Gujarat High Court
The Director Of Income Tax (Exemption) vs Ahmedabad Urban Development ... on 25 April, 2017
Author: M.R. Shah
Bench: M.R. Shah, B.N. Karia
O/TAXAP/2323/2010 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
TAX APPEAL NO. 2323 of 2010
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE M.R. SHAH
and
HONOURABLE MR.JUSTICE B.N. KARIA
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1 Whether Reporters of Local Papers may be
allowed to see the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair
copy of the judgment ?
4 Whether this case involves a substantial
question of law as to the interpretation of the
Constitution of India or any order made
thereunder ?
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THE DIRECTOR OF INCOME TAX (EXEMPTION)....Appellant(s)
Versus
AHMEDABAD URBAN DEVELOPMENT AUTHORITY....Opponent(s)
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Appearance:
MR MANISH BHATT, SENIOR ADVOCATE with MRS MAUNA M
BHATT, ADVOCATE for the Appellant(s) No. 1
MR SN SOPARKAR, SENIOR ADVOCATE with MRS SWATI
SOPARKAR, ADVOCATE for the Opponent(s) No. 1
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CORAM: HONOURABLE MR.JUSTICE M.R. SHAH
and
HONOURABLE MR.JUSTICE B.N. KARIA
Date : 25/04/2017
ORAL JUDGMENT
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HC-NIC Page 1 of 9 Created On Wed Aug 16 05:49:25 IST 2017 O/TAXAP/2323/2010 JUDGMENT (PER : HONOURABLE MR.JUSTICE M.R. SHAH) [1.0] Feeling aggrieved and dissatisfied with the impugned judgment and order passed by the learned Income Tax Appellate Tribunal, Ahmedabad (hereinafter referred to as "the learned tribunal") dated 21/05/2010 in ITA No.754/Ahd/2010 for the Assessment Year 2009-10 by which the learned tribunal has allowed the said Appeal preferred by the respondent - assessee and has quashed and set aside the order passed by the Director of Income Tax (Exemption), Ahmedabad dated 15/02/2010 under Section 12AA(3) of the Income Tax Act by which the Director of Income Tax (Exemption), Ahmedabad has cancelled the registration of the respondent under Section 12AA of the Income Tax Act retrospectively with effect from 2002 /2003, revenue has preferred the present Tax Appeal to consider the following substantial question of law;
"Whether the learned tribunal below committed substantial error of law in cancelling the order of Director of Income Tax (Exemption) passed under Section 12-AA(3) of the Income Tax Act by totally overlooking the amendment effected in the nature of first proviso to Section 2(15) of the Income Tax Act with effect from April 01,2009."
[2.0] The respondent - assessee - Ahmedabad Urban Development Authority (hereinafter referred to as "AUDA") has been established and constituted as Urban Development Authority under the provisions of the Gujarat Town Planning Act. The respondent - assessee is governed by the provisions of the Gujarat Town Planning Act and Rules. The respondent -
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assessee was registered under Section 12AA of the Income Tax Act with effect from 01/04/2002 vide order dated 23/10/2003 of the Director of Income Tax (Exemption), Ahmedabad. Thereafter, the respondent - assessee claimed exemption under Section 11 of the Income Tax Act in which the subsequent orders came to be allowed by the Assessing Officer by passing respective assessment orders. Thereafter, the respondent - assessee was served with the show cause notice dated 17/11/2009 under Section 12AA(3) of the Income Tax Act stating that the activities carried by the respondent - assessee were more of commercial nature resulting in commercial income, and therefore, the respondent - assessee was called upon to show cause why its registration under Section 12AA of the Income Tax Act may not be cancelled. Thereafter, vide order dated 15/02/2010 Director of Income Tax (Exemption) passed an order under Section 12AA(3) of the Income Tax Act cancelling the registration under Section 12AA of the Income Tax Act retrospectively with effect from 01/04/2002.
[2.1] Feeling aggrieved and dissatisfied with the impugned order passed by the Director of Income Tax (Exemption), Ahmedabad under Section 12AA(3) of the Income Tax Act cancelling the registration under Section 12AA of the Income Tax Act retrospectively, the respondent - assessee preferred Appeal before the learned tribunal and by the impugned judgment and order the learned tribunal has allowed the said Appeal and has set aside the order passed by the Director of Income Tax (Exemption) dated 15/02/2010.
[2.2] Feeling aggrieved and dissatisfied with the
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impugned judgment and order passed by the learned tribunal, revenue has preferred the present Tax Appeal to consider the aforestated question of law.
