IT: Where assessee did not produce various details of expenditure incurred by it on various activities undertaken to achieve its objects before any revenue authorities, exemption under section 11 was rightly denied to assessee
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[2013] 35 taxmann.com 161 (Amritsar - Trib.)
IN THE ITAT AMRITSAR BENCH
Assistant Commissioner of Income-tax
v.
Amritsar Improvement Trust*
H.S. SIDHU, JUDICIAL MEMBER
AND B.P. JAIN, ACCOUNTANT MEMBER
AND B.P. JAIN, ACCOUNTANT MEMBER
IT APPEAL NOS. 476 & 477 (ASR.) OF 2011
[ASSESSMENT YEARS 2006-07 & 2007-08]
[ASSESSMENT YEARS 2006-07 & 2007-08]
JANUARY 15, 2013
Section 11 of the Income-tax Act, 1961 - Charitable or religious trust - Exemption of income from property held under [Application of income] - Assessment years 2006-07 and 2008-09 - Whether grant of registration under section 12AA does not mean that Assessing Officer is barred from examining details of various activities/work undertaken by trust to achieve its object - Held, yes - Assessee-trust claimed exemption under section 11 - Whether since assessee did not produce various details of expenditure incurred by it on various activities undertaken to achieve its objects before any revenue authorities in spite of various opportunities provided for same, Assessing Officer rightly denied exemption under section 11 to assessee - Held, yes [Para 13.5] [In favour of revenue]
FACTS
| ■ | The assessee-trust registered under section 12AA claimed exemption under section 11. | |
| ■ | The Assessing Officer asked the assessee to file complete details of activity undertaken by it to achieve the objectives of the trust along with details of amount spent on each activity. The assessee did not submit any additional details. The Assessing Officer concluded that various development activities undertaken by the assessee were confined to the area covered under the scheme floated by the Improvement Trust but practically nothing had been done to achieve other activities required for exemption under section 11. Accordingly, the exemption under section 11 was denied to the assessee and income was brought to tax as income from business. | |
| ■ | The Commissioner (Appeals) however allowed the appeal of the assessee. | |
| ■ | On second appeal: |
HELD
| ■ | When the registration is granted, it does not mean that the Assessing Officer is barred from examining the details of various activities/work undertaken by the trust to achieve the object of the assessee-trust. The Assessing Officer is within his power to call complete details of income and expenditure of the assessee whether these have been spent on the activities to achieve the objects of the trust or not. [Para 13.3] | |
| ■ | The assessee-trust has not proved its case for seeking exemption under section 11 by producing various details of expenditure incurred by the assessee-trust on various activities undertaken to achieve its objects before any Revenue authorities, not even before the Tribunal in spite of asking to the counsel for the assessee-trust. | |
| ■ | Therefore, the first appellate authority has wrongly deleted the additions in dispute by passing the impugned orders which deserves to be cancelled. The impugned orders passed by the Commissioner (Appeals) is cancelled and the orders of the Assessing Officer is upheld by holding that the activities done by the assessee-trust does not qualify for exemption under section 11 and the same has rightly been brought to tax as income from business. [Para 13.5] |
CASE REVIEW
Punjab Urban Planning & Development Authority v. CIT [2006] 156 Taxman 37 (Chd.) (Mag.) (para 13.4) followed.
CASES REFERRED TO
CIT v. Improvement Trust [2009] 308 ITR 361 (Punj & Har.) (para 3), Jyoti Prabha Society v. CIT [2003] 87 ITD 126 (Delhi) (para 5), Punjab Urban Planning & Development Authority v. CIT [2006] 156 Taxman 37 (Chd.) (Mag.) (para 6), Improvement trust v. Asstt. CIT [CWP. No. 10265 of 2009, dated 20-7-2009] (para 8) and Ahmedabad Rana Caste Association v. CIT [1971] 82 ITR 704 (SC) (para 12).
R.L. Chhanalia for the Appellant. J.P. Bhatia for the Respondent.
ORDER
1. The Revenue has filed these two appeals against two different orders of CIT(A), Amritsar, each dt. 20th June, 2011 for the asst. yrs. 2006-07 and 2008-09 respectively. The issues involved in both the appeals are almost common, therefore, these are being disposed of by this consolidated order for the sake of convenience.
