Batala Improvement Trust, BATALA V. The Income-tax Officer, BATALA

ITA 391/ASR/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 0507 (ITAT-AMRITSAR)
• Duration Of Justice: 2 year(s) 1 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-07-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 31-05-2016
• Assessment Year: 2004-2005
• Appeal Filed On: 11-06-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: UMESH TAKKYAR
• Assessee Lawyers: SSH AVISH MAHAJAN; S K MAHAJAN C AS
• Keywords: Business income; Depreciation; Business expenditure; Charitable institution; Revised return; Revenue expenditure; Capital expenditure
• Section: 234B; 12A; 139(5); 12AA; 68; 12; 10; 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.391(ASR)/2014 ASSESSMENT YEAR:2004-05 PAN: AAAYB9994Q BATALA IMPROVEMENT TRUST VS. INCOME TAX OFFICER, SHASTRI NAGAR, BATALA. WARD 2(4), BAALA. (APPELLANT) (RESPONDENT) APPELLANT BY: S/SH. AVISH MAHAJAN & S.K. MAHAJAN, C AS RESPONDENT BY: SH. UMESH TAKKYAR, DR DATE OF HEARING: 31/05/2016 DATE OF PRONOUNCEMENT: 20/07/2016 ORDER PER A.D. JAIN: JM THIS IS THE ASSESSEES APPEAL FOR THE ASSESSMENT Y EAR 2004-05, AGAINST THE ORDER DATED 03.03.2014, PASSED BY THE L D. CIT(A), AMRITSAR. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF AP PEAL: 1) THAT THE LD. CIT(A) FAILED TO APPRECIATE THE FAC TS AND IMPROVEMENT TRUST, BATALA WAS DISSOLVED ON 4 TH APRIL, 2002 VIDE NOTIFICATION DATED 4/29/2002-4LGII/3454 U/S 10 3(1) OF THE PUNJAB TOWN IMPROVEMENT ACT, 1922 AND FROM THAT DATE TRUST WAS UNDER ADMINISTRATIVE CONTROL OF GOVERNMEN T OF PUNJAB FOR THE PERIOD FROM 01.04.2003 TO 11.06.2003 AND IT BECAME AN OFFICE OF THE STATE GOVT. OR OFFICE OF MU NICIPAL COMMITTEE AND ENTIRE INCOME OF THE COMMITTEE IS EXE MPT IN EITHER CASE AS STATE GOVT. DOES NOT FALL IN THE D EFINITION OF PERSON U/S 2(31) AND MUNICIPAL COMMITTEE FALLS WITH IN THE AMBIT OF LOCAL AUTHORITY AND ITS INCOME IS EXEMPT U/S 10(20. 2.) THAT THE LD. CIT(A) ERRED IN LAW AND ON FACTS B Y CONFIRMING THE ORDER OF THE AO DETERMINING INCOME AT RS.30,74, 720/- OF ITA NO.391(ASR)/2014 A.Y. 2004-05 2 THE IMPROVEMENT TRUST IGNORING THE FACTS ALTOGETHER THAT BATALA IMPROVEMENT TRUST IS A CHARITABLE TRUST AS REGISTRATION U/S 12AA HAS BEEN GRANTED BY THE CIT- 1, AMRITSAR W.E.F. 12.06.2003 VIDE CIT ORDER DATED 26. 10.2007 AND TRUST HAS APPLIED ITS ENTIRE INCOME FOR THE OBJ ECTS OF THE TRUST. 3) THAT THE LD. CIT(A) HAS MIS-CONCEIVED THE LAW I N INTERPRETING THE WORDS INCOME AND GROSS RECEIPTS FOR THE PUR POSE OF SECTION 11(1) OF THE I.T. ACT AND HAS WRONGLY CONCL UDED THAT THE TRUST FAILED TO FULFILL THE CONDITIONS OF SECTI ON 11(1) AND HENCE NOT ENTITLED TO ANY RELIEF U/S OF THE I.T. A CT, 1961. 4) THAT THE WORTHY CIT(A) HAS WRONGLY CONCLUDED THA T IMPROVEMENT TRUST HAS BEEN CARRYING ON BUSINESS FOR WHICH NO SEPARATE BOOKS OF ACCOUNTS ARE BEING MAINTAINED AS REQUIRED U/S 11(4A)IGNORING THE FACTS ALL TOGETHER THAT TRUST HAS CARRIED OUT ALL THE ACTIVITIES AND OBJECTS FOR WHICH SAME WAS CREATED U/S 12AA HAS BEEN GRANTED BY CIT-1, AMRITSAR. 2. THE FACTS AS PER THE RECORD ARE THAT THE ASSESSE E TRUST WAS CONSTITUTED ON 12.11.1972. UPTO 31.03.2003, THE INC OME OF THE ASSESSEE- TRUST WAS EXEMPT UNDER SECTION 10(20A) OF THE ACT. WITH EFFECT FROM 01.04.2003, THIS SECTION WAS DELETED FROM THE ACT A ND THE ASSESSEE TRUST WAS TO REGISTER UNDER SECTION 12AA FOR THE PURPOSE OF EXEMPTION. THE ASSESSEE MADE AN APPLICATION FOR THE PURPOSE OF REG ISTRATION UNDER SECTION 12AA ON 25.10.2005, WHICH WAS BELATED. THE DELAY WAS NOT CONDONED BY THE CIT-1, AMRITSAR AND REGISTRATION WA S GRANTED TO THE ASSESSEE TRUST ONLY W.E.F. 01.04.2005. ON APPEAL, THE ITAT REMITTED THE MATTER TO THE LD. CIT. THE LD. CIT CONDONED THE DEL AY AND ALLOWED REGISTRATION W.E.F. 12.06.2003, VIDE ORDER DATED 26 .10.2007. IN THE MEANTIME, THE ASSESSMENT FOR THE ASSESSMENT YEAR UN DER CONSIDERATION, ITA NO.391(ASR)/2014 A.Y. 2004-05 3 I.E., 2004-05 WAS FRAMED VIDE ORDER DATED 27.12.20 06. THE AO MADE VARIOUS ADDITIONS, HOLDING THAT THE ASSESSEE WAS NO T A CHARITABLE OR RELIGIOUS TRUST AND ITS INCOME WAS TAXABLE UNDER TH E ACT; THAT WHILE GRANTING REGISTRATION UNDER SECTION 12AA OF THE ACT W.E.F. 01.04.2005, THE DEPARTMENT HAD NOT ACCEPTED THAT THE ASSESSEE WAS A CHARITABLE OR RELIGIOUS TRUST AND THAT ITS INCOME QUALIFIED FOR E XEMPTION; THAT THE ASSESSEE TRUST INCOME WAS PROPERLY TAXABLE FOR THE PERIOD FROM 01.04.2003 TO 11.06.2003, FOR WHICH PERIOD, THE ASS ESSEE HAD QUESTIONED THE TAXABILITY OF ITS INCOME; THAT THE STATUS OF AN ASSESSEE IS TO BE TAKEN AS IT STANDS AT THE END OF THE PREVIOUS YEAR RELEV ANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION; THAT THOUGH THE ASSESSEE HAD CONTENDED SO, ITS INCOME WAS NOT EXEMPT FOR THE PERIOD FROM 01.04.200 3 TO 11.06.21003, WHEN ITS FUNCTIONS WERE NOT UNDER THE CONTROL OF TH E IMPROVEMENT TRUST ITSELF; AND THAT THE APPOINTMENT OF AN ADMINISTRATO R BY THE GOVERNMENT FOR A BRIEF PERIOD FOR CERTAIN REASONS DOES NOT CON STITUTE THE TRANSFER OF PROPERTY/INCOME OF THE TRUST TO THE GOVERNMENT. 3. THE LD. CIT(A), VIDE ORDER DATED 27..02.2009, CO NFIRMED THE ASSESSMENT ORDER. THE TRIBUNAL, BY VIRTUE OF ITS OR DER, DATED 17.07.2009 (APB 14 TO 16), REMITTED THE MATTER TO THE FILE OF THE LD. CIT(A) TO EXAMINE WHETHER BEFORE 12.06.2006, THE ASSESSEE WAS A LOCAL AUTHORITY OR TRUST WITHOUT REGISTRATION UNDER SECTION 12A OF THE ACT A ND AS TO WHETHER THE ASSESSEE FULFILLED THE CONDITIONS FOR GRANT OF REGI STRATION UNDER SECTIONS 11 & 12 OF THE ACT, OTHER THAN GRANT OF REGISTRATIO N, FOR THE SAID PERIOD. ITA NO.391(ASR)/2014 A.Y. 2004-05 4 4. BY VIRTUE OF THE IMPUGNED ORDER, THE LD. CIT(A) CONCLUDED THAT THE STATUS OF THE ASSESSEE TRUST FOR THE PERIOD FROM 01 .04.2003 TO 11.06.2003 WAS THAT OF AN AOP. THE LD. CIT(A) ALSO CONCLUDED T HAT THE ASSESSEE HAD NOT FULFILLED THE CONDITIONS U/S 11 OF THE ACT, PRI MARILY DUE TO APPLICATION OF SECTIONS 11(4) AND 11(4A). THE LD. CIT(A) OBSER VED THAT THE ASSESSEE HAD NOT COMPUTED ANY INCOME OF BUSINESS UNDERTAKING , WHEREAS THE AO HAD COMPUTED INCOME OF THE BUSINESS UNDERTAKING AT RS.30,74,270/- AND THAT THUS, AS PER THE PROVISIONS OF SECTION 11( 4) SUCH EXCESS SHALL BE DEEMED TO BE APPLIED TO PURPOSES OTHER THAN CHARITA BLE AND RELIGIOUS PURPOSES. THE LD. CIT(A) ALSO OBSERVED THAT THE AS SESSEE TRUST HAD NOT MAINTAINED SEPARATE BOOKS OF ACCOUNT OF ITS BUSINES S ACTIVITY AND AS SUCH, EVEN IN THE CASE OF INCIDENTAL BUSINESS ACTIV ITY, PROVISIONS OF SECTION 11(4A) HAD NOT BEEN COMPLIED. 