×Latest Case Laws on Income Tax by various Income Tax Appellate Tribunals in India
These are the latest case laws decided by various Income Tax Appellate Tribunals (ITAT) of India on Income Tax which have been published recently. The case laws are open for discussion and we invite expert comments from our members on its applicability and effect on relevant issues.
The appeals by the Assessee and revenue are against two orders both dated 31.3.2018 of CIT(Appeals), Bangalore-9, relating to assessment years 2013-14 & 2014-15.
2. In the appeals by the Assessee, if ground No.5 in both the appeals (which are identical) are adjudicated and if it is held that the Assessee is not hit by the proviso to Sec.2(15) of the Income Tax Act, 1961 (Act), then such adjudication will render the adjudication of other grounds in Assessee as well as revenue’s appeals academic. Ground No 5 reads as follows:-
“5. Ground on applicability of proviso to Section 2(15) and related grounds.
(a) The authorities below are not justified in holding that the proviso to section 2(15) of the Act is applicable to the appellant on the fa ts and circumstance of the case.
(b) The authorities below are not justified in not considering that the appellant falls within several limbs of charity as defined n s ction 2(15) of the Act and hence ought not to have applied the proviso to the facts of the appellants case.
(c) The learned Commissioner of Income-tax (Appeals) is not justified in law in not deleting the total income before the addition made by the learned Assessing Officer a sum of Rs.52,26,47,000 being surplus as per Income and Expenditure account after prior period adjustments, treating as taxable income by the learned Assessing Officer by invoking the proviso to section 2(15) of the Act on the facts and circumstances of the case.
(d) The learned Commissioner of Income-tax (Appeals) is not justified in law in not holding that the learned Assessing Officer ought not to have considered the starting point of computation of total income at Rs. 1,72,37,000/- on the facts and circumstances of the case.
(e) The learned Commissioner of Income Tax (Appeals) is not justified in law in denying the exemption as a charitable institution for the reason that appellant is carrying on business. The inference drawn for holding that the appellants are doing business are purely arbitrary and purely on suspicion and surmise devoid of factual foundation.
(f) The learned Commissioner of Income Tax (Appeals) ought not to have denied exemptions for charitable purpose as the Appellant do not fall under second proviso to section 2(15) of the Act.
(g) The learned Commissioner of Income Tax (Appeals) ought to have taken into account the speech of the Finance Minister which indicate the object and drift of the amendment in as much as that genuine Charitable Trusts are not hit by the proviso to section 2(15) of the Act.
(h) Without prejudice the authorities below ought to have granted exemption in respect of the other limbs of charity by applying the principles of apportionment and ought to have granted proportionate relief in respect of the other limbs of charity being relief to the poor etc. on the facts and circumstance of the case.
(i) Without prejudice, the learned Commissioner of Income Tax(Appeals) failed to appreciate that the appellant fall under first to fifth limb of the definition of charitable purpose on the facts and circumstances of the case.”
3. As far as ground 5 raised by the assessee is concerned, the issue for consideration is as to whether the revenue authorities were justified in coming to the conclusion that the Assessee does not exist for charitable purpose as it was carrying on activities which were in the nature of trade or business. The facts and circumstances under which the aforesaid issue arises for consideration are that the assessee is a statutory body by name Bangalore Development Authority, constituted under the Bangalore Development Authority Act, 1976 (BDA Act). The Assessee claimed the benefits of exemption under Sec.11 of the Act on the ground that it was existing for charitable purpose as defined in Sec.2(15) of the Act. Section 2(15) of the Act has been amended by Finance Act, 2010 w.e.f. 01.04.2009 (i.e., w.e.f. Assessment Year 2009-10). It is not in dispute hat the objects of the Assessee would fall within the ambit of “advancement of any object of general public utility” which is one of the purposes mentioned in the definition of Charitable purpose u/s.2(15) of the Act. As stated earlier, the definition of “Charitable Purpose” as given in Sec.2(15) of the Act was amended by the Finance Act, 2010, w e.f. 1.4.2009. By the aforesaid Amendment, a proviso has been inserted to the definition of “Charitable Purpose” in Sec.2(15) of the Act which reads as follows:-
“2(15)“Charitable purpose” includes relief of the poor, education, medical relief,
and the advancement of any other objec of general public utility: Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if 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”]
4. Thus the proviso to section 2(15) (supra) lays down that if any charitable organization recognized under section 12A of the Act (i)were to carry out any activity in the nature of trade, commerce or business or (ii)were to carry on any activity of rendering service in relation to any trade, commerce or business. for a cess or fee or any other consideration, then irrespective of the nature of use or application or retention of the income from such activity, such activity shall not constitute activity / activities of charitable purpose or nature, despite the fact that the same are carried out or performed for the advancement of any object of general public utility.
5. The AO was of the view that the assessee’s activities are hit by the proviso to section 2(15) of the Act, introduced w e.f. 01.04.2009 by Finance Act, 2010, consequently he denied the assessee the exemption claimed under section 11 of the Act and brought to tax the assessee’s income from Assessment Year 2009-10 onwards The AO, has laid emphasis on the fact that the objects of the assessee as per BDA Act, was to develop the City of Bangalore and areas adjac nt thereto. The AO after referring to the Income and Expenditure Account of the Assessee has observed that the Assessee derives income from selling several categories of properties to the public. In Paragraph 5.12 & 5.13 of the order of assessment, he has brought out the various categories of receipts of the Assessee and has come to the conclusion in paragraph 5.14 of his order that the Assessee was carrying on systematic and regular activity of acquisition/purchase of land and development of the same as layout/sites and construction of houses and sale of the same to the general public and provided
maintenance/infrastructure facilities in layouts/housing schemes. He has observed that the focus of the Assessee has been more on selling sites by auction to the highest bidder and was not for providing affordable housing to the public (vide paragraph 5.15 of his order). This is the main reason for