2. The grounds raised by the Revenue in ITA No. 477/Asr/2011 are reproduced hereunder for the sake of convenience which are almost similar in ITA No. 476/Asr/2011 :
| "1. | On the facts and in the circumstances of the case, the learned CIT(A) has erred in deleting the addition of Rs. 5,38,12,792 made by the AO by treating the surplus income into business income. | |
| 2. | On the facts and in the circumstances of the case, the learned CIT(A) has erred in deleting the disallowance of Rs. 20,78,020 debited to income and expenditure account by the AO, since the employees' PF were kept in the shape of Bank FDRs/Saving accounts and as such the assessee have not fulfilled the conditions laid down for the entitlement of deduction. | |
| 3. | On the facts and in the circumstances of the case whether the learned CIT(A) undertaking by the Improvement Trust, Amritsar qualify for exemption under s. 11 of the Act when the facilities provided by the trust is beneficial only to a handful of people who purchased properties from trust. | |
| 4. | On the facts and in the circumstances of the case, whether the learned CIT(A) was correct in deleting the addition of Rs. 5,39,12,792 as the objects of the assessee though claimed to be charitable but actually are of purely commercial nature where profit motive is involved. | |
| 5. | The appellant craves leave to amend or add any or more grounds of appeal at the time of hearing of appeal." |
3. The brief facts of the case are that the assessee filed its return declaring Nil income on 31st March, 2008 which is accompanied by audit report in Form 10B along with its annexure. The same was processed under s. 143(1) of the Act by the AO on 9th March. 2009. The AO had taken up the case of the assessee for scrutiny by issuing notice under s. 143(2) of the IT Act, 1961 (hereinafter called the 'Act') on 8th Sept., 2008, which was served upon the assessee on 12th Sept., 2008. Later on, the case of the assessee was transferred and the concerned AO issued a notice under s. 142(1) on 28th Oct., 2009 which was served upon the assessee on 5th Nov., 2009. In response to the same, authorised representative of the assessee appeared and filed some details. After perusing the reply filed by the assessee along with some details, as well as discussion with the Authorised Representative of the assessee, the AO specifically asked the assessee to furnish complete details of various activities/work undertaken by the trust to achieve the objectives of the trust in the prescribed manner, which he has supplied to the assessee's counsel. In response to the same, the assessee replied vide letter dt. 10th Nov., 2009 and stated that the details of various activities undertaken by the assessee during the year under review has already been incorporated in Annex. 11. The AO perused the same and again asked the assessee that the information supplied by the assessee is not supplied in the proper format and the AO again asked the assessee to file information in a proper format as given by him. The assessment proceedings were adjourned many times and the AO perused the requisite information supplied by the assessee and found that most of the development activities has been carried out by the Improvement Trust in the area covered by its own scheme. The old area has been left untouched. He has also pointed out to the assessee's counsel that the objectives of the trust, are not confined to developing new housing/commercial projects but also includes development of old city for practically nothing has been done. The AO also stated to the assessee that in the earlier year, the registration under s. 12AA has been denied to the assessee for the reason that the assessee-trust has failed to fulfil the objectives for which addition (sic-assessee) is created. The assessee has given reply that in the earlier year, the Tribunal, Amritsar Bench, has allowed the registration to the assessee and assessee has also relied upon the case laws in the case of CIT v. Improvement Trust [2009] 308 ITR 361 wherein the Hon'ble Punjab & Haryana High Court has upheld the registration of the Improvement Trust, Moga.
4. The AO considered all the replies of the assessee and stated that the assessee is simply harping on one issue that though registration under s. 12AA of the Act was refused to the assessee by the CIT-II, Amritsar, the order of the CIT-II, Amritsar was reversed by the Tribunal, Amritsar Bench, vide order dt. 22nd Feb., 2008 and the miscellaneous application filed by the Department has also been rejected vide order dt. 21st May, 2009 and the assessee relied upon the case law of Improvement Trust, Moga, in which the Hon'ble Punjab & Haryana High Court vide its order dt. 31st Oct., 2008 has upheld the registration of the Improvement Trust, Moga.
