Income Tax Appellate Tribunal - Ahmedabad
The Dy. Cit(Exemptions), Circle-2,, ... vs Rajkot Urban Development Authority,, ... on 18 December, 2019
आयकर अपील य अ धकरण, अहमदाबाद यायपीठ 'B' अहमदाबाद । IN THE INCOME TAX APPELLATE TRIBUNAL "B" BENCH, AHMEDABAD BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER & SMT. MADHUMITA ROY, JUDICIAL MEMBER आयकर अपील सं./I.T.A. Nos. 2389 to 2394/Ahd/2017 ( नधा रण वष / Assessment Years : 2009-10 to 2014-15) Dy. Commissioner of बनाम/ Rajkot Urban Income-tax (Exemptions) Vs. Development Authority Circle-2, Ahmedabad Chimanlal Patel Vikas nd 2 Floor, Nature View Bhavan, Jamnagar Road, Building, Opp: H. K. Rajkot House, Ashram Road, Ahmedabad.380009 थायी ले खा सं . /जीआइआर सं . /PAN/GIR No. : AAALR0044H (अपीलाथ /Appellant) .. ( यथ / Respondent) अपीलाथ ओर से /Appellant by : Shri M. S. A. Khan, Sr.D.R. यथ क ओर से /Respondent by : None सन ु वाई क तार ख / Date of 11/12/2019 Hearing घोषणा क तार ख /Date of 18/12/2019 Pronouncement आदे श/O R D E R PER BENCH:
The captioned appeals directed at the instance of assessee arise from the respective orders of the Commissioner of Income Tax (Appeals) ('C IT(A)') against different assessment years as tabulated below:
I T A No s. Na me o f AY CI T ( A) ' s AO ' s AO ' s o r d e r
as se s see o r d er o r d er u nd er S ect io n
d ated d ated
2 3 8 9 / Ahd /1 7 Raj ko t 2 0 0 9 -1 0 0 7 .0 8 .1 7 1 7 .0 3 .1 5 1 4 3 ( 3 ) r . w. s.
Ur b a n 1 4 7 o f t he
De ve lo p me n t I nco me T a x
Au t ho r it y Act , 1 9 6 1 ( i n
I T A N o s . 2 3 8 9 t o 2 3 9 4 / Ah d / 1 7 [ D C I T ( E ) v s . R a j k o t U r b a n D e v e l o p m e n t Au t h o r i t y] A . Y s . 2 0 0 9 - 1 0 t o 2 0 1 4 - 1 5 - 2 -
s ho r t 't he Ac t ') 2 3 9 0 / Ahd /1 7 - Do - 2 0 1 0 -1 1 - Do - 2 8 .0 3 .1 6 1 4 3 ( 3 ) r . w. s.
2 6 3 o f t he Ac t 2 3 9 1 / Ahd /1 7 - Do - 2 0 1 1 -1 2 - Do - 1 8 .0 3 .1 4 1 4 3 ( 3 ) o f t he Act 2 3 9 2 / Ahd /1 7 - Do - 2 0 1 2 -1 3 - Do - 2 7 .1 2 .1 6 1 4 3 ( 3 ) r . w. s.
1 4 7 o f t he Ac t 2 3 9 3 / Ahd /1 7 - Do - 2 0 1 3 -1 4 - Do - 2 8 .0 3 .1 6 1 4 3 ( 3 ) o f t he Act 2 3 9 4 / Ahd /1 7 - Do - 2 0 1 4 -1 5 - Do - 2 7 .1 2 .1 6 1 4 3 ( 3 ) o f t he Act
2. As claimed on behalf of the Revenue, the facts are similar and common issues are involved in all assessment years and therefore all six appeals were heard together and disposed of b y common order.
3. We shall take Revenue's appeal in ITA No. 2389/Ahd/2017 concerning AY 2009-10 as a lead case for adjudication.ITA No. 2389/Ahd/2017 - AY- 2009-10
4. The substantive grounds of appeal raised b y assessee read as under:
"1. The Ld. CITCA) has erred in the law and on facts in considering the activity of the as sessee as engaged in the development of urban area of Rajkot which is in the nature of advancement of general public utility not hit by the newly introduced first and second proviso to sec.2(15) of the Act.
2. The Ld CIT(A) has er red in the law and on facts in allowing the benefit of exemptions u/s.11 without considering the fact that the assessee is involved in widespread commercial activities in nature of business and the activity of the assessee is covered under first and second proviso to sec.2(15) of the Act.
3. The Ld. CI T(A) has er red in the law and on facts in deleting the addition of Rs.2,63,896/- by not appreciating that the addition to fixed assets has already been allowed in earlier years as application of income which amounts to double deduction.
4. The Ld CIT(A) has er red in the law and on facts in deleting the addition of Rs 1,51,81,991/- consideri ng that a capital expenditure by a per son need not be a capital receipt of the person receiving that amount which the assessee has received for the discharge of its objects.
5. The Ld CIT(A) has er red in the law and on facts in allowing the accumulation of RsA, 60, 00, 000/- u/s.11(2) and accumulation I T A N o s . 2 3 8 9 t o 2 3 9 4 / Ah d / 1 7 [ D C I T ( E ) v s . R a j k o t U r b a n D e v e l o p m e n t Au t h o r i t y] A . Y s . 2 0 0 9 - 1 0 t o 2 0 1 4 - 1 5 - 3 -
@15 % of Rs.l.23,59.649/- u/s11(1)(a) of the Act without appreciating the fact that once the provis o to section 2(15) is applicable, the benefi t of section 11 and 12 cannot be allowed further."
5. As per its grounds of appeal, the Revenue has impugned the action of the CIT(A) in reversing the action of the AO towards denial of exemption under s.11 & 12 of the Act.
6. Briefl y stated, the assessee trust filed its return of income for A.Y. 2009-10 declaring its income at Rs.Nil. The assessment order u/s.143(3) r.w.s.147 of the Act was passed determining the total income at Rs.7,38,05,536/- after certain disallowances namel y; Rs. 1,51,81,991/- being project expenses which is alleged to be capital in nature; Rs.2,63,896/- being addition in fixed asset; Rs.4,60,00,000/-being claim u/s 11(2) of the Act and Rs.1,23,59,649/- being claim u/s.11(1)(a) of the Act. While finalizing the assessment order, the A.O denied the benefit of section 11 & 12 to the assessee trust stating that the case of the assessee trust falls under the ambit of the proviso 1 & 2 of section 2(15) of the Act and proceeded to make additions/disallowances noted above.
7. Aggrieved, the assessee preferred appeal before the C IT (A).
7.1 The CIT(A) relied on the decision of Hon'ble Gujarat High Court in the case of AUDA vs ACIT in ITA No.423, 424, 425 of 2016 dated 02/05/2017. It was observed b y the CIT(A) that nowhere in the assessment order, the AO pointed out that the assessee had undertaken functions beyond the mandate of GTPUD Act. The assessee is registered u/s.12A of the Act Therefore, the assessee cannot be considered to be covered b y the proviso to section 2(15) of the Act. Thus, the AO cannot withdraw the claim of exemption b y invoking proviso to section 2(15) r.w.s. 13(8) of the Act and the corollary is that the assessee cannot be assessed u/s. 28 to 44 of the Act. On these broad observation, the C IT(A) has allowed the exemption u/s. 11 & 12 of the Act.
I T A N o s . 2 3 8 9 t o 2 3 9 4 / Ah d / 1 7 [ D C I T ( E ) v s . R a j k o t U r b a n D e v e l o p m e n t Au t h o r i t y] A . Y s . 2 0 0 9 - 1 0 t o 2 0 1 4 - 1 5 - 4 -
7.2 Further, on the issue of source of funds such as grants received from the Government and application thereof under the head 'project fund', the CIT(A) held that as per sections 11(1)(a) and 11(1)(d) as well as 12(1) of the Act, the grants given for the specific purpose cannot be considered as income in the form of voluntary donation and are eligible for deduction u/s.11(1)(d) of the Act. If an y voluntary contribution is made with a specific direction, it shall be treated as the capital of the trust for carrying on its charitable activities, and then such income is not liable to tax. As per AS-12, where the government grants leads to creation of fixed assets equals the whole or virtuall y the whole of the cost of the asset, the asset should be shown in the balance sheet at nominal value or if grants related to depreciable fixed assets may be treated as diverted income which should be recognized in the P&L account on a s ystematic and rational basis over the useful life of the asset. Accordingl y, the C IT(A) held that assessee is eligible for claim the benefit u/s.11 of the Act and therefore, C IT(A) allowed accumulation @15% of Rs.1,23,59,649/- made u/s.11(1)(a) and accumulation of Rs.4,60,00,000/- made u/s.11(2) of the Act.
7.3 Further, the CIT(A) the directed the AO that after verification of the facts allow the expenditure on addition to fixed assets of Rs.2,63,896/- and project expenses of Rs.1,51,81,991/- as application of income.
7.4 The relevant operative para of the CIT(A) is reproduced hereunder:
"4.2 I have carefully cons idered rival contentions and observations made by the A.O. in the assessment order. The main issue raised by the appellant is covered by the latest judgment of Hon'ble Gujarat High Court in the case of AUDA vs ACIT in ITA No.423, 424, 425 of 2016 dated 02/05/2017. The question of law before the Hon'ble High Court was as follows:-
"(1)Whether the Income tax Appellate Tribunal has erred in law and on facts in holding that the activity of the appellant was in the nature of trade, commerce or business and hence it cannot be regarded as activity for charitable purpos e i n view of the proviso to section 2(15) of the Income tax Act, 1961?
I T A N o s . 2 3 8 9 t o 2 3 9 4 / Ah d / 1 7 [ D C I T ( E ) v s . R a j k o t U r b a n D e v e l o p m e n t Au t h o r i t y] A . Y s . 2 0 0 9 - 1 0 t o 2 0 1 4 - 1 5 - 5 -
(2) Whether the Income tax Appellate Tribunal has erred in law and on facts in dis allowing the clai m of exemption of the appellant under secti on 11 of the Income tax Act, 1961, and assessing the income of the appellant under sections 28 to 44 of the income tax Act, 1961?"
Findings of Hon'ble Gujarat High Court:
10. The short but interesting question of law posed for the consideration of this Court in the present appeal is whether the activities of the of the Assesses AUDA can be said to be in the nature of trade, commerce or business so as to deny the status of the assessee as a charitable institution within the definition of Section 2(15) of the Act?
The second question which is posed for the consideration of this Court is whether the activity of the assessee can be s aid to be activity of rendering any service in relation to any trade, commerce or business, for cess or f ees or any other consideration, as the assessee is collecting / recovering fees by performing duty under the provision of Gujarat Town Planning Act and therefore, whether second part of t he proviso to Section 2(15) of the Act shall be applicable so as to deny the exempt/on claimed by the assessee, claim under Section 11 of the Act?
11. While considering the aforesaid questions, the relevant provisions of the Gujarat Town Planning Act, under which, the Assessee has been constituted as Urban Development Authority and powers and functions of the Assessee as on Ur ban Development Authorit y ore required to be considered, so as to appreciate whether the activities of the Assessee being Urban Development Authorit y can be said to be in the nature of trade, commerce or business ?
