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

ITA 3005/DEL/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 7477 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-06-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 19-04-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 14-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SULEKHA VERMA
• Keywords: Charitable institution
• Section: 143(3); 12A; 12AA; 11

Judgement Text

1 ITA NO. 3005/DEL/2 013 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: E NEW DELHI BEFORE SHRI G. D. AGRAWAL, VICE P RESIDENT AND SMT SUCHITRA KAMBLE , JUDICIAL MEMBER I.T.A .NO.-3005/DEL/2013 (ASSESSM ENT YEAR-2009-10) ITO WARD 1(1), MORADABAD (APPELLANT) VS MORADABAD DEVELOPMENT AUTHORITY, MANTH ROAD, MORADABAD AAJFM7731M (RESPONDENT) APPELLANT BY MS. SULEKHA VERMA, CIT DR RESPONDENT BY SH. PIYUSH KAUSHIK, ADV ORDER PER SUCHITRA KAMBLE, JM THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORD ER DATED 01/03/2013 PASSED BY CIT (A)- BAREILLY. 2. THE GROUNDS OF APPEAL ARE AS UNDER:- 1. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEAL ), BARREILLY HAS ERRED IN LAW AS WELL AS IN FACTS BY N OT CONSIDERING THE AMENDED PROVISIONS OF SECTION 2(15) OF INCOME TAX ACT 1961 WHICH IS APPLICABLE FROM THE ASSESSMENT YEAR 2009-10 IN WHICH THERE IS PROVISION FOR CHARGING TAX IF TOTAL RECEIPT OF ENTITIES ENGAGED I N ADVANCEMENT OF GENERAL PUBLIC UTILITY EXCEEDS RS. 1 0 LAKH. DATE OF HEARING 21.04.2016 DATE OF PRONOUNCEMENT 10.06.2016 2 ITA NO. 3005/DEL/2 013 THE ASSESSEE HAS SHOWN EXCESS OF INCOME OVER EXPENDITURE OF RS.19,69,28,027.00 BY SALES OF PLOTS , SHOPS AND FLATS AND ITS ACTIVITIES ARE IN THE NATURE OF T RADE, COMMERCE OR BUSINESS AND AMENDED PROVISION OF SECTI ON 2(15) OF THE INCOME TAX ACT, 1961 IS SQUARELY APPLI CABLE IN THIS CASE. 2. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEAL) , BARREILLY HAS ERRED IN LAW AS WELL AS IN FACTS BY N OT CONSIDERING THE CASE OF M/S SAFDURJUNG ENCLAVE EDUCATIONAL SOCIETY VS. MUNICIPAL CORPORATION DELHI (1992) 3 SCC 390, IN WHICH THE HON'BLE SUPREME COURT OF IN DIA HAD HELD THAT THE ACTIVITIES RUN ON COMMERCIAL LINE S DO NOT FALL WITHIN THE AMBIT OF CHARITABLE OBJECT. 3. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEAL) , BARREILLY HAS ERRED IN HOLDING THAT THE TRUST IS EN TITLED FOR EXEMPTION U/S 11 WHEREAS THE ACTIVITIES OF THE ASSE SSEE DURING THE YEAR CONSIDERATION ARE NOT IN CONFORMITY WITH ITS MAIN OBJECT AND THE DECISION OF THE LD.CIT(A), BARE ILLY IS AGAINST THE AMENDED PROVISIONS OF SECTION 2(15) OF THE INCOME TAX ACT, 1961. 4. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEAL) , BARREILLY ERRED IN HOLDING THAT INCOME OF THE ASSE SSEE IS EXEMPT AS IT SIS REGISTERED UNDER SECTION 12AA WHER EAS THE REGISTRATION U/S 12AA DOES NOT CONFER BLANKET EXEMPTION OF INCOME. 5. ANY OTHER GROUND WHICH MAY BE TAKEN DURING THE C OURSE OF THE APPELLATE PROCEEDINGS. 3. THE ASSESSEE WAS GRANTED REGISTRATION U/S 12AA O F THE INCOME TAX ACT, 1961 W.E.F 1/4/2003. THE A.O EXAMINED THE ELIGIBILITY OF THE ASSESSEE FOR EXEMPTION AS PER SECTION 11 OF THE INCOME TAX ACT, 1961. THE A.O OBSERVED THAT INCOME OF THE ASSESSEE DOES NOT FALL U/S 11(1) (A) (B) OR (C). IT HAS BEEN FURTHER OBS ERVED BY THE A.O 3 ITA NO. 3005/DEL/2 013 THAT THE PROVISIONS OF THE SECTION 11 (1) (D) AND 1 2(1) ARE ALSO NOT APPLICABLE TO THE INCOME SHOWN BY THE ASSESSEE. THE A.O HAS ALSO OBSERVED THAT DURING THE YEAR UNDER CONSIDERATION T HE ACTIVITIES OF THE ASSESSEE WERE NOT FOUND TO BE IN CONFORMITY WIT H ITS OBJECT. THE ACTIVITIES OF THE ASSESSEE DURING THE YEAR UNDER CO NSIDERATION ARE TO PURCHASE/ACQUIRES LAND AND SALE THEM AFTER MAKING D EVELOPMENT THEREON. IT HAS ALSO CONSTRUCTED HOUSE/FLATS/SHOPS ETC. ON SUCH PLOTS AND SOLD THE SAME AT MARKETABLE COMPETITIVE P RICE. PRIMA FACIE SUCH ACTIVITIES APPEAR TO BE COMMERCIAL ACTIV ITIES AKIN TO THOSE CARRIED OUT BY THE PROPERTY DEALERS, BUILDERS AND D EVELOPERS. RELIANCE WAS ALSO PLACED ON THE DECISION OF THE HON 'BLE SUPREME COURT IN THE CASE OF M/S SAFDURJUNG ENCLAVE EDUCATI ON SOCIETY VS. MUNICIPAL CORPORATION DELHI (1992) 3 SCC 390, IN WH ICH IT HAS BEEN HELD THAT THE ACTIVITIES RUN ON COMMERCIAL LIN ES DO NOT FALL WITHIN THE AMBIT OF CHARITABLE OBJECT. ASSESSMENT I N THIS CASE WAS COMPLETED U/S 143(3) OF INCOME TAX ACT, 1961 VIDE A SSESSMENT ORDER DATED 13/12/2011 ON A TOTAL INCOME OF RS.19,6 9,28,030.00 AS AGAINST RETURNED NIL INCOME. 4. THE ASSESSEE FILED APPEAL BEFORE THE CIT(A) AGAI NST THE ASSESSMENT ORDER. THE CIT(A) HELD THAT THE STATUS OF THE ASSESSEE IN THE EARLIER YEARS WAS ACCEPTED AS A CHARITABLE T RUST HAVING INCOME ELIGIBLE FOR EXEMPTION U/S 11 OF THE ACT AND THERE WAS NO CHANGE IN THE FACTS AND CIRCUMSTANCE OF THE CASES D URING THE YEAR UNDER CONSIDERATION. THE CIT(A) FURTHER OBSERVED T HAT THE A.O HAS NEVER DENIED THE FACT THAT THE ASSESSEE IS REGISTER ED U/S 12AA OF THE 4 ITA NO. 3005/DEL/2 013 INCOME TAX ACT. THE CIT(A) PARTLY ALLOWED THE APPE AL OF THE ASSESSEE VIDE INSTANT ORDER. 