5. CHALLENGING THE IMPUGNED ORDER, THE ASSESSEE IS IN APPEAL BEFORE US. 6. THE LD. COUNSEL FOR THE ASSESSEE HAS CONTENDED, AS ALSO MADE OUT IN THE WRITTEN SUBMISSIONS FILED, THAT APROPOS THE ISSUE OF STATUS OF THE ASSESSEE FOR THE PERIOD 01.04.2003 TO 11.06.2003, T HE LD. CIT(A) HAS ERRED IN HOLDING IT TO BE THAT OF AN AOP; THAT WHI LE HOLDING SO, THE LD. CIT(A) HAS ILLEGALLY NOT TAKEN INTO CONSIDERATION THE FACT THAT THE TRUST WAS DISSOLVED VIDE PUNJAB STATE GOVERNMENT, NOTIFI CATION NO.4/29/2002-4L GII/3454, DATED 04.04.2002 AND IT R EMAINED DISSOLVED TILL 11.06.2003; THAT THIS NOTIFICATION WAS DULY PU BLISHED IN THE GAZETTE OF PUNJAB, THE POLITICAL CHAIRMAN OF THE TRUST WAS REMOVED, CONTROL OF THE ITA NO.391(ASR)/2014 A.Y. 2004-05 5 TRUST WAS PUT UP WITH THE STATE GOVT., AND DURING THE PERIOD, ALL NEW PROJECTS/SCHEMES OF THE TRUST WERE STOPPED, AND EVE N PROMOTIONS OF THE TRUST EMPLOYEES WAS STOPPED. APROPOS THE LD. CIT(A )S FINDING, THAT THE TRUST DID NOT FULFILL ANY CONDITION FOR GRANT OF RE GISTRATION U/S(S) 11 & 12 OF THE ACT, IT HAS BEEN CONTENDED ON BEHALF OF THE ASSESSEE THAT UNDISPUTEDLY, THE ACTIVITIES OF THE TRUST ARE CHARI TABLE IN NATURE AND SO, THE PROVISIONS OF SECTION 11(4A) ARE NOT APPLICABLE , AS THERE IS NO SEPARATE BUSINESS UNDERTAKING; THAT THIS HAS NOT BE EN TAKEN INTO CONSIDERATION BY THE LD. CIT(A); THAT THE PROVISION S OF SECTION 11(4A) OF THE ACT HAVE WRONGLY BEEN HELD BY THE LD. CIT(A) TO HAVE NOT BEEN COMPLIED WITH BY THE ASSESSEE; THAT IN THIS REGAR D, THE LD. CIT(A) HAS ERRONEOUSLY RELIED ON THE JUDGMENT DATED 24.2.2014 , PASSED BY THE TRIBUNAL IN ITA NO.636(ASR)/2013 IN THE CASE OF AM RITSAR IMPROVEMENT TRUST VS. CIT; THAT THE SAID TRIBUNAL ORDER STANDS MERGED WITH ITS SUBSEQUENT ORDER DATED 10.09.2015 (APB 37 TO 77), P ASSED, INTER-ALIA, IN ITA NO. 496(ASR)/2013 AND 18(ASR)/2015, PASSED IN T HE CASES OF VARIOUS IMPROVEMENT TRUSTS, INCLUDING THE AMRITSAR IMPROVEM ENT TRUST, ON REMAND BY THE HONBLE HIGH COURT, VIDE ORDER DATED 6.8.2014; THAT THE RELIANCE BY THE LD. CIT(A) ON PUDA VS. CIT (2006) 103 TTJ (CHD.) 988, HAS ALSO BEEN RENDERED ERRONEOUS BY THE AFORESAID T RIBUNAL ORDER DATED 10.9.2015 IN THE CASES OF THE DIFFERENT IMPROVEMENT TRUSTS OF PUNJAB; THAT THE ACTIVITIES OF THE ASSESSEE ARE IN CONSONAN CE WITH THE STATUTORY SCHEMES, WHICH ARE MANDATORY TO BE CARRIED OUT; THA T THE ASSESSEES ITA NO.391(ASR)/2014 A.Y. 2004-05 6 BUSINESS ACTIVITY IS AN INTEGRAL PART OF CHARITY AN D CHARITABLE ACTIVITIES; THAT THE ASSESSEE-TRUST IS NOT CARRYING ON ANY INDE PENDENT, SEPARATE OR INCIDENTAL ACTIVITIES WHICH CAN BE CLASSIFIED AS B USINESS TO FEED AND PROMOTE CHARITABLE ACTIVITIES; THAT THE SALE AND PU RCHASE OF PLOTS/PROPERTY BY THE TRUST BEING AN INTEGRAL PART OF THE ACTIVITIES OF THE TRUST, TOWARDS ATTAINMENT OF ITS OBJECTS, NO SEPARA TE BOOKS OF ACCOUNT ARE REQUIRED TO RECORD THESE ACTIVITIES, WHICH HAS ALSO BEEN CONSIDERED BY THE TRIBUNAL, FAVOURABLY TO THE ASSESSEE, VIDE ITS ORDE R (SUPRA), DATED 10.09.2015; AND THAT THIS HAS ALSO NOT BEEN TAKEN I NTO CONSIDERATION BY THE LD. CIT(A). 7. ON BOTH THESE ASPECTS, THE LD. DR HAS PLACED STR ONG RELIANCE ON THE IMPUGNED ORDER. 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND HAVE PER USED THE MATERIAL AVAILABLE ON RECORD. AT THE OUTSET, IT WOULD APPROP RIATE TO REPRODUCE HEREIN THE RELEVANT PORTION OF THE IMPUGNED ORDER: 5. IN VIEW OF ABOVE FRESH OPPORTUNITY WAS GIVEN TO THE ASSESSEE TO EXPLAIN HIS CASE. THE FIRST ISSUE REGARDING TREATING THE AS SESSEE AS LOCAL AUTHORITY OR TRUST WITHOUT REGISTRATION U/S 12A(A) OF THE ACT FOR THE PERIOD 01.04.2003 TO 12.06.2003 IS BEING DECIDED FIRST. 5.1. IN THIS REGARD MY PREDECESSOR HAS CALLED REMAN D REPORT U/S 250(4) OF THE INCOME TAX ACT AND IN RESPONSE OF SAME THE AO HAS S UBMITTED THAT ASSESSEE HAS OBJECTED VIDE HIS LETTER DATED 19.12.2012 THAT HE C AN NOT ASK INFORMATION RELATING TO THAT YEAR OR OTHER YEARS AND IN THIS REGARD, AFT ER CONSIDERING FACTS AND SUBMISSIONS OF THE ASSESSEE ON THIS ISSUE ARE DECID ED AS UNDER:- THE ASSESSEE SUBMITTED IN THIS REGARD AS UNDER: 5.2. IT IS SUBMITTED THAT ASSESSEE WAS GRANTED REG ISTRATION FROM 1206.2003 THAT IS THE DATE ON WHICH THE BATALA IMPROVEMENT TR UST WAS CREATED BY PUNJAB GOVERNMENT U/S 3A OF PUNJAB TOWN IMPROVEMENT ACT, 1 922. (X-EROX COPY OF NOTIFICATION ATTACHED) PRIOR TO THIS PERIOD, THE TR UST WAS A LOCAL AUTHORITY. THE BATALA IMPROVEMENT TRUST WAS DISSOLVED ON APRIL 4, 2002 VIDE NOTIFICATION DATED ITA NO.391(ASR)/2014 A.Y. 2004-05 7 4/29/2002-4LGII/3454 U/S 103(1) OF PUNJAB TOWN IMPR OVEMENT ACT, 1922 (XEROX COPY OF NOTIFCATION IS ATTACHED) THEN TRUST WAS REC REATED ON (12.06.2003 BY WAY OF NOTIFICATION NUMBER 4/28/2001-4LGII/8803 AND HENCE NO TAX SHOULD BE IMPOSED WHEN THERE WAS NOT TRUST. HAD THE ASSESSEE HAD ANY LEGAL EXISTENCE OF ITS OWN ON 01.04.2003 IT WOULD HAVE FILED THE APPLI CATION FOR REGISTRATION UNDER 12A ON 01.04.2003. IN THE CASE OF AFORESAID ASSESSE E THE TRUST CAME INTO EXISTENCE ON 12.06.2003 WHEN THE TRUST WAS CREATED U/S 3A OF THE PUNJAB TOWN IMPROVEMENT ACT, 1922. SECTION 103 OF THE PUNJAB TOWN IMPROVEMENT ACT. 192 2 D EALS WITH THE ULTIMATE DISSOLUTION OF IMPROVEMENT TRUST AND THERE AFTER TR ANSFER OF ITS ASSETS AND LIABILITIES TO THE COMMITTEE. AS PER SECTION 103 OF THE ACT. 1) WHEN ALL SCHEMES SANCTIONED UNDER THIS ACT HAVE BEEN EXECUTED OR HAVE BEEN SO FAR EXECUTED AS TO RENDER THE CONTINUED EXI STENCE OF THE TRUST, IN THE OPINION OF THE STATE GOVERNMENT, UNNECESSARY, OR WH EN IN THE OPINION OF THE STATE GOVERNMENT IT IS EXPEDIENT THAT THE TRUST SHA LL CEASE TO EXIST, THE STATE GOVERNMENT MAY BY NOTIFICATION DECLARE THAT THE TRU ST SHALL BE DISSOLVED FROM SUCH DATE AS MAY BE SPECIFIED IN THIS BEHALF IN SUC H NOTIFICATION; AND THE TRUST SHALL BE DEEMED TO BE DISSOLVED ACCORDINGLY. 2) FROM THE DATE SPECIFIED IN THE NOTIFICATION REFE RRED TO IN SUB-SECTION (1),-(A) ALL PROPERTIES, FUNDS AND DUES VESTED IN OR REALIZA BLE BY THE TRUST AND THE CHAIRMAN RESPECTIVELY SHALL VEST IN AND BE REALIZAB LE BY THE STATE GOVERNMENT TILL THEY STAND TRANSFERRED TO THE MUNICIPAL COMMIT TEE UNDER SUB SECTION (3). (B) ALL LIABILITIES WHICH ARE ENFORCEABLE AGAINST T HE TRUST SHALL BE ENFORCEABLE AGAINST THE STATE GOVERNMENT TO THE EXTENT OF THE P ROPERTIES, FUNDS AND DUES VESTED IN AND REALIZED BY THE STATE GOVERNMENT; AND (C) FOR THE PURPOSE OF COMPLETING THE EXECUTION OF ANY SCHEME SANCTIONED UNDER THIS ACT WHICH HAS NOT BEEN FULLY EXECUTED BY THE T RUST AND OF REALIZING PROPERTIES, FUNDS AND DUES REFERRED TO IN CLAUSE (A), THE FUNCT IONS OF THE TRUST AND THE CHAIRMAN UNDER THIS ACT SHALL BE DISCHARGED BY SUCH CLASS 1 OFFICER OF THE STATE GOVERNMENT AS MAY BE APPOINTED BY IT IN THIS BEHALF . 3) AFTER ALL FUNCTIONS REFERRED TO IN CLAUSE (C) OF SUB-SECTION (2) ARE DULY DISCHARGED. (A) THE PROPERTIES, FUNDS AND DUES VESTED IN OR REALIZA BLE BY THE STATE GOVERNMENT UNDER CLAUSE (A) OF SUB-SECTION (2) SHAL L STAND TRANSFERRED TO, VESTED IN AND BE REALIZABLE BY THE MUNICIPAL COMMIT TEE; AND (B) ALL LIABILITIES ENFORCEABLE AGAINST THE STATE GOVE RNMENT UNDER CLAUSE (B) OF THAT SUB-SECTION OR INCURRED BY IT UNDER THIS ACT, SHALL BE ENFORCEABLE AGAINST THE MUNICIPAL COMMITTEE. AFORESAID SECTIONS OF PUNJAB TOWN IMPROVEMENT ACT, 1922 MAKE IT CLEAR THAT WHEN THE IMPROVEMENT TRUST IS DISSOLVED U/S 103 OF THE ACT, THEN IT LOSES ITS LEGAL EXISTENCE AND TAKES THE FORM OF THE MUNICIPAL COMMI TTEE. THUS, WHEN THE BATALA IMPROVEMENT WAS DISSOLVED U/S 103 OF THE PUNJAB TOW N IMPROVEMENT ACT,. 1922 ON 4 TH APRIL, 2002 IT BECAME AN OFFICE OF MUNICIPAL COMMI TTEE). ITA NO.391(ASR)/2014 A.Y. 2004-05 8 5.3 IN VIEW OF ABOVE ASSESSEE WAS ASKED TO EXPLAIN: - A) WHETHER ASSETS OF THE TRUST WERE ACTUALLY TRANSF ER TO SAID GOVERNMENT, EVIDENCE THEREOF. B) WHETHER INCOME OR EXPENDITURE INCURRED D DEPOSIT ED IN MUNICIPAL COMMITTEE ACCOUNT AND BACK TO THE TRUST, EVIDENCE T HEREOF. * C) WHETHER ANY NEW SEPARATE BANK ACCOUNT WAS OPENED FO R THIS PURPOSE? D) WHETHER FINE OR PENALTIES PERTAINING TO ASSET PROPE RTIES OF THE TRUST WERE ALSO TAKEN OVER BY THE MUNICIPAL COMMITTEE. E) WHETHER OR 12.06.2003, ANY MONEY OR ASSET WAS ACTUA LLY RETURNED BACK TO THE TRUST. F) WHETHER INCOME OR EXPENDITURE WERE SANCTIONED BY MU NICIPAL COMMITTEE OR PUNJAB GOVERNMENT IN THEIR BUDGET, EVI DENCE THEREOF. G) DETAILS OF SUCH EARLIER DISSOLUTIONS AND RESTORATIO N OF THE TRUST. 