Income Tax Appellate Tribunal - Mumbai
Maharahstra Industrial Developement ... vs Assessee on 27 March, 2015
आयकर अपील य अ धकरण, मुंबई यायपीठ "बी" मुंबई IN THE INCOME TAX APPELLATE TRIBUNAL" B" BENCH, MUMBAI BEFORE S/SHRI B.R.BASKARAN (AM) AND SANJAY GARG, (JM) सव ी बी.आर.बा करन, लेखा सद य एवं ी संजय गग, या यक सद य के सम आयकर अपील सं./I.T.A. No.6552/Mum/2014 ( नधारण वष / Assessment Year : 2011-12) Maharashtra Industrial बनाम/ Dy.Director of Income Development Corporation, (Exemption)-I-1, 504, Chief Accounts Officer, Vs. 5th floor, Piramal Chambers, Udyog Sarathi, Parel, Mahakali Caves Road, Mumbai-400012 Andheri (E), Mumbai-400093.
(अपीलाथ /Appellant) .. ( यथ / Respondent) थायी ले ख ा सं . /जीआइआर सं . /PAN/GIR No. :AAACM3560C अपीलाथ ओर से / Appellant by S/Shri P J Pardiwalla and Mihir Naniwadekar यथ क ओर से/ Respondent by Shri S J Singh सन ु वाई क तार ख / Date of Hearing : 15.1..2015 घोषणा क तार ख /Date of Pronouncement : 27.3.2015 आदे श / O R D E R Per Bench:
The appeal of the assessee is directed against the order dated 29.9.2014 passed by Ld CIT(A)-1, Mumbai and it relates to the assessment year 2010-11.
2. The assessee is aggrieved by the decision of ld. CIT(A) in holding that
(a) the assessee is not a validly constituted trust eligible for exemption u/s 11 of the Act.
2 ITA. No.6552/Mum/2014
(b) the assessee is carrying on commercial activities and hence not eligible for exemption under section 11 of the Act.
(c) the funds claimed to have been received on behalf of the Government of Maharashtra is taxable as income in the hands of the assessee.
(d) the assessee is not eligible to claim set off of brought forward deficit and also the deduction of book depreciation.
3. The facts relating to the issues cited above are stated in brief. The assessee is a Statutory Corporation formed under Maharashtra Industrial Development Act, 1961 (MID Act). The assessee is engaged in development of industrial assets by providing basic infrastructure facilities like land, roads, street lights, water supply, drainage etc. The assessee is maintaining facilities such as water supply, drainage and also providing certain facilities to the occupants of the industrial assets and collects charges for the same. The industrial plots are allotted to the business people on receipt of lease premium, rent etc. It filed its return of income for the year under consideration claiming exemption u/s 11 of the Act, since it had been registered as a "charitable organization" by the DIT (Exemption) u/s 12AA of the Act, vide registration No.TR-37971 dated 1.4.2002. The AO noticed that, in the immediately preceding year, the assessee was not held to be a valid trust by him and hence it was held to be not eligible for exemption u/s 11 of the Act. Following the said decision, the AO held that the assessee is not a valid trust for the year 3 ITA. No.6552/Mum/2014 under consideration also and accordingly he held that it is not eligible for exemption u/s 11 of the Act.
4. The AO also held that the activities carried on by the assessee are commercial in nature and hence the proviso inserted by Finance Act 2008 in section 2(15) of the Act shall be applicable to the assessee and since the gross receipts from the activities has exceeded prescribed limit of Rs.25 lakhs during the year under consideration, the AO held that the assessee cannot be considered to be carrying on any charitable activity within the meaning of section 2(15) of the Act, by virtue of the proviso given below that section.
5. Further, the AO noticed that the assessee has received funds on leasing of plots, on providing development activities, earned interest on the deposits made by it. The assessee, however, did not declare them as its income. Instead, it disclosed them as its "liability" in the Balance sheet by claiming that the said funds and deposits belong to the Government of Maharashtra. The AO, however, did not accept the said contentions of the assessee and held that the above said receipts form part of the income of the assessee. For the year under consideration, the assessee had received a sum of Rs.1701.61 crores towards the lease rent, development charges, interest etc. The AO assessed the same as income of the assessee.
6. In the appellate proceedings, the ld.CIT(A) noticed that the view of the AO that the assessee was not a validly created trust has been rejected 4 ITA. No.6552/Mum/2014 by the Income Tax Appellate Tribunal in an earlier year. By following the decision of the Tribunal, the ld.CIT(A) held that the assessee is a statutory corporation and not a trust and hence the findings given by the AO that the assessee is not a valid trust is erroneous. However, the ld.CIT(A) held that the assessee is not entitled to exemption u/s 11 of the Act for the following reasons:
a) Section 58 of the MID Act provided that Government, by a notification, may declare that the Corporation shall be dissolved from such a date as may be specified in the notification. The ld.
CIT(A), accordingly held that the provisions of section 58 of MID Act rendered the nature of the assessee as a revocable trust.
b) The assessee is primarily engaged in such kind of activities which are in the nature of business, manufacture and commerce resulting in some kind of benefits to the industries/industrial development. Hence the activities are only very remotely connected with the development of the public at large. Hence, the proviso to section 2(15) is fully applicable to the assessee.
7. The ld. CIT(A) also rejected the claim of the assessee that the funds received by it by way of lease rent, development charges, interest on deposits etc belong to State Government on the reasoning that there is no such legal obligation existing in the MID Act. Accordingly, the ld. CIT(A) upheld the assessment of Rs.1701.61 crores in the hands of the assessee. Aggrieved, the assessee has filed this appeal before us.
8. We heard the parties and perused the record. The first issue is about the eligibility of the assessee to claim exemption u/s 11 of the Act. Before us, the Ld A.R submitted that the assessee was formed with the objective of orderly development of Industrial areas and Industrial estates 5 ITA. No.6552/Mum/2014 in the State of Maharashtra. The assessee is a body corporate and it is being controlled by the State Government. If the assessee is dissolved, all the assets would go to the State Government. Further the assessee has been granted registration u/s 12A of the Act by the Ld DIT (exemption), who normally examines about the validity of the trust/institution. Hence the assessing officer was not justified in holding that the assessee was not a validly constituted trust and accordingly rejecting the claim for exemption u/s 11 of the Act. The Ld A.R submitted that the assessing officer has denied exemption in the earlier years also for identical reasons, but the Tribunal has set aside the order of the AO on this issue and held that the assessee is eligible for exemption u/s 11 of the Act. He further submitted that the Ld CIT(A), even though set aside the order of the AO on the above said issue, but he still confirmed the order of the AO by holding that the assessee is a revocable institution, which is also not correct. Accordingly he submitted that the reasoning given by the Ld CIT(A) is liable to be set aside.
9. The Ld. D.R submitted that the provisions of sections 4, 8, 18, 21 of the MID Act would show that the State Government continues to interfere with the functioning of the assessee and further the section 58 provides that the State Government may dissolve assessee. Hence these provisions would support the case of the Ld CIT(A) that the assessee is a revocable institution. However, we notice that the Ld CIT(A) has accepted that the 6 ITA. No.6552/Mum/2014 assessee is a body corporate and it was validly constituted. Hence the Ld. CIT(A) has set aside the above said view taken by the AO. However, as noticed earlier, the Ld CIT(A) held that the assessee was not eligible for exemption u/s 11 of the Act on two other different reasons. The first reason cited by the Ld CIT(A) was that the clause 58 of the MID Act provides for dissolution of the assessee and hence it falls in the category of "revocable trust". We are not able to accept this view expressed by Ld CIT(A). In our view, the dissolution clause would not tantamount to "revocation" clause. The dissolution clause provides for the manner of distribution of assets in the case of winding up and, in fact, every trust deed or Memorandum is expected to have such kind of clause. There should not be any dispute that "Revocation" and "winding up" have different meaning and purpose. A careful perusal of section 58 of the MID Act would show that the section prescribes a condition for dissolving the assessee, meaning thereby, the assessee cannot be dissolved at the sweet will of the State Government. Accordingly, we are not agreeable to the view of the Ld CIT(A) and accordingly set aside the same.
