Whether merely because assessee receives subsidy from State Govt and it sells flats at lesser costs to buyers, it becomes a charitable body - NO: ITAT

THE issue before the Bench is - Whether merely because assessee receives subsidy from State Govt and it sells flats at lesser costs to buyers, it becomes a charitable body. NO is the answer.

Facts of the case

The assessee is a Board constituted by the legislature under A.P. Housing Board Act, 1956. All along assessee had been filing its return of income treating itself as a local authority and claimed exemption u/s 10(20). However, once assessee lost the benefit of exemption after amendment of section 10(20) w.e.f. 01/04/2003, assessee made an application seeking registration u/s 12A. In course of proceeding for grant of registration, DIT(E) called upon assessee to furnish certain information/evidences to substantiate its claim that it was engaged in charitable activity. After verifying the information submitted as well as considering the submissions made by assessee, DIT(E) held that exemption u/s 11 cannot be a substitute or alternative for exemption earlier granted u/s 10(20) to a local authority. Further, DIT(E) held that assessee was merely engaged in construction of housing projects and selling them to prospective buyers, therefore, the activity of assessee is more or less like any other real estate developer/builder, hence, the activity/object of assessee cannot be considered to be a charitable in nature. Thus, it had decided that assessee was not eligible for registration u/s 12A.

Being aggrieved of the order of DIT(E), assessee filed appeal before the ITAT. However, appeal was filed with a delay of 1013 days. Though, assessee before the Tribunal pleaded for condonation of delay, but, the ITAT on considering submissions of assessee along with the cause shown for delay were not satisfied with the reason shown and accordingly dismissed the appeal of assessee without condoning the delay. The aforesaid order of the ITAT was challenged by assessee before the A.P. High Court. The HC after considering the submissions of the parties condoned the delay and directed ITAT to decide the appeal of assessee on merit. Thus, at the direction of the A.P. High Court, the appeal was being reheard by the Tribunal.

Having heard the matter, the Tribunal held that,

++ assessee is principally engaged in a commercial activity wherein no charity is involved. DIT(E) has denied registration to assessee basically for two reasons. Firstly, because assessee earlier was availing exemption as a local authority u/s 10(20), hence, it cannot make alternative claim u/s 11 for claiming exemption as trust or institution. The second reasoning is, the activity carried on by assessee being purely commercial nature, it cannot be considered as a charitable activity. As far as the first reasoning of DIT(E) is concerned, we do not agree with the same. On careful reading of the relevant statutory provisions we do not find any bar either u/s 12A or u/s 11 to prevent an institution like assessee from getting registered u/s 12A. However, for becoming eligible for registration u/s 12A assessee has to fulfill the conditions mentioned therein, the first of which is assessee must have been created for charitable purpose. The expression 'charitable purpose' has been defined u/s 2(15) and it is inclusive one. As per the said provision, charitable purpose includes education, medical relief, relief to poor or advancement of any other object of general public utility. In the present case, as held by DIT(E) assessee is merely engaged in the activity of building housing projects and selling them to the prospective buyers having a different economic status. Thus, the activities of assessee is in no way different from the activities carried on by a private builder/developer engaged in similar activity of building housing projects and selling them to prospective customers;

++ though, it may be a fact that assessee is able to sell housing projects at a lesser cost due to some concessions granted by Government, but, that itself cannot be considered to be a charitable activity as assessee is deriving profit from such activity of selling housing projects. It is not the case of assessee that it is providing such housing projects either free of cost or on cost to cost basis. That being the case, assessee has to be treated at par with any other private builder/developer involved in such activity. Moreover, the activity of the assessee if at all can be considered to be for charitable purpose, it will come within the residuary clause 'advancement of any object of general public' utility. However, the 1st proviso to section 2(15) debars advancement of any other object of general public utility from being considered to be a charitable purpose, if it involves carrying of any activity in the nature of trade, commerce or business or 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 consideration. Further, on going through the materials on record there cannot be any doubt that assessee is engaged in a purely commercial activity and the predominant object of the assessee is to earn profit. Therefore, restrictions imposed under the first proviso to section 2(15) clearly apply to assessee. In fact, ITAT, Hyderabad Bench while considering refusal of registration u/s 12A of the Act to AP Housing Corporation Ltd., which is more or less involved in similar activity as assessee, followed its own decision in case of Tirupathi Urban Development Authority and upheld the rejection of assessee's application for grant of registration u/s 12A.

++ the principles laid down by the coordinate bench as aforesaid, clearly apply to the facts of the present case. As far as the decisions relied upon by AR are concerned, on careful examination of the same, we find them to be factually distinguishable, hence, will not be of any help to assessee. In case of Rajasthan Housing Board Vs. CIT, registration u/s 12A was granted to assessee earlier. After insertion of first proviso to section 2(15) when registration was cancelled, Tribunal held if to be invalid on the reasoning that finding the object of assessee charitable, department had granted it registration u/s 12A earlier. Similar is the case with Maharashtra Housing & Area Development Authority Vs. ADIT (E). In case of Jodhpur Development Authority Vs. CIT, Tribunal allowed registration u/s 12A being of the view that object of assessee is for general public utility and without profit motive. Whereas in the facts of the present case we are of the view that assessee is engaged in a purely commercial activity with profit motive, hence, ratio of the decisions relied upon by DR are clearly applicable. In the aforesaid view of the matter, we do not find any merit in the submissions of assessee and accordingly uphold the order of DIT(E) by dismissing the grounds raised by assessee. In the result, assessee's appeal is dismissed.