The relevant provisions of the Gujarat Town Planning Act, under which, the Assessee AUDA has been constituted as Urban Development Authorit y are as under:
Section 2(viii): "Development", with all its grammatical variations and cognate expressions, means the carrying out of any building, engineering, mining, or other operations in, or over, or under l and or the making of any material change in any building or land or in the use of any building or land, and includes layout and subdivision of any land;
Section 2(xxviii):"Urban development authority" means an urban development authority constituted under s ection 22; Section 2(xxix)."Urban development area" means an area declared to be an urban development area under section 22. Section 22: Declaration Of Urban Developm ent Area And Constitution Of Urban Developm ent Authority:
(1) Where the State Government is of opini on that the object of proper development or redevelopment of any urban area or group of urban areas in the State together with such adjacent areas as may be consi dered necessary, whether covered under a development area alr eady declared as s uch under section 3 or I T A N o s . 2 3 8 9 t o 2 3 9 4 / Ah d / 1 7 [ D C I T ( E ) v s . R a j k o t U r b a n D e v e l o p m e n t Au t h o r i t y] A . Y s . 2 0 0 9 - 1 0 t o 2 0 1 4 - 1 5 - 6 -
not, will be best served by entrusting the work of development or redevelopment thereof to a special authority, instead of to an area development authority, the State Government may, by notification, declare such area to be an urban development area and constitute an authority for such area to be called the urban development authority of that area, and ther eupon all the powers and functions of an area development authority relating to the development or redevelopment of a development area under this Act shall, in relation to such urban development area, be exercised and perfor med by such urban development authority 1*** (2) Every notification issued under subsect ion (1) shall define the limits of the area to which it relates. 2[ (2A) The State Government may, by notification in the Official Gazette, include in or exclude any area from an urban development area, amalgamate two or more urban development areas into one urban development ar ea, subdivide any urban development area into different urban development areas and include such subdivided urban development area in any other urban development area.] (3) Every urban development authority constituted under subsection (1) shall be a body cor porate by the name aforesaid, having perpetual succession and a common seal, with power to acquire, hold and dispose of property, both movable and immovable, and to contract, and by the said name sue and be sued.
(4) The urban development authority s hall consist of the following members namely:
(i ) a Chairman to be appointed by the St ate Government; (II ) such persons , not exceeding3[ four in number] who are members of the local authority or authorities functioning in the urban development area, as may be nominated by the State Government; (iii)4[ Three officials) of the State Government, to be nominated by that Government, exofficio; (iv) the Presidents of the district panchayatsfunctioning in the urban development area, or, as the case may be, part thereof, exofficio; (v) the Chief Town planner or his representative, exofficio; (vi) the Chief Engineer or Engineers (Public Health) of the local authority or authorities functioning in the urban development area or his or their nominee or nominees, exofficio; 5[ (via) the Municipal Commissioner of the Municipal Corporation, if any, functioning in the urban development area, exofficio;] (vii) a member secretary to be appointed by the State Government who shall a/so be designat ed as the Chief Executive Authority of the Urban Development Authority.
(5) The provisions of subsections (5) to (12) of section 5 s hall apply in relation to an urban development authority as they apply in relation to an area development authority, with the modification that references to an area development authority in I T A N o s . 2 3 8 9 t o 2 3 9 4 / Ah d / 1 7 [ D C I T ( E ) v s . R a j k o t U r b a n D e v e l o p m e n t Au t h o r i t y] A . Y s . 2 0 0 9 - 1 0 t o 2 0 1 4 - 1 5 - 7 -
the said subsection shall be construed as references to an urban development authority.
Section 23: Powers And Function Of Urban Developm ent Authority:
(1) [ The powers and functions of] an urban development authority shall be:(i ) To undertake t he preparation of development plans under the provisions of this Act, for the urban development area; (ii) To undertake the preparation [ and execution] of town planning schemes under t he provisions of this Act, if so directed by the State Government; (Hi ) To carry out surveys in the urban development area for the preparation of development plans or town planning schemes; (iv) To guide, direct and assist the local authority or authorities and other statutory authorities functioning in the ur ban development area in matters pertaining to the planning, development and use of urban land; (v) To control the development activities in accordance with the development plan in the urban development area; 3 [ (va) to levy and collect such security fees for scrutiny of documents submi tted to the appropriate authority for permission for development as may be prescribed by regulations;] (vi) To execute works in connection with supply of water, disposal of sewerage and provision of other services and amenities; 4 [ (via) to levy and collect such lees lor the execution of works referred to in clause (vi) and for provision of other services and amenities as may be prescribed by regulations,]
(vii) To acquire, hold, manage and dispose of property, movable or immovable, as it may deem necessary; (viii ) To enter into contracts, agreements orarrangements, with any local authority, person or or ganisation as the urban development authority may consider necessary for performing its functions; (ix) To carry any development works in the urban development area as may be assigned to it by the State Government from time to time; (x) To exercise such other powers and perfor m such other functions as are supplemental, incidental or consequential to any of the foregoing powers and functions or as may be directed by the State Government.
(2) The ur ban development authority may, with the approval of the State Government, delegate 5 [ any of its powers and functions] to the local authority or authorities functioning in the urban development ar ea.
(3) The urban development authority shall have its office at such place as the State Government may specify i n this behalf.
Section 40.Maki ng And Contents Of A Town Planning Schem e :
(1) Subject to the provision of this Act or any other law for the time being in force, t he appropriate author ity may make one or more town planning schemes for the development area or any part thereof, regard being had to the pr oposals in the final development plan, if any.
(2) A town planning s chema may be made in accordance with the provisions of this Act in respect of any land which is(i ) In the course of development; 1 [ (ii) likely to be used for residential or commercial or indust rial or for building purposes; or] (iii) Already built upon, Explanation: For the purpose of this subsection the expression "land likely to be used for building I T A N o s . 2 3 8 9 t o 2 3 9 4 / Ah d / 1 7 [ D C I T ( E ) v s . R a j k o t U r b a n D e v e l o p m e n t Au t h o r i t y] A . Y s . 2 0 0 9 - 1 0 t o 2 0 1 4 - 1 5 - 8 -
purposes" shall include any land likely to be used as, or for the purpose of providing, open spaces, roads, streets, parks, pleasure or recreation grounds, parking spaces or for the purpose of executing any work upon or under the land incidental to a town planning scheme, whether in the nature of a building work or not.
(3) A town planning s cheme may make provision for any of the following matters, namely:(a) The laying out or relaying out of land, either vacant or already built upon: (b) The filling up or reclamation of low lying, swampy or unhealthy areas, or levelling up of land; (c) Layout of new streets or r oads , construction, diversion, extension, alteration, improvement and closing up of s treets and roads and discontinuance of communications; (d) The construction, alteration and removal of buildings, bridges and other structures; (e) The allotment or reservation of/and for roads, open spaces, gardens, recreation grounds, schools, markets, greenbelts, dairies, transport facilities, public purposes of all kinds; (f ) Drainage, inclusive of sewerage, surface or subsoil drainage and sewage disposal; (g) Lighting; (h) Water supply; (i ) The preservation of objects of historical or national interest or natural beauty, and of buildings actually used for religious purposes; (j) The reservation of land to the extent of ten per cent- or such percentage as near thereto as possible of the total area covered under the scheme, for the purpose of providing housing accommodation to the members of socially and economically backward classes of people; 2 [ 3 [ (jj) (a) t he allotment of land from the total area covered under the scheme, to the extent of.(I ) Fifteen per cent, for roads, (ii) five per cent, for parks, play grounds, gardens and open s pace, (iii ) five per cent, for social infrastructure such as school, dispensary, fire brigade, public utility place as earmarked in the Draft Town Planning Scheme, and (iv) fifteen per cent, for sale by appr opriate authority for residential, commercial or industrial use depending upon the nature of development: Provided that the percentage of the allotment of land specified in paragraphs (i ) to (iii) may be altered depending upon the nature of development and for the reasons to be recorded in writing; (b) the proceeds from the sale of land referred to in para (iv) of sub clause (a) shall be used for the purpos e of providing infrastructur al facilities; (c) the land allotted for the purposes referred to in paragraphs (ii) and
(iii) of sub clause (a) shall not be changed by variation of schemes for the purposes other than publi c purpose;] ] (k) the imposition of conditions and restrictions in regard to the open space to be maintained around buildings , the percentage of building area for a pl ot, the number, size, height and character of building allowed i n specified areas, the purposes to which buildings or s pecified areas may or may not be appropriated: the subdivision of plots, t he discontinuance of objectionable uses of lands in any area in specified periods, parkings space and loading and unloading space for any building and the sizes or locations of project ions and advertisement signs; (I) the suspension, so far as may be necessary, for the proper carrying out of the scheme, of any rule, byelaw, regulation, notification or order made or issued under any Act of t he State Legislature I T A N o s . 2 3 8 9 t o 2 3 9 4 / Ah d / 1 7 [ D C I T ( E ) v s . R a j k o t U r b a n D e v e l o p m e n t Au t h o r i t y] A . Y s . 2 0 0 9 - 1 0 t o 2 0 1 4 - 1 5 - 9 -
or any of the Acts which the State Legislature is competent to amend: Provided that any suspension under this clause shall cease to operate in the event of the State Government refusing to sanction the preliminary scheme, or in the event of the withdrawal of the scheme under section 66. or on the coming into force of the final scheme; (m) such other matters not inconsistent with the objects of this Act as may be prescribed. Section 91: Fund Of The Appropriate Authority :
(1) An appropriate authority shall have and maintain its own fund to which shall be credited(a) All moneys received by the authority by way of gr ants, loans, 1 [ advances, fees, development charges or otherwis e;] (b) All moneys derived from its undertakings, projecti ons and other sources ; (c) Such amount of contributions from local authorities as the State government may specify from time to time to be credited to the fund of, the authority. (2) The fund of an appropriate authority shall be applied towards meeting (a) Expenditure incurred in the administration of this Act; (b) Cost of acqui sition of land for the purposes of this Act; (c) Expenditure for any development of land in the development area; (d) Expenditure for such other purposes as the State Government may direct. (3) An appropriate authority may keep in current account with the State Bank" of India or any other bank approved by the State Government in this behalf, such sums of money out of its fund as may be prescribed and any money in excess of the said sum shall be invested in such manner as may be approved by the State Government. (4) The State Government may, make such gr ants, advances and bans t o an appropriate authority as the State Government may deem necessary for the performance of its functions under this Act and all grants, loans and advances so made shall be made on such terms and conditions as the State Government may deter mine.
Section 95:Accounts And Audit:
(1) An appropriate authority shall maintain proper accounts and other relevant records and prepare an annual statement of accounts including the balance sheet in such form as the State Government may prescribe, (2) The accounts of an appropriate authori ty shall be subject to audit annually by the Accountant General of the State and any expenditure incurred by him in connection with such audit shall be payable by the authority to the Account ant General. (3) The Accountant Gener al or any person appointed by him in connection with the audit of accounts of an appropriate authority shall have the same rights, privileges and authority in connection with such audit as the Accountant General has in connection with Government accounts and in particular shall have the right to demand the production of books, accounts, connected vouchers and other documents and papers and to inspect the office of the appropriate author ity. (4) The accounts of an authority as certified by the Accountant General or any other person authoris ed by hi m in this behalf, together with the audit report thereon, shall be forwarded annually to the State Government.