10. The second reasoning given by the assessing officer as well as Ld CIT(A) is that the activities carried on by the assessee are commercial in nature and the gross receipts has exceeded the prescribed limits. Accordingly he held that the assessee is hit by the proviso to sec. 2(15) of the Act and hence the activities of the assessee cannot be considered to 7 ITA. No.6552/Mum/2014 be for charitable purpose. The Ld A.R, however, disputed the same and contended that the activities of the assessee cannot be considered to be in the nature of "trade, commerce or business" as contemplated in the proviso to sec. 2(15) of the Act. In this regard, he placed reliance on the decision of Hon'ble Supreme Court rendered in the case of Shri Ramtanu Co-operative Housing Society Ltd and Anr. Vs. State of Maharashtra & Ors (1970)(3 SCC 323). We notice that the Hon'ble Apex Court, in the above cited case, has considered the writ petition filed by the appellant therein, wherein the vires of the Maharashtra Industrial Development Act, 1961 and also the nature of activities of the assessee herein were questioned. The Hon'ble Supreme Court has held as under:-
"....The corporation (i.e., the assessee herein) is therefore established for carrying out the purposes of the Act (i.e., Maharashtra Industrial Development Act). The pith and substance of the Act is establishment, growth and organization of industries, acquisition of land in that behalf and carrying out the purposes of the Act by setting up the Corporation as one of the limbs or agencies of the Government. The powers and functions of the Corporation show in no uncertain terms that these are all in aid of the principal and predominant purpose of establishment, growth and establishment of industries. The corporation is established for that purpose. When the Government is satisfied that the Corporation has substantially achieved the purpose for which the Corporation is established, the Corporation will be dissolved because the rasion d'etre is gone. We, therefore, hold that the Act is a valid piece of legislation.
.......In the present case, these attributes of trading Corporation are absent...... 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 8 ITA. No.6552/Mum/2014 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.
17. 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 by way of rents and profits or in any other manner......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...... 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.....
20. The underlying concept of a trading Corporation is buying and selling. There is no aspect of 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 estates 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 hardcore of trading Corporation is its commercial character. Commerce connotes transactions of purchase and sale of commodities, dealing in goods. The forms of business transactions are 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.9 ITA. No.6552/Mum/2014
By placing strong reliance on the above said decision of Hon'ble Supreme Court, the Ld A.R contended that the assessee is
(a) An agent of the Government of Maharashtra and
(b) Its activities are not in the nature of trade, commerce or business.
With regard to the submission that the assessee is an agent of Government of Maharashtra, the Ld A.R placed reliance on the following decisions also:-
(a) City and Industrial Development Corporation of Maharashtra Ltd Vs. ACIT (2012)(138 ITD 381)(Mum).
(b) M.D., H.S.I.D.C. and Ors. Vs. Hari Om Enterprises and Anr (AIR 2009 SC 218). In this case, the Hon'ble Supreme Court has observed as under:-
"Allotment of industrial plot keeping in view the object and purport for which the Corporation had been constituted and incorporated must be held to be a governmental function. In a case of this nature where the aim and object of the Corporation as also the State is to encourage industrialization while adjusting equity, the purpose for which the Scheme was made would be a relevant factor....28. The parties themselves agreed that despite the fact that the Corporation is a juristic person, an appeal against its decision shall lie to the Financial Commission of the State. Indisputably, the function of the appellant is a sovereign function. It, in any event is a State, within the meaning of Article 12 of the Constitution of India. Its action, therefore, must be fair and reasonable so as to subserve the requirement of Article 14 of the Constitution."
With regard to the contentions that the activities of the assessee are not in the nature of trade, commerce or business, the Ld A.R placed reliance on the following case law:-
(a) Director of Income tax Vs. Sabarmati Ashram Gaushala Trust (2014)(362 ITR 539)(Guj), wherein it was held that the proviso to sec. 2(15) is not aimed at excluding genuine charitable trusts of general public utility but is aimed at 10 ITA. No.6552/Mum/2014 excluding activities in the nature of trade, commerce or business for a cess, fee or any other consideration.
(b) Indian Chamber of Commerce Vs. ITO (ITA No.1491/Kol/2012 & 1284/Kol/2012 dated 02-12-2014 of Kokatta bench of ITAT.
In this case, it was held that, in the cases of institutions/associations whose main activity is not "business" the connected incidental or ancillary activities of sales carried out in furtherance of and to accomplish their main objects would not, normally, amount to business, unless an independent intention to conduct 'business' in these connected, incidental or ancillary activities is established by the revenue....the services rendered by a Chamber of commerce could not be held to be 'business' in the nature carried out with a profit motive.......The issue whether a professional institution is not hit by the proviso to section 2(15) of the Act will essentially depend upon the individual facts of the case of the institutions wherein discussing the nature of the individual activities it will have to be decided whether the same form incidental, ancillary and connected activities and whether the same were carried out predominantly with a profit motive.
(c) GS1 Vs. DGIT (Exemptions) (2014)(360 ITR 138)(Delhi).
Following observations made in this case were relied upon:-
"... As observed above, the legal terms "trade, commerce, or business in section 2(15), means any activity undertaken with a view to make or earn profit. Profit motive is determinative and a critical factor to discern whether an activity is business, trade or commerce.....The question is whether the legislative intent is to exclude from the definition of charitable purpose any activity which has the aim and object of providing services to trade, commerce or business. The matter is not free from doubt but there are good reasons to hold that the bar or probation is not with reference to activity of the beneficiary but the activity of the assessee under residuary clause. The intent is to exclude an assessee who carries on business, trade or commerce to feed the charitable activities under the last limb......The said circular clearly stipulates that the object of "general public utility" should not be a mask or a device to hide the true purpose, which is trade, commerce or business or rendering any service in relation to trade, commerce or business."11 ITA. No.6552/Mum/2014
(d) Institute of Chartered Accountants of India and another Vs. DGIT (Exemptions) (2013)(358 ITR 91)(Delhi). In this case, the assessee therein was denied exemption under the Act on the ground that it was holding coaching classes for preparing students for the examination and charging fees for the same. The Hon'ble Delhi High Court referred to the decision rendered by it in the case of Bureau of Indian Standards Vs. DGIT (Exemptions) (358 ITR 78), wherein, inter alia, it was held as under:-
"In these circumstances, 'rendering any service in relation to trade, commerce or business' cannot, in the opinion of the court, receive such a wide construction as to enfold regulatory and sovereign authorities, set up under statutory enactments, and tasked to act as agencies of the State in public duties which cannot be discharged by private bodies."
Following the above said decision, the Hon'ble High Court held that the ICAI cannot be said to be carrying on any business, trade or commerce."
