Income Tax Appellate Tribunal - Ahmedabad
Gujarat Industrial Development ... vs Acit.,Gandhinagar Circle,, ... on 10 January, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD "D" BENCH
(BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER
& SHRI MAHAVIR PRASAD, JUDICIAL MEMBER)
ITA. Nos: 278 /AHD/2013,493 & 2346Ahd/2014
(Assessment Years: 2009-10 to 2010-12)
Gujarat Industrial V/S Asstt. Commissioner of
Development Corporation, Income Tax Gandhinagar
nd
2 Floor, Block No. 3,4,5, Circle, Gandhinagar &
Udhyog Bhavan, Dy. CIT, GAndhinagar
Gandhinagar-382017 Circle, Gandhinagar
(Appellant) (Respondent)
PAN: AABCG 8033D
Appellant by : Shri S. N. Soparkar, P.M. Mehta
& Parin Shah, A.R.
Respondent by : Shri G. C. Srivastava, CIT/ D.R.
(आदे श)/ORDER
Date of hearing : 04 -01-2017
Date of Pronouncement : 10 -01-2017
PER N.K. BILLAIYA, ACCOUNTANT MEMBER:
1. ITA Nos. 278/Ahd/2013, 493 & 2346/Ahd/2014 are appeals by the assessee preferred against three separate orders of the ld. CIT(A), Gandhinagar, Ahmedabad pertaining to A.Y. 2009-10, 2010-11 & 2011-12.
2 ITA Nos. 278/Ahd/13, 493 & 2346/A/14. A.Ys. 2009-10 to 2011-12
2. Although the appeals of the assessee are against three separate orders, the underlying issues in all these appeals are identical and, therefore, all these appeals are disposed of by this common order for the sake of convenience.
3. We heard the appeal in ITA No. 278/Ahd/2013 pertaining to A.Y. 2009-10 and it was agreed by the representatives of both sides that the underlying facts in issues are identical in all the captioned appeals.
4. The appellant company was constituted pursuant to the State Legislature Act namely the Gujarat Industrial Development Act, 1962. The preamble of the Act reads as under:-
"An Act to make special provision securing the orderly establishment and organization of industries in industrial areas and industrial estates in the State of Gujarat and for the purpose of establishing Commercial Centers in connection with the establishment and organization of such industries and for that purpose to establish an Industrial Development Corporation, and for purposes connected with the matters aforesaid".
5. For the Assessment Year 2009-10, the appellant company filed return of income showing total deficit at Rs. 607.87 crores. In the statement of income, the assessee has shown gross total income at Rs. 393.15 crores. Total application of funds was shown at Rs. 1045.86 crores and total loss was worked out at Rs. 607.87 crores. The A.O. denied the claims made by the assessee by making the following observations.
5. It is further observed that the main objects of the assessee Company is to establish and manage industrial estates at places selected by State Government, to develop industrial areas selected by the government for the purpose and make 3 ITA Nos. 278/Ahd/13, 493 & 2346/A/14 . A.Ys. 2009-10 to 2011-12 them available for undertakings to establish themselves to develop land on its own cost or for the State Government for the purpose of facilitating the location of industries. In short, the assessee's business is to develop land and to allot these for industrial use and to facilitate the allottees for establishing industries. The assessee claims its income to be exempt u/s. 11 of the Act; therefore, its income is assessable u/s 11(4) of the Income Tax Act. Therefore, the assessee was show caused as to why its income should not be assessed u/s. 11 (4) of the Act. 5.1 It is observed that the assessee has made submission on the similar line as that in earlier years. The issues in hand were seriously considered by the AO's in earlier years too. In the present assessment proceeding too, the issue is examined in detail. It requires to be scrutinized whether the assessee is persuing business activities during F.Y.2008-09 or not. The assessee has carried on the activities of acquiring, developing and leasing and selling land and structures, which generates surplus income. The activities are organized on a complete basis mould. Lands are being acquired and developed and leased out for which adequate consideration is obtained. The cash surplus generated in the process is invested in other income yielding assets. It has also invested in a number of companies and has also purchased bonds and fixed deposits. In the Income and Expenditure Account, the assessee has shown interest from investment and deposits with banks, companies etc. at Rs.195,45,52,106/-. It has also income from rent and building, water charges etc. at Rs.173,78,00,353/-. The total income as per Income & Expenditure account arrives at Rs.393,15,12,238/- and expenditure is shown at Rs.228,09,47,407/-, leaving a net surplus of Rs.165,05,64,831/-.
5.2 From the above description, it is clear that the assessee is involved in commercial activities only whether it is use of land as stock in trade or use of its movable assets. It also maintains its accounts in the spirit of a commercial organization. The assessee's reliance on various case laws is of no relevance, as they are distinguishable on facts of the present case. Therefore, the assessee's contentions are not acceptable as the assessee is enjoying income from business of developing land for industrial purposes and allotting land to industrialists on 4 ITA Nos. 278/Ahd/13, 493 & 2346/A/14 . A.Ys. 2009-10 to 2011-12 lease and is also charging consideration for land transferred to them and is also claiming its income to be exempt u/s. 11 of the Act. Therefore, in my opinion its income is assessable u/s. 11(4) of the Act for A.Y. 2009-10. It is pertinent to note here that this view has been confirmed by ld. CIT(A) in the assessee's own case for the A.Y. 2006-07.
6. The assessee carried the matter before the ld. CIT(A) and reiterated its claim of exemption. Taking a leaf out of the observations of the A.O. discussed in Para 7 of the assessment order, the First Appellate Authority was of the strong belief that the proviso to Section 2(15) squarely apply on the facts of the case. The First Appellate Authority accordingly issued a specific show cause vide letter dated 28.09.2012 to show cause why consequent to the decision of the A.O. it should not be held that no income is even assessable u/s. 11(4), it was also required to show cause why GIDC should not be denied any benefit of Section 11 and, thereafter its income be not computed under the normal provisions of the Act.
7. The assessee requested to raise an additional ground challenging the applicability of the proviso to Section 2(15) of the Act.
8. After considering the facts and the detailed submissions made by the assessee, the ld. CIT(A) observed as under:-
6. The main issue that requires to be discussed and decided and which arises out of the show cause notice issued to the appellant undersigned (refer para 5.1 of this order) is that whether or not GIDC, the appellant is ineligible for any benefit of section 11 and thereafter its income be computed under the normal provisions of the Act:
The issue has to be considered also in view of amended provisions of section 13(8) as effective from 1/4/2009.5 ITA Nos. 278/Ahd/13, 493 & 2346/A/14
. A.Ys. 2009-10 to 2011-12 The issue along with Additional Ground No. 1 (refer para 5.1 of this order) are required to be decided.
6.1 Having considered the contentions of the appellant, on the issues above, it is clear that it is relying mainly on the following two arguments:
(i) It is doing the activity of developing industrial estates and industry according to the mandate of the Government of Gujarat.
(ii) It is not a trading corporation as defined under section 2(49) of the Companies Act and therefore, cannot be said to be engaged in business.
It has to be understood that the revenue is not contending that the appellant is not engaged in activities whose object is of general public utility. However/there is no dispute that the purpose of the assessee is not amongst relief of the poor, education, medical relief, preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest. The contention of the AO and that from the side of the revenue raised through the specific show cause notice issued in the present proceedings is that its activities fall in first proviso to section 2(15) of the IT Act. The proviso reads as under:
Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if the carrying on of 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 any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity A careful reading of the proviso shows that it excludes from charitable purpose when the activities of the assessee concerned even though for 'the advancement of any other object of general public utility' involves the carrying on of 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 any other consideration. The definition is much broader than being engaged in trade or business. What it envisages and prohibits is even carrying out activities of that 'nature' for a cess or fee or any other consideration.
