Registration under s 12AA

Bhubaneswar Development Authority v CIT

ITAT BENCH, CUTTACK

ITA No. 136/CTK/2009

K K Gupta, AM and K S S Prasad Rao, JM

Decided on: 25 August 2011

Counsel appeared:

Shri G Naik and R Kar, ARs for the Appellant

Shri A Bhattacharjee, DR for the Respondent

Order

Per: K S S Prasad Rao, JM:

This appeal is filed by the assessee having been aggrieved by the order of the learned

Commissioner of Income-tax dt.28.11.2008 passed u/s.12AA, refusing registration u/s.12A of

the Income-tax Act, 1961.

2. The assessee has raised the following issues in its grounds of appeal.

“1. The order u/s.12AA of the I.T.Act is against law, weight of evidences and probabilities of

the case.

2. The learned CIT has most arbitrarily rejected the application for registration by denying

the fact that the objects of the authority of “general public utility “ and activities of the

authority are in conformity with its objects are as laid down by the Government of Orissa.

3. The learned CIT has misinterpreted the notifications issued from time to time and in a

hurry has rejected the application for grant of registration.”

3. Both the parties were heard regarding the issues raised by the assessee and their legal

implications.

4. On careful consideration of the materials made available to the Tribunal in the light of rival

submissions of both the parties, the undisputed facts relating to the issues are that the assessee

is a local authority and formed under the Orissa State Govt. Enactment, Orissa Development

Authority Act,1982 which was notified on 31st August, 1983 and effective from 1st

September1983. The main objects of the assessee are to plan, develop and improve the city of

Bhubaneswar and its periphery. Since its inception, it has been engaged in carrying out its

objects consistently and in a fruitful manner and continued so for the last 25 years by doing

many more development I improvement works, such as, developed a number of housing

colonies for all income groups in Bhubaneswar, Khurda and Jatni, generated self employment

opportunities by constructing market complexes inside the Bhubaneswar City as well as in its

neighborhoods, spreading greenery and making Bhubaneswar a beautiful and environment

friendly city by developing a number of parks such as Indira Gandhi Park, Jawaharlal Nehru

Park, Mahatma Gandhi Park, Biju Patnaik Park etc., continuously involved in developing

infrastructure and undertaking various projects in this regard including water supply,

drainage, sewerage, transportation and other several facilities etc., protected and developed

environment in and around heritage areas of the city. The assessee is availing the benefit of

section 10(20A) of the Income Tax Act,1961. The said clause was omitted by Finance

Act,2002 w.e.f. 1st April, 2003 rendering the income of the assessee liable to tax since 2003-

04. Hence, the assessee started filing of return under the jurisdiction of the ACIT, Circle 1(1),

Bhubaneswar. The assessee applied for registration u/s. 12AA of the Income Tax Act,1961

before the learned CIT on 19th May2008. The matter was fixed for hearing and the assessee

appeared through its authorized representative for presenting the explanation in respect of the

objects and activities of the Authority which are covered under the definition of Charitable

purpose as envisaged under section 2(15) of the Income Tax Act,1961. While reviewing the

matter, the learned CIT under certain conjecture and surmises rejected the application for

registration U/s 12AA of the Income Tax Act on the ground that the activities of the assessee

are in the nature of trading, commercial or business. Therefore, the present appeal is filed by

the assessee for quashing the said order of the learned CIT passed rejecting the registration

u/s.12AA of the I.T.Act.

5. During the course of hearing, the learned AR of the assessee has vehemently argued

contending interalia that the object of the assessee falls within the residuary clause “an object

of general public utility” as laid down in section 2(15) of the Income Tax Act, 1961. The

basic objective of the assessee is to ensure planned development of the areas under its

jurisdiction. In order to achieve the objective, the appellant is engaged in preparation of the

activities, such as, preparation of Interim Development Plan (as per section 8 of ODA Act),

preparation of Comprehensive Development plan (as per section 9 of ODA Act), preparation

of Zonal Development Plan (as per section 10 of ODA Act), modification to Development

plan (as per section 14 of ODA Act), controlling development within the City, preparation of

the Town Planning Scheme (as per chapter 6 of the ODI Act). All these activities are no

doubt public in nature, therefore, by carrying out such activities, the assessee not only

controls development, but also brings guided and planned development to improve the

quality of life in the City. Accordingly, the impugned order of the learned CIT cancelling

registration U/s 12AA is incorrect and liable to be quashed by directing the learned CIT to

grant registration to the assessee u/s.12A of the I.T.Act,1961. He further pointed out that the

learned CIT has not appreciated the activities of the assessee in spending the funds collected

by it for carrying out the objects as stated supra for the development of city environment and

thereby giving good developed ecological balanced environments to the inhabitants of the

area covered by Orissa Development authority Act. In doing such activities the assessee is

expending expenditures and it is meeting that expenditure by fees collected by it for granting

approvals for the plans issued by it as per Orissa Development Authority Act and the

remaining balance, if any, formed a fund as per the provisions of Orissa Development

Authority Act and spending them for the purpose for which those funds were constituted by

the Government of Orissa. Therefore, there is no element of trading or commerciality or

business in the activities carried on by the assessee. All objectives are of charitable obligation

cast on it by the Government of Orissa. Therefore, it cannot be termed to have been carrying

on trading, commercial or business activities. The learned CIT(A) has not properly

appreciated the provisions laid down by the Orissa Development Authority Act as well as the

relevant rules framed while incorporating the assessee and for its functioning. In that view of

the matter, the order passed by the learned CIT is not at all justified in law. The learned AR

of the assessee therefore, requested to set aside the order of the learned CIT and direct him to

grant registration u/s.12A of the I.T.Act,1961.