5. After considering the reply as well as the decision relied upon by the assessee, the AO stated that allowing of registration to the assessee does not mean that he got impunity (sic-immunity) from fulfilling the requirement of s. 11 or 12 as the case may be. It is the duty of the AO that during assessment proceedings, he can obtain details of various receipts and expenditure and verify whether the same has been utilized for achieving the aims and objectives for which trust is created. The AO relied upon the decision of the Tribunal, Delhi Bench, in the case of Jyoti prabha Society v. CIT [2003] 87 ITD 126in which the Tribunal Delhi Bench has held that at the time of processing the application seeking registration the CIT was not expected to go in detail and prima facie the assessee was able to make out a case for registration. Even if registration is granted that will not be precluding the AO to examine in detail the very object of the assessee and to give the finding in assessment proceedings as to assessee had complied with the requirement of s. 11 or not. At the most registration certificate, if granted, will make out a prima facie case in favour of the assessee that its activities are charitable but that will not be obstacle in the way of the AO at the time when assessment proceedings are to be taken up and to decide as to whether assessee is entitled for benefits of ss. 11 or 12, as the case may be. That will be the second stage. But at this stage the objects and activities of the assessee make out a case for granting registration. The AO held that the Tribunal, Delhi Bench has reversed the order of the learned CIT(A) and granted registration under s. 12A by relying upon various decisions rendered by the High Courts. He held that it is the duty of the AO to obtain various details of expenditure incurred by the assessee-trust on the various activities undertaken to achieve the objectives of the trust. The various Improvement Trusts were created as per provision of Punjab Town Act, 1922.
6. After detailed discussions with the learned counsel for the assessee as well as after perusing the evidence filed by the assessee, the AO held that in spite of various opportunities given to the assessee for furnishing details of various activities along with the detail of expenses incurred, as undertaken by assessee trust to achieve the objectives for which it is created, the assessee has not filed the same. Whatever the assessee has filed shows that various development activities undertaken by it are confined to the area covered under the scheme floated by the Improvement Trust. But practically nothing has been done to achieve other objectives required for exemption under s. 11 of the Act. The AO also relied upon the order of the Tribunal, Chandigarh Bench in the case of Punjab Urban Planning & Development Authority v. CIT [2006] 156 Taxman 37 (Mag.) and stated that the facts of the assessee's case are not better than PUDX, rather facilities provided by the f assessee are no match to the facilities provided by PUDA. The benefit of a few development scheme launched by the Improvement Trust, Amritsar, benefited only a handful of people who purchased properties from trust and the assessee-trust did little for the benefit of the public at large of Amritsar City. Therefore, income of the assessee arising from various activities does not qualify for exemption under s. 11 of the Act and the same is brought to tax as income from business as per provisions of the Act and added to the returned income of the assessee (the sum) of Rs. 5,39,12,792.
7. Secondly, the AO also asked the assessee to file explanation regarding Provident Fund showed payable in the balance-sheet. In reply, the assessee stated it is holding Provident Fund money in the shape of FDRs and savings accounts, as per provisions of s. 36(1 )(iv) of the Act. But the AO held that the assessee has deposited Employees Provident Fund in banks FDRs/Saving accounts and the assessee is not entitled for deduction under s. 36(l)(iv) of the Act because the assessee did not fulfil the conditions laid down for the entitlement of the deduction of payment of provident fund. Therefore, a sum of Rs. 20,78,026 debited to the income and expenditure account and disallowed the same by adding to the returned income of the assessee while completing assessment under s. 143(3) of the Act on 1st Dec., 2009.
8. Aggrieved by the assessment order, the assessee filed an appeal before the CIT(A), who vide impugned order dt. 20th June, 2011 allowed the appeal of the assessee mainly holding that the asscssee-trust is an Improvement Trust constituted under the provisions of Punjab Town Improvement Trust (Act), 1922 and the principal objects of the trust is to bring out improvement in the town by providing streets, housing facilities, or making provision for drinking water etc. for the benefit of general public within its local limits and the activities are charitable in nature in view of s. 2(15) of the Act and the same was entitled to registration under s. 12AA of the Act in Improvement Trust (supra). He relied upon the decisions of the Improvement Trust (supra) andImprovement Trust v. Asstt. CIT [CWP No. 10265 of 2009] vide its orders dt. 3lst Oct., 2008 and 20th July, 2009 respectively that the activities of the trusts are charitable in nature. Finally, the learned CIT(A) held that CIT-II. Amritsar has refused registration to the assessee-trust and the order of the learned CTT-II has been reversed by the Tribunal. Amritsar Bench vide their order dt. 22nd Feb., 2008 and allowed registration to the assessee. Therefore, the activities of the trust are charitable in nature and the assessee is entitled for exemption under s. 11 of the Act.
9. As regards disallowing the claim on account of Employees Provident Fund of Rs. 20,78,026, the learned CIT(A) held that the status of the assessee has been declared as trust and registration under s. 12AA by virtue of finding of the Tribunal, Amritsar Bench has been granted and the assessee-trust has utilized the entire income towards its main object as well as the assessee had deposited provident fund amounting to Rs. 20,78,026. Even after considering this amount, there remains still deficit of Rs. 23,57,98,414. Therefore, the AO is not justified in considering assessee's book version and after taking into account the income applied towards its one of the main objects of acquisition of assets and depositing its employees' provident fund and enforceable by the employees under the Provident Fund Act, instead of yielding any surplus, it results into huge deficit and there remains no part of taxable surplus and the question of creating any demand does not arise and he deleted the addition in dispute by passing the impugned order.