5. THE LD. AR SUBMITTED THAT THE PRESENT MATTER IS COVERED BY THE DECISION OF CO- ORDINATE BENCH OF ITAT IN ASSES SEES OWN CASE FOR THE PRECEDING YEAR ASSESSMENT YEAR 2007-08 IN I TA NO. 2276/DEL/2011 DATED 21/10/2011 WHICH HAS BEEN THERE AFTER FOLLOWED BY ITAT IN ASSESSEES OWN CASE ON IDENTICA L ISSUE IN THE SUCCEEDING YEAR I.E. ASSESSMENT YEAR 2008-09 VIDE O RDER DATED 25/01/2012 ITA NO. 2579/DEL/2011. THE LD. AR FURTHE R SUBMITTED THAT ITAT VIDE ITS ORDER FOR ASSESSMENT YEAR 2007-0 8 (SUPRA) HELD THAT THE CERTIFICATE OF REGISTRATION U/S 12A AS GRA NTED FROM 1/4/2003 AND THE SAME HAS NOT BEEN CANCELLED TILL D ATE. REGISTRATION U/S 12A IS NOT AN EMPTY FORMALITY AS I T HAS TO BE GRANTED AFTER SATISFYING THAT THE OBJECTS ARE CHARI TABLE IN NATURE. SINCE THE REGISTRATION IS IN EFFECT THEREFORE THE O BJECTS OF ASSESSEE WILL HAVE TO BE TAKEN AS CHARITABLE IN NATURE. THE ITAT FURTHER HELD THAT LEGISLATURE POSTULATES THAT A CHARITABLE INSTI TUTION MAY HAVE TO CARRY ON INCIDENTAL BUSINESS FOR ATTAINMENT OF ITS OBJECTIVE. THE INCIDENCE OF TAXATION IS LIFTED WHERE BUSINESS IS I NCIDENTAL TO THE ATTAINMENT OF OBJECTIVE & SEPARATE BOOKS OF ACCOUNT S ARE MAINTAINED. IT HAS ALREADY BEEN HELD THAT THE BUSI NESS OF CONSTRUCTION IS INCIDENTAL TO THE ATTAINMENT OF THE CHARITABLE OBJECTIVE OF TOWN PLANNING. THE ONLY QUESTION TO BE SEEN IS WHETHER SEPARATE BOOKS OF ACCOUNTS ARE MAINTAINED FOR THE C ONSTRUCTION ACTIVITY. ONLY FOR THIS LIMITED PURPOSE THE MATTER IS SET ASIDE TO THE FILE OF A.O. THUS THE ITAT HELD THAT IT WAS ACCEPTE D THAT THE 5 ITA NO. 3005/DEL/2 013 ASSESSEE IS ENGAGED IN A CHARITABLE PURPOSE. THERE FORE IT IS ENTITLED TO DEDUCTION U/S 11. 6. THE LD. AR SUBMITTED THAT THE DECISION OF DELHI HIGH COURT ON THE DETAILED INTERPRETATION OF CONSTITUTIONAL VALID ITY OF THE PROVISO TO SECTION 2(15) IN THE CASE OF INDIA TRADE PROMOTION ORGANIZATION VS. DIRECTOR GENERAL OF INCOME TAX (EXEMPTION) & ORS 37 1 ITR 333 (DEL.) HELD THAT THE SAID PROVISO APPLIES IN A SITUATION W HERE THE MAIN OBJECTIVE IS ESSENTIALLY TO CARRY ON BUSINESS FOR T HE PURPOSE OF PROFIT. BUT THE SITUATION IS DIFFERENT IN THE ASSESSEES CA SE WHERE THE MAIN OBJECTIVE OF TOWN PLANNING HAS BEEN HELD TO BE CH ARITABLE. REGISTRATION U/S 12A WAS VERY MUCH IN EXISTENCE DUR ING THE SUBJECT YEAR & FURTHER THE ITAT IN ASSESSEES OWN CASES FOR THE PRECEDING YEARS HAS HELD THAT THE ACTIVITY OF CONSTRUCTION & SALE OF PLOTS IS ONLY INCIDENTAL TO THE OBJECTIVE OF TOWN PLANNING W HICH IS A CHARITABLE ACTIVITY AS DULY HELD BY ITAT; 7. THE LD. AR FURTHER SUBMITTED THAT THE ASSESSEE B EING A DEVELOPMENT AUTHORITY HAS BEEN ESTABLISHED UNDER TH E UP URBAN PLANNING & DEVELOPMENT ACT 1973. UNDER THE SAID LE GISLATION VARIOUS OTHER DEVELOPMENT AUTHORITIES IN UP HAVE BE EN CONSTITUTED FOR INSTANCE LUCKNOW DEVELOPMENT AUTHORITY ETC. AL L THESE AUTHORITIES HAVE IDENTICAL OBJECTS AS PRESCRIBED BY UP URBAN PLANNING & DEVELOPMENT ACT 1973. THE JURISDICTIONA L HIGH COURT (ALLAHABAD HIGH