12. From the aforesai d provisions of the Town Planning Act, it can be gathered that Assessee has been constituted as Urban I T A N o s . 2 3 8 9 t o 2 3 9 4 / Ah d / 1 7 [ D C I T ( E ) v s . R a j k o t U r b a n D e v e l o p m e n t Au t h o r i t y] A . Y s . 2 0 0 9 - 1 0 t o 2 0 1 4 - 1 5 - 10 -
Development Authority under the provisions of Section 22 of the Town Planning Act. The purpose and object of constitution of the Urban Development Authority is proper development or redevelopment of urban area. Even Urban Development Authority consists of (i) a Chairman to be appointed by the State Government; (ii) such persons, not exceedi ng [ four in number] who are members of the local authority or authorities functioning in the urban development area, as may I K:
nominated by the State Government; (iii) Three officials of the State Government, t o be nominated by that Government, exofficio; (iv) the Presidents of the district panchayat s functioning in the urban development area, or, as the case may be, part thereof, exof ficio; (v) the Chief Town planner or his representative, exofficio; (vi) the Chief Engineer or Engineers (Public Health) of the local authority or authorities functioning in the urban development area or his or their nominee or nominees, exofficio; 5[ (via) the Municipal Commissioner of the Municipal Corporati on, if any, functioning in the urban development area, exofficio;] (vii) a member secretary to be appointed by the State Government who shall also be designated as the Chief Executive Authority of the Urban Development Authority. Thus , the constitution of the Urban Development Authority is subject to the control of the State Government. The powers and functions of the Urban Devel opment Authority as contained in Section 23 are reproduced herein above. Considering Section 40 of the Town Planning Act, the Town Planning Scheme prepared by the Ur ban Development Authority which has been prepared subject to sanction by the State Government for development of the Urban Development Area, also provide for roads, open spaces, gardens, recreation grounds, schools, markets, gr eenbelts, dairies, trans port facilities, public pur poses of all kinds; drainage, inclusive of sewerage, s urface or subsoil drainage and sewage disposal; Lighting; Water supply etc. The Town Pl anning Scheme also provide for historical or national interest or natural beauty, and of buildings actually used for religious purposes. The Scheme are also provide for reservation of land to the extent of ten percent, or such percentage as near theret o as possible of the total area covered under the scheme, f or the purpose of providing housing accommodation to the members of socially and economically backward classes of peopl e. As per Section 40(i )(jj) for the aforesaid purposes certain percentage of total area covered under t he scheme are allotted earmarked. Fifteen percent of total area is allotted for the purpose of roads, five percent for parks, play grounds, gardens and open space, five percent for social infrastructure such as school, dispensary, fire brigade, public utility place as earmarked in the Draft Town Planning Scheme and Fifteen percent for sale by appropriate authority for residential, commercial or industrial use depending upon the nature of development. Last Fifteen percent is earmarked under the Town Planning Scheme for sale, by appropriate authority for residential, commercial or industrial use. The appropriate authority / Urban Development Authority is permitted to sale the said plots / lands to the extent of 15% of the total area to meet with the expenditure towards drainage, I T A N o s . 2 3 8 9 t o 2 3 9 4 / Ah d / 1 7 [ D C I T ( E ) v s . R a j k o t U r b a n D e v e l o p m e n t Au t h o r i t y] A . Y s . 2 0 0 9 - 1 0 t o 2 0 1 4 - 1 5 - 11 -
roads, gar dens, schools, markets, water supply etc. So that maximum price can be fetched and the same can be utilized for the development of the Urban Development Area and so as to avoid any a/legation of favoritism and nepotism, the plots are sold by public auction. It is required to be noted the entir e amount realized by the assessee being Urban Development Authority either by selling plots or by recovery of some fees / charges, Urban Authority is required to use only for the purpose of development in the Urban Development Area and not for any other purpose. The learned Tribunal has observed and held that as the assessee is selli ng the plots, to the ext ent of 15 % of total area, by public auction and gets maxi mum amount, it amounts to profiteering and therefore, the activities of the Assessee can be said to be in the nature of business. However, while holding so, learned Tribunal has not properly appreciated the object and purpose of per mitting the Urban Development Authority to sale the plots, maxi mum to the extent of 15 % of the total area i.e. to meet with the expenditure for providing them infrastructural facilities like gardens, roads, lighting, water supply, drainage system etc. The l earned Tribunal has also not property appreciated the reasons for selling the plot by holding public auction i.e.; (1) to avoid any further allegation of favoritism and nepotism and (2) so t hat maxi mum market price can be fetched, which can be used for the development of the Urban Development Area.
12.1. At this stage decision of the Hon'ble Supreme Court in the case of Ahmedabad Green Belt Khedut Mandal (supra) ((2014) 7 SCO 357) is required to be referred to. Before the Hon'ble Supreme Court, it was contended on behalf of original land owners whose lands were included in the TP Scheme that by permitting the Area Development Authority / Urban Development Authority to sell 15% of the total area, by that the Urban Development Authori ty will be making profit, the Hon'ble Supreme Court has negatived the aforesaid and has observed that the activities of the Urban Development Authority /Area Development Authorit y while selling the land to the extent of 15 % to the total area covered under the scheme cannot be said t o be profiteering. It is observed and held that sale upto 15% is from total area cover ed under the scheme and not in respect of every plot of land. In order to generate financial resources for the development of infrastructure, the salable plot for residential, commerci al and industrial use are allotted by the appropriate authority. It is further observed that the provision of the Act have to be read as a whole and therefore, the provision of Section 40(3)(jj )(a)(iv) for s ale is to be in consonance / conjointly with other statutory provisions and not in isolation.
Under the circumstances, the learned Tribunal has committed gross error in considering the activities of the appellant Urban Development Authority for profit by selling 15 % of the total area and thereby has committed gross error in holding the activities of the assessee in the nature of trade, commerce or business.
12.2. Whether the activities of the appellant AUDA can be said to be in the nature of trade, commerce or business as occurring I T A N o s . 2 3 8 9 t o 2 3 9 4 / Ah d / 1 7 [ D C I T ( E ) v s . R a j k o t U r b a n D e v e l o p m e n t Au t h o r i t y] A . Y s . 2 0 0 9 - 1 0 t o 2 0 1 4 - 1 5 - 12 -
in the first proviso to Section 2(15) of the Act, few decisions of the Hon'ble Supreme Court as well as ot her High Courts are required to be referred to at this stage.
12.3. In the case of Khoday Distilleries Ltd and Others vs. State of Karnataka and ot hers reported in (1995) 1 SCC 574, the Hon'ble Supreme Court had an occasion to consider the wor d "trade". In the said decision, the Hon'ble Supreme Court has held that "the primary meaning of the word "trade" is the exchange of goods for goods or goods for money".
12.4. In the case of St ate of Andhr a Pradesh vs. Abdul Bakhi and Bros reported in 1964(5) STC 644 (SC) while considering the word "business", the Hon'ble Supreme Court has held that "the word "business" was of indefinite import and in a taxing statute, it is used in sense of an occupation, or profession which occupies time, attention or labour of a person, and is clearly associated with the object of marking pr ofit".
12.5 In the case of I nstitute of Chartered Accountants of India (supra) while considering the whether activities of Indian Trade promotion organization can be said to be in the nature of "business", despite the fact that the said organization was collecting rent for providing the space at trade, fair and exhibitions and though was receiving income by way of sale of tickets and income from tickets and sale in Pragati Maidan etc., after considering the various decisions of the Hon'ble Supreme Court as well as deci sions of the other High Courts, it is held that activities of the said organization cannot be considered as "business". While holding so, Delhi High Court has observed and held as under:
"An activity would be considered 'business' if it is undertaken with a pr ofit motive, but in s ome cases , this may not be determinative. Normally, the profit motive test should be satisfied, but in a given case activity may be regarded as a business even when pr ofit 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 in fact in the nature of business."
12.6. In the afores aid decision, after considering the decision of the Hon'ble Supreme Court in the case of Commissioner of Sales Tax vs. Sai Publication Fund reported in (2002) 258 ITR 70(SC), it is held by the Del hi High Court that "t hus, if the dominant activity of the assesses was not business, then any incidental or ancillary activity would also not fall within the definition of business." In para 64, 67, 69, 70, 71 and 72 the Delhi High Court has observed and held as under:
"64. It is not necessary that a person shoul d give something for free or at a concessional rate to qualify as being established for a charitable purpose. If the object and purpose of the institution I T A N o s . 2 3 8 9 t o 2 3 9 4 / Ah d / 1 7 [ D C I T ( E ) v s . R a j k o t U r b a n D e v e l o p m e n t Au t h o r i t y] A . Y s . 2 0 0 9 - 1 0 t o 2 0 1 4 - 1 5 - 13 -
is charitable, the f act that the institution collects certain charges, does not alter the character of the institution.
67. The expressions trade, commerce and --business as occurring in the first proviso to section 2(15) of the Act must be read in the context of the intent and purport of section 2(15) of the Act and cannot be interpreted to mean any activity which is carried on in an organised manner. The purpose and the dominant object for which an institution carries onits activities is material to determine whether the same is business or not. The purport of the first proviso to section 2(15) of the Act is not to exclude entities which are essentially for charitable purpose but are conducting some activities for a consideration or a fee. The object of introducing the first proviso is to exclude organizations which are carrying on regular business from the scope of charitable purpose. The purpose of introducing the proviso to Section 2(15) of the Act can be underst ood from the Budget Speech of the Finance Minister while introducing the Finance Bill 2008. The relevant extract to the Speech is as under:
Charitable pur pose includes relief of t he poor, education, medical relief and any other object of general public utility- These activities are t ax exempt, as they s hould be. However, some entities carrying on regular trade, commerce or business or providing services in relation to any trade, commerce or business and earning incomes have sought to claim that their purposes would also fall under charitable purpose. Obviously, this was not the intent ion of Parliament and, hence, I propose to amend , the law to exclude the aforesaid cases. Genuine charitable organizations will not in any way be affected.' The expressions business, trade or commerce as used in the first proviso must, thus, be interpreted restrictively and where the dominant object of an organisation is chari table any incidental activity for furtherance of the object would not fall within the expressions business, trade or commerce.
69. In the case of Addl . Commissioner of Income Tax v. Surat Art Silk Cloth Manufacturers Association: [ 1980] 121 ITR 1 (SC), the Supreme Court held as under:
The test which has, t herefore, now to be applied is whether the predominant object of the activity involved in carrying out the object of general public utility is to subserve the charitable purpose or to ear n profit. Where pr ofit making is the predominant object of the activity, the. purpose, though an object of general public utility would cease to be a charitable purpose. But wher e t he predominant object of the activity is to any out the charitable purpose and not to earn profit, it would not lose its character of a charitable purpose merely be cause some profit arises from the activity.'