Clearly, the legislation is excluding the carrying out of these activities (not only complete business or trade etc.) even though they may be for public utility, irrespective of the nature of use or application, or retention, of the income from such activity. The averment of the assessee that the profits though earned are for public use or may ultimately vest in the Government of Gujarat after the corporation is dissolved etc., therefore, does not make a difference, to the assessee's case Here, I would like to mention that the assessee is admittedly aphorized to develop land on its own account (refer to section 13 of the GID Act).6 ITA Nos. 278/Ahd/13, 493 & 2346/A/14
. A.Ys. 2009-10 to 2011-12 Here, it would be worthwhile to reproduce some of the important observations and conclusions of the Hon'ble ITAT in the assessee's own case by the Hon'ble ITAT, Bench "C", Ahmedabad dated 03/12/2010 in ITA No.3252/Ahd/2009 for A.Y.2006-07 (the decision was given when the proviso to section 2(15) were not on the statute):
8.11. The crux of the decision is that even if a business undertaking is a property of the trust but if the business carried on is not meant to fulfill the objects of the trust, then also such a business income is out of the exemption clause. We think this is the purpose of the enactment of this section that out of the several properties of a trust, if there is a property held by the trust carrying on business which is found to be not for the purposes of the charitable objects, then by invoking section 11(4) that income can be taxed.
.............................
Therefore now we have to examine whether the activities of this assessee can be said to be governed by section 2(15) wherein an expression is "any other object of general public utility". This expression would prima-facie include all objects which promote the welfare of the general public. One has to examine the primary purpose and the dominant object for which this corporation came into existence. Undisputedly it was formed to promote the welfare of the general public. As far as this aspect is concerned, we have nothing much to add but to follow the findings of Hon'ble Supreme Court pronounced in assessee's own case(supra) [227 ITR 414], The Hon'ble Apex Court has said that the appellant was created under the Gujarat Industrial Development Act, 1962. The appellant had the right to hold properties and the right to sue and be sued in its own name. Describing the functions of the Corporation, it was mentioned that proper planning is absolutely necessary for creation of an industrial Area. Such as, roads, sanitation, park, other amenities, etc. are to be provided in a planned manner in an industrial area. As per the Hon'ble Apex Court, even an educational institution may have to be provided in such industrial complex. Therefore, development of an industrial area would have its direct impact on the development or improvement of that part of the city where such areas are located. Finally it was held that such authorities being constituted by law for facilitating all kinds of development of cities, towns and villages for public purposes, therefore should .not be subjected to the liability to pay income tax, hence, entitled to exempt from tax u/s.l0(20A) of the I.T. Act. The purpose of careful reading of this judgment is to ascertain the objects of the trust and also to verify whether such objects had fallen under the definition of section 2(15) of the I.T. Act. According to us, there should not be any dispute or misunderstanding that the objects of this, appellant are very much covered, as held above, under the definition of section 2(15) of the I.T. Act.
7 ITA Nos. 278/Ahd/13, 493 & 2346/A/14. A.Ys. 2009-10 to 2011-12
11...........This is the main cause of grievance that though the activity of the assessee is to promote industry for the benefit of public at large and the income so generated on leasing out of the plots/land, the same has also been exclusively utilized for those listed objects of the Institution, therefore, there was no scope to invoke section 11(4) of the I.T.Act. There is no allegation of the Revenue Department that any part of the income/of the GIDC was misappropriated or exploited other than the obj4cts of the Trust. Only under a deeming provision it was held so. The fallacy on the part of the Revenue in holding so, as per our observation, is that first it was presumed that it was a business undertaking and then under a fiction the income was deemed as not applied for public benefit.
12. Before we conclude let us see whether at all there was an element of 'business' in the activity of this Corporation. The definition of the Term " Business" as per Sec. 2(13) is as under:-
Section 2(13) "business" includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture;
13. The fervent argument of Ld.CIT Departmental Representative Mr. Jindal, in this regard, were that the definition of business is very wide as defined in the Act and this definition is also not exhaustive. As per his arguments this clause being an inclusive clause, therefore, not only the four items as enumerated in the definition, but the other activities if of the like nature shall also be reckoned in business. There is no dispute about this primary argument because the word "business" connotes a large import. There are several decisions on the basis of which now it is settled that any activity of commerce and any adventure in the nature of trade does fall within this definition. At present, there is no necessity to exhaustibly deal with this definition and we are bound to accept that the assessee can be said to be an undertaking which has carried out an adventure in the nature of trade. Purchase of land and sale of land being the primary activity of this organization can be said to be a business activity (emphasis supplied) but merely by holding that the undertaking is a "business undertaking" whether the profits arising therefrom can be subjected to tax by invoking section 11(4) of the I.T. Act? ........ Applying this test on the present set of facts of the case, it is evident that though the Assessing Officer has computed the profits on transfer of land or plots but it was not the case that the profits so generated were not within the main provisions of section 11 of the l.T.Act. (emphasis supplied). Even if the assessee has earned premium price on lease of plot and land for sale but if the entire expenditure and the profit earned there from was exclusively used for the laid down objects then to be covered by the main Sec.11. ......... Therefore, we are of the conscientious view that even if this undertaking may come within the purview of "business undertaking" but being no excess income was found utilised other than for the purposes of the 8 ITA Nos. 278/Ahd/13, 493 & 2346/A/14 . A.Ys. 2009-10 to 2011-12 object of the trust, hence, out of the ambits of the provision of section 11(4) of the l.T.Act. (emphasis supplied)"
It is clear that the Hon'ble ITAT also considered the activities of the appellant to be 'business activity' but stated that the profits of business were utilized for the objects and in that year the charitable activity included business activities for the purpose of the general public utility also.
The appellant has relied on the decision of the Hon'ble Supreme Court in the following cases:
i) In the case of the Appellant itself i.e. GIDC & Ors v. CIT[227 ITR 414 (SC)]
ii) Shri Ramtanu Co.Op. Housing Society Ltd. v. State of Maharashtra [(1970) AIR 1970 SC 1771] [(1970)-003)-SCC-0323-SC] Having gone through the judgments carefully, I find that these are of no help, to the assessee in the present context. The first judgment was given in the context of applicability of section 10(20A) of the IT Act. The question was whether the object of the assessee was urban and rural development or not. The issue is not disputed at all. The judgments of the courts are to be understood and applied in the context of the facts. (CIT vs Sun Engg. Works Pvt Ltd- 198 ITR 327). Similarly, the decision in the case of Shri Ramtanu Co.Op. Housing Society Ltd.(supra) was on the issue of legality of land acquisition under that Act and what was considered was whether it is a trading company under section 2(49) of the Companies Act. As discussed earlier, the scope of exclusion in the first proviso to section 2(15) of the Act is much larger and the definition has nothing to do with that of a trading company in the Companies Act. One need not go beyond the literal meaning of the law if there is no ambiguity.
In the judgment of the-Hon'ble Supreme Court relied upon by the: appellant, in its own case, the following observations with regard to activities of the two concerns are there:
"It is obvious that the Corporation will receive moneys for disposal of land, buildings and other properties and also that the Corporation would receive rents and profits in appropriate cases"
Clearly, the activities of the appellant fall 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 any other consideration. The activities of the appellant therefore, does not qualify to be considered as charitable under 9 ITA Nos. 278/Ahd/13, 493 & 2346/A/14 . A.Ys. 2009-10 to 2011-12 the provisions of section 2(15) read with the proviso. The following are the receipts of the appellant in the year:
Sr Head Balance as Balance as on Receipts
No. on 31.03.2007 31.03.2008 during year (3-
4)
1 2 3 4 5
1 Premium price on 18,82,06,90,986 23,06,58,35,738 424,51,44,752
lease of plot and
land for sale as per
Schedule-'G' '.