COURT) IN THE CASE OF CIT VS. LUCKN OW DEVELOPMENT AUTHORITY VIDE ITS DECISION DATED 16/9/2013 2013-TI OL-795- HON'BLE HIGH COURT-ALL AFTER EXAMINING THE SAID OBJ ECTS IN LIGHT OF 6 ITA NO. 3005/DEL/2 013 PROVISO TO SEC 2(15) HAS HELD THAT DEVELOPMENT AUTH ORITIES WILL NOT BE HIT BY THE PROVISO TO SEC 2 (15). THE LD. AR FU RTHER SUBMITTED THAT EVEN TILL DATE REGISTRATION U/S 12A HAS NOT BE EN CANCELLED BY THE DEPARTMENT. THEREFORE, IT WILL BE VERY WRONG O N PART OF DEPARTMENT TO ALLEGE THAT THE ASSESSEE IS NOT ENTIT LED FOR EXEMPTION U/S 11 OR THE OBJECTS OF THE ASSESSEE ARE NOT CHARI TABLE. 8. THE LD. DR RELIED UPON THE ORDER OF THE ASSESSIN G OFFICER. THE LD. DR REFERRED FOLLOWING CASE LAW AND CIRCULARS:- 1. JAMMU DEVELOPMENT AUTHORITY VS. UNION OF INDIA, ITA NO. 164/2012, JUDGMENT OF HONBLE HIGH COURT OF JAMMU AND KASHMIR. 2. M/S JAMMU DEVELOPMENT AUTHORITY VS. CIT, JAMMU, ITA NO. 30 (ASR)/2011, DECISION OF HONBLE ITAT AMRITSA R BENCH, AMRITSAR 3. CBDT CIRCULAR NO. 11/2008, DATED 19/12/2008 AND EXPLANATORY NOTES OF FINANCE ACT, 2008 ON SECTION 2 (15). THE LD. DR SUBMITTED THAT THE DECISIONS IN CASE OF JAMMU DEVELOPMENT AUTHORITY BY THE ITAT AS WELL AS BY THE HONBLE JAMMU & KASHMIR HIGH COURT ARE RELEVANT TO THE FACTS OF THE CASE. THE LD. DR FURTHER SUBMITTED THAT AS PER PARA 3 OF THE CIRCULA R, PROVISO TO SECTION 2(15) WILL APPLY ONLY TO ENTITIES WHOSE PURPOSE IS ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY I.E. THE FO URTH LIMB OF THE DEFINITION OF CHARITABLE PURPOSE CONTAINED IN SEC TION 2(15). HENCE, SUCH ENTITIES WILL NOT BE ELIGIBLE FOR EXEMPTION UN DER SECTION 11 OR UNDER SECTION 10(23C) OF THE ACT IF THEY CARRY ON C OMMERCIAL ACTIVITIES. WHETHER SUCH AN ENTITY IS CARRYING ON AN ACTIVITY I N THE NATURE OF 7 ITA NO. 3005/DEL/2 013 TRADE, COMMERCE OR BUSINESS IS A QUESTION OF FACT W HICH WILL BE DECIDED BASED ON THE NATURE, SCOPE, EXTENT AND FREQUENCY OF THE ACTIVITY. 9. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL T HE RECORDS. THE STATUS OF THE ASSESSEE IN THE EARLIER YEARS WAS ACC EPTED BY THE REVENUE AS A CHARITABLE IN NATURE HAVING INCOME ALLOWABLE F OR EXEMPTION U/S 11 OF THE ACT. THERE WAS NO CHANGE IN THE FACTS AN D CIRCUMSTANCES DURING THE PRESENT ASSESSMENT YEAR. THE ASSESSING OFFICER NEVER DENIED THE FACT THAT THE ASSESSEE IS REGISTERED U/S 12AA OF THE INCOME- TAX ACT. DURING THE YEAR UNDER CONSIDERATION THE A CTIVITIES OF THE ASSESSEE WERE CHARITABLE IN NATURE AND AS PER ITS O BJECT. THE ASSESSING OFFICER RELIED ON THE JUDGMENT OF THE HONBLE SUPRE ME COURT IN CASE OF SAFDARJUNG ENCLAVE EDUCATIONAL SOCIETY VS. MUNICIPA L CORPORATION, DELHI (1992) 3 SCC 390 BUT THE SAME IS NOT