6. Contrary to this, the learned DR has vemently argued contending inter alia that as can be

seen from the economic statement furnished along with the application for registration by the

assessee as well as the information placed by the assessee before the learned CIT for

considering the application of the assessee for registration u/s.12AA disclosed that it is

collecting very huge amounts and accumulated huge amounts after recurring a meager

expenditure for carrying out its objectives and all the activities stated by the assessee before

the learned CIT are nothing but all trading activities involving commercial and business in

nature. Therefore, by no stretch of imagination they can be termed as activities of “general

public utility” as envisaged in section 2(15) of the I.T.Act,1961. Therefore, the learned CIT is

right in rejecting the application of the assessee refusing grant of registration u/s.12A of the

Act. Accordingly, he sought for upholding the impugned order of the learned CIT by

dismissing the appeal of the assessee.

7. On careful analysis of the impugned order passed by the learned CIT, it is seen that the

learned CIT has considered the functioning of the assessee which is there for the last 25 years

availing exemption till 2003 in which year the applicability of section 10(20A) of the I.T.Act

was omitted to be applied to the assessee. Thereafter he considered the activities of the

assessee as envisaged in the Orissa Development Authority Act,1982 which is w.e.f.

September, 1983. Thereafter he considered the applicability of section 2(15) of the I.T.Act.

Thereafter the learned CIT has examined the audited accounts filed by the assessee along

with the application for the year ending 31.3.2006 and 31.3.2007 and found Rs.12,46,12,131

and Rs.12,69,30,988 in the respective years as income and it has only furnished the balance

sheet but and income & expenditure accounts of both these years omitting to furnish the

receipt and expenditure account. From the balance sheet, the learned CIT found that the

assessee is having assets in excess of Rs.332 Crores and Rs.357 Cores respectively for above

mentioned years and there are capital expenditure in excess of Rs.157 Crores, loans and

advances in excess of Rs.1256 Crores on the asset side and loans in excess of Rs.64 Crores,

deposit towards cost of construction in excess of Rs.101 Crores and current liability and

provisions in excess of Rs.149 Cores on the liabilities side. After considering the provisions

of section 2(15) as well as section 12A and analyzing the above facts, the learned CIT found

that many other receipts go into the general kitty of the assessee as receipts of its enterprise as

well. And essentially the general publics are required to pay the cost of planning and

development undertaken by the assessee on way or the other as they become

customer/consumer citizens living in the city. Accordingly, the learned CIT has come to the

conclusion that the activities of the assessee palpably falling under the advancement of any

other object of general public utility, is hit by the proviso to section 2(15) of the I.T.Act as

they are clearly in the nature of trading, commercial or business and rendering services in

relation to trading, commerce or business for a cess or fee or any other consideration or

nature of use or application or retention of income from such activities. Accordingly, he

rejected the application of the assessee for registration u/s.12A. But the learned CIT has not

examined the provisions contained in Chapter 8 of the Orissa Development Authority Act in

particular section 77 thereof which makes an elaborate stipulation regarding the functions of

the assessee which includes all ingredients needed for a commercial venture like dealing of

money, by nature of dependants, levying of fees and charges, raising of money by disposal of

land, building and other properties etc. He further observed that in course of hearing the

assessee was asked to submit categorical details of tasks conducted for general public utility

for which no cost was to be off-loaded to the general public. But the assessee was not able to

furnish these informations. Therefore, the learned CIT has passed the impugned order

rejecting the application of the assessee.

8. Since the assessee has not furnished the full financial statements, such as receipt and

payment account and income & expenditure accounts and necessary informations which

constitute the different funds shown in the balance sheet and the way of utilization of those

funds for general public as general public utility and the learned CIT has not properly

appreciated the activities of the assessee in the light of Chapter 9 in particular section 77 of

the Orissa Development Authority Act, the assessee is under obligation to carry out all these

objectives with the grants received from the State Government and other agencies as well as

the fees/charges it is collecting by granting various permission to the public for which it is

empowered to grant and the margin the assessee is deriving by disposal of land, building and

other properties is also expected to use for those purposes only under the Orissa Development

Authority Act more particularly Chapter 8 thereof. Therefore, we are of the considered view

that, for the default on the part of the assessee in not giving complete financial particulars and

the learned CIT has also not examined the provisions contained in Chapter 8 particularly

section 77 of the Orissa Development Authority Act which envisages the obligation cast on

the assessee as to the disposal of the funds received by it by various grants from Government

as well as collecting the fees and activities carried on by the assessee under the Orissa

Development Authority Act, we feel it to be a fit case to be restored to the learned CIT for

reconsideration of the application of the assessee in the light of the provisions contained in

Chapter 8 of the Orissa Development Authority Act in more particular section 77 thereof and

analyzing the financial statements of the assessee in the light of those provisions and pass

necessary consequential order as per law of course strictly following the principles of natural

justice.

9. During the course of hearing, the learned AR of the assessee has sought for permission to

move necessary petition before the learned CIT for condoning the delay for late filing of the

application for registration u/s.12A of the Act as the learned CIT is now to examine the

application for registration afresh. Considering the totality of the circumstances and the scope

of re-examination/consideration of the application of the assessee for registration u/s.12A, we

are of the considered view that the assessee may be permitted to move necessary application

for condonation of delay in filing the application u/s.12A for registration w.e.f. 1.4.2003, if it

moved so by the assessee and pass necessary orders accordingly.

10. With the above directions, the impugned order of the learned CIT is set aside and the

matter is restored to his file for consideration de novo and to pass necessary consequential

order as per law.

11. In the result, the appeal of the assessee is allowed for statistical purposes.