(e) Himachal Pradesh Environment Protection and Pollution Control Board Vs. CIT (2011)(9 ITR (Trib) 604)(Chandigarh). In this case, the Tribunal referred to the Circular No.11 dated December 19, 2008 (2009)(308 ITR (St.) 5) and observed as under:-
"As the above Central Board of Direct Taxes circular, which is binding on the Commissioner under section 119(1)(a) of the Act, aptly puts it, whether the assessee has, as its object, advancement of any other object of general public utility is essentially a question to be decided on the facts of the assessee's own case and where object of general public utility is only a mask or a device to hide the true purpose of trade, business or commerce, or rendering of any service in relation thereto, the assessee cannot be said to be engaged in a charitable activity within the meaning of section 2(15) of the Act. As a corollary to this approach adopted by the tax administration, in our considered view, it cannot be open to the learned Commissioner to contend that where an object of general public utility is not merely a mask to hide the true purpose or rendering of any service in relation thereto, and where such services are being rendered as purely incidental to or as subservient to the main objective of "general public 12 ITA. No.6552/Mum/2014 utility", the carrying on of bona fide activities in furtherance of such objectives of "general public utility" will also be hit by the proviso to section 2(15).
Thus, the Ld A.R has made two fold submissions, viz., the assessee should be considered to be an agent of the Government of Maharashtra, since it is performing sovereign function and hence it is immune from the Union taxation. In the alternative, its activities do not fall under the category of "trade, commerce or business" as provided in the proviso to sec. 2(15) of the Act and hence the assessee continues to be a Charitable Institution eligible for exemption u/s 11 of the Act.
11. The Ld D.R, on the contrary, submitted that the assessee cannot be considered to be an agent of the State Government and further the activities carried on by the assessee is very much commercial in nature and hence the Ld CIT(A) has rightly confirmed the order of the AO. The Ld D.R submitted that the MID Act was enacted at a time when private parties were not allowed to develop Industrial Estates and further the Government also took initiative for orderly development of Industrial Estates. Thus, at that point of time, the aim and objective of the assessee was considered to have an object of general public utility. However, in the present day scenario, even the private parties are allowed to develop industrial estates. Further, the assessee is acting like any other business man in the matter of purchase and sale of properties. Earlier, the industrial plots were allotted to the businessmen at a predetermined price 13 ITA. No.6552/Mum/2014 (generally concessional price) with the purpose of achieving the objective, viz., industrialization, which help in economic improvement of all. In this regard, he invited our attention to section 15 of the MID Act relating to the functions of the assessee and submitted that the activities of the assessee are very much commercial in nature. However, nowadays, the plots are allotted to the highest bidder through the process of auctioning with the sole objective of earning profit. Accordingly, the Ld D.R submitted that there is drastic change in the approach and objective of the assessee and hence it can no longer be said that the assessee is existing with the object of general public utility. He also invited our attention to the news paper report dated Nov 5, 2014, wherein an article has been published under the heading "Two flop actions prompt MIDC to mull change in IT park policy". The Ld D.R submitted that this news paper report shows that auctions conducted by the assessee for sale of industrial plots have failed, meaning that the activities of the assessee have become totally commercial in nature.
12. He submitted that the activities of the assessee came to be considered by the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) while considering the Stay application filed by the assessee and the CESTAT has expressed the view that the assessee is not performing any sovereign function, since the assessee is having its own identity distinct from the Maharashtra State Government and operates 14 ITA. No.6552/Mum/2014 independently. Further the CESTAT noted down the fact that the receipts are credited to its own fund and not to the consolidated fund of the State. He further submitted that the various case laws relied upon by the assessee have been rendered in a different context (For example, in the case of Ramatanu Co-op Housing Society, the vires of the MID Act was challenged under 44 of List-I Union list under Seventh Schedule (Article
246) of the constitution), more particularly with regard to the power of the assessee to acquire the lands, and not in the context of the Income tax Act and hence the assessee could not derive support from them. Accordingly he submitted that the assessee cannot be considered to be performing any sovereign function, but only carrying on commercial activity like any other business entity.
13. He further invited our attention to the decision rendered by the Hon'ble Supreme Court in the case of Andhra Pradesh State Road Transport Corpn. Vs. ITO (1964)(52 ITR 524), wherein the Hon'ble Apex Court held that the Andhra Pradesh Road Transport Corporation is a separate legal entity and income derived by it was not income of the State under article 289 of the Constitution. Accordingly, it was held that it was not immune from taxation. The Ld D.R submitted that this decision was rendered by the Hon'ble Supreme Court in the context of Income tax Act. He further placed reliance on the decision rendered by Hon'ble Andhra Pradesh High Court in the case of Andhra Pradesh State Civil Supplies 15 ITA. No.6552/Mum/2014 Corpn. Ltd Vs. CIT (1984) (17 taxman 167)(AP). In the above said case, the Memorandum of Association provided that all income of the assessee would belong to Price equalization/stabilization fund of State Government and that the total capital of company was to be contributed by State government and company would be wholly owned by State Government. Still the Hon'ble High Court held that the assessee's income could not be treated as income of State and it is not exempt from Union taxation under article 289(1) of the Constitution. He also placed reliance on the decision rendered by the Allahabad bench of ITAT in the case of U.P Forest Corporation Vs. ITO (1984)(9 ITD 206), wherein the Tribunal had held that the assessee therein cannot claim the benefit of immunity from tax under Article 289(1) of the Constitution of India. The Hyderabad bench of ITAT also held in the case of Andhra Pradesh Housing Board Vs. DCIT (2013)(36 taxmann.com 561) that the assessee therein had an independent identity distinct from the State Government and hence its income cannot be considered to be the income of the State Government.
14. The Ld D.R submitted that the Hon'ble Supreme Court, in the case of Ramana Dayaram Shetty Vs. The International Airport Authority of India and Ors. (1979 AIR 1628; 1979 SCR (3) 1014), has laid down following parameters in order to determine whether a Corportation is an agency or instrumentality of Government:-
(a) Whether there is any financial assistance given by the State, and if so, what is the magnitude of such assistance.16 ITA. No.6552/Mum/2014
(b) Whether there is any other form of assistance given by the State and if so, whether it is of usual kind or it is extraordinary.
(c) Whether there is any control of management and policies of the Corporation by the State and what is the nature and extent of such control.
(d) Whether the Corporation enjoys State Conferred or State protected monopoly status. And
(e) Whether the functions carried out by the Corporation are public functions closely related to Governmental functions.
The Ld D.R submitted that the assessee has not obtained any financial assistance from the State Government or any other form of assistance. The State Government has given land for development and also provided loan to it. It is pertinent to note that the State Government is charging interest on the loan so given. The Ld D.R submitted that, in general practice, no interest shall be charged on the amount given to an agent. He submitted that the assessee is an autonomous corporation, a separate Body Corporate, being managed by the Board members. The assessee does not enjoy monopoly status and its functions are not closely related to the Governmental functions. Accordingly, the Ld D.R submitted that the assessee has failed in all the five parameters prescribed by the Hon'ble Supreme Court and hence it cannot be considered to be an agent of the State Government. He submitted that the assessee could not place reliance on the decision rendered by the Tribunal in the case of City and Industrial Development Corporation of Maharashtra Ltd (supra), since the 17 ITA. No.6552/Mum/2014 assessee therein satisfied all the five parameters prescribed by the Hon'ble Apex Court.
15. The Ld D.R also brought to our notice the following two Acts viz.,
(a) The Road Transport Corporations Act, 1950
(b) The Jammu and Kashmir Development Act, 1970.