[3.0] Shri Manish Bhatt, learned Senior Advocate has appeared on behalf of the revenue and Shri S.N. Soparkar, learned Senior Advocate has appeared on behalf of the respondent - assessee.
[3.1] It is vehemently submitted by Shri Manish Bhatt, learned Senior Advocate appearing on behalf of the revenue that in the facts and circumstances of the case, the learned tribunal has materially erred in quashing and setting aside the order passed by the Director of Income Tax (Exemption) under Section 12AA(3) of the Income Tax Act. It is submitted that as such cogent reasons were given by the Director of Income Tax (Exemption) while passing the order under Section 12AA(3) of the Income Tax Act, which ought not to have been interfered with by the learned tribunal.
[3.2] It is further submitted by Shri Manish Bhatt, learned Senior Advocate appearing on behalf of the revenue that the learned tribunal has materially erred in not following the decision of the learned tribunal of the Chandigarh Bench in PUDA Vs. CIT-I Chandigarh rendered in 156 Taxmann 37 CHD. It is further submitted by Shri Manish Bhatt, learned Senior Advocate appearing on behalf of the revenue that as such the respondent - assessee has not engaged itself in charity and whatever activities are carried out and development has taken place by the respondent - assessee the cost is recovered from the public at large. It is submitted Page 4 of 9 HC-NIC Page 4 of 9 Created On Wed Aug 16 05:49:25 IST 2017 O/TAXAP/2323/2010 JUDGMENT that even the respondent - assessee is also selling plots and making profit, and therefore, the object /activities of the respondent - assessee were more of commercial in nature and they are not involved in any charity, and therefore, the Director of Income Tax (Exemption) rightly cancelled the registration granted under Section 12AA of the Income Tax Act. It is submitted that as noted by the Director of Income Tax (Exemption) despite number of opportunities the respondent - assessee has not produce the details with respect to the plots sold and the amount realized by selling the plots. It is submitted that as the respondent - assessee was auctioning the plots at market rate and realizing the money, the activities of the respondent - assessee cannot be said to be charitable activity. It is submitted that therefore after taking note of the amendment to Section 2(15) of the Income Tax Act where insertion of proviso to Section 2(15) of the Act clarifies that advancement of any other object of general public utility from charitable purpose, if it involves carrying on any activity in the nature of trade, commerce or business or rendering of any services thereto for a cess or fee or any other consideration irrespective of nature of use or application or retention of income from such activity, when the Director of Income Tax (Exemption) cancelled the registration under Section 12AA of the Income Tax Act retrospectively, the learned tribunal ought not to have interfered with the order passed by the Director of Income Tax (Exemption).
Making the above submissions, it is requested to allow the present Tax Appeal.
[4.0] The present Tax Appeal is vehemently opposed by Shri S.N. Soparkar, learned Senior Advocate appearing on Page 5 of 9 HC-NIC Page 5 of 9 Created On Wed Aug 16 05:49:25 IST 2017 O/TAXAP/2323/2010 JUDGMENT behalf of the respondent - assessee. It is vehemently submitted by Shri Soparkar, learned Senior Advocate appearing on behalf of the respondent - assessee that in the facts and circumstances of the case and considering the purpose and object for which the respondent - assessee has been established and constituted under the provisions of the Gujarat Town Planning Act, the services provided under the Act can be said to be public utility services, and therefore, it can be said to be charitable purpose within the meaning of Section 2(15) of the Income Tax Act, and therefore, the learned tribunal has rightly quashed and set aside the order passed by the Director of Income Tax (Exemption).
[4.1] It is vehemently submitted by Shri Soparkar, learned Senior Advocate appearing on behalf of the revenue that merely because the respondent - assessee is selling the plots by auction and recovering the cost of the project by imposing levy on the area developed by it, it cannot be said that the activities carried out by the respondent - assessee is not in the nature of charity. It is submitted that as such whatever the amount is realized by the respondent - assessee by selling the plots the same is to be used by the respondent - assessee solely for the purpose of development and providing various facilities /public utility services such as electricity, water connection, drainage etc.. It is submitted that whatever amount is realized by selling the plots has been shown in the books of accounts. It is submitted that there was no requirement to maintain the books of accounts plot wise. It is submitted by Shri Soparkar, learned Senior Advocate appearing on behalf of the respondent - assessee that even wherever cess was recovered by the respondent - assessee Page 6 of 9 HC-NIC Page 6 of 9 Created On Wed Aug 16 05:49:25 IST 2017 O/TAXAP/2323/2010 JUDGMENT the same is recovered to meet the expenditure of development of the area under the Town Planning Scheme. It is submitted that therefore considering the nature of the activities carried out by the respondent - assessee the same can be said to be for charitable purpose being providing public utility services within the meaning of Section 2(15) of the Income Tax Act, and therefore, the learned tribunal has rightly quashed and set aside the order passed by the Director of Income Tax (Exemption).