5.4 IN RESPONSE TO ABOVE QUESTIONS THE ASSESSEE SUB MITTED AS UNDER:- A) THAT AFTER DISSOLUTION OF THE IMPROVEMENT TRUST BATALA VIDE ORDER DATED 04.04.2002 IN COMPLIANCE OF THE TERMS AND CONDITION S OF THE NOTIFICATION FOLLOWING, CHANGES WERE BROUGHT OUT IN THE WORKING OF THE TRUST WITH IMMEDIATE EFFECT. B) CLAUSE 1(1) AND (II) OF THE NOTIFICATION CARRIES ORDER OF THE STATE GOVT. REGARDING TRANSFER OF TITLE OF PROPERTIES AND LIABI LITIES TO THE STATE GOVT, NECESSARY ORDER REGARDING TRANSFER OF PROPERTIES AN D LIABILITIES TO THE STATE GOVT. WAS MADE MEMO NO. 4/29/2002-49LGII/7364 DATED 18.06 .2002. ENCLOSED X-EROX COPY OF THE SAME FOR YOUR READY REFERENCE, C) AND I N COMPLIANCE OF PART (III) A) THE SERVICES OF THE CHAIRMAN AS WELL AS OF THE N OMINATED TRUSTEES WERE TERMINATED WITH IMMEDIATE EFFECT. B) THAT THE LOCAL SDM WAS APPOINTED AS ADMINISTRAT IVE OF THE TRUST WITH IMMEDIATE EFFECT AND ALL THE TRUST FUNDS WERE MANAG ED AND CONTROLLED BY THE SDM, BATALA, BEING ADMINISTRATIVE OF THE TRUST. D) THAT THERE WAS NO EMPLOYEE IN THE TRUST WHO HAD NOT COMPLETED 240 DAYS OF HIS SERVICE SO QUESTION OF TERMINATION OF SERVIC E DID NOT ARISE. NO PROMOTION OR ANY FRESH APPOINTMENT WAS MADE DURING THIS PERIO D IN THE IMPROVEMENT TRUST BATALA. E) THAT NO FUND OF THE TRUST WAS DIVERTED FOR ANY O THER PURPOSE DURING THIS THE TERMS OF NOTIFICATION WERE STRICTLY COMPLIED WI TH IN ITS STRICT SPIRITS SO NO ADVERSE INFERENCE IS WARRANTED. FURTHER COMPLETE EX PENDITURE INCURRED ON VARIOUS SCHEMES DURING THE YEAR UNDER APPEAL WITH X-EROX COPIES OF SUPPORTING DOCUMENTS ARE ENCLOSED. FROM OF THESE EXPENDITURE V OUCHERS IT IS CRYSTAL CLEAR THAT THE ENTIRE ; ON DEVELOPMENT SCHEME WAS INCURRE D ON ALL THE OLD SCHEMES THE IMPROVEMENT TRUST BATALA FROM TIME TO TIME AND ENTI RE E WAS INCURRED FOR THE OBJECTS OF THE TRUST. ITA NO.391(ASR)/2014 A.Y. 2004-05 9 5.5 THUS IT CAN BE SEEN FROM ABOVE THAT ASSESSEE HA S NOT SUBMITTED ANY SHOWING ANY TRANSFER OF ASSET OR TAKE OVER OF ASSET BY MUNICIPAL COMMITTEE OR PUNJAB GOVERNMENT OR CHANGE IN THE WORKING OF ABOVE TRUST. THE ONLY CHANGE WHICH HAS HAPPENED IS REGARDING CHAIRMAN OF THE TRU ST AND IN PLACE OF POLITICAL APPOINTEE, THE GOVERNMENT OFFICER HAS BEEN MADE CHA IRMAN OF THE TRUST. THERE IS NO EVIDENCE THAT ITS' EXPENDITURE AND INCOME WERE T AKEN INTO ACCOUNT BY MUNICIPAL CORPORATION IN ITS BUDGET OR BY STATE GOV ERNMENT IN BUDGET. THE ASSESSEE HAS MERELY SUBMITTED THAT GOVERNMENT OF PU NJAB HAS I A LETTER DATED 07.06.2002 STATING THAT NO NEW SCHEME CAN BE SANCTI ONED E GOVERNMENT AT THIS STAGE DUE TO DISSOLUTION OF THIS OLD TRUST. EVEN TH IS R IS SILENT ABOUT DAY TO DAY WORKING OF THE TRUST AND ABOUT THE OLD EXPENSES G C ARRIED OUT BY THE TRUST AND IT CAN BE SEEN THAT REGULAR EMPLOYEES WERE BEING PAID FROM THE TRUST FUND ITSELF AND EVEN TRUST WAS ALLOWED TO INCUR EXPENDITURE ON VARI OUS CONTINGENCIES. THUS IT CAN BE SEEN THAT TRUST WAS UNDER ADMINISTRATIVE CONTROL OF GOVERNMENT OF PUNJAB BUT HAS NEVER LOST ITS EXISTENCE AS TRUST. IN-FACT, THE SE TRUST HAVE, BEEN DISSOLVED AND RESTORED BACK SEVERAL TIMES IN PASSED AND ALL THE W ORK PERTAINING TO THESE TRUST WORK CARRIED OUT AS SUCH BY THIS TRUST. 5.6 SECTION 3 OF THE PUNJAB TOWN IMPROVEMENT ACT, 192 2 PROVIDE THAT IMPROVEMENT TRUST IS A BODY CORPORATE HAVING PERPET UAL SUCCESSION AND THIS HAS BEEN HELD BY THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF IMPROVEMENT TRUST, JULLUNDUR VS. NORTHERN CARRIERS PVT. LTD 1984 RRR 665 (P&H). SECTION 3 WHICH PERTAINS TO CONSTITUTION OF TRUSTS IS AS UNDER:- N AND INCORPORATION OF TRUST.- THE DUTY OF CARRYING OUT THE NS OF THIS ACT IN ANY LOCAL AREA SHALL, SUBJECT TO THE CONDITIONS AND LIMITATIO NS HEREINAFTER CONTAINED, BE VESTED IN A BOARD TO BE CALLED THE OF TOWN) IMPROV EMENT TRUST HEREINAFTER REFERRED AS TO THE TRUST; AND EVERY SUCH BOARD SH ALL BE A BODY CORPORATE AND HAVE PERPETUAL SUCCESSIONS AND COMMON SEAL, AND SH ALL BY THE SAID NAME SUE AND BE SUED. 5.7 I FURTHER DO NOT AGREE THAT TRUST HAVE BEEN DIS SOLVED AS PER SECTION OF THE PUNJAB TOWN IMPROVEMENT ACT, 1922 BY THE PUNJAB GOV ERNMENT, T HAS BEEN DISSOLVED MANY TIME IN THE PASSED AND AGAIN RESTORE D BACK. SECTION 103 DEALS WITH ULTIMATE DISSOLUTION OF TRUST AND TRANSFER OF ITS SETS AND LIABILITIES TO THE COMMITTEE AS PROVIDED IN THE PREAMBLE OF THE SECTIO N 103. IF ONE GOES THROUGH THE PROVISION OF SECTION IT CAN BE SEEN THAT DEALS WITH ULTIMATE TRANSFER OF ALL PROPERTIES, FUNDS DUES, LIABILITIES AND HERE IS NO PROVISION OF ITS RESTORE BACK THEIR. THESE ARE MERE DISSOLUTION AND RESTORE BACK OF TRUST AND MAINLY RESULT INTO CHANGE OF POLITICAL CHAIRMAN OF THE TRUST TO THE EX ECUTIVE ADMINISTRATOR OF THE TRUST AND AS SUCH DOES NOT MAKE ANY SUBSTANTIAL CHA NGE IN WORKING OF THE TRUST. UNDER THE CIRCUMSTANCES, I TREAT THE ASSESSEE AS AO P TRUST WITHOUT REGISTRATION FROM 01.04.2003 TO 11.06.2003 AND FROM 12.06.2003 T O 31.03.2004 AS AOP (TRUST). 5.8 THE ASSESSEE HAS OBVIOUSLY ALSO FAILED TO GIVE ANY REASONS FOR TAKING COGNIZANCE OF RETURN FILED ON 31.03.2006. IN THIS CONNECTION, IT IS STATED THAT THE ORIGINAL RETURN WAS FILED BY THE ASSESSEE ON 29.10.2005 AFTER THE EXPIRY OF PERIOD PRESCRIBED U/S 139(1) OF THE IT ACT, 1961 THAT TOO IN RESPONSE TO NOTICE U/S 148. SECTION 139(5) DEALS WITH THE CIRCUMSTANCE S UNDER WHICH THE REVISED RETURN CAN BE FILED. IT CLEARLY CONTEMPLATES THAT R EVISION OF THE RETURNS IS POSSIBLE ITA NO.391(ASR)/2014 A.Y. 2004-05 10 WHICH HAS BEEN FILED U/S 139(1). IN THIS CONNECTION , PROVISIONS OF SECTION 139(5) ARE REPRODUCED AS UNDER: IF ANY REASONS HAVING FURNISHED A RETURN UNDER SUB -SECTION (1), OR IN PURSUANCE OF A NOTICE ISSUED UNDER SUBSECTION (1) OF SECTION 142, DISCOVERS OMISSION OR ANY WRONG STATEMENT THEREIN, HE MAY FURNISH REVISED RET URN ANY TIME BEFORE THE EXPIRY OF ONE YEAR FROM THE END OF THE RELEVANT ASS ESSMENT YEAR OR BEFORE THE COMPLETION OF THE ASSESSMENT, WHICH EVER IS EARLIER : PROVIDED THAT WHERE THE RETURN RELATES TO THE PREVI OUS YEAR RELEVANT TO THE ASSESSMENT YEAR COMMENCING ON THE 1 ST DAY OF APRIL, 1988, OR ANY EARLIER ASSESSMENT YEAR, THE REFERENCE TOT ONE YEAR AFORESA ID SHALL BE CONSTRUCTED AS A REFERENCE TO TWO YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR. BUT IN THE CASE OF THE ASSESSEE, IT HAS FILED RETUR N OF INCOME ON .10.2005 AND THAT TOO IN RESPONSE TO NOTICE U/S 148. THE REV ISED RETURN THEREFORE, ILLEGAL IN THE EYES OF LAW AND NO COGNIZANCE OF THE SAME COULD ; TAKEN. 6. IN THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS FOUND THAT THE ACTUAL WDV OF THE BUILDING IS RS. 4006400/- INSTEAD OF RS. 35030190/-. BE DEPRECIATION ON BUILDING HAS BEEN WRONGLY CLAIMED AS RS.3503019/ - ON /DV OF RS. 35030190/- . THE ASSESSEE ADMITTED THAT SOME PART OF THE LOSIN G STOCK HAS BEEN WRONGLY INCLUDED IN THE VALUE OF BUILDING. THE ACTUAL T DV OF THE BUILDING WORKS OUT TO RS. 4006400/-. THE ASSESSEE HAS ALREADY BEEN GIVEN AN OPPORTUNITY TO EXPLAIN AS TO WHY THE CORRECT WDV OF BUILDING IT RS. 4006400/- MAY NOT BE TAKEN VIDE PARA 2 OF MY LETTER DATED 19.12.2006. NO SATISFACTORY EX PLANATION HAS BEEN FURNISHED BY THE ASSESSEE AND THERE IS NO DENIAL FROM THE ASS ESSEE ABOUT THE ACTUAL WDV OF THE BUILDING AT RS. 4006400/-. THEREFORE, THE CLAIM OF DEPRECIATION IS CORRECTED BY ADOPTING THE CORRECT WDV OF THE BUILDING AT RS. 4006400/-. 