10. Now, the Revenue has filed the present appeal against the impugned orders passed by the learned CIT(A).
11. The learned Departmental Representative relied upon the orders passed by the AO and stated that in spite of various opportunities given to the assessee by the AO to furnish complete details of various activities/work undertaken by the assessee-trust to achieve the objects of the trust. But the assessee trust failed to supply the details to the AO. Therefore, the AO has rightly made the addition in dispute by disallowing exemption under s. 11 of the Act. He further stated that the case of the assessee is fully covered by the decision of the Tribunal, Chandigarh Bench-B, Chandigarh, in the case ofPunjab Urban Planning & Development Authority (supra). He requested that the appeals filed by the Revenue may be allowed and the impugned orders passed by the learned C1T(A) may be cancelled and the orders of the AO may be upheld.
12. The learned counsel for the assessee controverted the arguments advanced by the learned counsel and stated that the case of assessee is fully covered in favour of the assessee by the decision of the Hon'ble Punjab & Haryana High Court, passed in CWP No. 10265 of 2009 in the case ofImprovement Trust (supra) in which the Hon'ble High Court held that the Improvement Trust Moga was carrying on activities of general welfare covered by the expression "any other object of general public utility" used in s. 2(15) of the Act. He further stated that the learned CIT(A) has also followed the order of the Jurisdictional High Court and allowed the appeal of the assessee by giving the exemption as claimed by the assessee-trust. He has also argued that the AO has referred the case of the assessee for special audit under s. 142(2A) of the Act and the auditor has submitted his report on 23rd June, 2009 in which he has observed that the consequence of the order of the Tribunal, Amritsar Bench, the provisions of ss. 11 to 13 of the Act become applicable for the asst. yr. 2006-07 to the trust by treating it as a charitable institution. Lastly, he stated that the assessee-trust is created as per provisions of Punjab Town Act, 1922 and there are many objects which are to be achieved by the assessee- trust. Those are of charitable nature. In support of his arguments, he has relied upon the decision of the Hon'ble Supreme Court in the case of Ahmedabad Rang Caste Association v. CIT[1971] 82 1TR 704 and has also given the copy of the order of the Jurisdictional High Court, dt. 20th July, 2009 passed in CWP No. 10265 of 2009 in the case of Improvement Trust (supra).
13. We have heard both the parties and perused the records available with us along with citations cited by both the parties as well as mentioned in orders passed by the Revenue Authorities. The assessee has filed its return of income for the asst. yr. 2006-07 along with audit report in Form 10B. But the AO found that the audit report attached by the assessee with its return was not based on accepted norms/principle of accountancy and it was not possible for him to draw the correct results from the details filed by the assessee. The case of the assessee was referred for special audit with the prior approval of the CIT-II and M/s Padam Bahl & Co. Amritsar appointed as auditors and M/s Padam Bahl & Co. submitted the audit report on 23rd June, 2009 which was supplied to the assessee vide letter dt. 13th July, 2009 along with notice under s. 142(1) of the Act, asking the assessee to give its comments on the audit report, if any on the date of hearing. The AO asked the assessee to file complete details of activity undertaken by it to achieve the objectives of the trust along with details of amount spent on each activity and the case was fixed for 20th July, 2009. On 20th July, 2009, nobody attended the proceedings and the case was fixed vide notice under s. 142(1) of the Act on 21st July, 2009 or 28th July, 2009. On the date of hearing Shri Sanjay Kapoor, CA sought time to file the reply and the case was adjourned to 12th Aug., 2009 vide letter dt. 3rd Aug., 2009 and hearing was preponed to 11th Aug., 2009 and the assessee was specifically told that no further adjournment will be allowed. On 11th Aug., 2009, assessee filed its reply in which the assessee has stated that registration to Amritsar Improvement Trust was refused by the CIT-II vide his letter dt. 21st Sept., 2006, which was reversed by the Tribunal Amritsar Bench, vide its order dt. 22nd Feb., 2008. Further, the miscellaneous application filed by the Department against this order was also rejected by the Tribunal, Amritsar Bench, vide order dt. 21st May, 2009. The assessee further stated in its reply that as per special audit report dt. 22nd June, 2009, the consequences of the order of the Tribunal, Amritsar Bench is that the provisions of s. 11 to s. 13 become applicable in the case of the assessee. The assessee further sought adjournment to file more details and the case was adjourned to 18th Aug., 2009. On 18th Aug., 2009 accountant of the assessee appeared and again filed similar reply with regard to addition and citing case law of Hon'ble Jurisdictional