2 Recovery towards 18,329,35,330 1,93,30,85,281 10,01,49,951
factories sheds
3 Recovery towards 38,73,56,885 38,85,40,080 11,83,195
workers' quarters
Total 434,64,77,848
Therefore, when the receipts are over 430 crore, the second proviso to section 2(15) does not come to the rescue of the appellant.
Therefore, it is held that the activities of the assessee, for the assessment year under appeal are not for charitable purpose as defined under section 2(15) of the Act. The provisions of section 13(8) of the I.T. Act, as amended with effect from 01/04/2009, read as under:
"8) Nothing contained in section 11 or section 12 shall operate so as to exclude any income from the total income of the previous year of the person in receipt thereof if the provisions of the first proviso to clause (15) of section 2 become applicable in the case of such person in the said previous year."
Therefore, no income of the assessee for the previous year would be eligible to be excluded from the total income under the provisions of section 11 or section 12 of the IT Act.
10 ITA Nos. 278/Ahd/13, 493 & 2346/A/14. A.Ys. 2009-10 to 2011-12
9. Aggrieved by this, the assessee is before us. The ld. Senior Counsel vehemently submitted that the First Appellate Authority have grossly erred in not appreciating the facts of the case qua the decisions relied upon by the assessee before the First Appellate Authority.
10.It is the say of the ld. counsel that the Hon'ble Supreme Court in assessee's own case in 227 ITR 414 has categorically held that the assessee is not a trading corporation. The ld. counsel further relied upon the decision of the Hon'ble Supreme Court given in the case of Shri Ramtanu Cooperative Housing Society Ltd. and another vs. State of Maharashtra and Others 1970(3) Supreme Court Cases 323. It is say of the ld. Senior Counsel that the writ petitions challenging the constitutional validity of Maharashtra Industrial Development Act, 3 of 1962 was dismissed by the Hon'ble Supreme Court. The ld. counsel stated that the Gujarat Industrial Development Act is in pari materia to Maharashtra Industrial Development Act.
11. The ld. Senior Counsel vehemently stated that the assessee is not constituted with a pre-dominant object of making profit; therefore, proviso to Section 2(15) of the Act does not apply. Reliance was placed on the decision of the Hon'ble Delhi High Court in the case of ICAI 35 taxmann.com 140 and 13 taxmann.com 175. Reliance was also placed on the decision of the Hon'ble Delhi High Court in the case of GS1 India 38 taxmann.com 364, Hon'ble Gujarat High Court in the case of Sabarmati Ashram Gaushala Trust 44 taxmann.com 141.
11 ITA Nos. 278/Ahd/13, 493 & 2346/A/14. A.Ys. 2009-10 to 2011-12
12.The ld. Special Counsel Shri G.C. Srivastva representing the revenue drew our attention to the legislative intent. It is the say of the ld. D.R. that earlier there was a specific provision to section 10(20A) in the statute by which such corporation (like the assessee) were given blanket exemption under the Income Tax Act. It is the say of the ld. D.R. that this specific exemption was later on withdrawn with effect from 01.04.2003 which means that it was never a legislative intent to treat such institutions (like assessee) as charitable institution. The ld. D.R. further drew our attention to the provisions of Section 10(20) of the Act which contains definition of local authority and stated that even under this provision, the assessee does not fit. Shri G.C. Srivastava continued by stating that under the proviso to Section 2(15) of the Act, it is the activity in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business is hit. It is the say of the ld. D.R. that it is specifically provided in Section 2(15) of the Act by which utilization of the funds is not relevant. In support firm reliance was placed on the decision of the Tribunal Ahmedabad Bench in the case of Ahmedabad Urban Development Authority in ITA No. 712 & 711/Ahd/2013 for A.Y. 2009-10 and ITA Nos. 647 & 2335/Ahd/2014 for A.Y. 2010-11 & 2011-12. The ld. D.R. relied upon the decision of the Co-ordinate Benches of Amritsar in the case of Jammu Development Authority in ITA No. 30/Asr/2011 which was later on decided by the Hon'ble High Court of Jammu & Kashmir in Tax Appeal No. 164 of 2012. The ld. D.R. further relied upon the decision in the case of GIVE Foundation in ITA No. 1465 /Ahd/2013, Entertainment Society of Goa in ITA 12 ITA Nos. 278/Ahd/13, 493 & 2346/A/14 . A.Ys. 2009-10 to 2011-12 No. 90/Panj/2012 and Belgaum Urban Development Authority in ITA No. 214/Panj/2011.
13.Having heard rival contentions, we have carefully perused the orders of the authorities below and with the assistance of the ld. representatives of both sides; we have gone through the related documentary evidences brought on record in the form paper books in the light of rule 18(6) of the ITAT Rules. We have given a thoughtful consideration to the decisions relied upon by the rival representatives.
14.The bone of contention is the applicability of the proviso to Section 2(15) of the Act. Section 2(15) as it stood in the statute after the repeal of the 1922 Act read as under:-
Section 2(15) - "Charitable purpose" includes relief of the poor, education, medical relief and the advancement of any other object of general public utility not involving the carrying on of any activity of profit.
This provision remained unchanged till its amendment by the Finance Act, 1983 and with effect from 1.4.1984 "not involving the carrying on of any activity of profit" was omitted.
The Section remained unchanged till it was amended by the Finance Act, 2008 w.e.f 1.4.2009.
15.All that has to be decided now is whether the activities of the appellant company constitutes carrying on of any activity in the nature of trade, commerce or business to come within the purview of the proviso to Section 13 ITA Nos. 278/Ahd/13, 493 & 2346/A/14 . A.Ys. 2009-10 to 2011-12 2(15) of the Act. Let us now consider the relevant provisions of the Gujarat Industrial Development Act, 1962 and the same reads as under:-
2. In this Act, unless the context otherwise requires,-
(a) "amenity" includes road, supply of water or electricity, street lighting, drainage, sewerage, conservancy and such other convenience as the State Government may, by notification in the Official Gazette, specify to be an amenity for the purposes of this Act;
(b) "building" means any structure or erection, or part of a structure or erection, which is intended to be used for residential, industrial, commercial or other purposes, whether in actual use or not;
(c) "Collector" means the Collector of a district, and includes any officer specially appointed by the State Government to perform the functions of a Collector under this Act;3
[(ca) "commercial centre" in relation to any industrial area or industrial estate means any site selected by the State Government where the Corporation builds shops and other buildings and makes them available for any commercial activity,]
(d) "Corporation" means the Gujarat Industrial Development Corporation established under Section 3;
(e) "Development" with its grammatical variations, means the carrying out of building, engineering, quarrying or other operations in, on. over or under land, or the making of any material change in any building or land, and includes re- development, but does not include mining operations; and "to develop" shall be constructed accordingly;
(f) "engineering operations" include the formation of laying out of means of access to a road or the laying out of means of access to a road or the laying out of water supply;
(g) "Industrial area" means any area declared to be an industrial area by the State Government by notification in the Official Gazette, which is to be developed and where industries are to be accommodated;
(h) "Industrial Estate" means any site selected by the State Government, where the Corporation builds factories and other buildings and makes them available for industries or class of industries;
(i) "means of access" includes a road for any means of access, whether private or public, for vehicles or for pedestrians;
(j) "premises" means any land or building or part of a building and includes-
(i) the garden, grounds and out-houses, if any, appertaining to such building or part of a building; and
(ii) any fittings affixed to such building or part of a building for the more beneficial enjoyment thereof;
14 ITA Nos. 278/Ahd/13, 493 & 2346/A/14. A.Ys. 2009-10 to 2011-12
(k) "Prescribed" means prescribed by rules, made under this Act; (1) "regulation" means regulation made under section 54
(m) "relevant land acquisition law" means-
(i) in the Bombay area of the Kutch area of the State of Gujarat, the Land Acquisition Act 1894 as in I of 1894. force in those areas;
(ii) in the Saurashtra area of the State of Gujarat, the Land Acquisition Act, 1894 as applied to that area; and
(iii) the Gujarat Land Acquisition (Industrial Areas) Act 1961;
(n) the expression "land" and the expression "person interested" shall have the meanings respectively assigned to them in the relevant land acquisition law.