6.1 THE ASSESSEE WAS REQUIRED TO FILE THE AUDIT RE PORT IN FOR NO. 3CB/3CD/ U/S 44AB BEFORE THE EXPIRY OF THE DATE SP ECIFIED FOR FILING THE RETURN OF INCOME. IN THIS CASE, THE LAST DATE FOR FILING THE RETURN WAS 31.10.04. THE AUDIT REPORT COULD HAVE OBVIOUSLY/TEEN FURNISHED BEFORE 3 1.10.04 BUT THE SAME HAS BEEN FILED ON 29.10.2005. FAILURE TO FILE THE AUDIT REPORT IN TIME, PENALTY PROCEEDINGS HAVE BEEN INITIATED SEPARATELY U/S 271B . WITH THE ABOVE OBSERVATIONS, THE INCOME OF THE ASSE SSEE IS COMPUTED AS UNDER: LOSS AS INCOME & EXPENDITURE A/C 28110/- ADD: DEPRECIATION FOR SEPARATE CONSIDERATION WHICH INCLU DE DEPRECIATION ON BUILDING AT RS.3503019/- 8S OTHER A SSETS 3691713/- AT RS.188694/- TOTAL INCOME 3663603/- LESS DEPRECIATION AS DISCUSSED ABOVE ON BUILDING RS.400640/- ON OTHER ASSETS RS.188694/- TOTAL DEPRECIATION 589334/- NET TAXABLE INCOME 3074269/- SAY RS. 3074270/- ITA NO.391(ASR)/2014 A.Y. 2004-05 11 INCOME TAX PAYABLE IS CALCULATED AS UNDER:- INCOME OF RS. 3074270/- 896279 SURCHARGE @ 10% 89628 TOTAL TAX 985907 ADD 234A - 88732 234B 244012 TOTAL TAX 1318651/- 6.2 THE MERE FACT THAT THE IMPROVEMENT TRUST HAS BE EN GRANTED REGISTRATION U/S 12A DOES NOT CONFER ANY RI GHT OR ENTITLEMENT UPON THE APPELLANT TRUST REGARDING THE OPERATION OF S. 11, 1 2, & 13 OR ANY OTHER PROVISIONS OF THE IT ACT 1961, WHICH IS FIRSTLY TO BE DECIDED BY THE AO DEPENDING ON THE MERITS OF THE CASE FOR EACH SUCH YEAR UNDER CONSIDERATION HENCE, THE APPLICABILITY OF THE BENEFIT OF REGISTRATION IS STR ICTLY SUBJECT TO THE PROVISIONS OF IT ACT 1961, READ WITH THE INCOME RULES, 1962 AND IN P ARTICULAR TO PROVISIONS IN THE LIGHT OF WHICH THE I NCOME QUALIFIES TO CONSIDERED AS EXEMPT AND THE PROVISIONS PERTAINING TO THE UT ILIZATION/INVESTMENT/MANNER OF DEPOSIT OF FUNDS ETC. 6.3. IN THE CASE OF THE APPELLANT, THE AO HA S DETERMINE D THE INCOME AT RS. 3074270/- WITH THE FOLLOWING OBSERVATIONS: - IN THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS FO UND THAT THE ACTUAL WDV OF THE BUILDING IS RS. 4006400/- INSTEAD OF RS. 350301 90/-. THE DEPRECIATION ON BUILDING HAS BEEN WRONGLY CLAIMED AS RS. 3503019/- ON WDV OF RS. 35030190/-. THE ASSESSEE ADMITTED THAT SOME PART OF THE CLOSING STOCK HAS BEEN WRONGLY INCLUDED, IN THE VALUE OF BUILDING. THE ACTUAL WDV OF THE BUILDING WORKS OUT TO RS. 4006400/-. THE ASSESSEE HAS ALREADY BEEN GIVEN AN OPPORTUNITY TO EXPLAIN AS TO WHY THE CORRECT WDV OF BUILDING AT RS. 4006400/- MAY NOT BE TAKEN BEEN FURNISHED BY THE ASSESSEE AND THERE IS NO DENIAL FR OM THE ASSESSEE ABOUT THE ACTUAL WDV OF THE BUILDING AT RS. 4006400/- THEREFORE, THE CLAIM OF DEPRECIATION IS CORRECTED BY ADOPTING THE CORRECT WDV OF THE BUI LDING AT RS. 4006400/-. 6.4. IN THE RETURN FILED, THE APPELLANT TRUST HAS DECLARED LOSS ON THE BASIS OF WRONG FACTS REGARDING ITS CLAIM OF DEPRECIATION WHICH WERE NOT BASED ON ACCEPTED ACCOUNTING STANDAR DS. IN HIS ASSESSMENT ORDER THE AO HAS GIVEN A DETAILED AND VALID REASONING FOR COMPUTING THE INCOME OF THE APPELLANT AT RS. 3074270/- AS AGAINST THE DECLARED LOSS. I AM IN AGREEMENT WITH THE OBSERVATION OF THE AO AND HOLD THAT THE AO IS J USTIFIED IN ASSESSING THE INCOME OF THE APPELLANT AT RS. 3074270/-, THE AOS ACTION IS UPHELD AND THE APPEAL OF THE APPELLANT IS DISMISSED ON THIS GROUND . 7. APPLICABILITY OF PROVISIONS OF SECTIONS-11 OF THE L .T.ACT 1961 7.1 SECTION 11(1) - SECTION 11(1) PROVIDES AS UNDER: INCOME DERIVED FROM PROPERTY HELD UNDER TRUST WHOL LY FOR CHANTS RELIGIOUS PURPOSES, TO THE EXTENT TO WHICH SUCH INCOME IS APP LIED TO SUCH PURPOSES IN INDIA: AND, WHERE ANY SUCH INCOME IS ACCUMULATED OR SET APART N APPLICATION TO SUCH PURPOSES IN INDIA, TO THE EXTENT TO WHICH THE INCOME SO ACCUMULATED OR ITA NO.391(ASR)/2014 A.Y. 2004-05 12 SET APART IS NOT IN EXCESS OF [FIFTEENL PER CENT OF THE INCOME FROM SUCH PROPERTY. INCOME DERIVED FROM PROPERTY HELD UNDER TRUST INCLU DES INCOME FROM BUSINESS UNDERTAKING SO HELD {AS PROVIDED & DEFINED IN SECTI ON 11(4)}. IN FACT, FIRST BUSINESS INCOME IS TO BE COMPUTED AS PER PROVISIONS OF THE ACT, AS PROVIDED U/S 11(4) AND THAN APPLICATION OF SAID INCOME IS TO BE SEEN FOR APPLICATION PURPOSE OF 11(1). THE ASSESSEE IS CONFUSING GROSS RECEIPTS OF THE BUSINESS WITH INCOME (FOR THE PURPOSE' OF 11(1)) AND BUSINESS EXPENDITURE WIT H APPLICATION OF INCOME. IT HAS BEEN HELD IN SEVERAL DECISIONS OF COURTS THAT I NCOME REFERRED TO IN SECTION 11(1) MEANS INCOME COMPUTED AS PER PROVISION OF INC OME TAX ACT AND NOT GROSS RECEIPTS. I RELY IN THIS REGARDS ON FOLLOWING COURT S DECISION; (A) IN THE CASE OF CIT VS PROGRAMME FOR COMMUNITY ORGANIZATION 228 ITR 620(KER) HON'BLE HIGH COURT HA S HELD THAT THE WORD INCOME SHOULD BE UNDERSTOOD IN ITS COMMERCIAL SEN SE. THIS VIEW WAS ENDORSED BY HONBLE SUPREME COURT IN SAME CASE 248 ITR 1(SC). (B) SIMILAR VIEWS HAVE BEEN TAKEN IN THE CASE OF CIT VS TRUSTEE OF H.E.H THE NIZAMS SUPPLEMENTED RELIGIOUS ENDOWMENT TRUST( 1981) 127 ITR 378, BY ANDHRA PRADESH HIGH COURT. CB DT HAS ALSO CLARIFIED INCOME FOR PURPOSE OF 11(1) IN ITS CIRCULAR NO. 5 -P(LXX-6) DATED 19.06.1968. (C) SIMILAR VIEW WAS TAKEN BY HONBLE CALCUTTA HIGH COU RT IN CIT VS JAYA SHREE CHARITY TRUST (1986) 159 ITR 280(CAL). SO INCOME IS TO BE COMPUTED FIRST AS PROVIDED U/S 1 1(1) AND THEN ITS APPLICATION FOR CHARITABLE PURPOSES AS PER OBJECTS OF THE TRUS T IS TO BE SEEN . THE ASSESSEE HAS NOT PROVIDED ANY DETAILS DURING ANY ASSESSMENT PROC EEDING AND APPELLATE PROCEEDING IN THIS REGARD. THUS, THE CONDITION SA TISFIED. THE ASSESSEE HAS PROVIDED A LIST OF EXPENSES TOTALING 3,266/- &47,44 ,686/-, BUT IT HAS NOT EXPLAINED HOW THESE S ARE APPLICATIONS OF INCOME ON OBJECTS O F THE TRUST AND WHAT ARE THE CONDITION OF 11(1) AND HENCE HE IS NOT ENTITLED TO ANY RELIEF U/S THE IT ACT, 1961. 7.2. SECTION 11(1A):- IS NOT APPLICABLE IN CURRENT YEAR ON BASIS OF DETAI LS AVAILABLE ON RECORD OR CLAIMED BY THE ASSESSEE. 7.3. S ECTION 11(B):- IS NOT APPLICABLE IN CURRENT YEAR ON BASIS OF DETAI LS AVAILABLE ON RECORD OR CLAIMED BY THE ASSESSEE. 7.4. SECTION 11(2):- IS NOT APPLICABLE IN CURRENT YEAR ON BASIS OF DETAI LS AVAILABLE ON RECORD OR CLAIMED BY THE ASSESSEE. 7.5. SECTION 11(3):- IS NOT APPLICABLE IN CURRENT YEAR ON BASIS OF DETAI LS AVAILABLE ON RECORD OR CLAIMED BY THE ASSESSEE. 7.6. SECTION 11(3A):- IS NOT APPLICABLE IN CURRENT YEAR ON BASIS OF DETAI LS AVAILABLE ON RECORD OR CLAIMED BY THE ASSESSEE. 7.7 SECTION 11(4) - PROVISIONS OF THIS SUB-SECTION ARE AS UNDER: ITA NO.391(ASR)/2014 A.Y. 2004-05 13 FOR THE PURPOSES OF THIS SECTION PROPERTY HELD UND ER TRUST INCLUDES A BUSINESS UNDERTAKING SO HELD, AND WHERE A CLAIM IS MADE THAT THE INCOME OF ANY SUCH UNDERTAKING SHALL NOT BE INCLUDED IN THE TOTAL INCOME OF THE PERSONS IN RECEIPT THEREOF, THE [ASSESSING ] OFFICER SHALL HAV E POWER TO DETERMINE THE INCOME OF SUCH UNDERTAKING IN ACCORDANCE WITH THE P ROVISIONS OF THIS ACT RELATING TO ASSESSMENT; AND WHERE ANY INCOME SO DETERMINED I S IN EXCESS OF THE INCOME AS SHOWN IN THE ACCOUNTS OF THE UNDERTAKING, SUCH EXCE SS SHALL BE DEEMED TO BE APPLIED TO PURPOSE OTHER THAN CHARITABLE OR RELIGIO US PURPOSES. IT CAN BE SEEN THAT ASSESSEE HAS NOT COMPUTED ANY I NCOME OF BUSINESS UNDERTAKING WHEREAS ASSESSING OFFICER HAS COMPUTED INCOME OF THE BUSINESS UNDERTAKING AT RS 30,74,270/-. THUS AS PER PROVISIO NS OF ABOVE SECTION, SUCH EXCESS SHALL BE DEEMED TO BE APPLIED TO PURPOSE OTH ER THAN CHARITABLE AND RELIGIOUS PURPOSES. THUS SUCH INCOME IS NOT ENTITLE D TO ANY PROVISIONS OF SECTION 11. 7.8. SE CTION 11(4A) THE PROVISION OF THIS SUB-SECTION ARE AS UNDER:- SUB-SECTION (1) OR SUB-SECTION(2) OR SUB-SECTION (3 ) OR SUB-SECTION (3A) SHALL NOT APPLY IN RELATION TO ANY INCOME OF A TRUST OR AN IN STITUTION, BEING PROFITS AND GAINS OF BUSINESS, UNLESS THE BUSINESS IN INCIDENTA L TO THE ATTAINMENT OF THE OBJECTIVES OF THE TRUST OR, AS THE CASE MAY BE, INS TITUTION, AND SEPARATE BOOKS OF ACCOUNT ARE MAINTAINED BY SUCH TRUST OR INSTITUTION IN RESPECT OF SUCH BUSINESS. 