High Court in the case of Improvement Trust (supra) but did not file any detail as required by the AO. After going through the reply as well as some case laws cited by the AO held that in spite of various opportunities given to the assessee for filing the details and those expenses which were incurred for achieving the objects for which the trust was formed. But the assessee could not furnish any such details as the assessment was going to be barred by time limitation. He finally adjourned the case for 18th Aug., 2009 for filing the details by the assessee. In response to the same, the assessee did not file any details as required by the AO and the AO has held that the assessee is simply harping on one issue that though the registration under s. 12A was refused to the assessee by the CIT-II, the order of CIT-II, Amritsar was reversed by the Tribunal. Amritsar Bench vide its order dt. 22nd Feb., 2008 and the miscellaneous application filed by the Department has also been rejected vide dt. 21st May, 2009 and stated that some case laws relating to Improvement Trust Moga in which the Hon'ble Jurisdictional High Court has upheld the registration of the Improvement Trust Moga. The AO has also held that merely allowing registration to the assessee does not mean that the assessee got impunity (sic-immunity) from fulfilling the requirements of ss. 11 and 12 as the case may be. It is the duty of the AO that during assessment proceedings he should obtain details of various receipts and expenditure and verify whether the same has been utilized for achieving aims and objectives for which the trust is created. The AO has completed assessment by refusing exemption, claimed by the assessee under s. 11 of the Act, by passing assessment order stating that some details furnished by the assessee pertaining to the expenditure incurred in respect of various residential/commercial schemes floated by the assessec-trust from time to time and perusal of the activities undertaken by the Improvement Trust Amritsar reveals that except for acquiring land and developing the same into residential/commercial projects like any other private builder have done little for achieving the aims and objectives for which it is created. The AO with the help of the decision of the Tribunal, Chandigarh "B' Bench in the case of Punjab Urban Planning & Development Authority (supra) has denied the exemption as claimed by the assessee and lastly held that the income of the assessee arising from the various activities does not qualify for exemption under s. 11 of the Act and the same is brought to tax as income from business, as per provision of IT Act, 1961.
13.1 The learned first appellate authority, on appeal filed by the assessee-trust has allowed the exemption as claimed by the assessee by relying upon the decision, passed in the case of Improvement Trust (supra) by the Hon'ble jurisdictional High Court. The learned first appellate authority has held that keeping in view the statistics of income and expenditure incorporated in the assessment order under appeal, it is seen that the AO has been under mistaken and misconception that the assessee has not applied 85 per cent of its receipts and income towards its aims and objectives. Therefore, the assessee-trust has fulfilled the conditions laid down in ss. 11 and 12 by applying revenue receipts as per its audit report. Therefore, the addition in dispute deserves to be deleted and he deleted the addition in dispute by allowing the appeal of the assessee.
13.2 After carefully perusing the impugned orders, we are of the view that the learned first appellate authority has not even asked from the assessee-trust to satisfy the requirements of the AO i.e. to furnish complete details of the activities undertaken by the assessee-trust to achieve the objectives of the trust along with details of the amount spent on each activity. The learned first appellate authority has merely mentioned 7-8 figures from the special audit report and stated that the assessee has applied more than 85 per cent of the gross receipts towards aims and objectives. The learned first appellate authority has taken the help from the order of the Tribunal, Amritsar Bench, in which CIT-II. Amritsar, has rejected the registration under s. 12AA of the Act on 21st Sept., 2006, which was reversed by the Tribunal, Amritsar Bench on 22nd Feb., 2008. Secondly, the learned CIT(A) has taken the help of the decision dt. 31st Oct., 2008 passed by Jurisdictional High Court in the case of Improvement Trust (supra) wherein their Lordships upheld the registration of the Improvement Trust Moga and allowed the exemption as claimed by the assessee. For the sake of convenience, the relevant portion of the impugned order passed by the learned first appellate authority is reproduced as under :
