1. This appeal is by the assessee challenging the order of the learned CIT dt. 30th Sept., 2003 on the following grounds: 1. The learned CIT is not justified in rejecting the application of appellant for registration under Section 12A(a) of the IT Act, 1961 by holding: (a) That charitable institution provides service free of cost and for no gain and for the benefit of public at large and nothing charitable is being done ignoring the main objects and the purpose for which the appellant authority has been created.
(b) That the facilities being provided for the benefit of general public are not for charitable purpose but for getting better value of plots being sold by authority.
2. That the learned CIT is not justified in holding that the words 'general public utility' in the context of appellant mean benefits derived by general public other than plot holders.
3. That the learned CIT is not justified in comparing the appellant with private builders completely ignoring the fact that appellant authority has not been created with the object of earning profit but the whole profit has to be spent for the benefit of the area itself being developed by authority.
4. That the learned CIT has erred in interpreting the judgment of Hon'ble Supreme Court in the case of Asstt. CIT v. Thanthi Trust (2001) 165 CTR (SC) 681 : (2001) 247 ITR 785 (SC) by holding that the same is applicable to only registered trusts completely ignoring the objects of the authority which are clearly for general public utility and charitable in nature.
5. That the appellant craves leave to add or amend any grounds of appeal before the appeal is heard or disposed of.
2. Brief facts in the present appeal are that assessee, i.e., Punjab Urban Planning and Development Authority (in short 'PUDA'), a local authority constituted under the Punjab Regional & Town Planning & Development Act, 1995, applied for registration under Section 12A of the Act. The learned CIT rejected the application for registration on the ground that objects of the institution are commercial in nature. As per the assessee, in the absence of registration under Section 12A, the income of the authority/assessee would be liable to tax. The assessee is in appeal challenging the aforesaid order of the learned CIT before the Tribunal.
3. During arguments, we have heard Sh. Ajay Vohra, learned Counsel for the assessee and Shri R.K. Goyal, learned CIT-Departmental Representative. The gist of arguments on behalf of the assessee is that the assessee was constituted under the Punjab Regional and Town Planning & Development Act, 1995 for the planned development of the State. The learned Counsel invited our attention to the purpose and objects of the Act. A strong plea was raised that on identical facts Patiala Urban Planning & Development Authority was granted registration by the learned CIT, Patiala, vide order dt. 28th Sept., 2005, the copy of which was furnished by the learned Counsel. It was also contended that on identical facts the Department of Revenue granted registration to Maharashtra Housing & Area Development Authority (MHADA). Mr. Vohra further contended that the objects of the assessee are of charitable nature. The method of acquiring the land by the authority/Government was explained. As per the objects of the assessee it was contended that the assessee is constituted to regulate well planned development within the State. Mr. Vohra further tried to distinguish the private colonizers with the assessee by contending that the objects of the private colonizers is to earn maximum profit and they are not developing bigger projects like flyover, drainage, etc. and their field is very small. The assessee was claimed to be fulfilling social responsibilities by contending that the objects of the assessee are not profit making. It was also contended that the assessee is allotting plots to economically weaker sections which the private colonizers are not doing so the assessee cannot be equated with private colonizers.
Proper civic amenities are planned and provided to the public at large and the charges are fixed by the authority as the assessee is not guided by profit motive and if there is any profit that is used for maintenance of parks, schools, roads, street lights, etc. In nutshell, it was contended that keeping in view the intent, purposes and the objects, the assessee may be granted registration as a charitable institution. Reliance was placed on certain judicial pronouncements which we will discuss while concluding the issue. On the other hand, the learned CIT-Departmental Representative strongly defended the rejection of the application of the assessee by contending that the assessee is just like private colonizers making huge profits by giving little compensation to the actual land owners and the assessee is working like a big colonizer. Mr. Goyal strongly pleaded that to become eligible for registration under Section 12A the activity should be wholly charitable. The learned CIT-Departmental Representative explained the activities of the assessee by putting it in juxtaposition with big builders/colonizers by contending that similar facilities are provided by the private colonizers also. So the whole activity is to be seen, On the issue of granting registration to Patiala Urban Planning and Development Authority, it was contended that if the learned CIT has committed a mistake, the same should not be repeated by the last fact-finding authority and the orders are not binding on the Tribunal.