7.8.1 THIS SECTION CLEARLY PROVIDES THAT SUB-SECTIO N (L)/(2)/(3)/(3A) SHALL NOT APPLY IN RELATION TO ANY INCOME OF A TRUS T, BEING PROFITS OR GAINS OF BUSINESS, UNLESS BUSINESS IS INCIDENTAL TO THE ATTA INMENT OF THE OBJECTIVES OF THE TRUST. IN PRESENT CASE BUSINESS ACTIVITY IS THE MAI N ACTIVITY AS HELD BY THE AO AND NOT INCIDENTAL ACTIVITY. THE ASSESSEE HAS NOT SUBMI TTED ANY DETAILS TO SHOW THAT THE BUSINESS ACTIVITY CARRIED OUT BY IT IS INCIDENT AL ACTIVITIES TO OBJECTS OF TRUST. INCIDENTAL MEANS; - HAPPENING AS A MINOR ACCOMPANIMENT TO SOMETHING E LSE : FOR THE FIELDWORKER WHO DEALS WITH REAL PROBLEMS, PAPERWORK IS INCIDENT AL INCIDENTAL EXPENSES. - OCCURRING BY CHANCE IN CONNECTION WITH SOMETHING ELSE; THE INCIDENTAL CATCH OF DOLPHINS IN THE PURSUIT OF TUNA. -(INCIDENTAL TO) HAPPENING AS A RESULT OF (AN ACTIV ITY): THE ORDINARY RISKS INCIDENTAL TO A FIREMANS JOB. (AS PROVIDED IN OXFORD DICTIONARY.) 7.8.2. THE SUB-SECTION FURTHER PROVIDES THAT EVEN IN CASE OF INCIDENTAL BUSINESS, SEPARATE BOOKS OF ACCOUNTS ARE REQUIRED TO BE MAINTAINED. THE OBJECT OF SUCH PROVISION IS THAT BUSINESS UNDERTAKING SHOU LD SEPARATELY SHOW BUSINESS RECEIPTS AND CORRESPONDING BUSINESS EXPENDITURE SO THAT NOT MIXED WITH OTHER INCOME OF THE TRUST AS WELL AS THERE IS NO MIX UP O F BUSINESS EXPENSES WITH APPLICATION OF EXPENSES INCURRED BY TRUST ON THE O BJECTIVES OF TRUST.. BUSINESS EXPENDITURE IS NOT APPLICATION OF TRUST INCOME AND IT IS A BUSINESS PAYMENT TOWARDS PURCHASE/SERVICES AVAILED MESS UNDERTAKING OF THE TRUST. THIS IS ALSO REQUIRED FROM ACCOUNTING PRINCIPLE AS INCURRING EXPENDITURE TO EARN BUSINESS ITA NO.391(ASR)/2014 A.Y. 2004-05 14 INCOME SHOULD BE SHOWN TOGETHER. PURCHASE OF CEMENT AND STEAL ETC, PAYMENT CHARGE ETC CAN NOT BE CONSIDERED AS APPLICATION OF INCOME ON OR ENTRUST BUT ARE NECESSARY EXPENDITURE TO EARN BUSINESS INCOME TRUST HAS NOT MAINTAINED SEPARATE BOOKS OF ACCOUNTS OF ITS BUS AND IN VIEW OF ABOVE, EVEN IN CASE OF INCIDENTAL BUSINESS ACTIVITY PROVISIONS OF SECTION 11(4A) HAS NOT BEEN COMPLIED. THE INCOME, SUBMITTED BY ASSESSEE SHOW ALL RECEIPTS AND EXPENSES. 7.8.03 THE ASSESSEE HAS NOT MAINTAINED SEPARATE ACCOUNTS FOR ITS COMMERCIAL BUSINESS ACTIVITIES. SA LES RECEIPT OF COMMERCIAL SPACE AND FLATS HAVE BEEN SHOWN WITH OTHER TRUST R ECEIPTS. SIMILARLY AND APPLICATION OF FUNDS HAVE NOT BEEN BIFURCATED ON TH IS REQUIREMENT OF LAW AS WELL. 8. HONORABLE ITAT, CHANDIGARH CIT(2006) 103 TTJ(CHD ) 988 HAS CALLED IT IS TO E A BIG BUSINESS MEN AND EQUATED IT TO REALT Y DEVELOPERS (PUP LEVEL WHEREAS ASSESSEE IS CARRYING AT CITY LEVEL. THE RE LEVANT CONTENTS OF ABOVE ORDER ARE RE-PRODUCED AS UNDER: IT IS WELL KNOWN FACT THAT IN SOME OF THE SITUATIO N, THE PROVISIONS OF LAW ARE MISUSED IN THE NAMES OF CHARITIES. IF AN EXPANDED/B ROADER LATITUDE IS EXTENDED TO THE WORD CHARITY, THEN THERE ARE SO MANY INSTITUTIO NS/DEPARTMENTS WHO WILL TRY TO COME UNDER THE UMBRELLA OF THIS PROVISION TO MISUSE THE PROVISION. THEREFORE, FOR THE BROAD DEVELOPMENT OF F SOCIETY, A STRICT AND PO SITIVE VIGIL IS REQUIRED SO THAT THE PROVISION CAN WED FROM ITS MISUSED IN ANY MANNE R. NO ACTIVITY CAN BE CARRIED ON EFFICIENCY, PROPERLY UNLESS AND UNTIL IT IS CARR IED OUT ON BUSINESS PRINCIPLE BUT IT DOES NOT MEAN THAT THE PROVISION IS MISUSED IN A NY MANNER UNDER THE GRAB CHARITY BY MAKING IT NON TAX PAYABLE ORGANIZATION. CHARITABLE INSTITUTION PROVIDES SERVICES FOR CHARITABLE PURPOSES FREE OF C OST & NOT FOR GAIN. IN THE PRESENT SCENARIO, SIMILAR ACTIVITIES ARE PERFORMED BY THE BIG COLONIZERS/DEVELOPERS WHO ARE EARNING A HUGE PROFIT IF DIS-REGISTRATION IS GRANTED THEN ANYBODY WILL CLAIM THE EXEMPTION FROM THE TAX. IF THE ACCOUNT OF THE ASSESSEE ARE ANALYZED IT HAS TURNED INTO THE PROFIT MAKING A GENCY FOR WHICH IT IS TAKING MONEY IF THE INSTITUTION OF PUBLIC IMPORTANCE KIKE SCHOOL, COMMUNITY CENTRES ARE CREATED/DEVELOPED THE ASSESSEE IS CHARGING THE COST OF IT FROM THE PUBLIC AT LARGE THE MONEY IS COMING FROM COFFER OF THE GOVERNMENT. IT CAN BE SAID THAT OBJECT/ACTIVITIES OF THE ASSESSEE ARE MORE OF COMME RCIALIZED NATURE AND NO CHARITY IS INVOLVED IN IT. AT THE SAME TIME, IF THE SE FACILITIES ARE NOT PROVIDED, THEN NOBODY WILL PURCHASE A PLOT. IT CAN BE SAID THAT IT IS A MEANS OF ATTRACTING THE PEOPLE SO THAT MAXIMUM PEOPLE MAY APPLY FOR THE SAM E & THE HIDDEN COST IS ALREADY ADDED, SO NO CHARITY IS INVOLVED. AT BEST, THE ASSESSEE CAN BE SAID TO BE AN AUTHORITY CREATED TO HELP TO ACHIEVE CERTAIN OBJ ECTS. IT CAN BE SAID THAT IS THE DUTY OF THE GOVERNMENT TO CREATE/DEVELOP ALL THESE FACILITIES TO PUBLIC AT, LARGE, WHICH ARE PROVIDED TO THE ASSESSEE BY THE GOVERNMEN T IS AGAIN A PUBLIC MONEY OR GENERATED FROM PUBLIC ITSELF. THE OBJECTS OF THE AS SESSEE TOUGH CLAIMED TO BE CHARITABLE, BUT ACTUALLY ARE OF PURELY COMMERCIAL N ATURE WHERE PROFIT MOTIVE IS INVOLVED. IT IS A KNOWN FACT THAT THE ASSESSEE IS A CQUIRING A LAND AT VERY LOW PRICES & SELLING THE SAME LAND ON VERY HIGHER RATES & IS E ARNING A PROFIT THERE FROM. A NEW TREND HAS ALSO EMERGED THAT THE ASSESSEE HAS ST ARTED THE MARKET RATE & SOMETIME MORE THAN THAT & SOMETIME CRUCIAL PAYMENT IN SUCH A SITUATION, NO CHARITY IS INVOLVED. RATHER HAS CONVERTED ITSELF IN TO A BIG BUSINESSMAN. SIMILAR DEVELOPMENT/INFRASTRUCTURE/FACILITIES ARE ALSO PROV IDED BY PRIVATE DEVELOPERS THESE DAYS, THEN THEY WILL ALSO CLAIM THE STATUS OF A CHARITABLE INSTITUTION. THE ITA NO.391(ASR)/2014 A.Y. 2004-05 15 FACILITIES WHICH ARE PROVIDED TO THE PLOT HOLDERS A RE INCIDENTAL TO THE COMMERCIAL ACTIVITY CARRIED OUT BY THE ASSESSEE AND IF CERTAIN FACILITIES LIKE ,, COMMUNITY CENTRE, SCHOOL ARE PROVIDED, IT IS NOT ONLY BASIC R EQUIREMENT, RATHER A TOOL OF ATTRACTING THE INVESTORS WHEREIN THE HIDDEN COST OF THESE FAC ILITIES ARE ALREADY INCLUDED. IN THE ABSENCE OF THESE FACILITIES, NORMA LLY THE PURCHASER MAY NOT INVEST AND THE BEING OF CHARITABLE NATURE, THE APPLICATION REGISTRATION U/SL2A HAS BEEN RIGHTLY REJECTED BY CIT-ASSTT. CIT VS. THANTHI .'RU ST (2201) 165 CTR(SC) 681(2001) 247 ITR 785 (SC) & BIHAR STATE FOREST DEV ELOPMENT VS. CIT (1997) 224 ITR 757 (PAT) RELIED ON: ADDL. CIT VS. SURAT SU LK CLOTH MANUFACTURERS ASSOCIATION (1979) 13 CTR (SC) 378 (1980) 121 ITR ( SC), CIT VS. ANDHRA PRADESH STATE ROAD TRANSPORT CORPORATION (1986) 52 CTR ASSOCIATION (NLC) VS. CIT (2001) 165 CTR (MAD) 446: 246 ITR 532 (MAD) DISTINGUISHED. 8.1. IT WAS FURTHER HELD BY THE 'HONBLE MADRASS HI GH COURT IN THE CASE OF CIT VS P. LYYA NADAR CHARITABL E TRUST(2006) 284ITR 0404(MAD) THAT: THAT THE EXEMPTION UNDER SECTION 11 WILL NOT BE A VAILABLE TO A TRUST THAT CARRIES ON ANY BUSINESS UNLESS THE BUSINESS IS CARRIED ON ON THE COURSE OF THE ACTUAL CARRYING OUT OF THE PRIMARY PURPOSE OF THE TRUST, THAT IS TO SAY, UNLESS THE BUSINESS IS CARRIED ON THE COURSE OF ACTUALLY ACCOM PLISHING A PRIMARY PURPOSE OF THE TRUST : THE BUSINESS MUST, THEREFORE, BE CARRIE D ON IN THE COURSE OF THE ACTUAL ACCOMPLISHMENT OF RELIEF OF THE POOR, EDUCATION OR MEDICAL RELIEF THAT WHERE THE BUSINESS WAS HELD BY THE TRUST AS APART OF THE CORP US AND, HENCE THE TRUST DID NOT DIRECTLY ACCOMPLISH ANY OBJECT OR CARRY ON THE BUSI NESS IN THE COURSE OF THE ACTUAL ACCOMPLISHMENT OF ITS OBJECTS. THE ASSESSEE WAS NOT ENTITLED TO EXEMPTION UNDER SECTION 11. 