"8. Grounds No. 2 and 34 pertains to the appellant's grievance over its status having been taken/adopted as local authority as against it being a trust from its very name and nomenclature. The learned Authorised Representative for the appellant has explained that the appellant is an Improvement Trust constituted under the provisions of the Punjab Town Improvement Trust Act, 1922 and the principal object of the trust is to bring out improvement in the two by providing streets, housing facilities or making provision for drinking water etc. for the benefit of general public within its local limits. The learned Authorised Representative of the appellant has by placing heavy reliance on the jurisdictional Hon'ble Punjab & Haryana High Court's decisions in the case of Improvement Trust, Moga and Improvement Trust, Faridkot vide its order dt. 31st Oct., 2008 and 20th July, 2009 respectively that activities of Improvement Trusts are of charitable nature and are covered by the expression any other object of general public utility as mentioned in s. 2(15) of the IT Act, 1961 and the same was entitled to registration under s. 12AA of the IT Act, 1961 reported in CIT v.Improvement Trust Moga (2008) 15 DTR (P&H) 217 : (2009) 308 ITR 361 (P&H) and by impliedly deriving support for the above cited identical judgments of the jurisdictional Hon'ble Punjab & Haryana High Court, it is strongly pleaded that the appellant, Improvement Trust, Amritsar, being involved in the objects of the general public utility envisaged under s. 2(15) of the Act is mutatis mutandis entitled to registration under s. 12AA. Further, as per given facts, the orders dt. 21st Sept., 2006 of the learned CIT-II, Amritsar refusing registration under s. 12AA did not find favour with the jurisdictional Hon'ble Tribunal, Amritsar, who vide their orders dt. 22nd Feb., 2008 have allowed registration to the appellant and further the Department's Misc. application stands rejected vide their subsequent orders dt. 21st May, 2009. The learned Authorised Representative for the appellant has further placed heavy reliance on the judgments of the jurisdictional Hon'ble Punjab & Haryana High Court in the cases of CIT v. Market Committee (2010) 45 DTR (P&H) 381 : (2011) 238 CTR (P&H) 103 : (2011) 330 ITR 16 (P&H) and in the case ofCIT v. Tinny Educational Society.
8.1 Thus, both on Acts and on law, the appellant is deemed to be entitled for registration under s, 12AA of the Act, as far as the instant appeal for the asst. yr. 2006-07 is concerned, the learned AO is directed to adopt appellant's status as that of a trust.
9. Vide ground Nos. I, 4 and 5, the appellant has strongly agitated on merits the AO's findings and taxing its entire receipts without considering its claim for exemptions under s. 11 of the Act. It has been stated for and on behalf of the appellant that though for the assessment year under consideration, the appellant's accounts were not subjected to special audit under s. 142(2A) but on the basis of special audit report for the immediately preceding asst. yr. 2006-07 wherein the Special Auditors expressedly opinion that the provisions of ss. 11 to 13 are applicable to the case of the appellant-trust treating it as a charitable Institution and by implication, the concept of "Income received" and "Income applied" shall have to be kept in mind and by doing so the appellant has worked out its deficit/surplus and filed its income tax return for the asst. yr. 2007-08 accordingly.
| Surplus as per Income & Expenditure Account | Rs. 5,39,12,792 | |||
| Less: | ||||
| (i) Income applied towards acquisition of fixed assets | Rs. 26,81,01,075 | |||
| (ii) Difference in value of stock | Rs. 2,16,10,131 | |||
| Total : | Rs. 28,97,11,206 | Rs. 28,97,11,206 | ||
| Deficit | ||||
| Rs. 32,57,98,414 |
On the contrary, the AO by observing that the appellant is not rendering services towards its aims and objects enshrined in ss. 22 and 23 of the Punjab Town Act, 1922 and also by adopting its status as that of a local authority has concluded since the appellant did little for the benefit of the public at large of Amritsar City even not better than PUDA, it has been held by the AO that income of the appellant arising from the various activities does not qualify for exemption under s. 11 of the Act and the same is brought to tax as its business income. By this way, the AO taxed the entire receipts of the appellant Rs. 5,39,12,792. Further, the AO disallowed the assessee's claim of its employees provident fund of Rs. 20,78,026 after considering the appellant's reply dt. 30th Nov., 2009 to the effect that it is setting apart such PF in the shape of FDR or saving bank accumulations and also applying the provisions of s. 36(1 )(iv) which speaks about any sum of PF paid by the assessee to its employees, provident fund of Rs. 20,78,026 after considering the appellant's reply dt. 30th Nov., 2009 to the effect that it is setting apart such PF in the shape of FDR or saving bank accumulations and also applying the provisions of s. 36(l)(iv) which speaks about any sum of PF paid by the assessee to its employees, on the ground that instead of paying PF to its employees, it I has set apart the PF in the shape of FDRs/SB accounts which means that it remained unpaid to its employees and the appellant did not fulfil the conditions laid down therefor but raised the claim by debiting it to its income & expenditure account and added back the unpaid PF to the appellant's income. As discussed in the