Reliance was placed on the decision of the Hon'ble apex Court in the case pronounced in Bharat Sanchar Nigam Ltd. v. Union of India by contending that res judicata is not applicable in income-tax proceedings and error committed by the Department should not be perpetuated. Reliance was placed upon certain judicial pronouncements which we will discuss while concluding the issue. In nutshell, the learned CIT-Departmental Representative defended the orders of the learned CIT-I, Chandigarh. We have considered the rival submissions.
4. In the present appeal there is no dispute to the fact that the assessee moved application in Form No. 10A and furnished relevant information to the learned. Asstt. CIT, There is also no dispute that the assessee was constituted under the Act of the Government for making better planning and regulating development and use of land in planning areas delineated for the purpose, preparation of regional plans/master plans and implementation thereof and also for guiding and directing the planning and development process in the State. The major thrust of argument on behalf of the learned Counsel for the assessee is that PUDA is of general public utility and was established to satisfy the need for housing accommodation of various sections of the people of Punjab and specially for planning and development in the cities, town and villages and is of charitable nature.
5. Before coming to any conclusion, we are supposed to see the meaning of the word 'charitable purpose' which has been defined in Section 2(15) of the Act which includes relief to the poor, education, medical relief and advancement of any other object of general public utility. A strong contention was raised by the learned Counsel for the assessee that the assessee/PUDA is also executing the development of following works/infrastructures: Regarding the purpose of the Act, which is available at p. 13 of the paper book of the assessee and to which our attention was also drawn, it speaks about various amenities and utilities as has been mentioned in Section 2(b) of the said Act. The learned Counsel for the assessee during argument took a strong plea that on identical facts registration under Section 12A of the Act was accorded to Patiala Urban Planning & Development Authority, Patiala, vide order under Section 12AA of the Act, dt. 28th Sept., 2005 by the CIT, Patiala, the objects of which are ' identical to the present assessee. If the Act under which the assessee was constituted is analysed, it includes the State of Punjab excluding Patiala. Shri Ajay Vohra contended that it can be said that Patiala authority is part of the State and when registration has been granted to Patiala authority, then no two yardsticks should be adopted.
At the outset, we are of the view that we are not agreeable with the contention of the learned Counsel because if the intention of creating Patiala authority was the same then there was no need of its creation as the same objects would have been fulfilled by the bigger unit, i.e., the assessee. At the same time, res judicata is not applicable in income-tax proceedings. We do not want to comment as to why and how the registration was granted to Patiala authority as the same is not pending before us for adjudication. Reliance can be placed upon the decision pronounced by the Hon'ble apex Court in the case of Distributors (Baroda) (P) Ltd. v. Union of India and Ors.
wherein the Hon'ble apex Court held that "it is almost as important that the law should be settled permanently as that it should be settled correctly but there may be circumstances where public interest demands that the previous decision be reviewed and reconsidered. The doctrine of stare decises should not deter the Court from overruling an earlier decision, if it is satisfied that such decision is manifestly wrong or precedes upon a mistaken assumption in regard to the existence or continuation of a statutory provision or is contrary to another decision of the Court." However, two views reasonably may be possible. Perpetuation of error is not a heroism.
However, we make it clear that this observation of ours should not be treated to bear any effect in the case of Patiala authority. At the same time, the order passed by a lower authority is not binding on the Tribunal. However, it may be a good arguable point by the parties.
This issue requires deliberation from a different angle whether the assessee was constituted to provide any charity to the public at large or to satisfy the needs for housing accommodation for the people of Punjab and also planning and development of the cities, towns and villages or whether the development in such a way is of charitable nature. A plea was raised by the learned Counsel for the assessee that funds are provided by the Punjab Government or generated by the assessee itself. To generate its funds for carrying out its objects, the assessee is acquiring lands, developing them and selling the plots to the general public who apply for the same. Even the economically weaker strata of the society is generally applying. It is not the case that the assessee is allotting houses to the poor masses free of cost.
The Hon'ble apex Court in the case of Asstt. CIT v. Thanthi Trust (2001) 165 CTR (SC) 681 : (2001) 247 ITR 785 (SC) has deliberated upon the issue of charitable purposes wherein the founder of a daily newspaper created a trust in March, 1954 and the objects of the trust were originally to establish newspaper as an organ of educated public opinion for the Tamil reading public. In July, 1957, a supplementary deed making the trust irrevocable and Anr. supplementary deed for establishing and running a school/college for teaching journalism were added. The question before the Hon'ble Court was whether the income of the trust was exempt from income-tax during the relevant period, The Hon'ble apex Court while coming to a particular conclusion reversed the decision of the Hon'ble High Court of Madras and held that the trust did not fall within the provisions of Section 11(4A), as it then stood, and was not entitled to exemption from tax.