The Ld D.R submitted that the provisions two enactments cited above are akin to MID Act. He submitted that the eligibility of the assessee viz., "Jammu Development Authority" (it was constituted under The Jammu and Kashmir Development Act, 1970) to continue to hold registration granted to it u/s 12A of the Act came to be examined by the Amritsar bench of ITAT and it upheld the action of the Ld CIT in cancelling the registration u/s 12AA(3) of the Act. In the above said case, the Ld CIT had held that the assessee therein was hit by the proviso to sec. 2(15), since the activities of the assessee were aimed at earning profit and there is no charitable purpose or any activity of general public utility. The Tribunal followed the decision rendered in the case of Jalandhar Development Authority (ITA No.562 (Asr.) of 2008 dated 12-06-2009) under identical set of facts and upheld the order of Ld CIT in cancelling the registration granted u/s 12A of the Act. The Ld D.R submitted that the order of the ITAT has been upheld by the Hon'ble High Court of Jammu and Kashmir (ITA No.164/2012; CMA No.2/2012 dated 12.11.2013) and the SLP filed before Hon'ble Supreme Court has also been dismissed. He submitted that the Chandigarh bench of ITAT has also considered an identical issue in the 18 ITA. No.6552/Mum/2014 case of Punjab Urban Planning and Development Authority Vs. CIT (2006)(156 Taxman 37)(Chd.) and it held that the assessee was not entitled for registration u/s 12A of the Act. He submitted that the decision rendered by the Tribunal in the case Jammu Development Authority (supra) is binding on this bench of Tribunal, since it has been upheld by the High Court and further the SLP has been dismissed by the Hon'ble Apex Court. Accordingly the Ld D.R submitted that the assessee herein is no longer carrying on any activity of general public utility and further it is operating with profit earning motive. Hence the assessee cannot be considered to be a charitable institution. Further, its activities are very much commercial in nature and hence it is hit by the proviso to sec. 2(15) of the Act also. The Ld D.R submitted that the assessee is taking two contradictory stands before the Tribunal. He submitted that the assessee, having filed return of income as an independent assessee, cannot claim at this stage as an agent of the State Government immune from taxation.
16. In the rejoinder, the Ld A.R submitted that the assessee is not taking any contradictory stand as canvassed by Ld D.R. He submitted that the assessee is carrying its activities on its own account and also as an agent of the Government of Maharashtra. He submitted that the section 32 of the MID Act provides that the State Government shall acquire the land and transfer the same to the assessee and the same shall be dealt with by the assessee in accordance with the provisions of sec. 43-1A of 19 ITA. No.6552/Mum/2014 MID Act. The Ld A.R submitted that the State Government was carrying out the industrialization process through the Board of Industrial Development and upon incorporation of the assessee herein, all the employees of the erstwhile Board was taken over by the assessee. He submitted that Government of Maharashtra has formed the assessee in order to continue the work erstwhile carried through the Board. The Ld A.R submitted that the above said fact clearly shows that the assessee is an agent of the State Government. He submitted that the reference made by Ld D.R to sec. 15 of the MID Act is misplaced. He submitted that sec. 15 lists out the functions of the assessee and the same cannot be construed as objectives of the assessee. He submitted that the 'Objects' and 'Power' are two different aspects as observed in the cases reported in 225 ITR 1010 and 262 ITR 459. He further submitted that the Hon'ble Supreme Court in the decisions rendered in the cases of Shri Ramatanu Co-operative Housing Society Ltd (supra) and also in the case of MD., H.S.I.D.C. and others (supra) has held that the functions of allotment of industrial plot keeping in view the object and purpose for which the Corporation had been constituted and incorporated must be held to be a governmental function. The Hon'ble Supreme Court also held that the said function is also a sovereign function and it is a State within the meaning of Article 12 of the Constitution of India. He submitted that the decisions rendered in the case of Jammu Development Authority (supra) is not applicable to the facts of in the instant case, since the assessee is carrying 20 ITA. No.6552/Mum/2014 on sovereign function and further the assessee is entitled to recoup only the expenses incurred on development out of sale proceeds. The Ld A.R placed reliance on the Resolution No.IDC 1067/38498 dated 16-08-1967, which is placed at page 54 of the paper book filed by the assessee and submitted that the assessee is required to remit the proceeds to the State Government after recouping its expenses. The Ld A.R submitted that the assessee is acting as per the directions of the State Government only. He further submitted that the Allahabad bench of ITAT has held in the case of U.P. Forest Corporation (supra) that the decision rendered in the case of Ramatanu Co-operative Housing Society Ltd is not relevant since the U.P. forest corporation was clearly mentioned to be a commercial undertaking. The Tribunal further held that the decisions rendered in the case of Andhra Pradesh State Road Transport corporation (supra) and Ramana Daya Ram Shetty Vs. The International Airport was also held to be not applicable. Accordingly the Ld A.R submitted that the decision rendered in the case of U.P Forest Corporation (supra) is not applicable to the assessee herein. With regard to the reliance placed by Ld D.R on the order passed by the CESTAT, the Ld A.R submitted that it was an observation made in a Stay order and subsequently another order No.M/1895/14/CSTB/C-I dated 20.11.2014 was passed by the CESTAT against the miscellaneous petition filed by the assessee. In the second order, the absolute stay was granted by CESTAT. Accordingly, he submitted that the observations made in the order of the CESTAT should not be relied upon.
21 ITA. No.6552/Mum/2014
17. We have heard the rival contentions and perused the record. The main contention of the assessee was that it is an agent or instrumentality of Government of Maharashtra Government, since it is performing Sovereign functions of development and allotment of industrial plots for public purposes. Accordingly, it was contended that the assessee's income is immune from Union Taxation. In this regard the assessee placed reliance on various case laws, mainly Ramatanu Co-operative Housing Society Ltd (supra) and MD., H.S.I.D.C. and others (supra). However, as submitted by the Ld D.R, these decisions have not been rendered in the context of Income tax provisions of the Act. In the case of Ramatanu Co- operative Housing Society Ltd (supra) the appellant therein has challenged the power of the Government of Maharashtra to enact the MID Act and the Hon'ble Supreme Court, by considering various provisions of the Act, came to the conclusion that the MID Act was a valid piece of legislation. In our view, the Hon'ble Supreme Court has considered the provisions of the MID Act, the objectives sought to be achieved, the functions prescribed in the MID Act etc. with reference to the questions raised before it. Thus, predominantly, the Hon'ble Apex Court has examined the vires of the Act and all the observations made therein were related to the same. The following observations made by the Hon'ble Supreme Court in paragraph 9 of its order will clarify this point:-
"9. The development of industrial areas and industrial estates (sic) intended to serve two objects. In the first place, there is to be an orderly development and growth of industries in the Bombay Poona 22 ITA. No.6552/Mum/2014 Sector. The second object is to secure dispersal of industries from the congested areas of the Bombay Poona sector to the under developed 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 derived of the legitimate benefit of reasonable increase in land values in a developing economy......The absence of amenities is envisaged and answered in the Act by empowering the Corporation to provide these essential amenities, facilities and conveniences."
Thus, it can be seen that the Hon'ble Supreme Court has examined the provisions of the MID Act and the object/purpose sought to be achieved by formation of the assessee under the MID Act and accordingly rendered its decision upholding the validity of MID Act. Admittedly, the provisions of MID Act were not examined vis-à-vis the Income tax provisions. Further, the Hon'ble Apex Court has examined the provisions of MID Act and not actual functioning of the assessee.
18. In the case with M.D., H.S.I.D.C (supra), following facts narrated by the Hon'ble Apex Court are relevant:-
"4. Appellant-Corporation is public sector undertaking. Its principal function is allotment of industrial plots belonging to the State of Haryana. It was set up as a catalyst for promoting economic growth and accelerating the pace of industrialization. It not only provides financial assistance to the industrial concerns by way of term loans; it also develops infrastructure for setting up of industrial units. The Corporation also invests money in developing the industrial estates at strategic locations. In exercise of its functions, it also allots industrial plots to entrepreneurs for setting up their industries on "no profit no loss" basis. The entrepreneurs, 23 ITA. No.6552/Mum/2014 according to the Corporation, must be the deserving ones. For the said purpose, it keeps in mind the principle that allotment of land should not be made to speculators who invest in property for getting high returns on escalation of price."