immediately preceding para of this order, the appellant's status is required to be taken/adopted as that of a trust as it stands granted registration under s. 12AA by virtue of the findings of the final fact finding authority and jurisdictional Hon'ble Tribunal, Amritsar vide their orders dt. 22nd Feb., 2008/21st May, 2009 which is binding upon the Department and by respectfully following the same, the appellant-trust is deemed to have been granted registration under s. 12AA and thereafter provisions of ss. 11 to 13 comes into play. Now the only point on anvil is that whereas the AO is treating its entire income as taxable as not having been utilized towards its aims and objects, but on the other hand, the appellant's learned counsel has pleaded that after considering the income applied towards one of its main object of acquisition of fixed assets to the extent of Rs. 26,81,01,075 and further adding therein by way of adjustment claimed towards difference in its stock valuation amounting to Rs. 2,16,10,131, the total adjustable amount of Rs. 28,97,11,206 when adjusted from the surplus of Rs. 5,39,12,792, there remains deficit of Rs. 23,57,98,414. Further, it is urged that the appellant has deposited PF amounting to Rs. 20,78,026 and even after considering this amount, there remains still deficit of Rs. 23,78,76,440. Under these facts and circumstances of the case, I think that the AO is not justified in considering the appellant's book version and after taking into account the income applied towards its one of the main objects of acquisition of assets and depositing its employees' PF into FDR or SB accumulations tantamount to deemed payment of PF and enforceable by the employees under the PF Act, instead of yielding any surplus, it results into huge deficit of (-) Rs. 23,57,98,414. Since, there remains no part of taxable surplus, the question of creating any demand does not arise. Accordingly, the additions of Rs. 5,39,12,792 and of Rs. 20,78,036 towards allegedly unpaid PF are hereby deleted. This disposes of appellant's grounds of appeal No. 1, 4 and 5 in favour of the appellant."
13.3Keeping in view the aforesaid impugned order passed by the learned first appellate authority, we are of the considered view that the case laws relied upon by the learned first appellate authority arc relating to granting registration under s. 12AA of the Act and not relating to exemption provided under ss. 11 and 12 of the Act. Therefore, the case laws relied upon by the learned CIT(A) as well as the learned counsel for the assessee are not relevant and helpful on the issue in dispute. No doubt, at the time of processing the application for seeking registration, the learned CIT(A) was not expected to go in detail and prima facie, the assessee was not able to make out a case for registration.... When the registration is granted, it does not mean that the AO is barred from examining the details of various activities/work undertaken by the trust to achieve the object of the assessee-trust. The AO is within his power to call complete details of income and expenditure of the assessee whether these have been spent on the activities to achieve the objects of the trust or not. In spite of various opportunities given by the AO, the assessee, nor his Authorized Representative filed details as required by the AO. Even before us, the learned counsel for the assessee has not filed any details specifically asked by us. He has only filed copy of order dt. 20th July, 2009 passed by the jurisdictional High Court in the case of Improvement Trust (supra). We have perused the order passed by the Hon'ble jurisdictional High Court and found that the Hon'ble High Court has passed this order on the issue whether the assessee is entitled for registration under s. 12AA of the Act or not and not on the issue in dispute i.e. granting the exemption under s. 1 I of the Act. The Tribunal, Delhi C Bench, in the case of Jyoti Prabha Society (supra) has held as under :
"At the time of processing the application seeking registration the CIT was not expected to go in detail and prima facie the assessee was able to make out a case for registration. Even if registration is granted that will not be precluding the AO to examine in detail the very object of the assessee and to give the finding in assessment proceedings as to assessee had complied with the requirement of s. 11 or not. At the most registration certificate, if granted, will make out a prima facie case in favour of the assessee that its activities are charitable but that will not be obstacle in the way of the AO at the time when assessment proceedings are to be taken up and to decide as to whether assessee is entitled for benefits of s. 11 or 12, as the case may be. That will be the second stage. But at this stage the objects and activities of the assessee make out a case for granting registration. Accordingly, the order of the CIT is reversed and assessee is entitled for registration under s. 12A-Aggarwal Shiksha Samiti Trust v.CIT (1987) 66 CTR (Raj.) 95: (1987) 168 ITR 751 (Raj) and CIT v. Saraswati Poor Students Funds (1985) 46 CTR(Kar.) 107 : (1985) 150 ITR 142 (Kar.)."
