The Chandigarh Income Tax Appellate Tribunal (ITAT) held that the trust activities of sale of plots, flats and commercial booths and also its income earned form non construction fee, transfer fee, penal interest and compounding fees are charitable in nature and thus allowed exemption under Section 11 of the Income Tax Act,1961.
The assessee Improvement Trust is a trust which works for the improvement in the town of Sangrur by providing streets, housing facilities, development of parks, development of roads and other infrastructures, providing drinking water, etc., and that all these activities are charitable in nature.
During the scrutiny assessment under Section 143(3) of the Income Tax Act, it was observed that the assessee had earned income from sale of land, non-construction fee, transfer fee, penal rent, compounding fees and that the trust was mainly doing the work of sale of plots, booths, other commercial and residential places, etc., at market rates, and of development of land.
The assessee was asked to show cause as to why exemption under Sections 11 and 12 of the Income Tax Act be not disallowed, to which the assessee has replied that to incur expenditure on advertisement, quoting tenders in newspapers for sale of land to the general public, and quoting tenders for civil contract works, and all these activities have to be done for fulfilling the main objects, which are charitable in nature and thus the exemption shall be allowed.
The Assessing Officer (AO) concluded that the assessee was covered by the proviso to Section 2(15) of the Income Tax Act and could not be held to be engaged in charitable activities therefore, the assessee was not liable for exemption under Sections 11 and 12 of the Income Tax Act, as per the provisions of Section 13(8) of Income Tax Act.
Aggrieved by the order assessee filed an appeal before the Commissioner of income tax (Appeals) [CIT (A)], which dismissed the appeal filed by the assessee by rejecting the arguments of the assessee, that Section 13(8) of the Income Tax Act speaks of non-exclusion of any income under Sections 11 and 12 of the Income Tax Act from total income, if the provisions of Section 2(15) of the Income Tax Act become applicable.
The Counsel for the assessee, Y.K Sud, Charted Accountant contended that the CIT(A) has erred in confirming denial of exemption under Section 11 of the Income Tax Act to the assessee, failing to appreciate that under circumstances exactly similar to the ones attending the year under consideration, exemption under Section 11 of the Income Tax Act had been allowed by the ITAT in the earlier years, which action stood approved by the Hon’ble High Court.
The Departmental Representative stated that Section 13(8) of the Income Tax Act talks of non-exclusion of any income under Section 11 and 12 of the Income Tax Act from total income, if the provisions of Section 2(15) of the Income Tax Act become applicable.
The Counsel further added that the aggregate receipts of the assessee from its activities of earning income from sale of plots, flats and commercial booths and also earning of income from non-construction fee, transfer fee, penal interest, compounding fees exceeds 20% of the total receipts that as such, the amended provisions of Section 2(15) of the Income Tax Act, as brought in by the Finance Act, 2015 w.e.f. 1.4.2016, are clearly applicable to the case.
The Bench comprising of Shri A.D. Jain, Vice President and Shri Vikram Singh Yadav, Accountant Member held that the second proviso to Sections 2 (15) and 13 (8) of the Income Tax Act are not applicable to this case, and so, the aggregate receipts of the assessee trust from its activities of sale of plots, flats and commercial booths and also its income earned form non-construction fee, transfer fee, penal interest and compounding fee, etc., are held to be entitled for exemption under Section 11 of the Income Tax Act.
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