9. THUS IT CAN BE SEEN THAT ASSESSEE IS CARRYING OU T BUSINESS ACTIVITY AKIN TO PRIVATE DEVELOPERS AND THAT TOO IN SELECTED /AREA IN AMRITSAR AND NOT AVAILABLE TO PUBLIC AT LARGE, BUT ARE BEING SOL D TO FEW PERSONS THROUGH AUCTIONS/ SALES. THE ASSESSEE HAS NOT PROVIDED VARI OUS DETAILS OF ARE INCURRED BY THE ASSESSEE TRUST ON VARIOUS ACTIVITIES UNDERTAKEN TO ACHIEVE ITS OBJECTIVE. NO DETAILS OF ITS PROJECTS, ACTIVITIES, THEIR SCOPE AN D HAVE BEEN SUBMITTED BEFORE AO OR APPELLATE AUTHORITY. IN VIEW OF , ASSESSEE TRUST DOES NOT QUALIFY FOR EXEMPTIONS U/S 11 OF THE ACT AS ABOVE, ASSESSEE TRUST DOES NOT QUALIFY FOR EXEMPTIONS U/S 11 OF THE ACT AS DISCUSSED ABOVE. IN VIEW OF ABOVE, TH E ACTION OF A.O IS CONFIRMED IN ASSESSING INCOME AS BUSINESS INCOME OF THE ASSESSEE TRUST FOR A.YS 2004-05. 9.1 THE ASSESSEE HAS RELIED ON ITS MAIN ARGUMENT THAT ASSESSEE TRUST IS NOT CARRYING OUT ANY BUSINESS OR ANY INCIDENTAL BUSINESS AND MERELY CARRYING OUT CHARITABLE ACTIVITIES AS DEFINE U/S 2(15) OF TH E INCOME TAX ACT. IN THIS REGARD, ASSESSEE HAS SUBMITTED VARIOUS CASE-LAWS NAMELY: A. SENAI RAM DONGER MAI VS. CIT 42 ITR 392(SC). B. SOLE TRUSTEE LOKA SHIKSHANA TRUST VS. CIT 101 ITR 234 (SC). C. STATE OF ANDRA PRADESH VS. H. ABDUL BAKHI & B ROTHERS 15 STC 664. 9.2 WHERE IT HAS BEEN STATED THAT TO REGARD AN ACTI VITY AS BUSINESS, THERE MUST BE A COURSE OF DEALING EITHER, ACTUAL CONTINUE D OR CONTEMPLATED TO BE CONTINUED WITH PROFIT MOTIVE. IT IS CLEAR FROM THE DISCUSSION ABOVE THAT ASSESSEE IS ITA NO.391(ASR)/2014 A.Y. 2004-05 16 ACQUIRING LAND AND DEVELOPING THEM AS COMMERCIAL PR EMISES AND RESIDENTIAL PREMISES AND SELLING THEM FOR PROFIT. IN-FACT THESE SELLING ACTIVITY IS NOW CARRIED OUT THROUGH AUCTION SO AS TO REALIZE MAXIMUM PROFIT FROM THESE TRANSACTIONS. THUS IT CAN BE SEEN THAT ASSESSEE IS EARNING HUGE P ROFITS FROM THESE ACTIVITIES AND UNDER THE CIRCUMSTANCES IT HAS BEEN HELD THAT MAIN BUSINESS OF THE ASSESSEE IS REAL-ESTATE BUSINESS AND THIS CAN NOT BE TREATED AS EVEN INCIDENTAL BUSINESS RELATED TO CHARITABLE ACTIVITIES CARRIED OUT BY THE ASSESSEE. I HAVE CONSIDERED ASSESSEES SUBMISSIONS IN THIS REGARD RUNNING INTO 10 PAGES, BOARD INSTRUCTION NOS. 1024 DATED 07.11.1976, ORDER OF HONBLE DELHI HIGH COURT IN THE CASE OF PHD CHAMBER OF COMMERCE AND INDUSTRIES VS. DIT EXEM PTION AND OF GSI INDIA VS. DGIT EXEMPTION AND OTHERS. IN THESE CASE THE IS SUE OF APPLICABILITY OF SECTION 11 (4A) WERE NOT DISCUSSED CONSIDERING FACTS PERTAI NING TO PRESENT ; OF INVOLVED IN REAL-ESTATE BUSINESS, AS SUCH THESE ARE NOT LE T O PRESENT CASE. UNDER THE CIRCUMSTANCES AND AS DISCUSSED IT IS CLEAR THAT ASS ESSEE HAS NOT COMPLIED THAT SECTION 11 OF THE I TAX ACT AND AS SUCH EXEMPTION A S PROVIDED IN SECTION 11 IS NOT .ABLE TO THE ASSESSEES CASE. HONBLE ITAT, AMRITSA R BENCH, AMRITSAR A NO. 636 (ASR)/2013 VIDE ORDER DATED 24.02.2014 FOR ASSESSME NT YEAR 4-05 IN THE CASE OF M/S. AMRITSAR IMPROVEMENT TRUST HAS CONFIRMED THE M ENTION OF THE DEPARTMENT ON SIMILAR ISSUES IN THIS REGARD. 10. GROUND NO.3 THIS GROUND RELATES TO CHARGING OF INTEREST U/S 234 A & 234B. CHARGING OF INTEREST UNDER THESE SECTIONS IS MANDATORY AND CONS EQUENTIAL IN NATURE. IT HAS TO BE CHARGED. HOWEVER,' THE AO IS DIRECTED TO CHARGE INTEREST UNDER THESE SECTIONS AFTER GIVING EFFECT TO THIS APPEAL ORDER. (D) GROUND NO. 4 & 5 GENERAL IN NATURE AND HENCE DISMIS SED. 11. IN THE RESULT, THE APPEAL IS DISMISSED. 9. APROPOS THE ISSUE OF STATUS OF THE ASSESSEE, IT REMAINS UNDISPUTED THAT THE ASSESSEE TRUST, WHICH CAME INTO EXISTENCE W.E.F. 12.11.1972, WAS DISSOLVED W.E.F. 04.02.2002, VIDE NOTIFICATION NO. 4/29/2002-4- LGII/3454 DATED 04.02.2002 (APB 6-8). IT WOULD NOT BE OUT OF PLACE TO REPRODUCE HEREUNDER THIS NOTIFICATION: WHEREAS IN THE OPINION OF THE STATE GOVERNMENT, IT IS EXPEDIENT THAT THE BATALA IMPROVEMENT TRUST SHALL CEASE TO EX IST; NOW, THEREFORE, IN EXERCISE OF THE POWERS CONFERRE D BY SUB- SECTION (1) OF SECTION 103 OF THE PUNJAB TOWN IMPRO VEMENT ACT, 1922 (PUNJAB ACT 4 OF 1922, AND ALL OTHER POWERS EN ABLING HIM IN THIS BEHALF, THE GOVERNMENT OF PUNJAB IS PLEASED TO DECLARE THAT ITA NO.391(ASR)/2014 A.Y. 2004-05 17 THE BATALA IMPROVEMENT TRUST SHALL STAND DISSOLVED AND WITH EFFECT FROM THE DATE OF PUBLICATION OF THIS NOTIFICATION I N THE OFFICIAL GAZETTE. SECRETARY TO GOVERNMENT, PUNJAB DEPARTMENT OF LOCAL GOVERNMENT 10. THEREFORE, THE NOTIFICATION IS WORDED IN NO UNC ERTAIN TERMS. IT UNEQUIVOCALLY DECLARED THAT THE ASSESSEE TRUST SHAL L STAND DISSOLVED ON THE DATE OF PUBLICATION OF NOTIFICATION IN THE OFF ICIAL GAZETTE. THEREFORE, EVIDENTLY, THE ASSESSEE TRUST DID STAND DISSOLVED W .E.F. 04.01.2002. 11. THE LD. CIT(A)S VIEW, HOWEVER, IS OTHERWISE. H E OBSERVED, MAKING REFERENCE TO THE PROVISIONS OF SECTION 103 OF THE P UNJAB TOWN IMPROVEMENT ACT, 1922, THAT NO TRANSFER OR TAKE OVE R OF ANY ASSET OF THE TRUST CAME ABOUT AT THE HANDS OF THE MUNICIPAL COMM ITTEE OR PUNJAB GOVERNMENT, NOR WAS THERE ANY CHANGE IN THE WORKIN G OF THE TRUST; THAT THE ONLY CHANGE WAS THAT THE CHAIRMAN OF THE TRUST, WHO WAS EARLIER A POLITICAL APPOINTEE, WAS REPLACED BY A GOVERNMENT O FFICER; THAT THE EXPENDITURE AND INCOME WERE NOT TAKEN INTO ACCOUNT BY THE MUNICIPAL CORPORATION OR THE STATE GOVERNMENT IN ITS BUDGET; THAT ONLY A SHORT LETTER WAS ISSUED BY THE GOVERNMENT OF PUNJAB ON 07 .06.2002, THAT NO NEW SCHEME CAN BE SANCTIONED BY THE GOVERNMENT AT T HIS STAGE DUE TO DISSOLUTION OF THIS OLD TRUST; THAT THIS LETTER WA S SILENT ABOUT THE DAY-TO- DAY WORKING OF THE TRUST AND IT COULD ONLY BE SEEN THAT REGULAR EMPLOYEES WERE BEING PAID FROM THE TRUST FUND ITSELF AND EVEN THE TRUST WAS ALLOWED TO INCUR EXPENDITURE ON VARIOUS CONTINGENCIES; THAT THUS, THOUGH THE TRUST WAS UNDER THE ADMINISTRATIVE CONTROL OF THE G OVERNMENT OF PUNJAB, ITA NO.391(ASR)/2014 A.Y. 2004-05 18 IT HAD NEVER LOST ITS EXISTENCE AS A TRUST; AND THA T IN FACT, TRUSTS HAVE BEEN DISSOLVED AND RESTORED BACK SEVERAL TIMES IN T HE PAST AND ALL THE WORKING PERTAINING TO THESE TRUSTS WAS CARRIED OUT LIKE BEFORE, AS IN THE CASE OF THE PRESENT TRUST. 12. IN THIS REGARD, AS RIGHTLY CONTENDED, IT REMAIN S UNDISPUTED THAT THE NOTIFICATION DATED 04.02.2022 IS UNEQUIVOCAL IN TER MS IN AS MUCH AS IT DISSOLVES THE ASSESSEE TRUST FROM THE DATE OF THE P UBLICATION OF THE NOTIFICATION IN THE OFFICIAL GAZETTE. THE DATE OF THE PUBLICATION OF THE NOTIFICATION IS 09.04.2002. THEREFORE, IT CANNOT BE CHALLENGED THAT AS PER THIS NOTIFICATION, THE ASSESSEE TRUST STOOD DISSOLV ED W.E.F. 04.01.2002. IT IS NOT WITHIN THE PURVIEW OF THE LD. CIT(A) TO CHA LLENGE THE VERACITY AND THE FACT OF A NOTIFICATION LIKE THE PRESENT ONE, IS SUED BY THE STATE GOVERNMENT. THE ASSESSEE TRUST STOOD DISSOLVED TILL THE TIME IT WAS RECREATED ON 12.06.2003, THROUGH NOTIFICATION NO.4 /28/2001- 4LGII/8803 (APB 9-10). 13. APROPOS THE DISSOLUTION OF THE ASSESSEE TRUST O N 04.04.2002, THERE WAS A SIMULTANEOUS DISSOLUTION OF VARIOUS IMPROVEME NT TRUSTS (IN FACT, AS MANY AS 21 IMPROVEMENT TRUSTS WERE DISSOLVED IN ONE GO) AND A MEMO NO.4/29/2002-4LGII/15, DATED 09.04.2002, WAS I SSUED IN THIS REGARD BY THE DEPARTMENT OF LOCAL GOVERNMENT IN THE GOVERNMENT OF PUNJAB, WHICH IS PLACED ON RECORD AT APB 7 TO 9. 