Thus, it can be noticed that the decision in the above said case was also rendered in the above said background. The Hon'ble Apex Court has proceeded on the basis that the industrial plots are allotted on "no profit no loss" basis. Admittedly, the issue before the Hon'ble Apex Court was not examined in the context of the Income tax Act. Accordingly, we are of the view the observations made by the Hon'ble Supreme Court in the above said cases should be considered to have been made in a different context and hence, we are of the view that the assessee cannot take support of the same for the issues considered under the Income tax Act.
19. Before us, the ld A.R placed strong reliance on the observations made by Hon'ble Supreme Court in the case of Shri Ramtanu Co-operative Housing Society Ltd (supra) in order to contend that the activities of the assessee would not fall in the category of "trade, commerce or business". However, we notice that the Hon'ble Apex Court was mainly guided by the objectives and purpose of enactment of MID Act in deciding this issue. Following observations made by the Hon'ble Apex Court are relevant here:-
".....The establishment, growth and development of industries in the State is within the State list of Industries. Furthermore, to effectuate the purposes of the development of industries in the State it is necessary to make land available. Such land can be made available by acquisition or requisition. The Act in the present case 24 ITA. No.6552/Mum/2014 deals with the acquisition of land by the State and on such acquisition, the State may transfer the land to the Corporation which again may develop it itself and establish industrial estates or may develop industrial areas......The Corporation is therefore established for carrying out the purposes of the Act. The pith and substance of the Act is establishment, growth and organisation of industries, acquisition of land in that behalf and carrying out the purposes of the Act by setting up the Corporation as one of the limbs or agencies of the Government. The powers and functions of the Corporation show in no uncertain terms that these are all in aid of the principal and predominant purpose of establishment, growth and establishment of industries. The Corporation is established for that purpose........
........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 trading character of the Corporation.......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,..... 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."
It can be noticed that the Hon'ble Apex Court has made all the above said observations, mainly, taking into account the purpose and object of the Act, viz., establishment, growth and organisation of industries. Since the State Government has to take the initiative for the same and since the assessee was incorporated with the said purpose, the Hon'ble Apex Court has observed that the real role of the Corporation was to act as "Agency of the Government in carrying out the purpose and object of the Act which is the development of industries. In some other place, the Hon'ble Supreme Court observed that the assessee Corporation was set up as "one of the limbs or agencies" of the 25 ITA. No.6552/Mum/2014 Government. By placing reliance on the above said observations, it was argued on behalf of the assessee that the assessee is a limb or agency of the Government and it is performing a "Sovereign function".
20. We are unable to agree with the said contentions. A careful perusal of the observations made by the Hon'ble Supreme Court would show that the Hon'ble Apex Court has expressed the view that the assessee Corporation was set up as one of the limbs or agencies of the Government "for carrying out the purposes of the Act". Only in respect of carrying out the purposes of the Act, the assessee corporation is considered as limbs or agency of the Government. In yet another place, the Hon'ble has clarified this point by observing as under:-
"These provisions in regard to 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."
Thus the Hon'ble Apex Court has observed that the "real role" of the assessee corporation was to perform as an agency of the Government in carrying out the purpose of the Act. The Hon'ble Apex Court no where stated that the assessee is acting as "an agent" of the Government. In our view, there is a difference between "agency" and "agent". In trading circles, an agent is considered to be representing the Principal and all his actions are binding upon the Principal. However, an agency is just an organisation or an outfit and its actions are not binding upon the State Government. Further, it is an admitted fact that the assessee is a 26 ITA. No.6552/Mum/2014 "Statutory Corporation" or "body Corporate" or "legal person" having an independent existence. The legal status of the assessee is made clear in section 3(2) of MID Act, which reads as under:-
"(2) The said 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 the movable and immovable, and to contract and do all the things necessary for the purposes of this Act."
Since the assessee is a separate personality, it alone is liable for its actions. The Ld A.R invited our attention to the Resolution No. IDC 1079/(1966)/IND.14 dated 11th September 1986, wherein it is stated that the assessee is undertaking the development work as an agency function on behalf of Government and further the Corporation will act as an agent of Government for development of industrial area and other infrastructural facilities under the provisions of the Maharashtra Industrial Development Act, 1961. In our view, the provisions of MID Act shall have supremacy over the resolutions passed by the Government of Maharashtra. We have already noticed that the Hon'ble Supreme Court has also considered various provisions of the MID Act only in the case of Shri Ramatanu Co- operative Housing Society Ltd (supra). Hence, we are of the view that the resolutions passed by the State Government should not be considered to determine the status of the assessee. The Ld D.R has already placed reliance on the decision of Hon'ble Supreme Court rendered in the case of Ramana Dayaram Shetty Vs. The International Airport Authority of India 27 ITA. No.6552/Mum/2014 Ltd (supra), wherein the Hon'ble Apex Court has listed out certain criteria to ascertain the nature or status of a Corporation. The Ld D.R also contended that the assessee failed to satisfy all the criteria prescribed by the Hon'ble Apex Court and accordingly contended that the assessee cannot be considered to be an agency or instrumentality of the State Government. However, the discussions made in the ensuing paragraphs would not make any difference so far as taxation under the Income tax Act is concerned.
21. We shall now refer to some of the observations made by the Hon'ble Supreme Court in the case of Andhra Pradesh State Road Transport Corporation Vs. ITO (52 ITR 524), which are relevant here:-
"It may be that the statute under which a notification has been issued constituting the appellant Corporation may provide expressly or by necessary implication that the income derived by the Corporation from its trading activity would be the income of the State. The doctrine of separate identity or personality of the corporation is always subject to the exceptions which statutes may create, and if there is a statutory provision which clearly indicates that despite the concept of separate personality of the corporation, the trade carried on by it belongs to the share holders who brought the corporation into existence and the income received from the said trade likewise belongs to them, that would be another matter. It would then be possible to hold that as a result of the specific statutory provisions the income received from the trade carried on by the corporation belongs to the shareholders who have constituted the said corporation, and so, we must look to the Act to determine whether the income in the present can be said to be income of the State of Andhra Pradesh.
In this connection, we may usefully refer to the observations made by Lord Denning in Tamlin Vs. Hannaford (1950) 1 KB 18:28 ITA. No.6552/Mum/2014
18. "In the eye of the law" said Lord Denning, "the corporation is its own master and is answerable as fully as any other person or corporation. It is not the Crown and has none of the immunities or privileges of the Crown. Its servants are not civil servants, and its property is not Crown property. It is as much bound by Acts of Parliament as any other subject of the King. It is, of course, a public authority and its purposes, no doubt, are public purposes, but it is not a government department nor do its powers fall within the province of government."
These observations tend to show that a trading activity carried on by the corporation is not a trading activity carried on by the State departmentally, or is it a trading activity carried on by a State through its agents appointed in that behalf."