ESTABLISHMENT AND CONSTITUTION OF THE CORPORATION
3. (1) For the purpose of securing and assisting in the rapid and orderly establishment, and organization of industries in industrial areas and industrial estates in the State of Gujarat l[and for the purpose of establishing commercial centers in connection with the establishment and organization of such industries], there shall be established by the State Government by notification in the Official Gazette, a Corporation by the name of the Gujarat Industrial Development Corporation.
(2) The Corporation shall be a body corporate with perpetual succession and a common seal, and may sue and be sued in its corporate name, and shall be competent to acquire, hold and dispose of property, both movable and immovable, and to contract, and do all things necessary, for the purpose of this Act.
FUNCTIIONS AND POWERS OF THE CORPORATION
13. The functions of the Corporation shall be-
(i) generally to promote and assist in the rapid and orderly establishment, growth and development of Industries in the State of Gujarat, and
(ii) in particular and without prejudice to the generality of clause (i) to-
(a) establish and manage industrial estates at place selected by the State Government;
(b) (b) develop industrial area selected by the State Government for the purpose and make them available for undertakings to establish themselves;
(c) (c) develop land on its own account or for the State Government for the purpose of facilitating the location of industries 2[and commercial centres] thereon:
(d) (c) develop land on its own account or for the State Government for the purpose of facilitating the location of industries 2[and commercial centres] thereon:15 ITA Nos. 278/Ahd/13, 493 & 2346/A/14
. A.Ys. 2009-10 to 2011-12
3
[(da) undertake schemes for providing industrial units and commercial
establishments with such structures and facilities as may be necessary for their orderly establishment, growth and development;]
(e) "[promote, organize, sponsor or undertake schemes] or works, either jointly with other corporate bodies or institutions, or with Government or local authorities, or on an agency basis, in furtherance of the purposes for which the Corporation is established and all matters connected therewith.
14. Subject to the provisions of this Act the Corporation shall have power-
(a) to.acquire and hold such property, both movable and immovable as the Corporation may deem necessary for the performance of any of its activities, and to lease, sell, exchange or otherwise transfer any property held by it on such conditions as may be deemed proper by the Corporation;
(b) to purchase by agreement or to take on lease or under any form of tenancy any land, to erect such buildings and to execute such other works as may be necessary' for the purpose of carrying out its duties and functions;
(c) to provide or cause to be provided amenities and common facilities in 5[industrial estates, commercial centres and industrial areas] and construct and maintain or cause to be maintained 6[works, buildings, amenities and common facilities] therefore;
7[(cc) to levy and collect development charges on the land which is not vested in or under the Control of the Corporation and which is benefited or likely to be benefited by the development or scheme or the work undertaken by the Corporation]
(d) to make available buildings n hire or sale to industrialists or persons intending to start industrial undertakings '[or, commercial establishments or both the industrial undertakings and commercial establishments;]
(e) to construct buildings for the housing of the employees if such industries, 2[or commercial establishments];
(f) (i) to allot factory sheds or such buildings or parts of buildings, including residential tenements to suitable persons in the industrial estates established or the industrial areas developed by the Corporation:
3[(ia) to allot shops and other buildings to suitable persons in commercial centres established by the Corporation;]
(ii) to modify or rescind such allotments, including the right and power to evict the allottees concerned on breach of any of the terms or conditions of their allotment;
(h) to constitute committees from amongst its 4[Directors] to perform any of its functions;
(i) to engage suitable consultants or persons having special knowledge or skill to assist the Corporation in the performance of its functions;16 ITA Nos. 278/Ahd/13, 493 & 2346/A/14
. A.Ys. 2009-10 to 2011-12
(j) 5 [********] [to delegate any of its powers generally or specially to any of its committees or officers and to permit them to re-delegate specific powers to their subordinates;
(k) to enter into and perform all such contracts as it may consider necessary or expedient for carrying out any of its functions; and;
(l) to do such other things and perform such acts as it may think necessary or expedient for the proper conduct of its business and the carrying in to effect the purposes of this Act.
Finance, Accounts and Audit
18. All property funds and other assets vesting in the corporation shall be held and applied by it, subject to the provisions of the purposes of the Act.
24. (1) The Corporation shall have the authority to spend such sums as it thinks fit for the purposes authorised under this Act from out of the general fund of the Corporation referred to in section 19 or from the reverse and other funds referred to in section 23, as the case may be.
(2) Without prejudice to the generality of the power conferred by sub-section (1), the Corporation may contribute such sums as it thinks fit towards expenditure incurred or to be incurred by any local authority or statutory public undertaking in the performance, in relation to any of its industrial estates or industrial areas, of any of the statutory functions of such authority or undertaking, including expenditure incurred in the acquisition of land.
(3) No expenditure other than capital expenditure shall be incurred by the Corporation out of moneys borrowed or received by way of deposits.
ACQUISITION AND DISPOSAL OF LAND 30,(1) Wherever any land is required by the Corporation for any purpose in furtherance of the objects of the Act, but the Corporation is unable to acquire it by agreement, the State Government may, upon an application of the Corporation in that behalf, order proceedings to be taken under the relevant land acquisition law for acquiring the same o n behalf of the Corporation as if such lands were needed for a public purpose within the meaning of the relevant land acquisition law.
(2) The amount of compensation awarded and all other charges incurred in the acquisition of any such land shall be forthwith paid by the Corporation and thereupon the land shall vest in the Corporation.
17 ITA Nos. 278/Ahd/13, 493 & 2346/A/14. A.Ys. 2009-10 to 2011-12 (32) (1) For the furtherance of the objects of this Act, the State Government may, upon such conditions as may be agreed upon between it and the Corporation, place at the disposal of the corporation any lands vested in the State Government. (2) After any such land has been developed by, or under the control and supervision of the Corporation, it shall be dealt with by the Corporation in accordance with the regulations made, and directions given by the State Government in this behalf.
(3) If any land placed at the disposal of the Corporation under sub-section (1) is required at any time thereafter by the State Government, the Corporation shall replace it at the disposal of the State Government upon such terms and conditions as the State Government may after consultation with the Corporation determine.
41. All sums payable by any person to the Corporation or recoverable by it by or under this Act and all charges or expenses incurred in connection therewith shall, without prejudice to any other mode or recover, be recoverable as an arrears of land revenue on the application of the corporation.
48(1) (1) The State Government if satisfied that the purposes for which the Corporation was established under this Act has been substantially achieved so as to render its continuance unnecessary, it may by notification in the official Gazette declare that the Corporation shall be dissolved with effect from such date as may be specified in the notification, and thereupon the Corporation shall stand dissolved accordingly.
