Improvement Trust Activities Are Charitable, Registration Can’t Be Cancelled: Punjab & Haryana High Court

The Punjab & Haryana High Court has dismissed five appeals filed by the Income Tax Department and upheld the Income Tax Appellate Tribunal’s (ITAT) decision restoring the charitable registration granted to the Improvement Trusts of Bathinda and Patiala. The bench of Justice Ajay Kumar Mittal and Justice Avneesh Jhingan held that planned development activities undertaken under the Punjab Town Improvement Act, 1922 (PTI Act) fall squarely within the ambit of “advancement of any other object of general public utility” under Section 2(15) of the Income Tax Act, even after the 2009 amendment. The Improvement Trust, Bathinda, originally obtained registration under Section 12AA on 16 August 2010, effective from 12 June 2003. The registration came under scrutiny when the definition of “charitable purpose” under Section 2(15) was amended by the Finance Act, 2008 with effect from 1 April 2009. Following the amendment, the Commissioner (Exemptions) issued a show-cause notice and subsequently cancelled the registration under Section 12AA(3) on the ground that the Trust was engaged in activities akin to a commercial developer, primarily due to profits generated from sale of plots. The ITAT initially upheld the cancellation, prompting the Trust to approach the High Court. In August 2014, the High Court remanded the case to ITAT for fresh consideration in light of the amended proviso to Section 2(15). After reconsideration, the ITAT restored the registration, following its own precedent in Kapurthala Improvement Trust vs. CIT, leading to the present set of appeals by the Revenue. The Income Tax Department raised multiple substantial questions of law, including: Whether the ITAT ignored directions of the High Court to examine the effect of the amended Section 2(15). Whether the CIT was empowered to cancel registration under Section 12AA(3) after the 2009 amendment. Whether Improvement Trusts operate like commercial colonisers engaged in land development for profit. Whether earlier rulings involving PUDA, JDA and Jammu Development Authority mandated cancellation of registration. The department asserted that the Trust purchased land cheaply, developed it, and sold plots at high prices, reflecting commercial profit motive. Reliance was placed on Supreme Court rulings concerning statutory bodies such as AP State Road Transport Corporation and Adityapur Industrial Area Development Authority, and on this Court’s judgment in Tribune Trust. The Trust argued that all activities are strictly governed by the PTI Act and are carried out for public welfare, not private profit. Sale of plots is only an incidental and ancillary activity required to implement planned development schemes. Surplus funds are mandatorily used for public utilities such as sewerage networks, community halls, service lanes, bus stands, shelter homes, street lighting, and land for hospitals and public offices. Balance sheets reflected consistent losses, demonstrating lack of profit motive. The High Court held that Improvement Trusts are established for “town improvement”—a classic example of an object of general public utility. It emphasised that development schemes under the PTI Act aim at slum clearance, creating open spaces, improving ventilation and hygiene, widening roads, and providing public amenities. Sale of land is merely a statutory mechanism to execute development schemes and cannot be equated with the profit-driven activities of private builders or colonisers. There is no evidence that profits were diverted or misused; on the contrary, the Trust incurred continuous losses after deploying funds for public benefit. The Court followed its earlier ruling in Improvement Trust, Moga, reiterating that, “Mere profit making on account of certain incidental or ancillary activities of the trust does not disentitle it to exemption.” The Court rejected the Revenue’s attempt to apply the amended proviso to Section 2(15), observing that profit motive is absent and public welfare is predominant. The Court clarified that being a statutory body does not disqualify an entity from Section 11 benefits, as long as it satisfies the definition of “charitable purpose.” Cases cited by the Revenue dealt with exemption under Article 289 of the Constitution, not Section 11. The Court agreed with ITAT that cancellation under Section 12AA(3) is permissible only when activities are not genuine, or activities are not carried out in accordance with stated objects. The High Court upheld the ITAT’s decision and dismissed all appeals filed by the Revenue, holding improvement Trusts’ activities fall within the meaning of "charitable purpose." Registration under Section 12AA was wrongly cancelled. Case Details Case Title: The Commissioner of Income Tax (Exemptions), Chandigarh Versus M/s Improvement Trust, Bathinda Case No.: I.T.A. No. 161 of 2016 (O&M) Date: 01.08.2018 Counsel For Petitioner: Denesh Goyal, Sr. Standing Counsel Counsel For Respondent: K.L. Goyal, Senior Advocate Click Here To Read Order Read More: No Allegation of Fraud, Misstatement or Suppression: Madras HC Quashes GST Demands Issued U/s 74

Improvement Trust Activities Are Charitable, Registration Can’t Be Cancelled: Punjab & Haryana High Court

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