The observations made by Lord Denning, viz., "It is, of course, a public authority and its purposes, no doubt, are public purposes, but it is not a government department nor do its powers fall within the province of government" are very much relevant here and, in our view, they squarely apply to the assessee herein. We notice that the Hon'ble Gujarat High Court in the case of Gujarat Industrial Development Corporation V/s CIT [1985] 151 ITR 255 (Guj) has considered an identical issue and has held as under:
"11. Having considered as to whether the assessee--Gujarat Industrial Development Corporation, Ahmedabad--is entitled or is not en titled to exclude its income from liability under the 1922 Act, we are clearly of the opinion that from their total income, no exclusion could be made on the ground that it is a State, as contemplated by article 289(1). The State is entirely different from the corporations, which are created by laws which are enacted either by the Parliament or by the State Legislatures for different and distinct purposes. They are separate entities in law. They sue and are sued in their own capacities and for any contractual liability of the corporation, no person can sue the State because every corporation in itself is not the State but a separate legal entity.29 ITA. No.6552/Mum/2014
Under these circumstances, our opinion on the first question would be in the affirmative, and we hold that the decision of the Tribunal is right. Therefore, this point is decided in favour of the revenue and against the assessee."
The Ld. DR, in his written submissions, has also placed reliance on the decision of jurisdictional High Court rendered in the case of Vidarbha Housing Board V/s ITO (1973) (92 ITR 430). Identical view has been expressed by Pune Bench of ITAT in the case of Goa, Daman and Diu Industrial Development Corporation (151 ITD 447). The Hon'ble Supreme Court in the case of Andhra Pradesh State Civil Supplies Corporation Ltd (1984)(148 ITR 497) has, in clear terms, held that "What is exempt from taxation is the income of a State and not the income of the instrumentality or agency of a State." Hence, we are of the view that the assessee cannot considered to be a part of the Government department immune from Union Taxation. We may point out here that the assessee itself has understood this factual and legal position and accordingly obtained registration u/s 12A of the Act, filed returns of income etc. Accordingly, we reject the contentions of the assessee that it is a part of Government of Maharashtra.
22. The next contention urged before us was that the assessee is performing sovereign function of the Government. Since we have held that the assessee cannot be considered to be a part of State Government and since the private parties are allowed to carry on the activity of 30 ITA. No.6552/Mum/2014 development of industrial estates, in our view, the said contention is bound to fail.
23. The next contention of the assessee is that the activities carried on by the assessee would not fall in the category of "trade, commerce or business". Reliance was placed by Ld A.R on the decision of Hon'ble Supreme Court rendered in the case of Shri Ramtanu Co-operative Housing Society Ltd and Anr. (supra), wherein the Hon'ble Apex Court has held as under:-
".....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......Receipt of these moneys arise not out of any business or trade, but out of the sole purpose of establishment, growth and development of industries."
It was submitted that the meaning of the term "Commerce" is the activity of buying and selling, especially on large scale or the exchange of goods and services on a large scale involving transportation between cities, states and nations. Accordingly, it was contended that the assessee is not carrying on any trade or business or commerce.
24. A perusal of paragraph 16 of the decision rendered in the case of Shri Ramtanu Co-operative Housing Socieity Ltd and Anr. (supra) would show that the petitioners contended that the assessee Corporation was a trading one for the reasons that the Corporation could sell property, namely, transfer land; that the Corporation had borrowing powers, and 31 ITA. No.6552/Mum/2014 that the Corporation was entitled to moneys by way of rents and profits. Thus, it can be seen that the claim of the petitioners was that the assessee corporation was engaged in "trading activity" and the same has been negated by the Hon'ble Supreme Court, mainly, taking into account the purpose or objective of the assessee. While discussing the issue, the Hon'ble Apex Court has used the term "business" also and, in our view, the same was not used as distinct and separate from "trading". Hence, in our view, the expression "business" was used in the context of "trading business" only, since the expression "business" is of a word of large and indefinite import and it would encompass the trading also.
25. We find that the meaning of the expressions "trade, commerce or business" was analysed by the Hon'ble Delhi High Court in the case of Institute of Chartered Accountants of India Vs. DGIT (347 ITR 99) and the relevant discussions have been extracted by the Hon'ble Delhi High Court in the case of GS1 India Vs. DGIT (Exemption) (20140(360 ITR
138)(Delhi) as under:-
"Scope of 'trade, commerce or business
16. The key words, namely; trade, commerce and business were enumerate and elucidate in Institute of Chartered Accountants of India (supra) as under (page 113):--
'Trade', as per the Webster's New Twentieth Century Dictionary (2nd edition), means, amongst others, "a means of earning one's living, occupation or work. In Black's Law Dictionary, "trade" means a business which a person has 32 ITA. No.6552/Mum/2014 learnt or he carries on for procuring subsistence or profit; occupation or employment, etc. The meaning of "commerce" as given by the Concise Oxford Dictionary is "exchange of merchandise, specially on large scale". In ordinary parlance, trade, and commerce carry with them the idea of purchase and sale with a view to make profit. If a person buys goods with a view to sell them for profit, it is an ordinary case of trade. If the transactions are on a large scale it is called commerce. Nobody can define the volume, which would convert a trade into commerce. For the purpose of the first proviso to section 2(15), trade is sufficient, therefore, this aspect is not required to be examined in detail.
The word "business" is the broadest term and is encompasses trade, commerce and other activities. Section 2(13) of the Income-tax Act defines the term "business" as under :
"2. Definitions.-- (13) 'business' includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture."
The word "business" is a word of large and indefinite import. Section 2(13) defines business to include any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture. The intention of the Legislature is to make the definition extensive as the term "inclusive" has been used. The Legislature has deliberately departed from giving a definite import to the term "business" but made reference to several other general terms like "trade", "commerce", "manufacture" and "adventure or concern in the nature of trade, commerce and manufacture". In Black's Law Dictionary, Sixth Edition, the word "business" has been defined as under :
"Employment, occupation, profession or commercial activity engaged in for gain or livelihood. Activity or enterprise for gain, benefit, advantage or livelihood. Union League Club V/s Johnson 18 Cal 2d 275. Enterprise in which person engaged shows willingness to invest time and capital on future outcome. Doggett V/s Burnet 62 App DC 103 ; 65 F. 2D 191. That which habitually busies or occupies or engages the time, 33 ITA. No.6552/Mum/2014 attention, labour and effort of persons as a principal serious concern or interest or for livelihood or profit."
According to Sampath Iyengar's Law of Income Tax (9th edition), a business activity has four essential characteristics. Firstly, a business must be a continuous and systematic exercise of activity. Business is defined as an active occupation continuously carried on. Business vocation connotes some real, substantive and systematic course of activity or conduct with a set purpose. The second essential characteristic is profit motive or capable of producing profit. To regard an activity as business, there must be a course of dealings continued, or contemplated to be continued, normally with an object of making profit and not for sport or pleasure (Bharat Development P. Ltd. V/s CIT [1982] 133 ITR 470 (Delhi). The third essential characteristic is that a business transaction must be between two persons. Business is not a unilateral act. It is brought about by a transaction between two or more persons. And, lastly, the business activity usually involves a twin activity. There is usually an element of reciprocity involved in a business transaction.'
17. In the said case reliance and reference was made to State of Punjab V/s Bajaj Electricals Ltd. [1968] 2 SCR 536, Khoday Distilleries Ltd. V/s State of Karnataka [1995] 1 SCC 574, Bharat Development (P) Ltd. V/s CIT [1982] 133 ITR 470/[1980] 4 Taxman 58 (Delhi), Barendra Prasad Ray V/s ITO [1981] 129 ITR 295/6 Taxman 19 (SC), State of Andhra Pradesh V/s H. Abdul Bakhi & Bros. [1964] 15 STC 664 (SC), State of Gujarat V/s Raipur Mfg. Co. [1967] 19 STC 1(SC), Director of Supplies & Disposal V/s. Member, Board of Revenue [1967] 20 STC 398(SC) and Mrs.Sarojini Rajah V/s CIT [1969] 71 ITR 504 (Mad) to explain the terms "trade, commerce or business".