(2) From the said date-
(a) all properties, funds and dues which are vested in, or realizable by, the Corporation shall vest in or be realisable by State Government; and
(b) all liabilities which are enforceable against the Corporation shall be enforceable against the State Government.
54.(1) The Corporation may, with the previous approval of the State Government make regulations consistent with this Act and the rules made thereunder, and to carry out the purposes of this Act (2) In particular and without prejudice to the generality of the foregoing power such regulations may provide for all matters expressly required or allowed by this Act to be provided by regulations.
(3) All regulations made under this section shall be published in the Official Gazette and shall be laid for not less than thirty days before the State Legislature, as soon as possible, after they are made, and shall be subject to rescission by the Legislature, or to such modification as the Legislature may make, during the session in which they are so laid, or the session immediately following.
18 ITA Nos. 278/Ahd/13, 493 & 2346/A/14. A.Ys. 2009-10 to 2011-12 (4) Any rescission or modification so made by the State Legislature shall be published in the Official Gazette and shall thereupon take effect.
16.The Hon'ble Supreme Court in the case of the assessee in 227 ITR 414 had the occasion to consider the objects of the assessee qua the claim of exemption u/s. 10(20A) of the Act. The relevant observations of the Hon'ble Supreme Court reads as under:-
7. The Division Bench of the High Court while agreeing that 'industrial activity is one of the facets of general development' adopted a reasoning that since development of an area would require roads, buildings, sanitation, parks, sports, educational institutions and several other amenities 'a city or town or village could be well developed without any industry'. The Division Bench posed a question and answered it in the following manner:
"The question, therefore, is whether when a particular Corporation is established for the purpose of developing or establishing industries in any particular area, can any one say that it is for the purpose of planning, developing or improving a particular city, town or village or a particular area ? One may establish an industry in a given area. That area for the purpose of industry may develop. But it does not necessarily mean that particular area develops by that industry alone. There may be advantages and disadvantages. On the one hand, because there are industrial activities in the area, some trade and commerce may grow, but that does not necessarily mean that it would develop that particular area. It may also create pollution and several other problems. Apart from that, the question which is required to be considered is as to whether the purpose of the corporation or the object of the corporation is to develop any city, any town or any particular area. The answer would be in the negative."
8. The Gujarat Act was enacted 'to make special provision for securing the orderly establishment of industries in industrial areas and industrial estates in the State of Gujarat, and to assist generally in the organization thereof, and for that purpose to establish an Industrial Development Corporation and for purposes connected with the matters aforesaid' as can be discerned from the preamble thereof.
9. Section 2(g) of the Act defines 'industrial area1 as any area declared to be an industrial area by the State Government by notification in the Official Gazette which is to be developed and where industries are to be accommodated. Section 19 ITA Nos. 278/Ahd/13, 493 & 2346/A/14 . A.Ys. 2009-10 to 2011-12 2(h) defines 'industrial estate' as any site selected by the State Government where the Corporation builds factories and other buildings and makes them available for any industries or class of industries. Section 13 of the Gujarat Act enumerates the functions of the Corporation and they contain, inter alia, 'to promote and assist in the rapid and orderly establishment, growth and development of industries in the State of Gujarat'.
10. We have no doubt that a proper planning is absolutely necessary for creation of an industrial area. Inside roads, sub-roads, buildings, sanitation, parks and other amenities have also to be provided in a planned industrial area as per the modern concept of any industrial complex. Even educational institutions may have to be provided in such complex. Therefore, development of industrial area would have its direct impact on the development or improvement of that part of the city or town or village where such area is located. Delinking industrial area from the scope of development of any area is thus, without any practical sense.
11. In this context, a reference to the Maharashtra Industrial Develop ment Act, 1 962, which is almost analogous to the Gujarat Act, is of some use. While examining issues relating to the validity of the Maharashtra Act, a Division Bench of this Court has said in Shri Ramtanu Co-operative Housing Society Ltd .v. State of Maharashtra [1 970] 3 SCC 323 :
"The functions and powers of the Corporation indicate that the Corporation is acting as a wing of the State Government in establishing industrial estates and developing industrial areas, acquiring property for those purposes, constructing building, allotting buildings, factory sheds to industrialists or industrial undertakings. It is obvious that the Corporation will receive moneys for disposal of land, buildings and other properties and also/that the Corporation would receive rents and profits in appropriate cases. Receipts of these moneys arise not out of any business or trade but out of ~the sole purpose of establishment, growth and development of industries. The Corporation has to provide amenities and facilities in industrial estates and industrial areas. Amenities of road, electricity, sewerage and other facilities in industrial estates and industrial areas are within the programme of the work of the Corporation."
12. The scheme of the Gujarat Act, as is seen from a survey of the relevant provisions referred to above, would indicate that the Corporation set up thereunder is to chalk out plans for development of industrial area and industrial 20 ITA Nos. 278/Ahd/13, 493 & 2346/A/14 . A.Ys. 2009-10 to 2011-12 estate in different places which may locate in cities or towns or villages. Such schemes would normally involve planning and development of such areas.
13. The word 'development' in section 10(20A) should be understood in its wide sense. There is no warrant to exclude all development programmes relating to any industry from the purview of the word 'development' in the said sub-section. There is no indication in the Act that development envisaged therein should confine to non-industrial activities. Development of a place can be accelerated through varieties of schemes and establishment of industries is one of the modes of developing an area.
One of the reasons for incorporating a specific provision of exemption from income-tax such as section 10(20A) is to protect public bodies created under law for achieving the purpose of developing urban or rural areas for public good. When the object is such, an interpretation which would preserve it should be accepted even if the provision is capable of more than one interpretation. That principle of interpretation is very much applicable to fiscal statutes also, [vide State of Tamil Nadu v. M.K. Kandaswami 1976 (1) SCR 38]. This Court has reiterated the said principle in Calcutta Jute Manufacturing Co. v. CTO JT l997(5) SC 690.
15. The position is, therefore, clear that the authorities constituted by law for facilitating all kinds of development of cities, towns and villages for public purposes shall not be subjected to the liability to pay income-tax. The Division Bench of the High Court seems to have interpreted the exemption clause too rigidly and narrowly which resulted in the anomaly of bringing authorities like the appellant-corporation within the tentacles of the income-tax liability while the authorities dealing with the housing schemes which provide houses to private individuals would stand outside the taxing sphere.
16. In the/ result, we allow these appeals, 'set aside the judgment under challenge. The answer to the question will, therefore, be in favour of the assessee and against the revenue.
17.As mentioned elsewhere, the Gujarat Industrial Development Act, 1962 is in pari materia to Maharashtra Industrial Development Act, 1962. The constitutional validity of the Maharashtra Act was challenged before the Hon'ble Supreme Court by a writ and the Hon'ble Apex Court dismissed the 21 ITA Nos. 278/Ahd/13, 493 & 2346/A/14 . A.Ys. 2009-10 to 2011-12 writ petition. The relevant observations of the Hon'ble Supreme Court reads as under:-
3. The true character, scope and intent of the Act is to be ascertained "with reference to the purposes and the provisions of the Act. The Act is one to make a special provision for securing the orderly establishment in industrial areas and industrial estates of industries in the State of Maharashtra, and to assist generally in the organisation thereof, and for that purpose to establish an Industrial Development Corporation, and for purposes connected with the matters aforesaid.