70. Although in that case the statutory provisions being considered by the Supreme Court were different and the utilisation of income earned is, now, not a relevant consideration in view of the express words of the first proviso to I T A N o s . 2 3 8 9 t o 2 3 9 4 / Ah d / 1 7 [ D C I T ( E ) v s . R a j k o t U r b a n D e v e l o p m e n t Au t h o r i t y] A . Y s . 2 0 0 9 - 1 0 t o 2 0 1 4 - 1 5 - 14 -
section 2(15) of the Act, nonetheless the test of dominant object of an entity would be relevant to determine whether the entity is carrying on business or not. In the present case, there is little doubt that the object s of the activities of the petitioner are entirely for charitable purposes. WP(C) -1879/13 Page 4$ of 55 Finally in ICAI (ii) (supra), this court, with reference lo H. Abdu! Bakhi and Bros (supra) observed as under:
71. Although, it is not essential that an activity be carried on for profit motive in order to be considered as business, but existence of profit motive would be a vital indicator in determining whether an organisation is carrying on business or not. In the present case, the petit ioner has submitted figures to indicate that expenditure on salari es and depreciation exceeds the surplus as generated from holding coaching classes. In addition, the petitioner institute provides study material and other academic support such as facilities of a library without any material additional costs. The Supreme Court in the case of State of Andhra Pradesh v. H. Abdul Bakhi and Bros, (supra) held as under:
The expression "busi ness" though extensively used a word of indefinite import, in taxing statutes it is used in the sense of an occupation, or profess ion which occupies the time, attention and labour of a person, normally with the object of making profit. To regard an activity as business there must be a course of dealings, either act ually continued or contemplated to be continued with a pr ofit motive, and not for sport or pleasure. (Underlining added)
72. There is nothing on record fa indicate the assertion of the petitioner that its activities are not fuelled by profit motive is incorrect. Absence of profit motive, though not conclusive, does indicate that the petitioner is not carrying on any business ."
12.7. Identical question came to be consider ed by (he Delhi High Court in the case of Bureau of India Standard vs. Director General of Income Tax (Exemptions) reported in (2013) 212 Taxrnan 210 (Delhi). In the said decision, t he Delhi High Court was considering whet her the activities of the Bureau of Indian Standards (supra) in granting licenses and trading certificates and charging amounted to carrying on business, trade or commerce and while considering the said question, it is observed 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. Often, apart from the controlling or parent statutes, like the BIS Act, these statutory bodies (including BIS) are empowered to frame rules or regulations, exercise coercive powers, including inspection, raids; they possess search and seizure powers and are invariably I T A N o s . 2 3 8 9 t o 2 3 9 4 / Ah d / 1 7 [ D C I T ( E ) v s . R a j k o t U r b a n D e v e l o p m e n t Au t h o r i t y] A . Y s . 2 0 0 9 - 1 0 t o 2 0 1 4 - 1 5 - 15 -
subjected to Parliamentary or legislative oversight. The primary object for setting up such regulatory bodies would be to ensure general public utility. The prescribing of standards, and enforcing those standards, through accreditation and continuing supervision through i nspection etc., cannot be considered as trade, business or commercial activity, merely because the testing procedures, or accreditation involves charging of such fees. It cannot be said that the public utility activity of evolving, prescribing and enfor cing standards, involves the carrying on of trade or commercial activity."
12.8. Circular No.11 of 2008 issued by the CBDT fell for consideration by the Delhi High Court in t he case of M/s G.S. 1 India v. Director General of Incometax (Exemption) and Another : WP(C) 7797/2009, decided on 26.09.2013 (2013) 219 Taxman
205. It is held that even as per the said circular, proviso to Section 2(15) of the Act is applicable t o assessee, who are engaged in commercial activities i.e. carrying on business, trade or commerce, in the garb of 'public utilities' to avoid fax liability as it was noticed that the object 'general public utility' was sometimes used as a mask or device of hide the true purpose, which was 'trade, commerce or business'. Thus, it is evident that introduction of provis o to Section 2(15) by virtue of the Finance Act, 2008 was direct ed to prevent the unholy practice of pure trade, commerce and business entities from masking their activities and portraying them in the garb of an activity with the object of a general public utility, it is not designed to hit at those institutions, which had the advancement of the objects of general public utility at their hearts and were charity institutions. The attempt was to remove the masks from the entities, which were purely trade, commerce or business entities, and to expose their true identities.
In the case of M/s G.S. 1 India (Supra), in para 21, 22 and 27, the Delhi High Court has observed and held as under:
"21. ... As observed above, legal terms, trade, commerce or business in Section 2(15), mean activity undertaken with a view to make or earn profit. Profit motive is determinative and a critical factor to discern whether an activi ty is business, trade or commerce. The court further held:-
22. Business activity has an i mportant pervading element of self interest, though fair dealing should and can be present, whilst charity or charitable activity is antithesis 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 WP(C) 1872/13 Page 52 of 55 should be to serve and benefit I T A N o s . 2 3 8 9 t o 2 3 9 4 / Ah d / 1 7 [ D C I T ( E ) v s . R a j k o t U r b a n D e v e l o p m e n t Au t h o r i t y] A . Y s . 2 0 0 9 - 1 0 t o 2 0 1 4 - 1 5 - 16 -
others. A s mall contri bution by way of fee that the beneficiary pays would not convert charitable activity into business, commerce or trade in the absence of contrar y evidence. Quantum of fee charged, economic status of the beneficiaries who pay, commercial value of benefits in comparison to the tee. purpose and object behind the fee etc. are several factors which will decide the seminal question, is it business?
27. As observed above, fee charged and quantum of income earned can be indicat ive of the fact that the person is carrying on business or commerce and not charity, but we must keep in mind that charitable activities require operational/running expenses as well as capital expenses to be able to sustain and continue in long run. The petitioner has to be substantially self sustaining in long term and should not depend upon government , in other words taxpayers should not subsidi ze the said activities, which nevertheless are charitable and fall under WP(C) 1872/13 Page 53 of 55 the residuary clause general public utility. The impugned order does not refer to any statutory mandate that a charitable institution falling under the last clause should be wholly, substantially or in part must be funded by voluntar y contributions. No such requirement has been pointed out or argued. A practical and pragmatic view is required when we examine the data, which should be analyz ed objectively and a narrow and coloured view will be counterproductive and contrary to the language of Section 2(15) of the Act."
12.9. While upholding the constitutional validity of the- proviso to Section 2(15) of the Act, the Division Bench of the Delhi High Court in the case of Indian Trade Promoti on Organization vs. Director of Income Tax (Exemption) in WP(C) No.1872 of 2013 decided on 22.01.2015 has observed in para 58 as under:
"As defined in Section 2(15) cannot be const rued literally and in absolute terms. It has to take colour and be considered in the context of Section 10(23C)(iv) of the said Act. It is also clear that if the literal interpretation is given to the proviso to Section 2(15) of the s aid Act, then the proviso would be at risk of running fowl of the pr inciple of equality ens hrined in Article 14 of the Constitution India. In order to s ave the Constitutional validity of the proviso, the same would have to be read down and interpreted in the context of Section 10(23C)(iv) because, in our view, the context requires such an interpr etation. The correct interpretation of the proviso to Section 2(15) of the said Act would be that it car ves out an exception from the charitabl e purpose of advancement of any other object of general public utility and that except ion is limited to activities in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business for a cess or fee or any other consideration. In both the activities, in the nature of trade, commerce or business or the activity of rendering any service in relation to any trade, commerce or business, the dominant and the prime objective has to be seen. If the dominant and prime objective of the WP(C) 1872/13 Page 54 of 55 institution, which claims to have been established for I T A N o s . 2 3 8 9 t o 2 3 9 4 / Ah d / 1 7 [ D C I T ( E ) v s . R a j k o t U r b a n D e v e l o p m e n t Au t h o r i t y] A . Y s . 2 0 0 9 - 1 0 t o 2 0 1 4 - 1 5 - 17 -
charitable purposes, i s profit making, whet her its activities are directly in the nature of trade, commerce or business or indirectly in the rendering of any service in relation to any trade, commerce or business, then it would not be entitled to claim its object to be a 'charitable purpos e'. On the flip side, where an institution is not driven primarily by a desire or motive to earn pr ofits, but to do charity through the advancement of an object of general public utility, it cannot but be regarded as an institution established for charitable purpos es."
13. Applying the afor esaid decisions to the facts of the case on hand and with respect to the activities of the AUDA Ahmedabad Urban Development Authority under the provisions of the Gujarat Town Planning Act by no stretch of imagination, it can be said that the activi ties of the assessee (AUDA) can be said to be in the nature of trade, commerce or business and / or its object and purpose i s profiteering. Merel y because under the statutory provisions and to meet with the expenditure of Town Planning Scheme and / or providing various services under the Town Planning Scheme, such as road, drainage, electricity, water supply etc. if t he assessee is permit ted to sale the plots (land) to the extent of 15 % of the total area under the Town Planning Scheme and while selling the s aid plots they are sold by holding the public auction, it cannot be s aid that activities of the assessee is prof iteering, to be in t he nature of trade, commerce and busines s.
13.1. In the case of Lucknow Development Authority, Gomti Nagar (s upra), it is held by the Allahabad High Court that the activities of the authority cannot be said to be in the nature of trade, commerce or business and / or profiteering and therefore, proviso to Section 2(15) of the Act shall not be applicable.
13.2. Si milar, view has been expressed by the Rajasthan High Court in the case of Commissioner of Income Tax, Jodhpur vs. Jodhpur Development Authority, Jodhpur Tax Appeal No. 63 of 2012 decided on 5.7.2016.
14. Considering the aforesaid facts and circumstances and more particularly, consideri ng the fact that the as sessee is a statutory body Urban Development Authority constituted under the provisions of the Act, constituted to carry out the object and purpose of Town Planning Act and collects regulatory fees for the object of the Acts; no services are rendered to any particular trade, commerce or business; whatever the income is earned /received by the assessee even while selling the plots (to the extent of 15 % of the t otal area covered under the Town Planning Scheme) is required to be used only for the purpose to carry out the object and purpos e of Town Planning Act and to meet with expenditure while providing general utility service to the public such as electricity, r ood, drainage, water etc. and oven the entire control is with State Government and even accounts are also subjected to audit and there is no element of profiteering at all, the activities of the assessee cannot be said to be in the nature of trade, commerce and business and therefore, proviso to I T A N o s . 2 3 8 9 t o 2 3 9 4 / Ah d / 1 7 [ D C I T ( E ) v s . R a j k o t U r b a n D e v e l o p m e n t Au t h o r i t y] A . Y s . 2 0 0 9 - 1 0 t o 2 0 1 4 - 1 5 - 18 -
Section 2(15)of the Act shall not be applicable so far as assessee is concerned and ther efore, the assessee is entitled to exemption under Section 11 of the Income Tax Act. Therefore, the question no. 1 is to be held in favour of the assessee and against the revenue.