13.4 The AO has rightly rejected the claim of the assessee by following the order of the Tribunal, Chandigarh B-Bench, in the case of Punjab Urban Planning & Development Authority (supra). The relevant contents of the same are reproduced as under :
"It is well known fact that in some of the situation, the provision of law are misused in the names of charities. If an expanded/broader latitude is extended to the word charity, then there are so many inspirations/Departments who will try to come under the umbrella of this provision to misuse the provision. Therefore, for the broad development of nation/society, a strict and positive vigil is required so that the provision can be saved from its misuse in any manner. No activity can be carried on efficiently, properly unless and until it is carried out on business principle but it does not mean that the provision is misused in any manner under the garb of charity and any institution to become richer and richer under the garb of the charity by making it non-tax payable organization. Charitable institution provides services for charitable purposes free of cost and not for gain. In the present scenario, similar activities are performed by the big colonizers/developers who are earning a huge profit if registration is granted then anybody will claim the exemption from the tax. If the account of the assessee are analysed it has turned into the profit making agency for which it is taking money if the institution of public importance like 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 objects/activities of the assessee are more of commercialized nature and no charity is involved in it. At the same time, if these facilities are not provided, then nobody will purchase a plot. It can be said that it is a means of attracting the people so that maximum people may apply for the same and the hidden cost is already added, so no charity is involved. At best, the assessee can be said to be an authority created to help to achieve certain objects. It can be said that is the duty of the Government to create/develop all these facilities to public at large, which is being done through his agency in a particular area. At the same, the funds which are provided to the assessee by the Government is again a public money or generated from public itself. The objects of the assessee though claimed to be charitable, but actually are of purely commercial nature where profit motive is involved. It is a known fact that the assessee is acquiring a land at very low prices and selling the same land on very higher rates and is earning a profit therefrom. A new trend has also emerged that the assessee has started auctioning the plot by way of bidding at the market rate and sometime more than that and charging interest on belated payment. In such a situation, no charity is involved. Rather the assessee has converted itself into a big businessman. Similar development/infrastructure/facilities are also provided by private developers these days, then they will also claim the status of a charitable institution. The facilities which are provided to the plot holders are incidental to the commercial activity carried out by the assessee and if certain facilities like parts, community centre, school are provided, it is not only basic requirement, rather a tool of attracting the investors wherein the hidden cost of these facilities are already included. In the absence of these facilities, normally the purchaser may not invest and the prices may be less. In view of these facts, the assessee's activities not being of charitable nature, the application of registration under s. 12A has been rightly rejected by CIT.-Asstt. CIT v. Thanthi Trust (2001) 165 CTR (SC) 681 : (2001) 247 1TR 785 (SC) and Bihar State Forest Development v. CIT (1997) 224 ITR 757 (Pat) relied on; Addl.CIT v. Surat Silk Cloth Manufacturers Association (1979) 13 CTR (SC) 378 : (1980) 121 ITR 1 (SC), CIT v. Andhra Pradesh State Road Transport Corporation(1986) 52 CTR (SC) 75 : (1986) 159 ITR 1 (SC) and New Life in Christ Evangelistic Association (NLC) v. CIT (2001) 165 CTR (Mad) 446 : (2000) 246 ITR 532 (Mad.) distinguished."
13.5 After perusing the aforesaid order passed by the Co-ordinate Bench as well as orders passed by the Revenue authorities, especially the impugned orders, we are of the considered view that the learned first appellate authority has passed the impugned orders contrary to law and facts on record, which deserves to be cancelled. Keeping in view the facts and circumstances of the present case, we are of the view that the assessee-trust has not proved its case for seeking exemption under s. 11 of the Act by producing various details of expenditure incurred by the assessee-trust on various activities undertaken to achieve its objects before any Revenue authorities, not even before us in spite of asking to the learned counsel for the assessee-trust. Therefore, we held that the learned first appellate authority has wrongly deleted the additions in dispute by passing the impugned orders which deserves to be cancelled. We, therefore, cancel the impugned orders passed by the learned CIT(A) and upheld the orders of AO.by holding that the activities done by the assessee-trust does not qualify for exemption under s. 11 of the Act and the same has rightly been brought to tax as income from business by the AO as per provisions of the Act. Thus, both the appeals filed by the Revenue are allowed.
14. In the result, both the appeals filed by the Revenue are allowed.
USP* In favour of revenue.
Regards
Prarthana Jalan
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