4. The Corporation is established for the purpose of securing and assisting the rapid and orderly establishment and organisation of industries in industrial areas and industrial estates in the State of Maharashtra. The Corporation consists of 8 members two of whom are nominated by the State Government of whom one shall be the Financial Adviser to the Corporation, one member nominated by the State Electricity Board, one member nominated by the Housing Board and three members nominated by the State Government, from amongst persons appearing to Government to be qualified as having had experience of, and having shown capacity in industry or trade or finance or who are in the opinion of the Government capable of representing the interest of persons engaged or employed therein, and the Chief Executive Officer of the Corporation, who shall be the Secretary of the Corporation.
7. We have referred to these expressions, "industrial area", "industrial estate", "development" and "amenity" in order to appreciate the general powers of the Corporation to discharge the functions of the Corporation in regard to the establishment, growth and development of industries in the State. These powers are to acquire and hold property, movable and immovable for the performance of any of its activities, and to lease, sell, exchange or otherwise transfer any property held by the Corporation on such conditions as may be deemed proper by the Corporation and also to purchase by agreement or to take on lease or under any form of tenancy any land, to erect such buildings arid to execute such other works as may be necessary for the purpose of carrying out its duties and functions, to provide or cause to be provided amenities and common facilities in industrial estates and industrial areas and construct and maintain or cause to be maintained works and buildings therefore, to make available buildings on hire or sale to industrialists or persons intending to start industrial undertakings to construct buildings for the housing of the employees of such industries, to allot factory sheds or such buildings or parts of buildings, including residential 22 ITA Nos. 278/Ahd/13, 493 & 2346/A/14 . A.Ys. 2009-10 to 2011-12 tenements to suitable persons in the industrial estates established or developed by the Corporation and to do such other things and perform such acts as it may think necessary or expedient for the proper conduct of its functions, and the carrying into effect the purposes of this Act.
8.Broadly stated the functions and powers of the Corporation are to develop industrial areas and industrial estates by providing amenities of road., supply of water or electricity, street lighting, drainage, sewerage, conservancy and other conveniences, secondly to construct works and buildings, factory sheds and thirdly, to make available buildings on hire or sale to industrialists or persons intending to start industrial undertakings and to allot factory sheds, buildings, residential tenements to suitable persons in industrial estates established or developed by the Corporation and to lease, sell, exchange or otherwise transfer any property held by the Corporation on such conditions as may be deemed proper by the Corporation.
9. The development of industrial areas and industrial estates is intended to serve two objects. In the first place, there is to be an orderly establishment and growth of industries in the Bombay Poona sector. The second object is to secure dispersal of industries from the congested areas of the Bombay Poona sector to the underdeveloped parts of the State. The industrial areas are broadly classified into two categories, namely, first, those meant for engineering and other industries which are not obnoxious and secondly those meant for chemical industries. The establishment and growth of industries in the State is inextricably bound up with availability of land. Available land is limited. Such limited supply leads to speculation in land. Power is therefore required for compulsory acquisition of land to achieve the purposes of the Act. At the same time, land owners are not to be deprived of the legitimate benefit of reasonable increase in land values in a developing economy.
11. The principal functions of the Corporation in regard to the establishment, growth and development of industries in the State are first to establish and manage industrial estates at selected places and secondly to develop industrial areas selected by the State Government. When industrial areas are selected the necessity of acquisition of land in those areas is apparent. The Act, therefore, contemplates that the State Government may acquire land by publishing a notice specifying the particular purpose for which such land is required. Before the publication of the notice, the owner of the land is given an opportunity to show cause as to why the land should not be acquired. After considering the cause shown by the owner the State Government may pass such orders as it deems fit.23 ITA Nos. 278/Ahd/13, 493 & 2346/A/14
. A.Ys. 2009-10 to 2011-12 When a notice is published for acquisition of land, the land shall, on and from the date of such publication, vest absolutely in the State Government free from all encumbrances. Where the land has been acquired for the Corporation or any local authority, the State Government shall, after it has taken possession of the land, transfer the land to the Corporation or that local authority, for the purposes for which the land has been acquired subject to such terms and conditions which the State Government may deem fit to impose. We have already noticed that for the purpose of the Act, namely, the establishment and development of industries the State the Corporation will establish industrial estates and develop industrial areas.
12. Apart from establishing industrial estates and developing industrial areas the Corporation may dispose of any land acquired by the State Government and transfer to the Corporation without undertaking or carrying out any development thereof or transfer such land after undertaking or carrying out any development as it thinks fit. These powers of the Corporation with respect to the disposal of land are to be exercised so far as practicable, that where the Corporation proposes to dispose of by sale any such land without any development having been undertaken or carried out thereon, the Corporation shall offer the land in the first instance to the persons from whom it was acquired if they desire to purchase it subject to such requirements as to its development and use as the Corporation may think fit to impose. Again, the persons who are residing or carrying on business or other activities on any such land shall, if they desire to obtain accommodation on land belonging to the Corporation and are willing to comply with any requirements of the Corporation as to its development and use, have an opportunity to obtain thereon accommodation suitable to their reasonable requirements on terms settled with due regard to the price at which any such land has been acquired from them.
16. The petitioners contended that the Corporation was a trading one. The reasons given were that the Corporation could sell property, namely, transfer land that the Corporation had borrowing powers ; and that the Corporation was entitled to moneys by way of rents and profits. Reliance was placed on the report of the Corporation and in particular on the income and expenditure of the Corporation to show that it was making profits. These features of transfer of land or borrowing of moneys or receipt of rents and profits will by themselves neither be the indicia nor the decisive attributes of the trading character of the Corporation. Ordinarily, a Corporation is established by shareholders with their capital. The shareholders have their Directors for the regulation and management of the Corporation. Such a Corporation set up by the shareholders 24 ITA Nos. 278/Ahd/13, 493 & 2346/A/14 . A.Ys. 2009-10 to 2011-12 carries on business and is intended for making profits. When profits are earned by such a Corporation they are distributed to shareholders by way of dividends or kept in reserve funds. In the present case, these attributes of a trading corporation Corporation are absent. The Corporation is established by the Act for carrying out the purposes" of the Act. The purposes of the Act are development of industries in the State. The Corporation consists of nominees of the State Government, State Electricity Board and the Housing Board. The functions and powers of the Corporation indicate that the Corporation is acting as a wing of the State Government in establishing industrial estates and developing industrial areas, acquiring property for those purposes, constructing buildings, allotting buildings, factory sheds to industrialists or industrial undertakings. It is obvious that the Corporation will receive moneys for disposal of land, buildings and other properties and also that the Corporation would receive rents and profits in appropriate cases. Receipts of these moneys arise not out of any business or trade but out of sole purpose of establishment, growth and development of industries.
18.The Corporation has to provide amenities and facilities in industrial estates and industrial areas. Amenities of road, electricity, sewerage and other facilities in industrial estates and industrial areas are within the programme of work of the Corporation. The fund of the Corporation consists of moneys received from the State Government, all fees, costs and charges received by the Corporation, all moneys received by the Corporation from the disposal of lands, buildings and other properties and all moneys received by the Corporation by way of rents and profits or in any other manner. The Corporation shall have the authority to spend such sums out of the general funds of the Corporation or from reserve and other funds. The Corporation is to make provision for reserve and other specially denominated funds as the State Government may direct. The Corporation accepts deposits from persons, authorities or institutions to whom allotment or sale of land, buildings, or sheds is made or is likely to be made in furtherance of the object of the Act. A budget is prepared showing the estimated receipts and expenditure. The accounts of the Corporation are audited by an auditor appointed by the State Government. These provisions in regard to the finance of the Corporation indicate the real role of the Corporation, viz., the agency of the Government in carrying out the purpose and object of the Act which is the development of industries. If in the ultimate analysis there is excess of income over expenditure that will not establish the trading character of the Corporation. There are various departments of the Government which may have excess of income over expenditure.