Making the above submissions, it is requested to dismiss the present Tax Appeal.
[5.0] Heard the learned Counsels appearing on behalf of the respective parties at length. At the outset, it is required to be noted that the respondent - assessee - AUDA is established and constituted as Urban Development Authority under the provisions of the Gujarat Town Planning Act and the object and purpose of constitution /establishment of AUDA is for development of the area under the Town Planning Scheme. Thus, AUDA is a statutory body constituted under the Gujarat Town Planning Act. To meet with the expenditure for development and providing other infra structure development for development under the Town Planning Scheme such as electricity, roads, drainage, water line etc. and to meet with other administrative expenses, under Section 40(3)(jj)(a) of the Income Tax Act, the respondent - assessee is permitted to sell upto 15% of the lands covered under the Town Planning Scheme for residential, commercial and industrial use depending upon the nature of development and as per Section 40(3)(jj)(b) the proceeds from sale of land referred to in para
(iv) of sub clause (a) shall be used for the purpose of providing Page 7 of 9 HC-NIC Page 7 of 9 Created On Wed Aug 16 05:49:25 IST 2017 O/TAXAP/2323/2010 JUDGMENT infra structural facilities. Under the circumstances, merely because AUDA is selling the plots by holding public auction, the activities of the respondent - assessee cannot be said to be in the nature of trade or business. By the aforesaid, it cannot be said that the activities of AUDA are not in consonance with the object and purpose for which the same has been constituted and as the respondent - assessee is providing public utility services, the same can be said to be charitable purpose within the meaning of Section 2(15) of the Income Tax Act. It is also required to be noted that as such the accounts of the respondent - assessee are subjected to statutory audit by the office of the Auditor General. From the order passed by the Director of Income Tax (Exemption), it appears that the Director of Income Tax (Exemption) cancelled the registration of the respondent - assessee under Section 12AA of the Income Tax Act on the ground that the respondent
- assessee has not produced /maintained the books of accounts separately and /or individually plot wise. However, it is required to be noted that in the books of accounts maintained, which is audited by the office of the Auditor General, income from sale of the plots have been specifically disclosed and mentioned. There is no requirement to maintain the books of accounts individually plot wise. By the aforesaid itself the activities of the statutory body cannot be doubted. Considering the aforesaid facts and circumstances of the case, more particularly, considering the relevant provisions of the Gujarat Town Planning Act and the object and purpose for which AUDA has been constituted and the activities to be carried out by AUDA, which is in the nature of public utility services, the learned tribunal has rightly quashed and set aside the order passed by the Director of Income Tax Page 8 of 9 HC-NIC Page 8 of 9 Created On Wed Aug 16 05:49:25 IST 2017 O/TAXAP/2323/2010 JUDGMENT (Exemption) cancelling the registration under Section 12AA of the Income Tax Act. Cogent reasons have been given by the learned tribunal while quashing and setting aside the order passed by the Director of Income Tax (Exemption). As rightly observed by the learned tribunal, Director of Income Tax (Exemption) had not given any specific reasons how the activities of AUDA can be said to be beyond the object and purpose of the Act.
[5.1] Considering the aforesaid facts and circumstances of the case, we see no reason to interfere with the impugned judgment and order passed by the learned tribunal. We are in complete agreement with the view taken by the learned tribunal. The learned tribunal has rightly set aside the order passed by the Director of Income Tax (Exemption) cancelling the registration under Section 12AA of the Income Tax Act, which was cancelled retrospectively with effect from 2002.
[6.0] In view of the above and for the reasons stated hereinabove, the present Tax Appeal fails and the same deserves to be dismissed and is accordingly dismissed. The question of law is held in favour of the respondent - assessee and against the revenue.
(M.R. SHAH, J.) (B.N. KARIA, J.) Siji Page 9 of 9 HC-NIC Page 9 of 9 Created On Wed Aug 16 05:49:25 IST 2017