14. THUS, FROM THE ABOVE CONTENTS OF THE MEMO, IT I S AMPLY EVIDENT THAT THE DISSOLUTION WAS TERMS OF SECTION 103 OF T HE PUNJAB TOWN ITA NO.391(ASR)/2014 A.Y. 2004-05 19 IMPROVEMENT ACT, 1922. THE FACTUM OF THE SUBSEQUENT REVIVAL OF THE TRUSTS BY THE STATE GOVERNMENT DOES NOT NULLIFY THE INITIAL DISSOLUTION AND THE LD. CIT(A) HAS ERRED IN GOING AGAINST THE SAID PROVISIONS OF THE TOWN IMPROVEMENT TRUSTS ACT IN HOLDING THAT SUCH DI SSOLUTION AND REVIVAL HAD COME ABOUT MANY TIME AND THERE WAS NO U LTIMATE DISSOLUTION SO AS TO ATTRACT THE PROVISIONS OF SECTION 103 OF T HE SAID ACT. 15. SO, FOR ALL INTENTS AND PURPOSES, AS RIGHTLY CO NTENDED, FOR THE PERIOD FROM 01.04.2013 TO 11.06.2013, THE ASSESSEE TRUST, IN FACT, STOOD DISSOLVED AND, THEREFORE, ITS INCOME FOR THE SAID P ERIOD COULD NOT BE BROUGHT TO TAX IN THE STATUS OF AN AOP. HAVING BEEN REDUCED TO A MERE OFFICE OF THE MUNICIPAL COMMITTEE FOR THE SAID PER IOD, ITS STATUS WAS THAT OF A LOCAL AUTHORITY AND NOT THAT OF AN AOP, AS WRO NGLY HELD BY THE LD. CIT(A). THE PROVISIONS OF SECTION 103 OF THE ACT AR E VERY CLEAR IN THIS REGARD. IN FACT, FOR THE PERIOD FROM 01.04.2013 TO 11.06.2003, THERE WAS NO LEGAL ENTITY IN EXISTENCE KNOWN AS BATALA IMPROV EMENT TRUST AND AS SUCH, NO INCOME HAVING ACCRUED OR ARISEN TO THE TRU ST, THE PROVISIONS OF SECTION 10(2) OF THE INCOME TAX ACT ARE CLEARLY ATT RACTED AND THE ASSESSEE IS HELD TO BE ENTITLED TO EXEMPTION THEREUNDER. 16. ACCORDINGLY, GROUND NO.1 IS ACCEPTED. 17. SO FAR AS REGARDS GROUND NO.2, THE AO DETERMINE D THE ASSESSEES INCOME AT RS.30,74,270/-. THE LD. CIT(A) CONFIRMED THIS ACTION OF THE A.O. THE GRIEVANCE OF THE ASSESSEE IS THAT THE ASS ESSEE HAD BEEN GRANTED REGISTRATION W.E.F. 12.06.2003 VIDE CIT-1 ORDER DAT ED 26.10.2007 AND THE ITA NO.391(ASR)/2014 A.Y. 2004-05 20 ASSESSEE HAD APPLIED ITS ENTIRE INCOME FOR THE CHAR ITABLE OBJECTS OF THE TRUST, WHICH FACT HAS ILLEGALLY NOT BEEN TAKEN INTO CONSIDERATION BY THE LD. CIT(A). 18. IT HAS BEEN CONTENDED THAT THE LD. CIT(A) HAS F AILED TO APPRECIATE THAT AT THE TIME OF PASSING OF THE ASSESSMENT ORDER , REGISTRATION FOR THE A.Y. 2003-04 HAD NOT BEEN GRANTED TO THE ASSESSEE T RUST AND IT WAS, THEREFORE, THAT THE ACTIVITIES OF THE TRUST HAD BEE N TREATED AS BUSINESS ACTIVITY; THAT THE REGISTRATION WAS GRANTED TO THE ASSESSEE VIDE ORDER DATED 26.10.2007, WHEREAS THE ASSESSMENT WAS COMPLE TED ON 29.12.2006; THAT THE LD. CIT(A) HAS ILLEGALLY IGNOR ED THESE VITAL FACTS WHILE WRONGLY CONFIRMING THE ADDITION MADE BY THE AO, TRE ATING ALL THE ACTIVITIES OF THE ASSESSEE TRUST AS BUSINESS ACTIVI TIES; THAT WHILE DOING SO, THE LD. CIT(A) HAS ERRED IN FOLLOWING THE ORDER, D ATED 24.02.2014, OF THE AMRITSAR BENCH OF THE TRIBUNAL IN THE CASE OF THE A MRITSAR IMPROVEMENT TRUST, IN ITA NO.636/ASR/2013; THAT THE SAID ORDER OF THE TRIBUNAL SINCE STANDS MERGED IN THE ORDER DATED 10.09.2015 (APB 37 TO 77) PASSED BY THE TRIBUNAL ON REMAND BY THE HONBLE HIGH COURT V IDE ITS ORDER DATED 06.08.2014. 19. THE LD. DR HAS, AGAIN, PLACED STRONG RELIANCE O N THE IMPUGNED ORDER. 20. IT IS SEEN THAT THE LD. CIT(A)S BASIS FOR CON FIRMING THE ADDITION MADE BY THE AO IS THAT ACTIVITIES OF THE TRUST ARE BUSINESS ACTIVITIES IN NATURE. WHILE HOLDING SO, THE LD. CIT(A) HAS PLAC ED RELIANCE ON THE ORDER ITA NO.391(ASR)/2014 A.Y. 2004-05 21 OF THE ITAT (SUPRA), DATED 24.02.2014. THE SAID TRI BUNAL ORDER WAS CHALLENGED BY THE ASSESSEE BEFORE THE HONBLE HIGH COURT AND THE HONBLE HIGH COURT, VIDE ITS ORDER DATED 06.08.2014 , REMANDED THE MATTER TO THE ITAT AND THE ITAT, VIDE ITS ORDER DAT ED 10.9.2015 (SUPRA), HAS HELD AS FOLLOWS: 13. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE 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 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 ITA NO.391(ASR)/2014 A.Y. 2004-05 22 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; 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 ITA NO.391(ASR)/2014 A.Y. 2004-05 23 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 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 ITA NO.391(ASR)/2014 A.Y. 2004-05 24 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 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 ITA NO.391(ASR)/2014 A.Y. 2004-05 25 (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 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 ITA NO.391(ASR)/2014 A.Y. 2004-05 26 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 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 ITA NO.391(ASR)/2014 A.Y. 2004-05 27 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 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: ITA NO.391(ASR)/2014 A.Y. 2004-05 28 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' 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 ITA NO.391(ASR)/2014 A.Y. 2004-05 29 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 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 ITA NO.391(ASR)/2014 A.Y. 2004-05 30 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 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 ITA NO.391(ASR)/2014 A.Y. 2004-05 31 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 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 ITA NO.391(ASR)/2014 A.Y. 2004-05 32 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 (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 ITA NO.391(ASR)/2014 A.Y. 2004-05 33 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. 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] ITA NO.391(ASR)/2014 A.Y. 2004-05 34 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 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. ITA NO.391(ASR)/2014 A.Y. 2004-05 35 133/389/91-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 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, ITA NO.391(ASR)/2014 A.Y. 2004-05 36 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 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 ITA NO.391(ASR)/2014 A.Y. 2004-05 37 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. 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 ITA NO.391(ASR)/2014 A.Y. 2004-05 38 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 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 ITA NO.391(ASR)/2014 A.Y. 2004-05 39 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. 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 ITA NO.391(ASR)/2014 A.Y. 2004-05 40 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 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 ITA NO.391(ASR)/2014 A.Y. 2004-05 41 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 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. ITA NO.391(ASR)/2014 A.Y. 2004-05 42 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 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 ITA NO.391(ASR)/2014 A.Y. 2004-05 43 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). 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 ITA NO.391(ASR)/2014 A.Y. 2004-05 44 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 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 ITA NO.391(ASR)/2014 A.Y. 2004-05 45 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. 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 ITA NO.391(ASR)/2014 A.Y. 2004-05 46 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 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 ITA NO.391(ASR)/2014 A.Y. 2004-05 47 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 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. ITA NO.391(ASR)/2014 A.Y. 2004-05 48 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 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 ITA NO.391(ASR)/2014 A.Y. 2004-05 49 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 AL LOWED IN THE TERMS INDICATED ABOVE. 