25 ITA Nos. 278/Ahd/13, 493 & 2346/A/14. A.Ys. 2009-10 to 2011-12
19. There are two provisions of the Act which are not to be found in any trading Corporation. In the first place, the sums payable by any person to the Corporation are recoverable by it under this Act as an arrear of land revenue on the application of the Corporation. 'Secondly on dissolution of the Corporation the assets vest in and the liabilities become enforceable against the State Government.
20. The underlying concept of a trading Corporation is buying and selling. There is no aspect of buying or selling by the Corporation in the present case. The Corporation carries out the purposes of the Act, namely, development of industries in the State. The construction of buildings, the establishment of industries by letting buildings on hire or sale, the acquisition and transfer of land in relation to establishment of industrial estate or development of industrial areas and of setting up of industries cannot be said to be dealing in land or buildings for the obvious reason that the State is carrying out the objects of the Act with the Corporation as an agent in setting up industries in the State. The Act aims at building an industrial town and the Corporation carries out the objects of the Act. The hard core of a trading Corporation is its commercial character. Commerce connotes transactions of purchase and sale of commodities, dealing in goods. The forms of business transactions may be varied but the real character is buying and selling. The true character of the Corporation in the present case is to act as an architectural agent of the development and growth of industrial towns by establishing and developing industrial estates and industrial areas. We are of opinion that the Corporation is not a trading one.
18.In the light of the aforementioned judicial decisions of the Hon'ble Supreme Court, it is settled that the assessee is not a trading corporation. Let us now consider the various aspect of the impugned provision.
"General means pertaining to whole class, "Public" means the body of people at large including any class of the public, "Utility" means usefulness.26 ITA Nos. 278/Ahd/13, 493 & 2346/A/14
. A.Ys. 2009-10 to 2011-12 Therefore, the advancement of any object of benefit to the public or a section of the public as distinguished from individual and group of individuals would be a charitable purpose. An object of public utility need not be an object in which the whole of the public is interested. It is sufficient if well defined section of the public benefits by the objects which means that the expression "object of general public utility" is not restricted to objects beneficial to the whole mankind. An object beneficial to a section of the public is an object of general public utility. In the case of CIT Vs Swastik Trading Co. Ltd. 113 ITR 852, the Hon'ble Gujarat High Court has held that establishing and maintaining Gaushalas and Panjrapole constitutes charitable purpose.
16. The Hon'ble Finance Minister while presenting the Finance Act 2008 in his budget speech stated as follows:
"Charitable purpose includes relief of the poor, education, medical relief and any other objects of general public utility. These activities are tax exempt as they should be. However, some entities carrying on regular trade, commerce or business or providing services in relation to any trade, commerce or business and earning incomes have sought to claim that their purpose would also fall under "charitable purpose".
Obviously, this was not the intention of the Parliament and hence, I propose to amend the law to exclude the aforesaid cases. Genuine charitable organizations will not in any way be affected.
27 ITA Nos. 278/Ahd/13, 493 & 2346/A/14. A.Ys. 2009-10 to 2011-12
17. Thus the intention of the Hon'ble Finance Minister was only to exclude from exemption, entities carrying on business and earning incomes for which exemption was claimed on the basis that the purpose would fall under charitable purpose.
18. The CBDT Circular No. 11/2008 dt. 19.12.2008 has explained the implications arising from the amendment brought to the provisions of Sec 2(15) of the Act. The CBDT clarifies that the newly inserted proviso to Sec. 2(15) will not apply in respect of the first three limbs of Sec. 2(15) i.e. relief of the poor, education or medical relief. Consequently where the purpose of a trust or institution is relief of the poor, education or medical relief, it will constitute charitable purpose, even if it is incidentally involves the carrying on of commercial activity. The Board further clarified that " the newly inserted proviso to Sec. 2( 15) will apply only to entities whose purpose is advancement of any other object of general public utility i.e. 4lh limb of the definition of the charitable purpose contained in Sec. 2(15). The Circular further clarified "in the final analysis, whether the assessee has for its objects the advancement of any other object or general public utility is a question of fact. If such assessee is engaged in any activity in the nature of trade, commerce or business or renders any service in relation to trade, commerce or business, it would not be entitled to claim that its object is charitable purpose. In such a case, the object of general public utility will be only a mask or device to hide the true purpose which is trade commerce or business 28 ITA Nos. 278/Ahd/13, 493 & 2346/A/14 . A.Ys. 2009-10 to 2011-12 or the rendering of any service in relation to trade, commerce or business. Each case would therefore be decided on its own facts and no generalization is possible.
19. Thus, even the CBDT does not lay down any guidelines for determining whether the entity is carrying on any commercial activity. Each case would therefore to be decided on its own facts and as the CBDT has clarified generalization is not possible.
19.Coming back to the enactment of the State Act for the constitution of the appellant company, we find that the appellant company has been constituted for the purpose of securing and assisting in the rapid and orderly establishment and organization of industries in industrial areas and industrial estates in the State of Gujarat.
20.In the case of Sole Trustee, Loka Shikshana Trust vs. CIT 101 ITR 234, the Hon'ble Justice J. Baig speaking for the Apex Court thus said that:
" If the profits must necessarily feed a charitable purpose, under the terms of the trust, the mere fact that the activities of the trust yield profit will not alter the charitable character of the trust. The test now is, more clearly than in the past, the genuineness of the purpose tested by the obligation created to spend the money exclusively or essentially on charity".
21.The test for carrying on of any activity in the nature of trade, commerce or business as mentioned in the first proviso to Sec. 2(15) would be satisfied if profit making is not the real object. The Hon'ble Delhi High Court in the 29 ITA Nos. 278/Ahd/13, 493 & 2346/A/14 . A.Ys. 2009-10 to 2011-12 case of ICAI Vs Director General of Income Tax (Exem) 347 ITR 99 had the occasion to consider the grievance of the ICAI which was denied exemption u/s. 10(23C)(iv) of the Act because in the opinion of the DGIT (Exem.) the institute was holding coaching classes and therefore was not an educational institution, consequently the institute was covered under the last limb of charitable purpose i.e. advance of any other object of general public utility in the light of the amendment brought o Sec. 2(15) of the Act as the institute was charging fees for conducting coaching clauses and making huge money in a systematic and organized manner. Considering the facts in the light of the amended provisions of Sec. 2(15), the Hon'ble Delhi High Court held that the order denying the exemption was not valid.
22.The Tribunal in the case of Sabarmati Ashram Gaushala Trust (supra), on identical facts has held that the assessee was not conducting its affairs on commercial lines with a motive to earn profits or has deviated from its objects as detailed in the trust deed of the assessee. The proviso to Sec. 2(15) was not applicable.
23. The reliance by the Ld. DR on the decision of the Tribunal in the case of Amritsar Bench in the case of Improvement Trust (supra) by the Ld. DR is misplaced inasmuch as in that case the dominant activity of the trust was to purchase land at nominal cost, then level and clear it. cut into plots and sell at much higher prices. On this, the Tribunal has held that the activities of the assessee are aimed at earning profits. Similar were the facts before the 30 ITA Nos. 278/Ahd/13, 493 & 2346/A/14 . A.Ys. 2009-10 to 2011-12 Hon'ble High Court of Jammu and Kashmir in the case of Jammu Development Authority (supra).