The Hon'ble apex Court also considered various judicial pronouncements which were referred to it by the respective counsel as are available in the said order specially at p. 787. However, there is a major shift in the law with regard to institutions who are claiming charities. It is a well known fact that in some of the situations the provisions of law is misused in the names of charities. If an expanded/broader latitude is extended to the word charity, then there are so many institutions/Departments who will try to come under the umbrella of this provision to misuse the provision. Therefore, for the broad development of the nation/society a strict and positive vigil is required so that the provision can be saved from its misuse in any manner. We are aware that 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 be allowed to become richer and richer under the garb of charity by making it a non-tax payable organization. In the cases of Addl. CIT v. Surat Silk Cloth Manufacturers Association and CIT v. Bar Council of Maharashtra , it was held that what is predominant object of the activity- whether, it is to carry out a charitable purpose and not to earn profit-the purpose should be that it should not lose its charitable character- The major thrust of the learned Counsel for the assessee is that PUDA is of general public utility as it satisfies the need for housing accommodation for the section of the people of State of Punjab and is also doing planning and development of the cities, towns and villages.
We are not agreeable with the argument of the learned Counsel because a charitable institution provides services for charitable purposes free of cost and not for a gain. In the present scenario, the similar activities are performed by big colonizers/developers who are earning a huge profit. If this registration is granted, then we will open a pandora box and anybody will claim the exemption from tax. If the accounts of the assessee are analysed, it has turned into a huge profit-making agency for which it is taking money from the general public. In such a situation, we are of the view that no chanty is involved and if any institution of public importance like schools, community centers are created/developed, the assessee is charging the cost of it from the public at large and the money is coming from the coffer of the Government. It can be said that objects/activities of the assessee are more of commercialized nature and we do not find any charity 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 it to achieve certain objects. It can be said that it is the duty of the Government to create/provide all these facilities to public at large, which is being done through his agency in a particular area. At the same time, the funds which are provided to the assessee by the Government is again a public money or generated from the public itself, so where is the charity? If the activities of the assessee and the arguments of both the learned Counsel are put in a juxtaposition, it can be said that 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 the 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 PUDA, i.e., the assessee has started auctioning the plots by way of bidding at the market rate and sometimes more than that and charging interest on belated payments. In such a situation, we are of the view that 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.
During argument, the learned Counsel relied upon the decision of the Hon'ble apex Court pronounced in the case of Addl. CIT v. Surat Art Silk Cloth Manufactures Association (supra) where the assessee was incorporated under the Companies Act wherein the dominant or the primary purpose of the assessee was to promote commerce and trade in art silk yarn, raw silk, cotton yarn, art silk cloth, silk cloth and cotton cloth as set out in Clause (a) and the object specified in cls.
(b) to (e) and the object was found to be public utility not involving the carrying on of any activity for profit within the meaning of Section 2(15), the assessee was held to be entitled for exemption under Section 11(1)(a) of the Act. However, Hon'ble Justice Sen passed a dissenting order but in the present case there is a profit motive of the assessee, so will not help in any manner.
Reliance was also placed on the decision of the Hon'ble apex Court pronounced in the case of CIT v. Andhra Pradesh State Road Transport Corporation wherein the object of the assessee was development of roads, improving facilities for road transport and providing efficient and economical system of road transport service, the entire capital was provided by the State Government and the profits were utilized for providing amenities to the passengers and welfare of labour and approved expansion program and the remainder to be made over to the State Government for road development, it was held to be of charitable purposes and thus income was exempted but it is not so in the case of the present assessee. The Hon'ble apex Court in the case of CIT v. Bar Council of Maharashtra (supra) where the prime dominant purpose was for the advancement of object of public utility, it was held to be entitled to exemption.
The learned Counsel for the assessee, during argument raised a plea that totality of circumstances has to be seen specially that all money goes with the State Government and not in private hands, the prices are fixed and the assessee is not a commercial organization and the predominant activity of the assessee is to develop infrastructure and contended that rule of consistency has to be seen for which reliance was placed upon the decisions pronounced in Union of India and Ors. v.Kaumudini Narayan Dalai and Anr.