20.1 THEREFORE, AS PER THE ITAT, THE OBJECTS OF TH E TRUST ARE, FULLY, OBJECTS OF GENERAL PUBLIC UTILITY. THE OBJECT OF T HE ASSESSEE TRUST IS TO PROVIDE BENEFIT TO THE PUBLIC BY BRINGING ABOUT IMP ROVEMENT IN THE TOWN BY PROVIDING STREETS AND HOUSING FACILITIES AND MA KING PROVISION FOR DRINKING WATER ETC., AND THEREFORE, THE EXCESS OF T HE INCOME OF THE TRUST SHALL BE DEEMED TO BE APPLIED FOR THE PURPOSES OT HER THAN CHARITABLE OR RELIGIOUS PURPOSES. THE LD. CIT(A) HAD ALSO HELD T HAT SINCE THE ASSESSEE HAD NOT MAINTAINED SEPARATE BOOKS OF ACCOUNT FOR IT S BUSINESS ACTIVITIES AND EVEN IN THE CASE OF INCIDENTAL BUSINESS ACTIVIT Y, THERE WAS VIOLATION OF PROVISIONS OF SECTION 11(4A) OF THE ACT. 21. HERE ALSO, THE LD. DR HAS MAINTAINED ITS SUPP ORT TO THE ORDER UNDER APPEAL. 22. THE STORY OF THE ASSESSEE IS THAT ITS ACTIVITIE S ARE CHARITABLE IN NATURE AND THAT, THEREFORE, THE PROVISIONS OF SECTI ON 11(4) AND THOSE OF SECTION 14(4A) OF THE ACT ARE NOT APPLICABLE, THERE BEING NO SEPARATE ITA NO.391(ASR)/2014 A.Y. 2004-05 50 BUSINESS UNDERTAKING. IT IS SEEN THAT AS PER THE PR OVISIONS OF SECTION 11(4), FOR THE PURPOSES OF THE SAID SECTION, PROPE RTY HELD UNDER TRUST INCLUDES A BUSINESS UNDERTAKING SO HELD, AND WHERE A CLAIM IS MADE THAT THE INCOME OF ANY SUCH UNDERTAKING SHALL NOT B E INCLUDED IN THE TOTAL INCOME OF THE PERSONS IN RECEIPT THEREOF, THE AO SHALL HAVE THE POWER TO DETERMINE THE INCOME OF SUCH UNDERTAKING I N ACCORDANCE WITH THE PROVISIONS OF THE ACT RELATING TO ASSESSMENT; A ND WHERE ANY INCOME SO DETERMINED IS IN EXCESS OF THE INCOME AS SHOWN IN THE ACCOUNTS OF THE UNDERTAKING, SUCH EXCESS SHALL BE DEEMED TO BE APP LIED TO PURPOSES OTHER THAN CHARITABLE OR RELIGIOUS PURPOSES. THE AS SESSEE, IN THE PRESENT CASE, IS A TRUST CONSTITUTED UNDER A STATUTE, I.E., THE PUNJAB TOWN IMPROVEMENT ACT, 1922. IT DISCHARGES GOVERNMENTAL FUNCTIONS AND DUTIES ASSIGNED BY THE STATE GOVERNMENT. THE OBJECT S OF THE TRUST REMAIN THE SAME AS THOSE UNDER WHICH THE TRUST WAS GRANTED REGISTRATION U/S 12A OF THE ACT. AS SUCH, THE ASSESSEE TRUST CAN, IN NO MANNER, BE HELD TO BE A BUSINESS UNDERTAKING, HOLDING ITS INCOME T O BE TAXABLE. 23. AS PER THE PROVISIONS OF SECTION 11(4A), UNLESS THE BUSINESS IS INCIDENTAL TO THE ATTAINMENT OF THE OBJECTS OF THE TRUST AND UNLESS SEPARATE BOOKS OF ACCOUNT ARE MAINTAINED BY SUCH T RUST IN RESPECT OF SUCH BUSINESS, THE PROVISIONS OF SUB-SECTION (1), O R SUB-SECTION (2) OR SUB-SECTION (3) OR SUB-SECTION (3A) SHALL NOT APPL Y. THE VIEW OF THE DEPARTMENT IS THAT THE ASSESSEE TRUST HAS CARRIED O UT ITS ACTIVITIES IN SUCH A MANNER AS TO MAKE PROFIT AND THAT NO ACTIVIT Y OF ANY GENERAL ITA NO.391(ASR)/2014 A.Y. 2004-05 51 PUBLIC UTILITY HAS BEEN DIRECTLY CARRIED OUT. AS JU XTA-POSED TO THIS, IT REMAINS UNDOUBTED, UNCHALLENGED AND UNDISPUTED THA T THE REGISTRATION WAS GRANTED TO THE ASSESSEE ON COUNTENANCING THE FA CT THAT THE ACTIVITIES OF THE ASSESSEE-TRUST ARE OF GENERAL PUBLIC UTILITY WITHIN THE MEANING OF SECTION 2(15) OF THE ACT. IT ALSO REMAINS ESTABLI SHED THAT THE ACTIVITIES OF THE ASSESSEE-TRUST ARE CARRIED OUT WITH THE LARGER PRE-DOMINANT PUBLIC UTILITY OBJECT. THAT BEING SO, THE OVER ALL OBJECTS IN THE FIELD OF GENERAL PUBLIC UTILITY DO NOT STAND OBLIVERATED BY THE ALLE GATION OF PROFIT MAKING. THUS, AS HELD BY THE TRIBUNAL VIDE ITS ORDER DATED 10.09.2015 (SUPRA), IN THE CASE OF THE ASSESSEE TRUST, UPTO THE PERIOD END ING 01.04.2009, WITH THE INSERTION OF THE EXPLANATION TO SECTION 2(15) O F THE ACT, THE BENEFIT OF SECTION 11 CANNOT BE DENIED TO THE ASSESSEE AT ALL. 24. RELIANCE BY THE LD. CIT(A) ON THE TRIBUNAL ORDE R DATED 24.02.2014 ACCORDINGLY, IS OF NO CONSEQUENCE, THE SAID ORDER H AVING MERGED IN THE LATER ORDER OF THE TRIBUNAL, I.E., DATED 10.09.2015 . 25. FURTHER, PUDA VS. CIT, 103 TTJ (CHD) 988, REL IED ON BY THE LD. CIT(A) ALSO STANDS DISTINGUISHED BY THE TRIBUNAL IN ITS ORDER DATED 10.9.2015 (SUPRA). 26. COMPLIANCE BY THE ASSESSEE-TRUST OF THE PROVI SIONS OF SECTION 11(4) IS NOT SHOWN TO HAVE BEEN BELIED BY THE BOOKS OF ACCOUNT OF THE ASSESSEE. THE INCOME DERIVED FROM PROPERTY HELD UN DER THE TRUST WHOLLY FOR CHARITABLE PURPOSES HAD BEEN APPLIED TO THE EXT ENT OF 85%, FOR THE PURPOSES AND OBJECTS OF CREATION OF THE TRUST. THE INCOME SO ACCUMULATED ITA NO.391(ASR)/2014 A.Y. 2004-05 52 SET APART NOT IN EXCESS OF 15% EARNED FROM THE PRO PERTY DURING THE YEAR UNDER CONSIDERATION. IN THIS REGARD, A STATEMENT SH OWING TOTAL TAXABLE INCOME OF THE ASSESSEE IS FILED AT APB 11 AS FOLLOW S: TOTAL RECEIPTS AS PER INCOME & EXPENDITURE A/C RS.10894461/- LESS: INCOME UTILIZED FOR THE OBJECTS OF TRUST 1. REVENUE EXPENDITURES EXCEPT FOR DEPRECIATION RS.7231058/- 2. CAPITAL EXPENDITURE A. ALMIRAHS RS. 1250/- B. FURNITURE RS. 79200/- C. FRIDGE RS. 9600/- D. WATER COOLER RS.15000/- E. DEVELOPMENT EXP. RS.4744656/- F. LAND COST OF KHAJORI GATE SCHEME RS.1740842 RS.6590548/- TOTAL UTILIZATION DURING THE YEAR RS.13821606/- BUT RESTRICTED TO THE EXTENT OF INCOME RS.108 94461/- AVAILABLE DURING THE YEAR TAXABLE INCOME NIL. 27. MOREOVER, AS CONTENDED, THE BUSINESS ACTIVITY U NDERTAKEN BY THE ASSESSEE TRUST IS AN INTEGRAL PART OF CHARITY AND C HARITABLE ACTIVITIES. NO ACTIVITY OF THE ASSESSEE TRUST HAS BEEN SHOWN TO HA VE BEEN CARRIED ON INDEPENDENTLY, SEPARATELY OR INCIDENTAL TO ACTIVITI ES CLASSIFIABLE AS BUSINESS ACTIVITY. THE SALE AND PURCHASE OF PLOTS/P ROPERTY IS ITS ONLY ACTIVITY, AIMED TOWARDS ATTAINMENT OF THE OBJECTS A ND GOALS OF THE ASSESSEE TRUST. IT HAS BEEN PUT FORTH THAT FOR THIS ACTIVITY, NO SEPARATE BOOKS OF ACCOUNTS ARE REQUIRED TO BE MAINTAINED. TH IS IS ALSO WHAT HAS BEEN HELD BY THE TRIBUNAL IN ITS ORDER DATED 10.9. 2015 (SUPRA). ALL THE ITA NO.391(ASR)/2014 A.Y. 2004-05 53 ACTIVITIES OF THE ASSESSEE TRUST HAVING BEEN SAID T O BE BUSINESS ACTIVITIES IN NATURE, THE BOOKS OF ACCOUNT MAINTAINED BY THE A SSESSEE TRUST DO MEET THE REQUIREMENT IN THIS REGARD. 28. M/S. GSI INDIA VS. DIRECTOR GENERAL OF INCOME TAX, RENDERED BY THE HONBLE DELHI HIGH COURT, IN CIVIL WRIT PETITIO N NO.7797/2009 DATED 26 TH SEPT., 2013 (APB 78 TO 105) AND PHD CHAMBER OF CO MMERCE & INDUSTRY VS. DIRECTOR OF INCOME TAX EXEMPTIONS, 2 12 TAXMAN 194 (DEL.) (APB 106 TO 118), ARE ALSO TO THE SAME EFFECT. 29. THUS, THE ACTIVITIES CARRIED OUT BY THE ASSESS EE ARE ENTIRELY IN CONSONANCE WITH ITS OBJECTS AND NO PROFIT MOTIVE IS ASCRIBABLE TO THE CARRYING ON OF SUCH ACTIVITIES. THE ASSESSEE TRUST, AS SUCH, IS NOT CARRYING ON ANY BUSINESS AND, THEREFORE, IT IS NOT REQUIRED TO MAINTAIN ANY SEPARATE BOOKS OF ACCOUNT. THE REGULAR BOOKS OF ACC OUNT MAINTAINED BY THE ASSESSEE ARE BEING MAINTAINED FOR RECORDING OF THE ACTIVITIES OF THE ASSESSEE, IN CONSONANCE WITH THE OBJECTS OF THE TRU ST. 30 IN VIEW OF THE ABOVE, FINDING MERIT IN GROUND NO S. 3 & 4 RAISED BY THE ASSESSEE, THE SAME ARE ALSO ACCEPTED. 31. THE ORDER OF THE LD. CIT(A) ON BOTH THESE COUNT S IS REVERSED. 32. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS A LLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 20/07/ 2016. SD/- SD/- (T.S. KAPOOR) (A.D. JAIN) ACCOUNTANT MEMBER JUDICIAL MEMBER /SKR/ DATED: 20/07/2016 COPY OF THE ORDER FORWARDED TO: ITA NO.391(ASR)/2014 A.Y. 2004-05 54 1. THE ASSESSEE:BATALA IMPROVEMENT TRUST 2. THE ITO WARD 2(4), BATALA. 3. THE CIT(A) 4. THE CIT 5. THE SR DR, ITAT, AMRITSAR. TRUE COPY BY ORDER INCOME TAX APPELLATE TRIBUNAL, AMRITSAR BENCH: AMRITSAR.