18. Referring to the concept and principle of "economic activity"
that has gained some acceptability in European Union and England it was explained that the said principle is applicable to Sales Tax, Value added tax, Excise duty etc. because these are not taxes on income but the taxable event occurs because of the "economic activity" involved. Even if a person/organization is carrying on trading/business on "no loss no profit" principle, it may be liable to pay taxes or comply with the statute when the charge, or incident of tax, is on the "economic activity". The words trade, commerce and business are etymological chameleon and suit their meanings to the 34 ITA. No.6552/Mum/2014 context in which they are found. Five tests propounded in Customs & Excise Commissioner V/s Lord Fisher [1981] S.T.C. 238 and decision in Commissioner Of Sales Tax V/s Sai Publication Fund [2002] 252 ITR 70/122 Taxman 437 (SC) was quoted.
19. The final and determining factors, it was observed was consequential profit motive or purpose behind the activity and when an activity is trade, commerce or business was elucidated in Institute of Chartered Accountants of India (supra) in the following words(page
123):
'Section 2(15) defines the term charitable purpose. Therefore, while construing the term business for the said Section, the object and purpose of the Section has to be kept in mind. We do not think that a very broad and extended definition of the term business is intended for the purpose of interpreting and applying the first proviso to Section 2(15) of the Act to include any transaction for a fee or money. An activity would be considered "business" if it is undertaken with a profit motive, but in some cases this may not be determinative. Normally the profit motive test should be satisfied but in a given case activity may be regarded as business even when profit motive cannot be established/proved. In such cases, there should be evidence and material to show that the activity has continued on sound and recognized business principles, and pursued with reasonable continuity. There should be facts and other circumstances which justify and show that the activity undertaken is infect in the nature of business. The test as prescribe in Raipur Manufacturing Company (supra) and Sai Publications Fund (supra) can be applied. The six indicia stipulated in Lord Fisher (supra) are also relevant. Each case, therefore, has to be examined on its own facts.' Recently in another decision in WP(C) No. 1755/2012 titled Bureau of Indian Standards V/s Director General of Income Tax (Exemptions) [2013] 212 Taxman 210/[2012] 27 taxmann.com 127 (Delhi) it was held that Bureau of Indian Standards (BIS) was carrying on charitable activities as described within the ambit of Section 2(15) and was entitled to registration/notification under Section 10(23C)(iv). We, however, note that there is one distinction between the present petitioner and BIS. BIS is a statutory authority created by Legislation and, therefore, their case and claim stands on a better footing but this does not imply that only statutory bodies can be treated as established for charitable purpose under Section 35 ITA. No.6552/Mum/2014 2(15) of the Act. Such contention has not been raised and cannot be sustained/accepted."
The Hon'ble Delhi High Court, after referring to the Circular No.11of 2008 issued by the Central Board of Direct taxes, further held that the legal terms "trade, commerce or business" in section 2(15), means activity undertaken with a view to make or earn profit. Profit motive is determinative and a critical factor to discern whether an activity is business, trade or commerce. The Hon'ble Delhi High Court further discussed about the difference between the objectives while carrying on a pure business activity and charitable activity:-
"Business activity has an important pervading element of self interest, though fair dealing should and can be present, whilst charity or charitable activity is anti-thesis of activity undertaken with profit motive or activity undertaken on sound or recognized business principles. Charity is driven by altruism and desire to serve others, though element of self-preservation may be present. For charity, benevolence should be omnipresent and demonstrable but it is not equivalent to self sacrifice and abnegation. The antiquated definition of charity, which entails giving and receiving nothing in return is outdated. A mandatory feature would be; charitable activity should be devoid of selfishness or illiberal spirit. Enrichment of oneself or self-gain should be missing and the predominant purpose of the activity should be to serve and benefit others. A small contribution by way of fee that the beneficiary pays would not convert charitable activity into business, commerce or trade in the absence of contrary evidence. The quantum of fee charged, economic status of the beneficiaries who pay, commercial value of benefits in comparison to the fee, purpose and object behind the fee, etc., are several factors which will decide the seminal question, is it business?
26. Now, let us discuss about the facts prevailing in the case under consideration. When the assessee corporation was originally incorporated, 36 ITA. No.6552/Mum/2014 the activity of promotion of industrialization all over the State of Maharashtra should have been the avowed objective of the State Government. Hitherto, the relevant activities were carried out through a Board and subsequently, it should have been decided to form a separate autonomous body or statutory corporation to carry out or accelerate the process of industrialization by developing industrial estates. Accordingly, MID Act was enacted and the assessee Corporation was incorporated under that Act. At that point of time, the assessee Corporation was enjoying monopoly, i.e., it was the only organisation involved in orderly development of industrial estates. As observed earlier, the profit motive should have been absent at that point of time. Since, the industrialization brought in many economic benefits, like, development of undeveloped areas, economic activity, employment, generation of fresh taxes etc., it was considered to be useful to the public at large and hence the activities of the assessee was considered to be an object of general public utility falling within the definition of charitable purpose as defined u/s 2(15) of the Act.
27. However, we notice from the contentions of Ld D.R, there appears to be drastic change in the approach of the assessee. In the present days, the assessee appears to be adopting the system of offering plots/space by way of "auctioning", obviously the object is to corner maximum possible price on sale of plot/space. We also understand that the Government of 37 ITA. No.6552/Mum/2014 Maharashtra has framed The Maharashtra Industrial Development Corporation (Disposal of Land) Regulations, 1975 in order to give effect to the provisions of MID Act. We came to understand that the Regulation 4 provides for disposal of land covered by the lay out prepared by the Corporation by public auction or by entertaining individual applications.
The ld. DR brought to our notice the following paper report which supports the view that the assessee had adopted the practice to dispose of land by public auction.
"TWO FLOT AUCTIONS PROMPT MIDC TO MULL CHANGE IN IT PARK POLICY Tushar Pawar, TNN / Nov 5, 2014, 04.08 AM IST NASHIK: Twice bitten, never shy. The Maharashtra Industrial Development Corporation (MIDC) looks determined to make the IT park project in its Ambad industrial estate a success.
After two failed auction attempts, the MIDC is planning to change the reservation of the IT park following poor response from the industry. Around a decade ago, the state government had set up several state-of-the-art IT parks in some select cities across Maharashtra, including the one in Nashik. The IT park building, which was built by MIDC at Rs.2.23 crore, was inaugurated in 2002. But since then, it has been lying idle because of poor response from industry. The MIDC tried to auction the IT park twice in the past one-and-a-half years, but failed miserably as not a single industry filed any bid on both the occasions.
Speaking to TOI, a senior MIDC official said, "There is no response from the industry to the IT park in the Ambad MIDC areas. In March last year, we had invited bids from industrial houses for the auction of shops at the IT park. But we did not receive a single bid. Our second attempt was in August this year. This time, we had reduced the minimum bid rate by 10% from Rs.24,530 per Sq. m to Rs.22,300 per Sq. mt keeping in minds demands from the industry. Nevertheless, we did not receive any response from the industries. We are now planning to change the reservation of the IT park and allot the shops to industrial houses from other sectors. We are 38 ITA. No.6552/Mum/2014 preparing the proposal for the change of IT reservation of the park, which will be sent shortly to our head office in Mumbai for approval."
This news paper report would show that the policy of "no profit no loss"
has been given a go-by by the assessee. Further, as submitted by Ld D.R, the assessee has also lost is monopoly in this field and the private entrepreneurs are also nowadays allowed to develop industrial estates.
The present day scenario would show that the private entrepreneurs are developing many Special Economic Zones all over the Country. Hence, in the present day scenario, the activities of the assessee and the private entrepreneurs stand on same footing. There cannot be any dispute that the activity of setting up/developing industrial estates and maintaining the infrastructure facilities by the private entrepreneurs is considered as "Business activity". Since the activity carried on by the assessee is no different from that one carried on by the private entrepreneurs, in our view, the activity carried on by the assessee should also be considered to be "business activity" only. Hence, the activity carried on by the assessee, in our view, would be hit by the proviso to sec. 2(15) of the Act.
28. The Ld A.R invited our attention to the various provisions of MID Act to contend that the assessee is carrying on its operations in accordance with the directions issued by the State Government. He further submitted that the lands vested with the assessee can also be taken back by the State Government. Accordingly he contended that the activities of the assessee cannot be considered to be a business activity, 39 ITA. No.6552/Mum/2014 since it is acting in accordance with the directions issued by the State Government. In our view, the control or directions issued by the State Government would not change the character of "business activity". We are of the view that the activity carried on by the assessee should be examined independently and the fact that the assessee is being regulated by the State Government would not make any difference. In our view "Ownership" of the Corporation and "activities" of the Corporation are two different aspects and the ownership cannot be considered or taken into account to determine the character or nature of the activities carried on by the Corporation.
29. In view of the foregoing discussions, we agree with the Ld CIT(A) in holding that the activities of the assessee are commercial in nature and hence would be hit by the proviso to sec. 2(15) of the Act.
30. The next issue is with regard to the funds claimed to have been received by the assessee on behalf of the Government of Maharashtra.
With the said contentions, the assessee did not disclose the funds received by way of lease premiums, interest on bank deposits etc. as its income in the Profit and Loss account, but shown as "Liabilities" in the Balance sheet as the amount due to paid to the State Government. However, the AO assessed the said receipts as income of the assessee and the Ld CIT(A) also confirmed the same.40 ITA. No.6552/Mum/2014
31. Before us, the Ld A.R submitted that the assessee is carrying on its activities on its own account and also as agent of the Government of Maharashtra. The amount received from the activities carried on behalf of the State Government was directly taken to the Balance sheet, since the assessee, as an agent, is liable to hand over the said proceeds to the State Government. He further submitted that the assessee has been consistently following this accounting system and this method of accounting followed has been accepted by the Comptroller and Audit General of India also. He further submitted that the nature of these amounts and also the relationship between the assessee and the State Government is evident from reading of number of resolutions/orders passed by the State Government. In the written submissions, the assessee has made reference to the resolution No.IDC 1067/38498-IND-1 dated 16.8.1997. With regard to the above said resolution, following submissions have been given in the Written Submissions:-
"10. The resolution clearly notes that certain lands acquired by the Government under the MID Act as well as under other laws such as the Land Acquisition Act are placed at the disposal of the Corporation for the purposes of development of industrial areas; and the Corporation is to dispose the land to suitable industries. From the proceeds collected through such disposal to industries (i.e., through lease etc.), the MIDC is entitled to reimburse expenditures incurred by it, and the remainder amount is required to be remitted to the Government. Thus, the first charge over the amounts is with the Government, and not with MIDC. Further, reference may also be made to resolution no. IDC 1079/(1966)/IND.14 dated 11.9.1986, where the earlier resolution of 1967 has been reiterated, and it has been stated that MIDC acts as an agent of the Government for development of industrial areas and infrastructural facilities under the provisions of the MID Act. These resolutions 41 ITA. No.6552/Mum/2014 have the force of law. It is reiterate that the land belongs to the State Government and this is also further evidenced by the fact that 7/12 extracts in respect of the said lands too. As the land is owned by the Government of Maharashtra, the lease premiums collected by the Corporation on behalf of the Government are held on behalf of the Government of Maharashtra and is disclosed as "Deposits" in the audited accounts. It is noteworthy that the lease premiums and rents are often not as per market rate but are given at concessional rates, in order to aid the objective of the MID Act."
Accordingly, it was contended that the funds received in respect of activities carried on behalf of the Government of Maharashtra cannot be considered as income of the assessee. In the alternative, it was contended that the corresponding expenditure relating to the said receipts should be allowed as deduction and only net income can be assessed as income.
32. The Ld D.R, on the contrary, placed strong reliance on the orders passed by Ld CIT(A).
33. We have considered rival contentions and perused record. We notice that the assessee is raising the contention for the first time before us that it is carrying on the activities on its own account and also as agent of the Government of Maharashtra. There appears to be no reference in the orders of the tax authorities to the resolutions passed by the Government of Maharashtra. It is further contended that the assessee is following consistently taking the funds received on behalf of the State Government to the Balance Sheet as per the resolutions passed by the State Government. Since the assessee has submitted that it is also 42 ITA. No.6552/Mum/2014 carrying out certain activities on behalf of the Government of Maharashtra and since the said claim of the assessee has not been examined by the tax authorities, we are of the view that this issue requires fresh examination at the end of the assessing officer. Accordingly, we set aside the order of Ld CIT(A) on this issue and restore the same to the file of the assessing officer with the direction to examine the same afresh by duly considering all the documents and explanations that may be furnished by the assessee before him in order to substantiate its contentions. The assessee is also directed to furnish all the details that may be called for by the assessing officer. Since we have set aside this matter to the file of the AO, the alternative contention of the assessee is also set aside to his file.
34. The next issue relates to the claim for deduction of brought forward deficit computed u/s 11 of the Act. The Ld CIT(A) held that the same is not allowable as deduction, since the assessee's income is computed in 'commercial manner', since the provisions of the Act do not allow such kind of deduction. Though the Ld A.R placed reliance on certain case law in this regard, yet we notice that they were rendered in the context of the computation of income u/s 11 of the Act. Since the income of the assessee is required to be computed under normal provisions of the Act for the year under consideration, since it is covered by the proviso to sec. 2(15) of the Act, we are in agreement with the view expressed by Ld CIT(A) on this issue.
43 ITA. No.6552/Mum/2014
35. However, we notice that the Ld CIT(A) has rejected the claim for deduction of book depreciation. In our view, the depreciation computed u/s 32 of the Income tax Act should be deducted for the purpose of arriving at the income of the assessee, when the income is computed in terms of the provisions of the Income tax Act. Accordingly, we set aside the order of Ld CIT(A) on this issue and direct the AO to allow the depreciation admissible u/s 32 of the Act.
36. In the result the appeal of the assessee is treated as partly allowed for statistical purposes.
The above order was pronounced in the open court on 27th Mar, 2015.
घोषणा खुले यायालय म दनांकः 27th March, 2015 को क गई ।
Sd sd
(संजय गग/SANJAY GARG) ( बी.आर.बा करन / B.R. BASKARAN)
या यक सद य / JUDICIAL MEMBER लेखा सद य / ACCOUNTANT MEMBER
मुंबई Mumbai: 27th March,2015.
व. न.स./ SRL , Sr. PS
आदे श क त ल प अ े षत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent.
3. आयकर आयु त(अपील) / The CIT(A)- concerned
4. आयकर आयु त / CIT concerned
5. वभागीय त न ध, आयकर अपील य अ धकरण, मुंबई /
DR, ITAT, Mumbai concerned
6. गाड फाईल / Guard file.
True copy आदे शानस
ु ार/ BY ORDER,
सहायक पंजीकार (Asstt. Registrar)
आयकर अपील य अ धकरण, मब
ुं ई /ITAT, Mumbai