Commerce and Industry and also the decision in the case of Dy. CIT v. United Vanaspati Ltd. (2004) 83 TTJ (Chd)(TM) 201 : (2004) 88 ITD 313 (Chd)(TM). We are of the view that principles of res judicata do not apply to income-tax proceedings. However, we agree with the learned Counsel to the extent that equally important is the rule of consistency. We are of the view that consistency has to be seen in totality of circumstances which depends upon facts of each case in the light of primary object and real activities done by the assessee, so these judicial pronouncements in our humble opinion are not going to help the assessee. The Hon'ble High Court of Delhi in the case of Daulat Ram Public Trust v. CIT wherein on scrutiny of objects; of the assessee-trust, there was no defined dominant charitable purpose in the trust deed to which the said objects would serve as ancillary objects and which were meant to feed the dominant purpose. Clause 21 of the trust deed empowered the chairman of the trust to spend the funds of the trust for the purchase of immovable property and since no part of the income of the trust was applied on any specific charitable purposes, the exemption under Section 11 of the Act was denied. The Hon'ble Court relied upon various judicial pronouncements which are available at p. 515 of the said order and then came to a particular conclusion. In view of these facts and judicial pronouncements, we are supposed to see the predominant object of the assessee. If all the objects and activities actually carried out by the assessee are analysed and kept in juxtaposition with the aforesaid judicial pronouncements, we are of the view that activities of the assessee are more of commercial nature with profit-oriented intent, so no leniency should be shown to the assessee. The Department may also get support from the decision of the Hon'ble Patna High Court as pronounced in the case of Bihar State Forest Development Corporation v.CIT where the Government company was formed for promotion and development of forestry. The assessee-corporation was permitted under memorandum of association to engage in commercial activities and there was no restriction on application of money, the corporation was not held to be a charitable trust and consequently not entitled to exemption. Similar is the case in the present appeal of the assessee. During arguments, the learned Counsel for the assessee invited our attention to the case of Maharashtra Housing & Area Development Authority wherein registration was granted. The learned CIT-Departmental Representative contended that in the case of Market Committee, the ownership remains with the committee but in the case of the assessee it goes to individual and the learned CIT was not satisfied with the explanation of the assessee. Likewise in the judicial pronouncements in New Life in Christ Evangelistic Association (NLC) v. CIT as relied by the assessee, it can be said that it is a religious trust, so not applicable to the present facts as the assessee is auctioning the plots on huge profits and even the Hon'ble Courts are intervening to enhance compensation on petitions filed by land owners. However, if the argument of the assessee is analysed on point of general public utility, still it can be said that commercial angle with profit motive is involved which has become predominant object of the assessee. Even if this issue is analysed as contended by the learned Counsel for the assessee that application of income is not the criteria in the light of the decision of Hon'ble High Court of Allahabad in the case of Fifth Generation Education Society v.CIT , still we are of the view that if the objects and real situation is analysed, the objects are not of charitable nature, Almost in every activity there is a scent of commercialization/profit motive but in the charitable institution no profit motive is involved and the service is done mainly with the intent of social/religious upliftment of the masses in general. Admittedly, the assessee is doing some activities like housing/infrastructure development and the public is also benefited but for the same the assessee has already charged in the form of hidden cost. Rather the assessee is generating income, so no charity is involved. We agree with the conclusion of the learned GIT, as contended by learned CIT-Departmental Representative, that a charitable institution provides services for charitable purposes free of cost and for no gain and are for the benefit of public at large. As we have discussed in the preceding para, the assessee acquires land at nominal rates and after developing the same, the same land (is sold) on high profit which cannot be said to be a charitable activity. Even just for argument sake, under the present facts, if registration is granted, then every private colonizer will claim charity. The facilities which are provided to the plot holders are incidental to the commercial activity carried out by the PUDA and if certain facilities like parks, community center, school are provided is not only basic requirement, rather a tool of attracting the investors wherein the hidden cost of these facilities is 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 and judicial pronouncements, we are of the view that the application of the assessee has been rightly rejected by learned CIT. The stand of the learned CIT is upheld. Appeal of the assessee is, therefore, dismissed.
Before we part with, we record our appreciation for good argument advanced by both the learned representatives, i.e., Shri R.K. Goyal, learned CIT-Departmental Representative and Shri Ajay Vohra, learned Counsel for the assessee.