCIDENCE OF TAXATION IS LIFTED PROVIDED THAT-(I) THE BUSINESS IS INCIDENTAL TO THE ATTAINMENT OF THE OBJECTIVE, AND (II) SEPARATE BOO KS OF ACCOUNT ARE MAINTAINED IN RESPECT OF SUCH BUSINESS. WE HAVE A LREADY HELD THAT THE BUSINESS OF CONSTRUCTION ETC. IS INCIDENTAL TO AT TAINMENT OF THE OBJECT OF TOWN PLANNING. THEREFORE, THE ONLY QUESTION TO BE SEEN IS-WHETHER, ITA NO. 2276(DEL)/2011 28 SEPARATE BOOKS OF ACCOUNT ARE MAINTAINED FOR THIS BUSINESS? THIS ISSUE HAS NOT BEEN ADDRESSED TO BY THE AO OR THE LD. CIT(APP EALS). THE AO, AFTER COMPUTING THE PROFIT, HAS NOT APPLIED HIS MIND WHE THER IT IS INCIDENTAL BUSINESS AND SEPARATE BOOKS HAVE BEEN MAINTAINED O R NOT. IN ABSENCE OF ANY FINDING BY ANY OF THE AUTHORITIES BELOW, WE THINK IT FIT TO RESTORE THE MATTER TO THE AO TO ASCERTAIN AS TO WHETHER SEPARATE BO OKS HAVE BEEN MAINTAINED FOR CONSTRUCTION BUSINESS. IF SEPARATE BOOKS HAV E BEEN MAINTAINED, DEDUCTION UNDER SUB-SECTIONS (1),(2), (3) AND (3A) WILL BE AVAILABLE TO THE ASSESSEE, OTHERWISE NOT. THEREAFTER, HE WILL HAVE TO EXAMINE WHETHER CAPITAL EXPENDITURE, REPAYMENT OF LOAN AND THE AMOUNT DEEM ED TO HAVE BEEN APPLIED TOWARDS CHARITABLE PURPOSE UNDER CLAUSE (2) OF THE EXPLANATION TO SECTION 11(1) ARE DEDUCTIBLE UNDER THE AFORESAID PROVISION. GROUND NOS. 2, 3 AND 4 ARE DISPOSED OFF ACCORDINGLY. 10.2 IT MAY BE MENTIONED HERE THAT WE ARE NOT E XPRESSING A VIEW DIFFERENT FROM THE VIEW EXPRESSED IN THE ORDER O F THE TRIBUNAL FOR ASSESSMENT YEAR 2005-06. IT HAS BEEN ACCEPTED B Y US THAT THE ASSESSEE IS ENGAGED IN A CHARITABLE PURPOSE. THEREFORE, IT IS ENTITLED TO DEDUCTION U/S 11 OF THE ACT. IN THE EARLIER DECISION, THE TR IBUNAL RESTORED THE MATTER TO THE ASSESSING OFFICER AFTER RECORDING THIS FINDIN G. WE ARE NOW PROCEEDING ITA NO. 2276(DEL)/2011 29 FURTHER TO DECIDE THE MANNER IN WHICH EXEMPTION IS TO BE GRANTED BY INTERPRETING THE PROVISION CONTAINED IN SECTION 11 (4A), WHICH WAS NEITHER ARGUED NOR CONSIDERED IN THE EARLIER ORDER. SINC E THIS ISSUE HAS BEEN DISCUSSED BEFORE US, WE ARE BOUND TO RECORD OUR FINDING IN THIS MATTER. 11. IN THE RESULT, THE APPEAL IS TREATED AS PART LY ALLOWED FOR STATISTICAL PURPOSE, AS DISCUSSED ABOVE. SD/- SD/- (RAJPAL YADAV) (K.G.BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER SP SATIA COPY OF THE ORDER FORWARDED TO:- MORADABAD DEVELOPMENT AUTHORITY, MORADABAD. ITO, WARD 1(1), MORADABAD. CIT(A) CIT THE DR, ITAT, NEW DELHI. ASSISTANT REGISTRAR.