24.The DR has also relied upon the decision of the Tribunal Panaji Bench in the case of Belgaum Urban Development Authority Vs CIT(supra). However, we find that in that case the Tribunal was referring to the registration certificate issued u/s. 12A to Belgaum Urban Development Authority by the DIT (Exem) Bangalore and while referring to the said certificate, the Tribunal observed that while granting registration, the CIT had no chance to examine the newly inserted proviso to Sec. 2(15) of the Act and the Tribunal was not aware what happened subsequently in that case after the coming into force the proviso to Sec. 2(15) and whether any rectification order has been passed by the department or not as there being mistake of law after coming into force the first proviso to Sec. 2(15) of the Act. The facts of the case in hand are not even remotely connected with the facts of the case relied upon by the ld. D.R.
25.Without going into the merits of the decision given in the case of Ahmedabad Urban Development Authority (supra), we find that the said decision of the Co-ordinate Bench has been stayed by the Hon'ble High Court of Gujarat in Tax Appeal No. 423 & 424 of 2016 with Civil Application No. 212 & 213 of 2016. The relevant part reads as under:-
"Under the circumstances, issue notice returnable on 06.06.2016. By way of ad- interim relief, the impugned order dated 19.04.2016 passed by the ITAT in ITA No. 712/Ahd/2013 and ITA Nos. 647 and 2335/Ahd/2014 is hereby stayed."31 ITA Nos. 278/Ahd/13, 493 & 2346/A/14
. A.Ys. 2009-10 to 2011-12
26. Referring to this order of the Hon'ble High Court of Gujarat, the ld. D.R. referred to the judgment of the Hon'ble Calcutta High Court in the case of Pijush Kanti Chowdhury vs. State of West Bengal (2007) 2 CALLT 577 (HC). It is say of the ld. D.R. that the Hon'ble Calcutta High Court has held that "such interim order is binding upon the parties to the proceedings but the law is equally settled that by mere passing of an interim order staying the operating of a judgment with certain further conditions, the existence of the said judgment is not wiped out and at the same time, for such interim orders inter parties, the authority of a decision as a precedent is never undermined".
27. Rebutting to the afore-stated submissions of the ld. D.R., the ld. Senior Counsel referred to the decision of the Hon'ble Supreme Court given in the case of Shree Chamundi Mopeds Ltd. vs. Church of South India Trust Association in Civil Appeal No. 2553 of 1991 (1992) 3 Supreme Court cases
1.
28.The ld. Senior Counsel referred to the following observations of the Hon'ble Supreme Court in the said order:-
While considering the effect of an interim order staying the operation of the order under challenge, a distinction has to be made between quashing of an order and stay of operation of an order. Quashing of an order results in the restoration of the position as it stood on the date of the passing of the order which has been quashed. The stay of operation of an order does not, however, lead to such a result. It only means that the order which has been stayed would not be operative from the date of the passing of the stay order and it does not mean that the said order has been wiped out from existence. This means that if an order passed by the Appellate Authority is quashed and the matter is remanded, the result would be that the appeal which had been disposed of by the said order of the Appellate 32 ITA Nos. 278/Ahd/13, 493 & 2346/A/14 . A.Ys. 2009-10 to 2011-12 Authority would be restored and it can be said to be pending before the Appellate Authority after the quashing of the order of the Appellate Authority. The same cannot be said with regard to an order staying the operation of the order of the Appellate Authority because in spite of the said order, the order of the Appellate Authority continues to exist in law and so long as it exists, it cannot be said that the appeal which has been disposed of by the said order has not been disposed of and is still pending. We are, therefore, of the opinion that the passing of the interim order dated February 21, 1991 by the Delhi High Court staying the operation of the order of the Appellate Authority dated January 7, 1991 does not have the effect of reviving the appeal which had been dismissed by the Appellate Authority by its order dated January 7, 1991 and it cannot be said that after February 21, 1991, the said appeal stood revived and was pending before the Appellate Authority. In that view of the matter, it cannot be said that any proceedings under the Act were pending before the Board or the Appellate Authority on the date of the passing of the order dated August 14, 1991 by the learned Single Judge of the Karnataka High Court for winding up of the company or on November 6, 1991 when the Division Bench passed the order dismissing O.S.A. No. 16 of 1991 filed by the appellant-company against the order of the learned Single Judge dated August 14, 1991. Section 22(1) of the Act could not, therefore, be invoked and there was no impediment in the High Court dealing with the winding up petition filed by the respondents. This is the only question that has been canvassed in Civil Appeal No. 126 of 1992, directed against the order for winding up of the appellant-company. The said appeal, therefore, fails and is liable to be dismissed.
29.After considering the entire facts in totality, in the light of the decisions discussed hereinabove and also drawing support from the speech of the Hon'ble Finance Minister and subsequent clarifications issued by the CBDT within the frame work of the amended provisions of Sec. 2(15) of the Act, in our considered view, there was no material which may suggest that the 33 ITA Nos. 278/Ahd/13, 493 & 2346/A/14 . A.Ys. 2009-10 to 2011-12 appellant company was conducting its affairs solely on commercial lines with a motive to earn profit. There is also no material brought on record which could suggest that the appellant company deviated from its objects for which it has been constituted. In our humble opinion and understanding of law, the proviso to Sec. 2(15) of the Act is not applicable on the facts of the case.
30.Accordingly, we hold that the order of the First Appellate Authority is erroneous and bad in law. The appellant succeeds.
31.We direct the A.O. to decide the claim of deductions made by the assessee in the light of our finding that the proviso to Section 2(15) of the Act does not apply in the case of the assessee. We direct accordingly.
32.Before parting, the ld. D.R. heavily relied upon another amendment in the Act by way of introduction of section 13(8) which came through Finance Act of 2012 with retrospective effect from 01.04.2009 which provided that the benefit of Section 11 or Section 12 would not be available if the receipts from the activity in the nature of trade or business exceeded the threshold provided for in the proviso to Section 2(15) of the Act. Section 13 (8) of the Act reads as under:-
[(8)"Nothing contained in section 11 or section 12 shall operate so as to exclude any income from the total income of the previous year of the person in receipt thereof if the provisions of the first proviso to clause (15) of section 2 become applicable in the case of such person in the said previous."] 34 ITA Nos. 278/Ahd/13, 493 & 2346/A/14 . A.Ys. 2009-10 to 2011-12
33.A perusal of the aforementioned section shows that it would be applicable if the provisions of the first proviso to clause 15 of Section 2 become applicable. Since, we have held that the first proviso to Section 2(15) is not applicable in the case of the assessee on the facts of the case.
34.As mentioned elsewhere, the facts of ITA No. 493/Ahd/2014 for A.Y. 2010- 11, ITA No. 2346/Ahd/2014 for A.Y. 2011-12 are identical to the facts of the appeal decided by us in ITA No. 278/Ahd/2013 for A.Y. 2009-10, for assessment year 2010-11 & 2011-12. We hold accordingly with similar directions to the A.O.
35.In the result, the appeals filed by the Assessee are allowed.
Order pronounced in Open Court on 10 - 01- 2017
Sd/- Sd/-
(MAHAVIR PRASAD) (N. K. BILLAIYA)
JUDICIAL MEMBER True Copy ACCOUNTANT
MEMBER
Ahmedabad: Dated 10 /01/2017
Rajesh
Copy of the Order forwarded to:-
1. The Appellant.
2. The Respondent.
3. The CIT (Appeals) -
4. The CIT concerned.
5. The DR., ITAT, Ahmedabad.
6. Guard File.
By ORDER
Deputy/Asstt.Registrar