APPLICAB LE IN THE CASE AS THE CHARITABLE PURPOSE AND OBJECT WAS NEVER CHANGED AT ANY TIME IN CASE OF ASSESSEE HEREIN. THUS, EXEMPTION U/S 11 REJ ECTED BY THE ASSESSING OFFICER IS NOT JUST AND PROPER. IN ASSES SEES OWN CASE FOR THE PRECEDING YEAR AND THE SUBSEQUENT YEAR, THE CO-ORDI NATE BENCH OF THE ITAT HAS ALLOWED THE APPEAL OF THE ASSESSEE. THE D ELHI HIGH COURT IN ITS DECISION IN THE CASE OF INDIA TRADE PROMOTION O RGANIZATION (SUPRA) HAS CLEARLY GIVEN THE INTERPRETATION OF CONSTITUTIO NAL VALIDITY OF THE PROVISO TO SECTION 2 (15) OF THE ACT. THE HONBLE DELHI HIGH COURT HELD THAT THE SAID PROVISO APPLIES IN A SITUATION WHERE THE MAIN OBJECT IS ESSENTIALLY TO CARRY ON BUSINESS FOR THE PURPOSE OF PROFIT. BUT IN ASSESSEES CASE, THE SITUATION IS DIFFERENT. THE M AIN OBJECT OF TOWN PLANNER HAS BEEN HELD TO BE CHARITABLE AND AT THE T IME OF REGISTRATION U/S 12A WAS IN VERY MUCH EXISTENCE. THUS, THE REVE NUE HAS NOT MADE 8 ITA NO. 3005/DEL/2 013 OUT THE CASE THAT THE CONDITION ON WHICH THE REGIST RATION WAS ALLOWED HAS CHANGED FROM EARLIER YEAR OR IN SUBSEQUENT YEAR AS WELL AS IN THE PRESENT YEAR. THE RELIANCE OF THE DECISION OF THE J URISDICTIONAL HIGH COURT (ALLAHABAD HIGH COURT) IN CASE OF CIT VS. LUC KNOW DEVELOPMENT AUTHORITY VIDE ITS DECISION DATED 16/9/2013 2013-TI OL-795-HON'BLE HIGH COURT-ALL IS RELEVANT. THE HONBLE ALLAHABAD H IGH COURT AFTER EXAMINING THE SAID OBJECTS IN LIGHT OF PROVISO TO S EC 2(15) HAS HELD THAT DEVELOPMENT AUTHORITIES WILL NOT BE HIT BY THE PROV ISO TO SEC 2 (15). THE RELIANCE ON THE JUDGMENTS BY THE LD. DR ARE ON DIFF ERENT FOOTING ALTOGETHER. THE RELIANCE OF THE BOARD CIRCULAR IS A LSO NOT APPLICABLE IN THE PRESENT CASE AS THERE WAS NO CHANGE IN THE CHAR ITABLE PURPOSE WHILE DOING THE ACTIVITY OF DEVELOPMENT BY THE ASSE SSEE. IT IS PART OF DEVELOPMENT ONLY WHICH IS THE OBJECT OF THE ASSESSE E SINCE THE BEGINNING. THUS, THE CIT(A) WAS CORRECT IN PARTLY A LLOWING THE APPEAL OF THE ASSESSEE. 14. IN THE RESULT, APPEAL IS DISMISSED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 10TH OF JUNE, 2016. (G. D. AGRAWAL) (SUC HITRA KAMBLE) VICE PRESIDENT JUDICIAL MEMBER DATED: 10/06/2016 R. NAHEED * COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 9 ITA NO. 3005/DEL/2 013 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT R EGISTRAR ITAT NEW DELHI DATE 1. DRAFT DICTATED ON 21/04/2016 PS 2. DRAFT PLACED BEFORE AUTHOR 22/04/2016 PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER .2016 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 10.06.2016 PS/PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK 10.06.2016 PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER.