Income Tax Appellate Tribunal - Ahmedabad
Gujarat Industrial Development ... vs Assessee on 9 November, 2010
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD BENCH " C "
Before Shri MUKUL Kr. SHRAWAT, JUDICIAL MEMBER and
Shri A.N. PAHUJA, ACCOUNTANT MEMBER
Date of hearing : 08/10/2010 Drafted on: 09/11/2010
1.ITA No.3252/AHD/2009 - A.Y. 2006-07
2. ITA No.3274/AHD/2009 - A.Y. 2006-07
1.Gujarat Industrial Vs. 1. The Asst.CIT
Development Corporation Gandhinagar Circle
Udyog Bhavn Gandhinagar
2 n d Floor, Block 4
Sector 11
Gandhinagar 382 017
2. The Asst.CIT 2. Gujarat Industrial
Gandhingar Circle Development Corporation
Gandhinagar Gandhinagar
PAN/GIR No. : AABCG 8033D
(APPELLANTS) .. (RESPONDENTS)
Assessee by : Shri S.N.Soparkar, Sr.Adv.
with Shri M.G.Patel
Revenue by: Shri Shelley Jindal, CIT-DR
ORDER
PER SHRI MUKUL Kr. SHRAWAT, JUDICIAL MEMBER :
Both these appeals are cross appeals; one by the Assessee( in short GIDC) and the other by the Revenue which have emanated from the order of Learned CIT(Appeals)-Gandhinagar dated 29/09/2009. Several grounds have been raised by the Assessee and the same shall be dealt with as follows:-
ITA Nos.3252/Ahd/2009 (By Assessee) & ITA No.3274/Ahd/2009 (By Revenue)Gujarat Industrial Development Corpn. Vs. Asst.CIT Asst.Year - 2006-07 -2-
2. Ground No.1
1. The Learned Commissioner of Income Tax, (Appeals), Gandhiangar has erred in law as well as on the facts of the case of the Appellant by holding that the income of the Appellant is assessable as income from business by invoking provisions of Section 11(4) of the Income Tax Act, 1961.
A. FACTS AS PER ASSESSMENT ORDER:-
2. Facts in brief as emerged from the corresponding assessment order passed u/s.143(3) of the I.T. Act, 1961( in short The Act) dated 24/12/2008 were that the assessee was assessed under the status of "Trust". A return of loss of Rs.86,04,66,931/- was filed. The main objects of the assessee, as recorded by the Assessing Officer, are to establish, develop and manage industrial estates at certain places as selected by the State Government. The locations so developed are to be made available to several industrial undertakings to establish their business enterprise. The Assessing Officer has mentioned that therefore the assessee's business is to develop lands and to allot the land for industrial use and also to facilitate in establishing industries. The assessee has claimed that the income is exempt u/s.11 of the Act. On the other hand, as per Assessing Officer, the income is assessable u/s.11(4) of the Act. As per Assessing Officer, since the assessee has enjoyed income from the business of developing of land for industrial purposes and allotted the land to industries on lease as well as charging consideration in case of transfer of land, therefore, not entitled for the deduction u/s.11 of the Act. Therefore this appeal revolves on the ITA Nos.3252/Ahd/2009 (By Assessee) & ITA No.3274/Ahd/2009 (By Revenue) Gujarat Industrial Development Corpn. Vs. Asst.CIT Asst.Year - 2006-07 -3- preliminary issue that whether the income of the assessee is assessable u/s.11(4) of the I.T.Act. The receipts shown under the heads "Premium Price on Lease of Plot" and "Land for Sale" were classified by AO as Revenue income. Finally an observation has also been made that the receipts being Revenue in nature under the head "Premium Price" on "Lease of Plot" and "Land for Sale" therefore ought to be credited to the income and expenditure account. The Assessing Officer has determined the income as business income as per following calculation:-
"9. For the purpose of determining income from business, income and expenditure account is re-constructed as under:-
Expenditure Amount (Rs) Income Amount (Rs)
Expenditure as 149,57,32,435 Income as shown 191,38,48,644
shown in Income in the Income &
& Expenditure Expenditure
account Account
Capital 64,58,37,790 Income shown as 169,80,93,568
expenditure as capital receipts in
shown in the balance sheet
Schedule-A, B, C as discussed
and D of the above in para-7
balance sheet
Depreciation as 5,42,11,705 Income from 19,34,58,383
discussed in para instalments as
8 shown under the
head "deposits"
in the balance
sheet
Net profit 160,96,18,665
380,54,00,595 380,54,00,595"
ITA Nos.3252/Ahd/2009 (By Assessee) &
ITA No.3274/Ahd/2009 (By Revenue)
Gujarat Industrial Development Corpn. Vs. Asst.CIT Asst.Year - 2006-07 -4-
3. Apart from the above profit as calculated by the Assessing Officer, certain other additions have also been made to arrive at the total assessed income of the assessee. Those additions shall be discussed, if need be, in the following paragraphs. Nevertheless, the question of applicability of section 11(4) of the Act was challenged before the first appellate authority.
B. FINDINGS OF FIRST APPELLATE AUTHORITY :-
4. Before the first appellate authority, in respect of the issue of "Premium Price on Lease of Plot and Land", the explanation of the assessee was that the land was acquired after incurring the cost of acquisition. On the land so acquired, the assessee has to carry out the development work. For that reason, assessee had to incur expenditure towards lay-out-plans, infrastructure facilities, such as, road, electricity, water, drainage, etc. While granting lease of such developed land, premium on allotment is collected from the allottees to whom the plots are allotted on lease. Such collection is credited as "Premium Price on Lease of Plot and Land for Sale". Those were shown in the balance- sheet as capital receipts and not as Revenue Income. It has also been contested that since the lease was granted for ninety-nine years, therefore, the said lease being a long-term lease amounted to transfer of capital assets within the meaning of section 45 of the Act. It was further elaborated that the appellant has to be assessed as a Charitable Institution as prescribed u/s.11 of the Act. The net consideration arising on transfer of assets being utilized for acquiring another capital assets has ITA Nos.3252/Ahd/2009 (By Assessee) & ITA No.3274/Ahd/2009 (By Revenue) Gujarat Industrial Development Corpn. Vs. Asst.CIT Asst.Year - 2006-07 -5- to be dealt with as per section 11(1A) of the Act and for this reason the income on transfer should be deemed to have been applied for charitable purposes. Other instances have also been quoted that in some cases, advance money was received as installments of premium in respect of which lease-hold rights were to be transferred. As per the contention of the assessee, such installments were only advance payments made by the allottees who have agreed to take the plots. Those installments were not in the nature of income and the assessee had to execute a lease-deed in respect of those plots. Finally, it has also been vehemently contested that as per the guidelines, the surplus has to be deposited with Gujarat State Financial Services Limited. It was made clear that during the year under consideration such investment was at Rs.192,76,21,205/-. In support, GID Act, 1962 was also cited. The Learned CIT(Appeals) was not convinced and in his opinion, the assessee was involved in a business with the purpose to earn profit. The Learned CIT(Appeals) has also referred section 11(4) of the Act and in his opinion, the said section meant that a charitable organization as defined by section 2(15) of the Act had included an institution involved in the Object of General Public Utility and side-by-side such institution can as well have a business dimension. Through such an activity, a method had evolved by the assessee to continuously generate revenue. The activities carried on by the assessee were an organized activity as per business module. Apart from dealing in land, the assessee-trust had also invested in a number of companies which was nothing but a commercial activity. By referring a decision of Gujarat Maritime Board (295 ITR 561)[SC], Learned CIT(Appeals) has concluded that the assessee was involved in the ITA Nos.3252/Ahd/2009 (By Assessee) & ITA No.3274/Ahd/2009 (By Revenue) Gujarat Industrial Development Corpn. Vs. Asst.CIT Asst.Year - 2006-07 -6- business, therefore, the provisions of section 11(4) was to be applied. The contention of the assessee was dismissed and being aggrieved now the assessee is further in appeal before us.
5. From the side of the Appellant-assessee, Mr. S.N.Soparkar, Sr.Adv. and Shri M.G.Patel, Adv. appeared. Their arguments shall be dealt with hereinbelow as and when the context come up or situation arises.
6. From the side of the Revenue, Mr. Shelley Jindal, CIT-DR appeared and placed reliance on the orders of the Authorities below. His arguments shall also be considered in the following paragraphs.
C. FINDINGS
7. The issue of applicability of the provisions of section 11(4) have been argued at length narrating the facts of the case by both the sides. Respectively Mr.S.N.Soparkar and Mr.M.G.Patel, Learned Authorised Representatives of the assessee and Mr.Shelley Jindal Learned CIT Departmental Representative have extensively elaborated their points of view. At the outset, it is worth to mention that before the Tribunal, Ld.counsel of the assessee has raised an additional ground as is noted vide order-sheet dated 15/04/2010, reproduced below:-
"Without prejudice to other grounds of appeal, the Ld. Com of Income Tax (Appeals), Gandhinagar has erred in law as well as on the facts by directing the Ld. Assessing Officer to treat the excess of business income determined over the income as shown in ITA Nos.3252/Ahd/2009 (By Assessee) & ITA No.3274/Ahd/2009 (By Revenue) Gujarat Industrial Development Corpn. Vs. Asst.CIT Asst.Year - 2006-07 -7- accounts of the Appellant, as per CBDT Circular dated 19th June 1968".
7.1. It was argued that the assessee had challenged the order of Learned CIT(Appeals) wherein it was held that the income of the assessee is assessable as business income by invoking the provisions of section 11(4) of the Act. It was further clarified that if the assessee succeeds on this main ground that the provisions of section 11(4) were inapplicable, then there would be no necessity to compute the income and, consequently, the reliance placed by Learned CIT(Appeals) on Board's Circular becomes redundant. However, considering the legality of the issue raised by the assessee, the Tribunal has admitted the additional grounds. The discussion made while accepting the additional ground has also revealed that the computation of income as per the CBDT Circular would only be relevant if a finding is given that the provisions of section 11(4) should be applicable on the facts of the case. Therefore, considering the overall situation and the arguments of both the sides, we deem it proper to first decide the applicability of the provisions of section 11(4) of the Act and in this manner we shall also adjudicate ground No.1 of the assessee.
8. The appellant is a corporate body established under Gujarat Industrial Development Act, 1962. It is worth to mention that the assessee is registered u/s.12AA of the Act by the order of the Commissioner of Income-tax Gandhinagar dated 22/03/2006 which was stated to be effective from 01/04/2002. Assessment Year under consideration is A.Y. 2006-07. This fact is not in dispute. Once the ITA Nos.3252/Ahd/2009 (By Assessee) & ITA No.3274/Ahd/2009 (By Revenue) Gujarat Industrial Development Corpn. Vs. Asst.CIT Asst.Year - 2006-07 -8- assessee was registered u/s.12AA of the Act, the consequence was that the assessee has claimed deduction u/s.11 of the I.T. Act as per the return of income. Ld. Counsel of the assessee had also made it clear without prejudice to assessee's claim that the organization was a charitable institution and assessable as per the provisions of section 11 of the I.T.Act, however a tax Audit Report u/s.44AB was obtained and furnished under protest though as per assessee it was not required for the purpose of assessment.
8.1. Reverting back to the key-issue, from the documents available on record, we have gathered the salient purposes for which the undertaking was incorporated by GID Act, 1962. The principal function of this statutory body was to establish and develop the industries in the State of Gujarat. Certain Industrial Development Policies were framed by the Govt. and the assessee was under obligation to fulfill those policies. For the purpose of Development of Industries in the State, the Assessee-Corporation was acquiring land all over Gujarat to develop industrial estates. It is constructing industrial sheds and housing quarters alongwith infrastructure facilities, such as roads, street- lights, water-supply, drainage, etc. The work of GIDC (Assessee) is to establish and manage all those industrial estates. The areas and the sites/locations are generally selected by the Government of Gujarat. GIDC( assessee) is to incur cost of land and cost of development. It is a responsibility of the assessee to provide amenities as specified under GID Act. During the argument, it was time and again emphasized that all the functions of GIDC was meant to serve the public purpose. It was quoted ITA Nos.3252/Ahd/2009 (By Assessee) & ITA No.3274/Ahd/2009 (By Revenue) Gujarat Industrial Development Corpn. Vs. Asst.CIT Asst.Year - 2006-07 -9- that as per section 14 of GID Act, the assessee has to make available the land only to industrialist intending to start industrial undertaking. Hence, GIDC (Assessee) is stated to be an entity created by the Gujarat Government for the benevolent purpose of securing the orderly establishment of industries in specified industrial area. In such industrial estates, a planned development of industries is to be carried out by the assessee. Emphatically it was mentioned that GIDC being a legal entity created by the Government of Gujarat under GID Act, therefore, in case of Government of Gujarat decides for the supersession of GIDC u/s.47 of GID Act, or the assessee-corporation is dissolved u/s.48 of GID Act, then all the assets, i.e. properties, funds as well as liability shall vest with the Government of Gujarat. So, the activity of the assessee can be described in general that the Corporation is created for orderly establishment, growth and development of Industries in the state of Gujarat by carrying out the industrial policy of Government of Gujarat. The assessee is, thus, created for the purpose of general public utility which the assessee is statutorily required to carry out. On the basis of the discussion about the purpose for which the corporation was created and the background under which this Assessee-Corporation was established, it is understood that the assessee is not authorized to dispose off the plots situated within an industrial estate in the open market. The allotment of plots is, therefore, restricted to Industrial Undertakings. At this juncture, it is necessary to mention that the fundamental argument of the assessee is that though the plots were allotted to industrial houses on premium and assessee might have earned income but motive behind creation of this entity was not earning profit . So, the question which is to be answered ITA Nos.3252/Ahd/2009 (By Assessee) & ITA No.3274/Ahd/2009 (By Revenue) Gujarat Industrial Development Corpn. Vs. Asst.CIT Asst.Year - 2006-07
- 10 -
is whether the activities carried out by the assessee was in the nature of business as prescribed under IT Act. Alternatively, the question is whether the activity of the assessee is of the character of public utility or charitable purposes as defined U/s 2(15) of ITAct.
8.2. In fact, this litigation and these questions have cropped up only because of the reason of an amendment in the Income Tax Act. Earlier, there was a section under which such an organizations were totally exempt from tax. There was a section 10(20A) which was under
Chapter III, i.e. incomes which do not form part of total income, omitted with effect from 01/04/2003. Prior to its omission, this section read as under:-
"(20A) any income of an authority constituted in India by or under any law enacted either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, or for both;"
8.3. In the past, such an authority, as the assessee is, got exempt and the income was not to be included for tax purpose. Such an "Authority" was granted exemption and when the question of granting exemption to a Development Authorities was challenged, then altogether a new vista for granting exemption was opened. Interestingly, the assessee's matter, reported as Gujarat Industrial Development Corporation vs. CIT (227 ITR 414)[SC] had gone upto Hon'ble Supreme Court and in that appeal the exemption clause 10(20A) was thoroughly examined. It was pronounced that an "Authority" constituted for planning development, etc. and particularly a development corporation constituted for Industrial ITA Nos.3252/Ahd/2009 (By Assessee) & ITA No.3274/Ahd/2009 (By Revenue) Gujarat Industrial Development Corpn. Vs. Asst.CIT Asst.Year - 2006-07
- 11 -
Development is an authority inconformity with section 10(20A) of the Act. It is important to note that the term "development" as used in section 10(20A) has been deliberated upon and held that it has to be understood in a vide sense. Such a finding is of great help in deciding the present appeal in hand. It was concluded that establishment of industries is one of the modes of development, therefore, the Assessee-Corporation was held as entitled to exemption u/s.10(20A) of the Act. It appears that on account of the aforesaid interpretation of the Hon'ble Apex Court, it had opened the door wide for exemption, therefore, it was thought proper by the Legislature to drop the section prospectively with effect from 01/04/2003 and the benefit of exemption was thereafter withdrawn. This is the genesis for start of litigation, at present, to be dealt with by us.
8.4. To resolve the dispute we shall take up, one by one, the stand of the lower Authorities, hence, as far as the view taken the Assessing Officer was concerned, vide para-7, it was stated that the Assessee- Corporation was established to develop and manage industrial estates as selected by the State Government. So the Assessing Officer was of the view that the assessee's "business" is to develop lands and to allot them for industrial use so as to facilitate the allottees for their respective establishment of industries and in the process earned profit. Because of this reason, the Assessing Officer has held that the income is assessable u/s.11(4) of the I.T.Act. Assessing Officer has given a very basic and fundamental reason for the invocation of section 11(4) of the I.T. Act that the assessee was enjoying income from business of developing land by allotting plots to industrialists on lease and on such transfer of plots ITA Nos.3252/Ahd/2009 (By Assessee) & ITA No.3274/Ahd/2009 (By Revenue) Gujarat Industrial Development Corpn. Vs. Asst.CIT Asst.Year - 2006-07
- 12 -
charging consideration, therefore, assessable under the Act. The Assessing Officer has, thus, made a calculation of the profit of Rs.160,96,18,665/- earned on receiving premium price on lease of plot, land for sale and factory shed/ quarters recoveries. It was held that the nature of receipts was not on Capital account but it was a Revenue receipt. The first appellate authority has questioned that considering the definition of "charitable purpose" as defined in section 2(15) of the I.T. Act, whether it was relief to the poor, or for the purpose of education, or for medical relief or lastly, whether the activity of the Assessee- Corporation was for the advancement of any other object of the general public utility? At the end, Learned CIT(Appeals) has concluded that the said activity was in the nature of business activity, hence, covered under sections 28 to 44 of the I.T. Act. Even if the assessee got registered u/s.12AA of the I.T. Act, the business activity can be taxed. In his opinion, the fact that the appellant was involved in the activity of "general public utility", even the assessment can be made u/ss.11, 12 & 13 of the I.T. Act and because of this reason the provisions of section 11(4) could also be invoked. He has concluded that though a Charitable Organization may fall within the ambits of the definition of section 2(15) of the I.T.Act, but such an organization as well can be engaged in business activity in view of section 11(4) of the I.T.Act. For the purpose of setting up of an industrial estate, an organization needs financial resources. For that purpose, the Corporation is continuously generating Revenue. Its activity was acquiring, developing and leasing/selling land and through the said activity, generated surplus income which was a complete mould or pattern of business. As per ITA Nos.3252/Ahd/2009 (By Assessee) & ITA No.3274/Ahd/2009 (By Revenue) Gujarat Industrial Development Corpn. Vs. Asst.CIT Asst.Year - 2006-07
- 13 -
Learned CIT(Appeals), it was a commercial activity. In the concluding paras Learned CIT(Appeals) has also held that the assessee having income from business and also activity for public utility, therefore, both the activities were not in contra distinction and the income can be computed as per an old CBDT Circular No.5P(LXX-6) dated 19/06/1998.
8.5. To deal with this question, in the present set of facts and circumstances as also considering the purpose for which this Corporation has been established, whether it was justifiable on the part of the Revenue Authorities to hold that the assessee had fallen within the ambits of the provisions of section 11(4) of the I.T.Act? We have meticulously examined the connected law. After the deletion of section 10(20A), the importance of section 11(4) had been visualized by the Revenue Department and, therefore now needs a detailed discussion. As far as the main provisions of Section 11 are concerned, it prescribes that the income from property held for charitable or religious purposes are not to be included in the total income of a person in receipt of such income. Section 11(1)(a), (b), (c) and (d) has described the nature of property and the income derived therefrom which are not required to be included in the total income. However, section 11(4) is an exception to the main exemption section which reads as follows:-
Section 11 (4) For the purposes of this section "property held under trust" includes a business undertaking so held, and where a claim is made that the income of any such undertaking shall not be included in the total income of the persons in receipt thereof, the Assessing Officer shall have power to determine the income of such undertaking in accordance with the provisions of this Act relating to assessment; and where any income so determined is in excess of the income as shown in the accounts of the undertaking, such ITA Nos.3252/Ahd/2009 (By Assessee) & ITA No.3274/Ahd/2009 (By Revenue) Gujarat Industrial Development Corpn. Vs. Asst.CIT Asst.Year - 2006-07
- 14 -
excess shall be deemed to be applied to purposes other than charitable or religious purposes.
8.6. To hour humble understanding, this section notably deals a situation where a Trust also compose a business hence for that purpose it says "property held under trust" may consist of a business undertaking. For the application of this section, two things are prescribed, one, the Assessing Officer has the power to determine the income of such an undertaking in accordance with the provisions of this Act relating to the assessment, and two, where the income determined by the Assessing Officer is in excess of that shown in the books of account, then the excess is deemed to be the income of the year not applied for charitable purpose. Therefore, the important phrase is that "For the purpose of this section property held under trust includes a business undertaking so held" and then if it is decided that the trust is having a business undertaking, then thereafter it is prescribed to determine the income of such an undertaking in accordance with the general provisions of the Act. We may take a liberty to read next section, i.e. section 11(4A) along with this section. For ready reference section 11(4A) is also reproduced below :-
Section 11(4A) Sub-section (1) or sub-section (2) or sub-section (3) or sub-section (3A) shall not apply in relation to any income of a trust or an institution, being profits and gains of business, unless the business is incidental to the attainment of the objectives of the trust or, as the case may be, institution, and separate books of account are maintained by such trust or institution in respect of such business.
8.7. This section says that if the business is incidental to the attainment of the objectives of the trust, then sub-section(1), (2) or (3) ITA Nos.3252/Ahd/2009 (By Assessee) & ITA No.3274/Ahd/2009 (By Revenue) Gujarat Industrial Development Corpn. Vs. Asst.CIT Asst.Year - 2006-07
- 15 -
shall apply, i.e. exemption u/s.11 can be availed by such an organization. It is, therefore, logical and rather mandatory to read section 11(4) co- jointly with section 11(4A) of the I.T.Act. Undisputedly, section 11(4) prescribes that the Assessing Officer has power to determine the income of such an undertaking in accordance with the provisions of this Act, and where any income so determined is in excess of the income as shown in the accounts of the undertaking, then such excess shall be deemed to be applied to purposes other than charitable or religious purposes. Accordingly, such an excess income is chargeable to tax, but the co-joint reading of both the sections as well as on independent reading of section 11(4) of the I.T.Act it appears that one must not overlook the purpose for which the income is applied. This section is very specific that such excess income shall be deemed to be applied to purposes other than charitable or religious purposes. This deeming section has its own limits because before its application it has to be held that an undertaking is a business undertaking. Therefore, to resolve this controversy, we are of the opinion that twin conditions are necessary to be fulfilled, the first one is that the Assessing Officer should give a conclusive finding that the undertaking in question is a business undertaking and the second finding that the excess income so computed has not been utilized / applied for the purposes of the object of the trust as defined u/s.2(15) of the I.T.Act; then only can invoke Sec.11(4) of the Act. The terms "Business" has been defined in the statute vide Sec.2(13) of the Act. This section can thus guide us whether the present set of facts of this case does fall with in this definition.
ITA Nos.3252/Ahd/2009 (By Assessee) & ITA No.3274/Ahd/2009 (By Revenue)Gujarat Industrial Development Corpn. Vs. Asst.CIT Asst.Year - 2006-07
- 16 -
8.8. There is one more limb of section 11(4) of the I.T.Act which says that "for the purposes of this section property held under trust includes a business undertaking so held, and where a claim is made that the income of any such undertaking shall not be included in the total income of the persons in receipt thereof". We have analyzed the word 'include'; meaning thereby there is a reference of a property or a business of a trust which is a business undertaking in addition to the other properties of the trust. Therefore, this sub-section is applicable in respect of such a business undertaking for which the assessee is making a claim that the income of such an undertaking is also not to be included in the total income of the persons in receipt thereof. Which means that the assessee is asking for an exemption as prescribed u/s.11(1) of the I.T.Act in respect of the income of such a business undertaking. In that respect, the Assessing Officer has power to determine the income of such a business undertaking in accordance with the provisions of this Act. But in a case where the entire undertaking is working as a one Unit or there is no segregation of charitable activity or the business activity, then whether there is any scope of the invocation of this section is doubtful. Rather in some of the cases, it was found that some of the expenditure were not meant for charitable purposes, therefore, applying this sub-section that expenditure was excluded from the exemption and taxed. In this context, we may like to refer a decision of Hon'ble Calcutta High Court in the case of CIT vs. Birla Education Trust, [1985] 21 TAXMAN 134 (Cal.) wherein the assessee was a Public Charitable Trust which also carried a business of running a Textile Mill. A sum of Rs.9,547/- was debited to Profit & Loss account. The said expenditure was not an admissible ITA Nos.3252/Ahd/2009 (By Assessee) & ITA No.3274/Ahd/2009 (By Revenue) Gujarat Industrial Development Corpn. Vs. Asst.CIT Asst.Year - 2006-07
- 17 -
deduction. While dealing with the said situation, the Hon'ble Court has made an observation that section 11(4) is neither a charging section nor a machinery provision entitling the ITO to assess the income for the purpose of levying tax. It comes into operation when a claim is made that the income of the business undertaking of a trust shall not be included in the total income of the person in receipt thereof. Such a claim can only be made u/s.11(1) of the I.T.Act. When such a claim is made, the ITO has been authorized to determine the income. Where the income is so determined is in excess of the income as shown in the account books of the undertaking, then such excess shall be deemed to have been applied to the purposes other than charitable or religious purposes. An important remark has been made by the Hon'ble Court that there is no indication in sub-section (4) that it was intended to be in derogation of or to supersede or supplant any other provision of section 11. An expenditure which is not meant for charitable purposes is liable to be dealt with by sub-section(3) of section 11 of the Act. So, as per the Hon'ble Court, such a case will not be covered by section 11(4). The purpose of enactment has also been dealt with by the Hon'ble Court in the following manner:-
Under sub-s. (4), the ITO can determine the income and compare it with the income appearing in the accounts. The income spoken of in subs. (4) appears to us to be the gross income and not the net income of the business undertaking. The net income is computed after granting the admissible deductions. The deductions admissible from income of a business undertaking are not always the same as application of income wholly for charitable or religious purposes. They may or may not be admissible deduction from business income under the provisions relating to assessment of income. Yet they are entitled to exclusion under sub-s. (1) of s. 1 because they ITA Nos.3252/Ahd/2009 (By Assessee) & ITA No.3274/Ahd/2009 (By Revenue) Gujarat Industrial Development Corpn. Vs. Asst.CIT Asst.Year - 2006-07
- 18 -
represent application of income wholly for charitable or religious purposes.
Here, the ITO has to scrutinise the accounts and see if there is suppression of income or manipulation of accounts with a view to conceal income. He could see whether there are items which are deemed to be income under some provision of the I.T. Act and which have not been accounted for in the books of the undertaking, or there may be some receipts which are really in the nature of income and which have not been reflected in the accounts. This interpretation of sub-s. (4) of s. 11 is in consonance with the legislative intent as disclosed by the Finance Minister who spoke in Parliament while this provision was under consideration.
It is now settled that the speech of the mover of the Bill is relevant. In Varghese v. ITO [1981] 131 ITR 597 (SC), P. N. Bhagwati J., held (at p. 608):
Therefore, in that decision it was concluded that sub-section(4) was intended to uncover tax evasion by manipulation of the account books and not intended to apply to application or expenditure of income by the business undertaking.
8.9. About the applicability of the provisions of section 11(4), a case was before the Hon'ble Madras High Court cited as Director of Income Tax (Exemptions) vs. Thanthi Trust (215 ITR 879)[Mad.] and the facts were that the assessee-trust was deriving income from running of a Newspaper called "Dina Thanthi". A search was conducted and later on case was reopened. It was found that the assessee had violated the provision of section 13(1)(c) of the I.T.Act by allowing its godown to be used for keeping stocks of one Rani Publication, a proprietary concern of a trustee. The ITO has invoked section 11(4) and held that the excess income determined was deemed to be applied for the purposes other than charitable. The additions were made in respect of excessive waste, sale ITA Nos.3252/Ahd/2009 (By Assessee) & ITA No.3274/Ahd/2009 (By Revenue) Gujarat Industrial Development Corpn. Vs. Asst.CIT Asst.Year - 2006-07
- 19 -
of waste, trade discount and cash credit. On verification of facts, the Tribunal has considered them not sustainable. Once on appraisal of facts the four items of additions were excluded, then the Tribunal has held that section 11(4) was also not applicable. In that context, the Hon'ble Madras High Court has said that still it was to be seen whether the provisions of section 11(4) would be applicable, particularly when the assessed income was more than the returned income. If the income arising out of those four items were not included, as per the order of the Tribunal, then there would be no excessive income then what was returned. The Court has, therefore, held that when there was no excessive assessed income, over and above, the income returned by the assessee, the provisions of section 11(4) could not be applied. Therefore, one of the conditions for the application of section 11(4) is that there ought to be some excessive income, over and above, the income as per the accounts of the assessee which can be held as deemed to have been applied other than charitable purposes.
8.10. There was a question before the Hon'ble Madras High Court in an another case where there was no material to show that the ginning business was carried out for the primary purpose of the trust. While deciding this issue in the case of CIT vs. Virudhunagar Hindu Nadars Abiviruthi Panchukadai Mahamai [1996](219 ITR 303)[Mad.], it was found that the primary object was to run an Institution for relief of poor. There was no material that the decorticating business and ginning business as a means in the course of actual carrying out of the primary objects of the trust. However, the Hon'ble Court has found a fallacy in ITA Nos.3252/Ahd/2009 (By Assessee) & ITA No.3274/Ahd/2009 (By Revenue) Gujarat Industrial Development Corpn. Vs. Asst.CIT Asst.Year - 2006-07
- 20 -
the judgement of the Tribunal on the ground that the Tribunal has straightway come to the conclusion that the assessee was entitled to exemption u/s.11 because the business itself was the property held under trust as stated in section 11(4) of the I.T.Act; relevant portion reproduced below:-
"..... On the contrary, as already indicated, the Tribunal itself, at one place, finds that the business carried on by the assessee is not in the course of the actual carrying out of the primary objects of the trust. No doubt the Tribunal also observes in a later sentence, that the said business itself is " property held under trust " as stated in section 11(4) of the Act. Then, after quoting section 11(4), the Tribunal straightaway comes to the conclusion that the assessee is entitled to exemption under section 11 itself, but it is not known how it comes to the said conclusion. No doubt, it refers to J. K. Trust v. CIT [1957] 32 ITR 535 (SC), in this regard, but, the said decision has only held that a business itself can be properly held by a trust and that its income is excludible to the extent and manner applicable to the other incomes. Section 11(4) also says that the said business income has to be determined " in accordance with the provisions of this Act ". This also shows that section 13(1)(bb) also, it being one of the provisions of the Act, has to be taken note of in determining the said business income, when the trust is for any of the abovesaid first three heads of charitable purposes under section 2(15), (as in the present case)."
8.11. The crux of the decision is that even if a business undertaking is a property of the trust but if the business carried on is not meant to fulfill the objects of the trust, then also such a business income is out of the exemption clause. We think this is the purpose of the enactment of this section that out of the several properties of a trust, if there is a property held by the trust carrying on business which is found to be not for the ITA Nos.3252/Ahd/2009 (By Assessee) & ITA No.3274/Ahd/2009 (By Revenue) Gujarat Industrial Development Corpn. Vs. Asst.CIT Asst.Year - 2006-07
- 21 -
purposes of the charitable objects, then by invoking section 11(4) that income can be taxed.
8.12. From the above discussion, it evolves that the income derived from a business undertaking held by a trust is not to be granted exemption absolutely and without condition. This section, thus, prohibits the exclusion of the business income though there may be difference of opinion about the computation of such a business income between the Trustee and the Assessing Officer. For example, an item of expenditure genuinely incurred may be held by the Assessing Officer as excessive or capital in nature and, hence, liable to be disallowed. Such an amount can therefore be chargeable to tax in the year of income for which the computation was made. On account of this fact, this is merely a machinery section through which a computation is to be made in respect of the income which is excessive and earned from business activity and not meant for the purposes of the trust and on the basis of such a finding the same can be deemed to be a taxable income.
9. A decision of the Honble Apex court is directly staring at our eyes as cited from the side of the Revenue. Learned CIT(Departmental Representative) Mr. Shelley Jindal has placed a strong reliance on the decision of Hon'ble Supreme Court in the case of Adityapur Industrial Area Development Authority (153 Taxmann 107)[SC], wherein Article 289(1) was the subject matter. Facts of the case were that the assessee an Industrial Area Development Authority, a body corporate constituted under the Bihar Industrial Area Development Authority Act, ITA Nos.3252/Ahd/2009 (By Assessee) & ITA No.3274/Ahd/2009 (By Revenue) Gujarat Industrial Development Corpn. Vs. Asst.CIT Asst.Year - 2006-07
- 22 -
1974, is to provide for planned Development of Industrial Area for promotion of industries. On account of the omission of section 10(20A) a notice was issued by the Commissioner to a Bank Manager to deduct income-tax at source from the interest on Fixed Deposits held by the assessee. The assessee filed a Writ Petition challenging the notices of the Learned CIT on the ground that its income was not liable to be assessed under the IT Act in view of Article 289(1) of the I.T.Act. The High Court has held that in view of the fact that section 10(20A) was omitted and an Explanation was added to Section 10(20) enumerating the local authorities "contemplated by Section 10(20)", the assessee could not claim any benefit under those provisions after 01/04/2003 and that the exemption under Article 289(1) was not available to the assessee. HELD, that assessee is a distinct legal entity and its income could not be said to be the income of the State so as to be exempt from Union taxation. The assessee had gone further in appeal. On examination of Article 289(1) the Hon'ble Apex Court has said that the claim of exemption under the said Article must proceed on the foundation that the exemption is claimed in respect of property and income of a State. Once it was found that the property and the income belongs to a State, then Article 289 exempts the State property from taxation. While clause (1) of Article 289 exempts from union taxation any income of a State, derived from Government or Non-Government activities, clause (2) provides an exception, namely that income derived by State from trade or business will be taxable. It was also made clear that income derived by the State from business is distinguished from the Government purposes and shall not be exempt from Union taxation unless the Parliament declares such ITA Nos.3252/Ahd/2009 (By Assessee) & ITA No.3274/Ahd/2009 (By Revenue) Gujarat Industrial Development Corpn. Vs. Asst.CIT Asst.Year - 2006-07
- 23 -
business as incidental to the ordinary function of Government of the State. Upholding the view of the High Court, it was concluded that the said assessee could not claim exemption from Union taxation under Article 289(1) of the Constitution.
One must appreciate that there is no two opinion or slightest hesitation in understanding the law that such an authority, as is in the case of the assessee, the body incorporated is not the State but an independent Corporation. Though undisputedly, such a Corporation functions under the strict governance of a State but income of the Corporation cannot be said to be the income of the State. This distinction has to be borne in mind. Only because of this reason, the assessee is not claiming itself a local authority, now strictly classified vide Explanation to Sec.10(20) reads as under :-
Section 10 (20) the income of a local authority which is chargeable under the head "Income from house property", "Capital gains" or "Income from other sources" or from a trade or business carried on by it which accrues or arises from the supply of a commodity or service (not being water or electricity) within its own jurisdictional area or from the supply of water or electricity within or outside its own jurisdictional area;
Explanation.--For the purposes of this clause, the expression "local authority" means--
(i) Panchayat as referred to in clause (d) of article 243 of the Constitution; or
(ii) Municipality as referred to in clause (e) of article 243P of the Constitution; or
(iii) Municipal Committee and District Board, ITA Nos.3252/Ahd/2009 (By Assessee) & ITA No.3274/Ahd/2009 (By Revenue) Gujarat Industrial Development Corpn. Vs. Asst.CIT Asst.Year - 2006-07
- 24 -
legally entitled to, or entrusted by the Government with, the control or management of a Municipal or local fund; or
(iv) Cantonment Board as defined in section 3 of the Cantonments Act, 1924 (2 of 1924).
Therefore the distinction is that in the case of Adityapur Industrial Area Development Authority (153 Taxmann 107)[SC](supra) the claim of the assessee was that it had fallen under the expression "Local Authority". However, admittedly there is no such claim of this appellant now before us. This is also not the claim of the assessee that income do not form part of the total income under Chapter III of the IT Act and totally Exempt under any of the sub-sections of Sec.10 of the Act. But the claim of the assessee is that the undertaking functions for charitable purposes as defined u/s.2(15) of the I.T.Act due to the reason that its main object is the advancement of public at large and its object are for benefit and utility of general public. Its object is for industrial growth and to achieve that object it generates its own income which is strictly utilized for the benevolent purposes. Since the income of the assessee is subject to tax under IT Act and do not fall under the exempted clauses of Article 289(1) of Indian Constitution, therefore, the case law cited by the Revenue is not of much assistance.
10. Therefore now we have to examine whether the activities of this assessee can be said to be governed by section 2(15) wherein an expression is "any other object of general public utility". This expression would prima-facie include all objects which promote the welfare of the general public. One has to examine the primary purpose ITA Nos.3252/Ahd/2009 (By Assessee) & ITA No.3274/Ahd/2009 (By Revenue) Gujarat Industrial Development Corpn. Vs. Asst.CIT Asst.Year - 2006-07
- 25 -
and the dominant object for which this corporation came into existence. Undisputedly it was formed to promote the welfare of the general public. As far as this aspect is concerned, we have nothing much to add but to follow the findings of Hon'ble Supreme Court pronounced in assessee's own case(supra) [227 ITR 414]. The Hon'ble Apex Court has said that the appellant was created under the Gujarat Industrial Development Act, 1962. The appellant had the right to hold properties and the right to sue and be sued in its own name. Describing the functions of the Corporation, it was mentioned that proper planning is absolutely necessary for creation of an Industrial Area. Such as, roads, sanitation, park, other amenities, etc. are to be provided in a planned manner in an industrial area. As per the Hon'ble Apex Court, even an educational institution may have to be provided in such industrial complex. Therefore, development of an industrial area would have its direct impact on the development or improvement of that part of the city where such areas are located. Finally it was held that such authorities being constituted by law for facilitating all kinds of development of cities, towns and villages for public purposes, therefore should not be subjected to the liability to pay income tax, hence, entitled to exempt from tax u/s.10(20A) of the I.T.Act. The purpose of careful reading of this judgement is to ascertain the objects of the trust and also to verify whether such objects had fallen under the definition of section 2(15) of the I.T.Act. According to us, there should not be any dispute or misunderstanding that the objects of this appellant are very much covered, as held above, under the definition of section 2(15) of the I.T.Act.
ITA Nos.3252/Ahd/2009 (By Assessee) & ITA No.3274/Ahd/2009 (By Revenue)Gujarat Industrial Development Corpn. Vs. Asst.CIT Asst.Year - 2006-07
- 26 -
11. After holding the applicability of section 2(15) of the I.T.Act in favour of the assessee, the next step is to see whether there was any implication or importance of granting registration u/s.12AA of the I.T.Act to this assessee. Section 12AA prescribes that while granting registration, the Ld. Commissioner has to satisfy himself about the objects of the Trust or Institution. Also the Commissioner has to examine the genuineness of its activities. Once undisputedly, registration u/s.12AA of the I.T.Act has been granted, therefore, it can be presumed that these two aspects must have been thoroughly verified by the Ld. Commissioner before granting the registration. We may like to clarify, at this juncture, that merely holding such a registration certificate does not grant a blanket exemption to a Trust. The procedure of calculation of exemption in respect of income from property held under trust is prescribed under sections 11 & 13 of the I.T.Act. Section 11(4) is, therefore, one of the procedures through which an income arising from the property held by the trust can be treated as "a business undertaking"
and income so determined in excess of the income shown in the accounts of the undertaking be deemed to be applied "other than charitable purposes". This is the only section which empowers the Assessing Officer to determine the income of such an undertaking. One of the important aspects is that the excess income so computed should borne out of the accounts of the said undertaking. Which means that such an undertaking should have its separate books of account than the books of account of the charitable institution/trust if it is one of the constituent of the properties held by the Trust. Those accounts are, thus, subject to ITA Nos.3252/Ahd/2009 (By Assessee) & ITA No.3274/Ahd/2009 (By Revenue) Gujarat Industrial Development Corpn. Vs. Asst.CIT Asst.Year - 2006-07
- 27 -
scrutiny by the Assessing Officer for the purpose of the invocation of section 11(4) of the I.T.Act. If income so determined on scrutiny of those independent accounts was in excess, then the question had come up how to deal with such an excess income. To overcome this problem, the Statute has provided a method in section 11(4) of the I.T.Act. The scope and the ambits of this section are, therefore, limited. Contrary to this, admitted factual position is that the assessee does not have two sets of accounts and the entire activities of the assessee was held as business activities. This is the main cause of grievance that though the activity of the assessee is to promote industry for the benefit of public at large and the income so generated on leasing out of the plots/land, the same has also been exclusively utilized for those listed objects of the Institution, therefore, there was no scope to invoke section 11(4) of the I.T.Act. There is no allegation of the Revenue Department that any part of the income of the GIDC was misappropriated or exploited other than the objects of the Trust. Only under a deeming provision it was held so. The fallacy on the part of the Revenue in holding so, as per our observation, is that first it was presumed that it was a business undertaking and then under a fiction the income was deemed as not applied for public benefit.
12. Before we conclude let us see whether at all there was an element of 'business' in the activity of this Corporation. The definition of the Term " Business" as per Sec. 2(13) is as under:-
ITA Nos.3252/Ahd/2009 (By Assessee) & ITA No.3274/Ahd/2009 (By Revenue)Gujarat Industrial Development Corpn. Vs. Asst.CIT Asst.Year - 2006-07
- 28 -
Section 2(13)"business" includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture;
13. The fervent argument of Ld.CIT Departmental Representative Mr.Jindal, in this regard, were that the definition of business is very wide as defined in the Act and this definition is also not exhaustive. As per his arguments this clause being an inclusive clause, therefore, not only the four items as enumerated in the definition, but the other activities if of the like nature shall also be reckoned in business. There is no dispute about this primary argument because the word "business" connotes a large import. There are several decisions on the basis of which now it is settled that any activity of commerce and any adventure in the nature of trade does fall within this definition. At present, there is no necessity to exhaustibly deal with this definition and we are bound to accept that the assessee can be said to be an undertaking which has carried out an adventure in the nature of trade. Purchase of land and sale of land being the primary activity of this organization can be said to be a business activity but merely by holding that the undertaking is a "business undertaking" whether the profits arising therefrom can be subjected to tax by invoking section 11(4) of the I.T.Act? This section says that in respect of such an undertaking where a claim is made that the income arising therefrom not to be included in the total income, then this section must not be applied. This section can be applied where the Assessing Officer invokes the power to determine the income of such an undertaking and thereupon determined an income which is in excess of the income as shown in the accounts of the undertaking, then such excess ITA Nos.3252/Ahd/2009 (By Assessee) & ITA No.3274/Ahd/2009 (By Revenue) Gujarat Industrial Development Corpn. Vs. Asst.CIT Asst.Year - 2006-07
- 29 -
income shall be deemed to be the income not applied for the purposes of the trust. What this term "excess" connotes is also to be examined. In our opinion, if on examination of income and expenditure account, it is found that some part of the receipts are not utilized or expended towards the object of the trust, then only that part can be held as an excess income and naturally subject to tax. It means that the Assessing Officer has to examine the nature of receipts and the nature of expenditure and if on the basis of that examination, it is found that a part of them are not meant for the purposes of the charity or not utilized for the object of general public utility, then such an excessive income ought to be held taxable and, therefore, such an excess shall be deemed to be applied to purposes other than charitable purposes. In respect of such an income the undertaking cannot claim that the same should also not be included in the exempted total income. Applying this test on the present set of facts of the case, it is evident that though the Assessing Officer has computed the profits on transfer of land or plots but it was not the case that the profits so generated were not within the main provisions of section 11 of the I.T.Act. Even if the assessee has earned premium price on lease of plot and land for sale but if the entire expenditure and the profit earned therefrom was exclusively used for the laid down objects then to be covered by the main Sec.11. In the present case the undisputed fact was that the same was utilized for the purposes of the object of the trust. Rather, it is also worth to note that the surplus, if any, remained with the assessee has to be invested as per the guidelines and the norms set out under GID Act. Therefore, we are of the conscientious view that even if this undertaking may come within the purview of "business ITA Nos.3252/Ahd/2009 (By Assessee) & ITA No.3274/Ahd/2009 (By Revenue) Gujarat Industrial Development Corpn. Vs. Asst.CIT Asst.Year - 2006-07
- 30 -
undertaking" but being no excess income was found utilised other than for the purposes of the object of the trust, hence, out of the ambits of the provision of section 11(4) of the I.T.Act.
13.1. In the light of the above discussion, ground No.1 of the Assessee is hereby allowed. As far as the additional ground raised is concerned, once the provisions of section 11(4) are held not to be applied in the present case, therefore, there is no purpose of application of CBDT Circular to assess the excess income, hence, this additional ground in the result have become redundant.
14. Ground Nos.2, 3 & 4 read as under:
2. The Learned Commissioner of Income Tax, (Appeals), Gandhinagar has also erred in law as well as on the facts of the case of the Appellant by confirming that the Learned Assessing Officer was correct in including in the income of the Appellant the amount of Rs.168,27,39,482/- being premium price on lease of plot and land for shed received during the year as business income of the Appellant.
3. The Learned Commissioner of Income Tax, (Appeals), Gandhinagar has further erred in law as well as on the facts of the case of the Appellant by confirming that the Learned Assessing Officer was correct in including in the income of the Appellant the amount of Rs.1,37,66,123/-
being recovery towards factory sheds received during the year as business income of the Appellant.
4. The Learned Commissioner of Income Tax (Appeals), Gandhinagar has also erred in law as well as on the facts ITA Nos.3252/Ahd/2009 (By Assessee) & ITA No.3274/Ahd/2009 (By Revenue) Gujarat Industrial Development Corpn. Vs. Asst.CIT Asst.Year - 2006-07
- 31 -
of the case of the Appellant by confirming that the Learned Assessing Officer was correct in including in the income of the Appellant the amount of Rs.15,87,963/- being recovery towards workers' quarters, received during the year as business income of the Appellant.
14.1. Through these grounds, the assessee has challenged the assessment of the premium price on lease of plot, recoveries made towards factory shed and workers' quarters. The total amount under these heads were tabulated at Rs.1,69,80,93,568/- by the Assessing Officer. The Assessing Officer has, then computed other receipts as shown in the income and expenditure account and, thereupon calculated a net profit as per para-9 of the impugned order. However, in the light of the above discussion and the principle laid down, there is no scope to invoke the provisions of section 11(4) on the net profit so calculated by the Assessing Officer. We, therefore, hold that the profit so computed by the Assessing Officer cannot be said to be an excessive income not meant or utilized for the object of the trust for the purpose of invocation of section 11(4) of the I.T.Act. Therefore, the confirmation of the action of the Assessing Officer by Ld. CIT(A) is hereby reversed.
15. Ground Nos.5, 6 & 7 read as under:
5. The Learned Commissioner of Income Tax, (Appeals), Gandhinagar has also erred in law as well as on the facts of the case of the Appellant by holding that out of the Deposits shown under the head Current Liabilities & Provisions in the Balance Sheet of the Appellant, deposits obtained in connection with allotment of land or structure and pertaining to sale/lease/licence of land and structure ITA Nos.3252/Ahd/2009 (By Assessee) & ITA No.3274/Ahd/2009 (By Revenue) Gujarat Industrial Development Corpn. Vs. Asst.CIT Asst.Year - 2006-07
- 32 -
be added in the income as business income of the Appellant.
6. The Learned Commissioner of Income Tax, (Appeals), Gandhinagar has also erred in law as well as on the facts of the case of the Appellant by confirming disallowance made by the Learned Assessing Officer of Rs.5,37,26,241/- for unpaid amount as shown in the Tax Audit Report filed by the Appellant under protest, on the ground that provisions of Section 43B of the I.T.Act, 1961 are applicable as income of the Appellant is assessable as business income.
7. The Learned Commissioner of Income Tax, (Appeals), Gandhinagar has also erred in law as well as on the facts of the case of the Appellant by confirming disallowance made by the Learned Assessing Officer of Rs.4,67,46,181/- for unpaid amount of leave encashment as shown in the Tax Audit Report filed by the Appellant under protest, on the ground that provisions of section 43B of the I.T.Act, 1961 are applicable as income of the Appellant is assessable as business income.
15.1. These grounds have also become redundant on account of the principle laid down hereinabove that the profits earned by this assessee are not subject to tax being out of the ambit of section 11(4) of the I.T.Act because the application of income was not questioned by the Assessing Officer. The entire income of this organization being held as exempt, therefore, these grounds get automatically allowed.
16. Ground No.8 read as under:-
ITA Nos.3252/Ahd/2009 (By Assessee) & ITA No.3274/Ahd/2009 (By Revenue)Gujarat Industrial Development Corpn. Vs. Asst.CIT Asst.Year - 2006-07
- 33 -
8. The Appellant, therefore, prays that the income of the Appellant may kindly be directed as per the Return of Income filed by the Appellant.
16.1. This ground is general in nature requires no independent adjudication.
B. Revenue's appeal, ITA No.3274/Ahd/2009
17. The only substantive ground is ground No.1 through which the Revenue has challenged the deletion of the addition made on account of subsidies received by the assessee.
17.1. As per Assessing Officer, the entire amount of subsidy received during the year of Rs.104,57,82,361/- was not a voluntary contribution with a specific direction that the same was towards the corpus of the Institution. In his opinion, it was taxable alongwith the alleged business profits of the assessee. However, Learned CIT(Appeals) has examined the facts of the case at length and thereupon arrived at the conclusion that the subsidy so received do not form its income u/s.11(1)(d) r.w.s. 12(1) of the I.T.Act, hence, wrongly taxed. A categorical findings was given that the appellant is a channelizing agency and the subsidy so received were meant for specific purpose, therefore, not to be taxed in the hands of the assessee. Few decisions, in this regard, as cited before the Learned CIT(Appeals) were as follows:-
Sl.No(s) Decision in the case of ... Reported in...ITA Nos.3252/Ahd/2009 (By Assessee) & ITA No.3274/Ahd/2009 (By Revenue)
Gujarat Industrial Development Corpn. Vs. Asst.CIT Asst.Year - 2006-07
- 34 -
"1. CIT vs. U.P.Upbhokta 288 ITR 106 (All.) Sahkari Sangh Ltd.
2. CIT vs. Karnataka Urban 284 ITR 582 Infrastructure Development (Karn) & Finance Corporation
3. Gujarat Municipal Finance 221 ITR 317 (Guj.) Board vs. DCIT
4. CIT vs. Sitaldas Tirathdas 41 ITR 367 (SC)
5. CIT vs. Delhi State Industrial 162 Taxman 275 Development (Del)"
17.2. Certain unreported decisions cited were Gujarat State Disaster Management Authority ITAT "C" Bench Ahmedabad bearing ITA No.949/Ahd/2009 Assessment Year 2006-07 order dated 05/06/2009 and Gujarat Safai Kamdar Vikas Nigam ITAT "A" Bench Ahmedabad bearing ITA No.3232/Ahd/2008 Assessment Year 2005-06 order dated 17/04/2009. There was one more case of Hon'ble Gujarat High Court decided in the case of Gujarat Municipal Finance Board 221 ITR 317(Guj.) which has also been relied upon. On careful study of all these decisions, the subsidy in question was in the nature of grant-in-aid which was received by the assessee merely as a Nodal Disbursing Agency on behalf of the State Government. Undisputedly the assessee was not free to use the subsidy as per its own choice, therefore, such a subsidy cannot be held as an income of the assessee. Rather the courts have said that such a grant being diverted at source by an overriding title in favour of an another person and the assessee has to follow the direction of such a sanctioning authority, therefore, the status of the assessee can be said to be merely a "chanellising agency" or "implementing agency". Thus, ITA Nos.3252/Ahd/2009 (By Assessee) & ITA No.3274/Ahd/2009 (By Revenue) Gujarat Industrial Development Corpn. Vs. Asst.CIT Asst.Year - 2006-07
- 35 -
GIDC has being acted merely as a "Disbursing Agency" , therefore, it is also worth to note that, in case, subsidy so received is not utilized, then it is also subject to refund back to sanctioning authority. We have already taken a decision that the provisions of section 11(4) cannot be applied on this assessee, therefore, we can conclude that in the light of the afore-discussion and applying those principles to the facts of this present ground of appeal of the Revenue, the subsidy in question is not subject to tax in the hands of the assessee and rightly deleted by the Learned CIT(Appeals).
18. In the result, Assessee's appeal is allowed, whereas Revenue's appeal is dismissed.
Order signed, dated and pronounced in the Court on 03/ 12 /2010.
Sd/- Sd/- ( A.N. PAHUJA ) ( MUKUL Kr. SHRAWAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 03 / 12 /2010 T.C. NAIR, Sr. PS ITA Nos.3252/Ahd/2009 (By Assessee) & ITA No.3274/Ahd/2009 (By Revenue)
Gujarat Industrial Development Corpn. Vs. Asst.CIT Asst.Year - 2006-07
- 36 -
Copy of the Order forwarded to :
1. The Assessee.
2. The Department.
3. The CIT Concerned
4. The ld. CIT(Appeals)-Gandhinagar
5. The DR, Ahmedabad Bench
6. The Guard File.
BY ORDER, स×याǒपत ूित //True Copy// (Dy./Asstt.Registrar), ITAT, Ahmedabad
1. Date of dictation.......................09/11/2010
2. Date on which the typed draft is placed before the Dictating Member 09/11/2010 & 26/11/2010.................. Other Member......30/11/10
3. Date on which the approved draft comes to the Sr.P.S./P.S....02/12/10
4. Date on which the fair order is placed before the Dictating Member for pronouncement......
5. Date on which the fair order comes back to the Sr.P.S./P.S... 03/12/10
6. Date on which the file goes to the Bench Clerk..................03/12/10
7. Date on which the file goes to the Head Clerk..................................
8. The date on which the file goes to the Assistant Registrar for signature on the order..........................
9. Date of Despatch of the Order..................