15. Now, so far as another question whi ch is posed for the consideration of this Court i.e. whether whi le collecting the cess or fees, activities of the assessee can be said to be rendering any services in relation to any trade, commerce or business is concerned, for the reasons stated above, merely because the assesses is collecting cess or fees which is regulatory in nature, the proviso to Section 2(15)of the Act shall not be applicable As observed herein above neither there is element of profiteering nor the same can be s aid to be in the natur e of trade, commerce or business. At this st age, decision of the Division Bench of this Court in the case of Sabarmati As hram Gaushala Trust (supr a) is required to be referred to. In the case befor e the Division Bench, the assessee Trust Sabarmati Ashram Gaushala Trust was engaged in the activity of breeding milk cattle; to improve the quality of cows and oxen and other rel ated activities. The Assessing Officer denied the exemption to the trust under Section 11 of the Act on the ground that considerable income was generated from the activities of milk production and sale and therefore, considering the proviso to Section 2(15) of the Act, the said Trust assessee was denied the exemption under Section 11 of the Act. While holding that the activities of the assessee trust still can be s aid to be for charitable purpose within the meaning of Section 2(15) of the Act and same cannot be s aid to be in the nature of trade, commerce or bus/ness for which proviso to Section 2(15) of the Act is requir ed to be applied. In para 6, 7, 8 and 12, it is observed and held as under:
6. The legal controversy in the present Tax Appeal centers around the first proviso. In the plain terms, the proviso provides for exclusion from the main object of the definition of the term Charitable pur poses and applies only to cas es of advancement of any other of general public utility. If the conditions provided under the proviso are satisfied, any entity, even if involved in advancement of any other object of genera/ public utility by virtue to proviso, would be excluded from the definition of charitable trust. However, for the application of the proviso, what is necessary is that the entity should be involved in carrying on activities in the nature of trade, commerce or business, or any activity of rendering services in relation to any trade, commerce or business, for a cess or fee or any other consideration. In such a situation, the nature, use or application, or retent ion of income from s uch activities would not be relevant. Under the circumstances, the important elements of application of proviso are that the entity should be involved in carrying on the activities of any trade, commerce or business or any activities of rendering service in relation to any trade, commerce or business, for a cess or fee or any other consideration. Such s tatutory amendment was explained by the I T A N o s . 2 3 8 9 t o 2 3 9 4 / Ah d / 1 7 [ D C I T ( E ) v s . R a j k o t U r b a n D e v e l o p m e n t Au t h o r i t y] A . Y s . 2 0 0 9 - 1 0 t o 2 0 1 4 - 1 5 - 19 -
Finance Ministers speech in the Parliament. Relevant portion of which reads as under:
I once again ass ur e the House that genuine charitable organizations will not in any way be affected. The CBDT will, following the usual practice, issue an explanatory circular containing guidelines for determining whether any entity is carrying on any acti vity in the nature of trade, commerce or business or any activity of rendering any s ervice in relation to any trade, commerce or business. Whether the purpose is a charitable purpose will depend on the totali ty of the facts of the case. Ordinarily, Chambers of Commerce and similar organizations renderi ng services to their members would not be affected by the amendment and their activities would continue to be regarded as advancement of any other object of genera! public utility.
7. In consonance wit h such assurance gi ven by the Finance Minister on the floor of the House, CBDT i ssued a Circular No. 11 of 2008 dated 19th December 2008 explaining the amendment as under:
3. The newly inserted proviso to section 2 (15) will apply only to entities whose purpose is advancement of any other object of general public utility ie., the fourth limb of the definition of charitable purpose contained in section 2 (15). Hence, such entities will not be eligible for exemption under section 11 or under section 10 (23C) of the Act if they carry on commercial activities. Whether such an entity is carrying on any activity in the nature of trade, commerce or business is a question of fact which will be decided based on the natur e, scope, extent and frequency of the activi ty.
3.1 There are industry and trade associations who claim exemption from tax under section 11 on the ground that their objects are for charitable purpose as thes e are covered under any other object of general public utility. Under the principle of mutuality, if trading takes place between persons who are associated together and contribute to a common fund for the financing of some venture or object and in this respect have no dealings or relations with any outside body, then any surplus returned to the per sons forming s uch association is not chargeable to tax. In such cases, there must be complete identity between the contribut ors and the participants. Therefore, where industry or trade associations claim both to be charitable institutions as well as mutual organizations and their activities are restricted to contributions from and participation of only their members, these would not fall under the purview of the proviso to section 2 (15) owing to the principle of mutuality.
However , if such organizations have dealings with nonmembers , their claim to be chargeable organizati ons would now be governed by the addit ional conditions stipulated in the proviso to section 2 (15).
I T A N o s . 2 3 8 9 t o 2 3 9 4 / Ah d / 1 7 [ D C I T ( E ) v s . R a j k o t U r b a n D e v e l o p m e n t Au t h o r i t y] A . Y s . 2 0 0 9 - 1 0 t o 2 0 1 4 - 1 5 - 20 -
3.2 In the final analysis, however , whether the assessee has for its object the advancement of any other object of general public utility is a question of fact. If such assessee is engaged in any activity in the nature of trade, commerce or business or renders any service in relation to trade, commerce or business, it would not be entitled to claim lhat its object is charitable purpose. In such a case, the object of general public utility will be only a mask or d device to hide the true purpose which is [ fade, commerce or business or the rendering of any service in relation to trade, commerce or business. Each case would, therefore, be decided on its own facts and no general ization is possible. Assessees, who claim that their object is charitable purpose within the meaning of section 2(15), would be well advised to eschew any activity which is in the nature of trade, commerce or business or the render ing of any service in r elation to any trade, commerce or business .
8. What thus emerges from the statutory provisions, as explained in the speech of Finance Minister and the CBDT Circular , is that the activity of a trust would be excluded from the term charitabl e purpose if it is engaged in any activity in the nature of trade, commerce or business or renders any service in relation to trade, commerce or business for a cess, fee and/or any other consideration. It is not aimed at excluding the genuine charitable trusts of general public utility but is aimed at excluding activities in the nature of trade, commerce or business which are masked as charitable purpose.
12. All these were the objects of the general public utility and would squarely fall under section 2 (15) of the Act. Profit making was neither t he aim nor object of the Trust. It was not the principal activity. Merely because while carrying out the activities for the purpose of achieving the objects of the Trust, certain incidental surpluses were generated, would not render the activity in the nature of trade, commerce or business . As clarified by the CBDT in its Circular No. 11/2008 dated 19th December 2008 the pr oviso aims to attract those activities which fire truly in the nature of trade, commerce or business but are carried out under the guise of activities in the nature of public utility.
15.1. Applying the aforesaid decision to the facts of the case on hand and the object and pur pose for which the assessee is established / constituted under the provisi ons of the Gujarat Town Planning Act and collection of fees and cess is incidental to the object and purpose of the Act, even the case would not fall under second part of proviso to Section 2(15) of the Act.
15.2. Considering the aforesaid facts and circumstances of the case, we are of opinion that the learned Tribunal has committed a grave error in hol ding the activities of the assessee in the nature of trade, commerce or business and consequently holding that the proviso to Section 2(15) of the Act shall be applicabl e and therefore, the as sessee is not entitled to exemption under Section 11 of the Act . For the reasons stated above, it is held I T A N o s . 2 3 8 9 t o 2 3 9 4 / Ah d / 1 7 [ D C I T ( E ) v s . R a j k o t U r b a n D e v e l o p m e n t Au t h o r i t y] A . Y s . 2 0 0 9 - 1 0 t o 2 0 1 4 - 1 5 - 21 -
that the proviso to Section 2(15) of the Act shall not be applicable so far as assessee AUDA is concerned and as the activities of the assessee can be said to be providing general public utility services, the assessee is entitled to exemption under Section 11 of t he Act. Both the questions are therefore, answered in favour of the assessee and against the revenue.
4.3 Both, i.e. the appellant and AUDA are constituted as Authorities under the Gujarat Town Planning and Urban Development Act, 1976. The powers and funct ions of both the authorities have been laid down under the said Act and are identical in nature. Nowhere in the or der of assessment the AO pointed out that the appellant has undertaken functions beyond the mandate of Gujarat Town Planning and Urban Development Act. The appellant is a registered u/s 12A of the IT Act. Therefore as held by Hon'ble Gujarat H.C. in decision quoted above, the appellant cannot be considered to covered by the proviso to section 2(15) of the Act. Thus AO cannot withdraw the claim of exemption by invoking proviso to section 2(15) r .w.s . 13(8) of the Act. The cor ollary is that the appellant cannot be assessed u/s 28 to 44 of the Act.
4.4 Although hon'ble High Court of Gujarat has denied applicability of provisions of proviso to section 2(15) r.w.s. 13(8) to the appellant, the AO needs to be careful while computing the income of the appellant. There are issues wit h regard to maintenance of accounts and the appellant has treated the various grants received by it. There are issues with regard (a) to claim of accumulation© 15 % u/s 11(1)(a) of the Act;
(b) to claim u/s 11(1)(d) of the act; (c) t o claim of correct rate of depreciation; (d) to claim of income receipts being reflected in the balance sheet; (e) t o claim of application of income from project specific grants; (f) to claim of capital expenses as applicati on of income etc. As certain grounds of appeal pertain to these issues, the relevant discussion in subsequent paras has been made.
4.5 With reference to t reatment of specific project grants, Hon'ble High Court of Delhi has held in the case of DIT vs Society for Development Alternatives 18 taxman.com 364 that grants with specific directions from the Govt. cannot be treated as income. These grants will have to be spent as per the conditions and purpose laid down by the donor. As per sec,12(1) any voluntary contribution received by a trust/institutions created fully for char itable or religious purpose shall for purposes of sec.11 be deemed to be income derived f rom property held by said trust/institutions and sec 13 shall apply accordingly. However Sec.12(1) has made an exception to the voluntary contributions as deemed income of the trust or institution if such contribution has been made with a specific direction. Further sec.11(1)(a) states: '(a) Income derived from proper ty held under trust wholly for charitable or religious purpose to t he extent to which such income is applied to such purposes in India and where any such income is accumulated or set apart for application to such purpose in India, to the extent to which the income so accumulated or set apart is not in excess of 15% of the income from such property.' Further sec.11(1)(d) states that ' (d) income in the form of volunt ary contributions made with a specific direction that they shall form part of the corpus of the trust or institution'. It can be seen from the combined reading of s ec.11(1)(a) and 11(1)(d) as well as sec.12(1) that the grants given for the specific purpose cannot I T A N o s . 2 3 8 9 t o 2 3 9 4 / Ah d / 1 7 [ D C I T ( E ) v s . R a j k o t U r b a n D e v e l o p m e n t Au t h o r i t y] A . Y s . 2 0 0 9 - 1 0 t o 2 0 1 4 - 1 5 - 22 -
be considered as income in the form of voluntary donation and are eligible for deduction u/s.11(1)(d). Thus, s uch specific project grants cannot be considered as income derived from the property held under the trust u/s.11 (1)(a). Such projects specif ic grants cannot be us ed by the trust/institution freely towards the objects of the trust. Such trusts/institutions have to act as a trustee of a special fund granted by the donor and hence it cannot be pooled or integrated with its normal income or the corpus creat ed by the trusts. (Nirmal Agricultural Society vs ITO 71 ITD 152 (Hyd.). The incoming and outgoing from such tied up grants cannot be reflected in the income and expenditure account of trusts/institutions. In the case of CIT vs Sthanakwasi Vardhman Vanik Jain Sangh 151 Taxman 270 Hon'ble Gujarat High Cour t has held that contribution received by the assessee trust towards construction of wadi for caste people woul d form part of corpus of trust and therefor e would not be treat ed as income of ass essee trust. It further held that on the plain reading of sec.12, any voluntary contribution made with a specific direction would not be deemed t o be income derived f rom property held under trust wholly for charitable or religious purpose. In the case of DIT vs Sri Ramakrishna Seva Ashram 18 Taxman.com 37 (Kar ) it was held that donation for specific project shall be treated as corpus donation and the 85 % application condition shall not apply. It was held that the word 'corpus' is used in the context of the Act. Therefore, if any voluntary contribution is made with a specific direction, it shall be treated as the capital of the trust for carrying on its charitable or religious activities, then such an income f alls u/s.11(1)(d) and i s not liable to tax. In many other cases various High Courts have held that any receipt of capital nature cannot be treated as income and hence it was outside the purview of sec. 12.
46 It would be pertinent here to refer to Accounting Standard (AS) 12 that deals with the accounting for Govt. Grants. According t o the clause-4 AS-12 the receipt of Govt. Gr ants by an enterpri se is significant for prepar ation of the financial statements for two reasons. Firstly, if the Govt. Grant has been r eceived an appr opriate method of accounting therefore is necessary. Secondly, it is desirable to gi ve an indication to the extent to which the enterprise has benefitted from such grant during the reporting period. Para- 5 of AS-12 deals with the treatment of Govt. Grants. It is reproduced below for the sake of convenience :-
"Accounting Treat ment of Government Grant s
5. Capital Approach versus Income Approach 5.1 Two broad approaches may be followed for the accounting treatment of government grants: the 'capit al approach', under which a grant is treat ed as part of shareholders' funds, and the 'income approach' , under which a grant is taken to income over one or more periods .
5.2 Those in support of the 'capital approach' argue as follows:
(i ) Many government grants are in the nature of promoters' contribution, i.e., they are given with reference to the total investment in an undertaking or by way of contribution towards its total capital outlay and no repayment is ordinarily expected in the case of such gr ants. These should, therefore, be credited I T A N o s . 2 3 8 9 t o 2 3 9 4 / Ah d / 1 7 [ D C I T ( E ) v s . R a j k o t U r b a n D e v e l o p m e n t Au t h o r i t y] A . Y s . 2 0 0 9 - 1 0 t o 2 0 1 4 - 1 5 - 23 -
directly to shareholders' funds, (ii) It is inappropriate to recognise government grants in the profit and loss statement, since they are not ear ned but represent an i ncentive provided by government without related costs.
5.3 Arguments in support of the 'income approach' are as follows: (i ) Gover nment grants are rarely gratuitous. The enterprise earns them through compliance with their conditions and meeting the envis aged obligations- They should therefore be taken to income and matched with the associated costs which the grant is intended to compensate, (ii) As income tax and other taxes are charges against income, it is logical to deal also with government grants , which are an extension of fiscal policies, in the profit and loss statement. (Hi ) In case grants are credited to shareholders' funds , no correlation is done between the accounting treatment of the grant and the accounting treatment of the expenditure to which the gr ant relates.
5.4 It is generally considered appr opriate that accounting for government grant should be based on the nature of the relevant grant. Grants which have the characteristics similar to those of promoters' contribut ion should be treated as part of shareholders' funds. I ncome approach may be more appropriate in the case of other gr ants.
5.5 It is fundamental to the 'income approach' that government grants be r ecognised in the profit and loss statement on a systematic and rational basis over the periods necessary to match them with the related costs. Income recognition of government grants on a receipts basis is not in accordance with the accrual accounting assumption (see Accounting Standar d (AS) 1, Disclosure of Accounting Policies).
5.6 In most cases, the periods over which an enterprise recognises the costs or expenses related t o a gover nment grant are readily ascertainable and thus grants in recognition of specific expenses are taken to income in the same period as the relevant expenses.
5. Further para-8 deals with the presentation of grants related to specific fixed assets. The relevant paras i.e. para-8.1 to 8.3 are reproduced below for the sake of convenience :-
"8. Presentation of Gr ants Related to Specific Fixed Assets 8.1 Grants related to specific fixed assets are government grants whose pri mary condition is that an enterpris e qualifying for them should purchase, construct or otherwise acquire such assets. Other conditions may also be attached res tricting the type or location of the assets or the periods during which they are to be acquired or held.
8.2 Two methods of presentation in financial statements of grants (or the appropriate portions of grants) related to specific fixed assets are regar ded as acceptable alternatives. I T A N o s . 2 3 8 9 t o 2 3 9 4 / Ah d / 1 7 [ D C I T ( E ) v s . R a j k o t U r b a n D e v e l o p m e n t Au t h o r i t y] A . Y s . 2 0 0 9 - 1 0 t o 2 0 1 4 - 1 5 - 24 -
8.3 Under one method, the grant is shown as a deduction from the gross value of the asset concerned in arriving at its book value. The grant is thus recognised in the profit and loss statement over the useful life of a depreciable asset by way of a reduced depreciation charge. Where the whole, or virtually the whole, of the cost of the asset, the asset is shown in the balance sheet at a nominal val ue."
6. Finally para-13, 14, 15 are the main paras that have laid down the principles of accounting for Govt. Grant s. The same are reproduced below .-
"13. Government grants should not be recognised until there is reasonable assurance that (i) the enterprise will comply with the conditions attached to them, and (ii) the grants will be received.
14. Government grant s related to specific fixed assets should be presented in the bal ance sheet by showi ng [ he grant as a deduction from the gross value of the assets concerned in arriving at their book value. Where the grant related to a specific fixed asset equals the whole, or virtually the whole, of the cost of the asset, the asset should be shown in the balance sheet at a nominal value. Alternatively, government gr ants related to depreciable fixed assets may be treated as deferred income which should be recognised in the profit and los s statement on a systematic and rational basis over the useful life of the asset, i.e., such grants should be allocated to income over the periods and in t he proportions in which depreciation on those assets is charged. Grants related to non-depreciable assets should be credited to capital reserve under this method. However , if a grant r elated to a non-depreciable asset requires the fulfillment of certain obligations, the grant should be credited to income over the same period over which the cost of meeting such obligati ons is charged to income. The deferred income balance shoul d be separately disclosed in the financial statements.
15. Government grant s related to revenue s hould be recognised on a systematic basis in the profit and los s statement over the periods necessary to match them with the related costs which they are intended to compensate. Such grants should either be shown separ ately under 'other income' or deducted in reporting the related expense"
7. Thus , it is seen from the AS-12 as quoted above that as per AS- 12 the grants received with specific direction especially for specified fixed assets which is applicable to the appellant can be accounted for in two ways in the books of the appellant. Where the grant leads to creation of fixed assets equals the whole or virtually the whole of the cost of the asset, the asset should be shown in the balance sheet at nominal value. Or alternatively govt grants related to depreciable fixed assets may be treated as diverted income which should be recognized in the P & L A/c. on a systematic and rational basis over the useful life of the asset. I T A N o s . 2 3 8 9 t o 2 3 9 4 / Ah d / 1 7 [ D C I T ( E ) v s . R a j k o t U r b a n D e v e l o p m e n t Au t h o r i t y] A . Y s . 2 0 0 9 - 1 0 t o 2 0 1 4 - 1 5 - 25 -
8. Based on above referr ed discussion, the AO is directed to verify and compute the income of appellant as per the following guidelines:
(i ) Appellant might have shown certain grants which are not projects specific grants or the grants given for generic purpose. The donor al lows appellant to apply these funds for any of its objects. If such grants are received by the appellant which does not have any specific direction for the purpose, then it will have to be considered as voluntary donation and will be included as the income of the appellant u/s.12(1) of the Act. Even if appellant has shown such grants in the balance sheet then the appellant
(a) would be eligible to claim expenses out of them as application of income and if the appellant creates fixed assets out of such grants, appellant (b) would be eligible to claim capital expenditure as application of its income and (c) would be eligible to claim depreciation on such fixed assets as application of income. Reliance placed on the judgment of Hon'ble High Court of Gujarat in the case of CIT vs Sheth Manilal Ranchhoddas Vishrarn Bhawan Trust, 198 ITR 598. A.O. is directed to calculate the income of the appellant from the property held by it accordingly.
(ii) Further, the appellant might have received certain funds in the form of grant s, for a specific purpose or for a specific project that is capital in nature. The sanction letter from the Institution/Authorities giving grant to the appellant categorically mentions that funds received under these grants cannot be utilized f or any other purpose except for the purpose for which the grant is given. As the appellant has received such kind of grants with a specific directi on, all such grants ar e required to be considered as capital receipts. Such capital receipts would be part of Balance sheet and not its income. The appellant would be eligible to claim deduction u/s 11f1)(d) of the Act on such capital receipts. But since these cannot be a par t of the income of the appellant, the appellant (a) cannot claim accumulation @ 15 % u/s 11(1)(a) of the Act on such specific grant s. The assets creation made out of these grants would be reflected in the balance sheet and the appellant (b) cannot claim capital expenditure out of these grants as the money applied towar ds its objects as application of income.
Finally, the appellant
(c) cannot claim depreci ation on fixed assets created out of grants given for specific purpose, as application of income.
(iii) (a)During the appellate proceedings it is seen from the Balance Sheet and Income and Expenditure Account of the appellant that certain receipts have been taken by the appellant directly to the Balance Sheet. The AG, Audit had been raising audit objection for treating them as revenue I T A N o s . 2 3 8 9 t o 2 3 9 4 / Ah d / 1 7 [ D C I T ( E ) v s . R a j k o t U r b a n D e v e l o p m e n t Au t h o r i t y] A . Y s . 2 0 0 9 - 1 0 t o 2 0 1 4 - 1 5 - 26 -
receipts and hence the said receipts have been considered as capital receipts. According to these audit objections for e.g. receipt from 'Betterment Charges' are required t o be shown as liabilities in Balance sheet because they should be adjusted against the net amount to be paid by the owners. Similarly as per the For m Q under GTPUD Rules, 1979, ' Development Char ges' are required to be shown in the Balance Sheet under the head of 'Capital Receipts'. Audit department also wants the Part Plan Fees, Additional TSI charges etc. to be reflected as 'capital receipts' as per the requirement of Format of Annual Accounts. There are many other iss ues on which 'Audit' wing had been raising audit objection with regard to classification of receipts. Be as it may, as far as Audit objections are concer ned. Here, we are concerned with computation of income under the Income tax Act.
(b) It is a matter of fact that Appellant has r eceived these funds as per t he provisions of GTPUD Act. The GTPUD Act authorizes the appellant to receive funds under various categories such as Development Charges, Betterment charges, I mpact fees, Amenities fees, Scrutiny fees, Zoning fees etc. These fees/funds or the sources of receipts have been received by the appellant during the discharge of its functions. These are recurring and operational receipts of the appellant. The appellant is required to apply these receipts towards its objects. I am of the considered opi nion that a capital expenditure by a person need not be a capital receipt of the person receiving that amount. Therefore, A.O. is directed to consider all these receipts as the income of the appellant irrespective of the fact that it has treated them as balance sheet item.
(c) The appellant has to keep in mind that if these receipts arc considered as capital receipts as a balance sheet item then appellant would be eligible to clai m deduction u/s 11(1)(d) of the Act on such capital receipts. But since these cannot be a par t of the income of the appellant, the appellant (a) cannot claim accumulation @ 15 % u/s 11(1)(a) of the Act on such capital receipts. The assets creation made out of these receipts would be reflected in the balance sheet and the appellant (b) cannot claim capital expenditure out of these receipts as the money applied towar ds its objects as application of income. Finally, the appellant (c) cannot clai m depreciation on fixed assets created out of receipts, as application of income.
(iv) Further, AO is directed to verify the rate of depreciation claimed by the appel lant. Section 32 of t he Act is not applicable to the exempt person. The income of exempt person has to be calculated on the basis of normal commercial principles and by rule of accountancy. I T A N o s . 2 3 8 9 t o 2 3 9 4 / Ah d / 1 7 [ D C I T ( E ) v s . R a j k o t U r b a n D e v e l o p m e n t Au t h o r i t y] A . Y s . 2 0 0 9 - 1 0 t o 2 0 1 4 - 1 5 - 27 -
Accordingly the rate of depreciation would apply and not the rates of depreciati on as per s ection 32 of the Act.
(v) A.O. is directed to calculate the expenditure incurred or amount applied towar ds the objects of the appellant. The amount applied would also include the capital expenditure as per the direction given above (Reliance placed on the judgment of Gujarat High Court in the cas e of Satyavijay Patel Hindu Dhar mashala Trust vs CIT 86 ITR 683, Hon'ble Supreme Cour t in the case of SRM CTM Tirupanni Trust, 230 ITR 636, Hon'ble Allahabad High Court in the case of CIT vs Moolchand Sharbati Devi Hospital Trust 190 Taxman 338).
(vi ) After the calculation of expenses or amount applied for the objects of the appellant, A.O. will allow the accumulation u/s 11(1)(a)of the Act to the extent of 15% of income. If the excess of income over the expenditure is less than 15 % of the income, then A.O. shall allow accumulation to the extent of 15% u/s .11(1)(a) of the Act. (For example: If appellant earns Rs , 100 and applies Rs. 90 then only Rs. 10 would be allowed to be accumulated u/s 11(1)(a) of the Act .)
(vii) If the appellant has applied more than the income during the year then A.O. is directed to allow carry forward of deficit of that year to be set off against future income of the appellant (Reliance placed on the judgment of Hon'ble Gujarat High Court in the case of CIT vs Sri Plot Swetamber Murtipujak Jain Mandal 211 ITR 293). In that year, the AO shall not allow any accumulation u/s.11(1)(a) of the Act @ 15 %. (For exampl e: If appellant earns Rs. 100 and applies Rs. 110 then Rs. 10 would be allowed to be carried forward as deficit and there will be no accumulation u/s.11(1)(a).) In an immediate subsequent year, AO will allow, firstly, the set off of the deficit carried forward from earlier year. Then, AO shall reduce the amount applied during the year . If, after the adjustments of carried forward deficit and application of income, the appellant has any surplus of income over the expenditure then the appellant would be eligible to accumulate to the extent of 15% u/s.11(1)(a) from the income. (For exampl e: If appellant earns Rs. 100 in immediate succeeding year and applies Rs. 80 then Rs. 90, i.e. Rs. 10 as earlier year deficit and Rs . 80 being current years application, would be allowed agains t income of Rs.
100. The remaining Rs. 10 will be allowed to be accumulated u/s 11(1)(a).) And, if there happens to be still any excess income left over, then remaining amount shall be allowed by the A.O. to be accumulated u/s.11(2) of the Act and according to the stipulations mentioned therein i.e. filing of Form 10 and purpose for which accumulation u/s. 11 (2) has been made etc. In short, the AO will not allow accumulation of income cither u/s 11(1)(a) @15 % or u/s 11(2) of the Act al ong with carry I T A N o s . 2 3 8 9 t o 2 3 9 4 / Ah d / 1 7 [ D C I T ( E ) v s . R a j k o t U r b a n D e v e l o p m e n t Au t h o r i t y] A . Y s . 2 0 0 9 - 1 0 t o 2 0 1 4 - 1 5 - 28 -
forward of deficit. Application of income shall precede accumulation.
(viii) If the appellant incurs any expenditure out of the accumulated amount u/s. 11(2) of the Act, then the said expenditure will not be allowed as application against the current year's income of the appellant. It will have to be set off from the accumulated funds u/s 11 (2) of the Act.
A.O. is accordingly directed to calculate the income of the appellant as per the di rections given above.
9. As far as various grounds of appeal filed by the appellant are concerned all of them have already been addressed in above paras and the directions have been given at para-4.3 to para-8 above. Accordingly, Ground of appeal nos.1, 2, 4, 5, 6 & 7 are the gr ounds which are directly covered by the judgment of Hon'ble Gujarat High Court in the case of AUDA dated 2/5/2017. Therefore, all these gr ounds of appeal are hereby allowed.
9.1 Ground of appeal no.3 is general in nature, therefore, it is dismissed.
9.2 Vide ground of appeal No.8 the appellant has raised the issue of not examining the source of funds such as grants which have been received from State Government and application ther eof under the head pr oject fund. I have already discussed the issue of project specific grant and generic grant and the treatment to be gi ven by the A.O as per the directions given at para-8(i ) and 8(ii ). The A.O is directed to f ollow those directions. The ground of appeal No.8 is allowed for statistical purpose.
9.3 Ground of appeal no,9 relates to claim of accumulation at the rate of 15 % u/s.11(1)(a) and u/s.11(2). The appellant would be eligible to claim the benefit u/s.11 of the Act. A.O is directed' to allow the accumulations u/s .11(1)(a) and 11(2) of the Act. However, duri ng the appellate proceedings and as per the discussions with the A.R, the appellant has filed the revised computation of income. The A.O is directed to follow the directions given at para-8(i ) to para-8(viii ) and accordingly allow the quantum of accumulation u/s.11(1)(a) and 11(2) of the Act. The appel lant has been claimi ng the various operational receipts as capital receipts in the balance sheet. However, as mentioned at para-8(iii), I am of the considered opinion that these cannot be the capital receipt but will have t o be considered as income from the property held by the trust. The A.O is directed to compute the income and allow the accumulations u/s.11(1)(a) of the Act and u/s.11(2) of the Act accordingly. Subject to these remarks the ground of appeal no.9 is allowed for statistical purpos e.
9.4 Vide ground of appeal No.10, the appellant has raised the issue of denial of expenditure incurred on addit ion to fixed assets and on project expenditure by the A.O. At par a-8(i ), 8(ii ) and 8(v) I have already given directions to the A.O to allow such expenses subject to certain conditions. If the addition to fixed assets has been made from the project specified grants then that expenditure will not be allowable I T A N o s . 2 3 8 9 t o 2 3 9 4 / Ah d / 1 7 [ D C I T ( E ) v s . R a j k o t U r b a n D e v e l o p m e n t Au t h o r i t y] A . Y s . 2 0 0 9 - 1 0 t o 2 0 1 4 - 1 5 - 29 -
to the appellant as application of income or if the project expenses have been incurred fr om the project specific grant, again the si milar treatment will follow. If the expenses on addition to fixed assets and on project expenses have been incurred from the operational income or the generic grants received by the appellant, then only A.O is directed to allow the expenditure on addition to fixed assets and project expenses as application of income. Therefore, subject to the verification of facts by the A.O, the ground of appeal is allowed f or statistical purpose, 9.5 Vide ground No.11 the appellant is also aggrieved by initiation of penalty proceedings u/s.271(1)(c) of IT. Act, It is seen that the A.O. has merely initiated penalty proceedings u/s.271(1)(c). This ground being premature, the s ame is treated as dismissed.
9.6 The last ground of appeal is residuary in nature. Appellant has not availed this ground of appeal. Accordingly, this ground of appeal is dismissed.
10. In the result, the appeal is partly allowed."
8. Aggrieved b y the relief granted b y CIT(A), the Revenue preferred appeal before the Tribunal.
9. When the matter was called for hearing, none appeared for the assessee. The matter was accordingl y proceeded ex parte in the absence of the assessee.
10. The learned DR for the Revenue relied upon the order of the AO and submitted that the assessee will not fall with the exclusion provided in provisions of proviso to section 2(15) of the Act and consequentl y the action of the assessee cannot be regarded as 'charitable purpose' as envisaged under s.2(15) of the Act having regard to following facts and conditions.
10.1 The main object of the assessee is contribution towards planned and controlled development for the entire urban development area and such activit y falls under the category of 'advancement of general public utilit y. When the activities of the assessee can be said to be in the nature of trade, commerce and business, considering the proviso to Section 2(15), the activities of the assessee cannot be said to be for charitable purpose.
I T A N o s . 2 3 8 9 t o 2 3 9 4 / Ah d / 1 7 [ D C I T ( E ) v s . R a j k o t U r b a n D e v e l o p m e n t Au t h o r i t y] A . Y s . 2 0 0 9 - 1 0 t o 2 0 1 4 - 1 5 - 30 -
10.2 Further, First and second provisos to Section 2(15) inserted b y Finance Act, 2010 and are effective from 01.04.2009. Prior to insertion of these provisions certain bodies have been treated as 'Charitable' on the ground of advancement of object of general public utility. However, after the insertion of the above provisos, the advancement of an y other object of general public utilit y shall not be a charitable purpose, if it involves carrying on of.
a) An y activit y in the nature of trade, commerce or business;
b) An y activit y of rendering an y service in relation to an y trade, commerce or business;
c) For a cases or a fees or an y other consideration, irrespective of the nature of use or application of retention of income from such activit y.
Second proviso provides that provisions of first proviso shall not appl y if the aggregated value of receipts from the activities referred to in 1 s t proviso is Rs. 25,00,000/- or less in the previous year.
10.3 It was contended that in the instant case, assesses is engaged, in urban development and town planning. As per the amended definition, the activit y of the advancement of general public utilit y shall not be charitable purpose. Hence, it is hit b y proviso first and second of section 2(15) of the Act. Further, it was contended from the details filed b y the assessee that:
(a) The expenditure on development of Rajkot was incurred from fee collected b y the authorit y and grants from government which resulted in integrated over all development of Rajkot. This, in turn brought to R.U.D.A. extra Revenue and it was this extra Revenue in the form of various 'fees & penalties charged b y RUDA, charges on giving land on lease, various rent collected and receipts of miscellaneous nature and interest income from deposits etc. On this back ground, it was very clear that the activit y of the Authorit y is hit by the section 2(15) r.w.s proviso first and second.
I T A N o s . 2 3 8 9 t o 2 3 9 4 / Ah d / 1 7 [ D C I T ( E ) v s . R a j k o t U r b a n D e v e l o p m e n t Au t h o r i t y] A . Y s . 2 0 0 9 - 1 0 t o 2 0 1 4 - 1 5 - 31 -
(b) The assessee is engaged in Urban Development and Town Planning As part of its activities, the assessee develops different projects. For such projects, land is provided b y the government along with grant to develop the projects. The said projects/units in said projects are sold given on lease/rent to prospective bu yers. In these activities assessee derives a huge surplus which is the kind of business activit y.
(c) The assessee charged various fees from the general public like betterment charges, building height fee, change of use fee, development charges, impact fee scrutin y fee, regular regularization fee license fee, zoning fee, part plan fee, sketch plan fee sale of GDCR book, tender form fee, Fine/penalt y, amalgamation fee, composition fee, certified cop y fee, Color Map, service and Amanitas fee, sale of form fee etc for the various services rendered b y the assessee for carrying out the activit y of urban development and town planning schemes. The assessee being an urban development authorit y charges various t ypes of fees from the public for providing certain amenities like roads, bridges etc, which is recovered from the beneficiaries who get benefit out of development of such common infrastructure. Similarl y assessee charges betterment charges from beneficiary land owner to compensate for the infrastructure cost. Similarl y, the assessee charges building height fee, charge of use fee; ground coverage fee, development charges. Jantree fee. NOC processing fee, regulation fee. impact fee, sewage charge etc. It is evident that these are charges levied b y the assessee from the beneficiary/land owner for certain services rendered by it. The beneficiary on payment of the said fee gets certain amenities, regularization of certain infirmities in land/ plan, increase in FS I/additional FS I. NOC certificate for certain other amenities/privileges etc These are receipts from the beneficiaries for the services rendered b y the assessee in its capacit y as an urban development authorit y. These receipts are not in the nature of capital, just because it is not recurring in nature. The nature of the receipt cannot be changed just because it is not recurring or just because it is categorized as "capital receipt" b y the assessee, in its books. These are receipts which are received b y the I T A N o s . 2 3 8 9 t o 2 3 9 4 / Ah d / 1 7 [ D C I T ( E ) v s . R a j k o t U r b a n D e v e l o p m e n t Au t h o r i t y] A . Y s . 2 0 0 9 - 1 0 t o 2 0 1 4 - 1 5 - 32 -
assessee for the service rendered b y the assessee to the general public/beneficiaries. Therefore, the same have to be considered as business income of the assessee.
(d) It was also important to note that the plots of land have been acquired b y the Assessee at a very nominal price in the name of town planning scheme but have been given lease at a very high premium b y means of auction to the highest bidder. The land was given on lease not even at its Jantri rate (stamp value), but at a commercial/ market rate. This virtue of the land transactions is very characteristic of commercial activit y with a profit motive The said activit y of the Assessee can b y no stretch of imagination be treated as charitable activit y within the meaning of education, medical relief, relief of poor, and preservation of environment or reservation of monuments. The plots of land were acquired from the public at nominal rates and sold to various commercial entities at market rate, and this s ystematic, regular and organized activit y indicates that RUDA is involved in carrying on the activit y which is in the nature of trade, commerce or business. Since the assessee has sold the plots of land at a premium and at market rates, to various commercial entities, with a motive to earn profit. Hence, provisos to Sec 2(15) of the Act shall be squarel y applicable to the facts of the case.
(e) Two major characteristics of an y business activit y are profit motive and continuity. It was submitted that from the purchase and sale details pertaining to A.Y. 2007-08, 2008-09 and 2009-10, it was clear that the appellant assessee is engaged in the business of giving land on sale / leasehold at a high premium on a continuous basis and on profit basis.
(f) In the present case, the principal source of receipts is akin to a real estate developer. The assessee functions as an effective and efficient real estate development entit y with a view to maximize profit. It was submitted that some of the activities of assessee may be those related to Governance, but a large number of activities and the receipts. I T A N o s . 2 3 8 9 t o 2 3 9 4 / Ah d / 1 7 [ D C I T ( E ) v s . R a j k o t U r b a n D e v e l o p m e n t Au t h o r i t y] A . Y s . 2 0 0 9 - 1 0 t o 2 0 1 4 - 1 5 - 33 -
(g) Proviso to Section 2(15) onl y needs an assessee to carry on activities in the nature of business, commerce or trade irrespective of whether the assessee generates profits from such activities or not and irrespective of whether profit making is prime motive or not. Section 2(15) has defined charitable purpose to include (i) relief of the poor, (ii) education, (iii) medical relief, (iv) preservation of monuments or places or objects of artistic or historic interest and (v) the advancement of an y other "object of general public utilit y". In this regard, It was submitted that the proviso (i) and (ii) to Section 2( 15) would appl y if the activit y of the trust is deemed to be that of "advancement of an y other object of general public utility" The proviso further provides that such activities will not be charitable if it involves the carrying on of an y activit y in the nature of trade, commerce or business, or an y activit y of rendering an y service in relation to an y trade, commerce or business, for a cess or fee or an y consideration, irrespective of the nature of use or application, or retention, of the income from such activit y. In this regard, it was submitted that neither the provision of Section 2(15) nor the proviso there to differentiate the Assessee trust as a trust enacted under an y Government legislature or gazette or Act. Nor these provisions specify that they will not be applicable to an y authorit y carrying on the activities of development of any industrial area or a town/ cit y.
(h) The object of the proper development or redevelopment of an y urban area is of the state government and the choice of either constituting an authorit y for the development or entrusting it to a third part y is of the Government. It was submitted that the object of the urban development is of the State Government. It was submitted that the Authorit y is onl y carrying out and executing the state's object, it was submitted that there are man y activities in the nature of infrastructure development like roads, power, housing, etc where the government, instead of constituting an authorit y, enters into agreement with Infrastructure Development companies. It was submitted that these private companies are allowed to recover their cost and earn profits as a concessionaires or the Govt, may also make direct paym ents it was I T A N o s . 2 3 8 9 t o 2 3 9 4 / Ah d / 1 7 [ D C I T ( E ) v s . R a j k o t U r b a n D e v e l o p m e n t Au t h o r i t y] A . Y s . 2 0 0 9 - 1 0 t o 2 0 1 4 - 1 5 - 34 -
submitted that the income in all such cases would undoubtedl y be assessed on profits from business. It was submitted that the mere fact that the same activity is done b y an instrumentalit y of the state will not alter the character of the activit y. It was thus submitted that the activit y will still be in the nature of business or trade.
(i) Further, as can be seen from the financial of the assessee, the cost for the land has been incurred and has been capitalized as cost of acquisition. The said practice is followed from year to year. The assessee has become entitled to sell 15% of the land b y virtue of the provisions of the Town Planning Scheme. The said entitlement comes for a cost and has resulted in huge profits. Therefore, the activit y in respect of 15% o f the land sold b y the assesses, thus, is in the nature of trade or business and therefore, the first limb of proviso to Section 2(15) of the Act is satisfied. It was submitted that every part of the cost of development is recovered from the owners of the plots of land. That the amount of final compensation is determined after making adjustment of the development cost. That all kinds of civic amenities/services that are being provided are not free but for at cost. It was thus submitted that therefore, even second limb of the proviso to section 2(15) is also satisfied.
(j) There are surplus and reserves which are continuousl y swelling. These are generated b y the Assessee b y way of the activit y of sale/lease of land and charging fees. The assessee has not been charging nominal fees or selling the land at a nominal rate. It has been making money b y putting the land on auction after taking a reserve price. This activit y cannot be said to be a charitable activit y.
10.4. It was next contended that;
(a) Regarding 'business' and activities carried out b y an institution, Hon'ble ITAT Amritsar Bench in the case of Jalandhar Development Authority, ITA No.562/2008, ITA No.562/2008, has relied upon the decision of ITAT Chandigarh Bench in the case of Punjab Urban I T A N o s . 2 3 8 9 t o 2 3 9 4 / Ah d / 1 7 [ D C I T ( E ) v s . R a j k o t U r b a n D e v e l o p m e n t Au t h o r i t y] A . Y s . 2 0 0 9 - 1 0 t o 2 0 1 4 - 1 5 - 35 -
Planning and Development Authority Vs. CIT, 156 Taxmann 37 (Chd), Hon'le ITAT and has held as under:
"No activity can be carried on efficiently, properly unless and until it is carried out on business principle but it does not mean that the provision is misused in any manner under the garb of charity and any institution be allowed to become richer and richer under the garb of charity by making it a non-tax payable organisation.
(b) Similarl y. Hon'ble 1TAT. Cochin Bench in the case of Greater Cochin Development Authority Vs. Joint Director of IT(E) I.T.A. Nos. 792&793/Coch/2013 has held as under :
"In such a situation, we are of the view that no charity is involved and if any institution of public importance like schools, community centers are created/developed, the assessee is char ging the cost of it from the public at large and the money is coming from the coffer of the Government. It can be said that objects/acf/w'tfes of the assessee are more of commercialized nature and we do not find any charity in it. At the same time, if these facilities are not provided, then nobody will purchase a plot It can be said that it is a means of attracting the people so that maximum people may apply for the same and the hidden cost is already added, so no charity is involved. At best, the assessee can be said to be an authority created to help it to achieve certain objects. It can be s aid that it is the duty of the Gover nment to create/provi de all these facilities to public at large, which is being done through this agency in a particular area. At the same time, the funds which are provided to the assess ee by the Government is again a public money or generated from the public itself, so where is the charity?
(c) There are no restrictions as to the application of the assets of the authorit y on dissolution or winding up. In the case of CIT Vs. Surat Art Silk Cloth Manufactures Association, 121 ITR 1, it was held b y Hon'ble Supreme Court that-
"Since the income and property of the assessee were liable t o be applied solely and exclusively for the promotion of the objects s et out in the Memorandum and no part of such income or property could be distributed amongst the Members in any form or utilized for their benefit either during its operational existence or on its winding up or dissolution as such the object was a charitable one".
(d) In this context, it was also mentioned that on similar issue, in the case of M/s. Greater Noida Industrial Development Authority, ITA No.108 of 2016 dated 21.4.2017, the Hon'ble High Court of Judicature at Allahabad, Lucknow Bench in Writ Petition No. M.B 25204 of 2016 I T A N o s . 2 3 8 9 t o 2 3 9 4 / Ah d / 1 7 [ D C I T ( E ) v s . R a j k o t U r b a n D e v e l o p m e n t Au t h o r i t y] A . Y s . 2 0 0 9 - 1 0 t o 2 0 1 4 - 1 5 - 36 -
dated 21.4.2017 has dismissed the appeal of Revenue against with SLP has been preferred before Hon'ble Supreme Court. Similarl y, in the case of New Okhla industrial Development Authority in ITA No.114/2016 and in the case of Yamuna Expressway Industrial Development Authority in ITA No.107/2016 against which SLP before the Hon'ble Supreme Court has been preferred.
10.5 It was thus contended that the decision of the C IT(A) is incorrect on merit. It was pointed out for the same issue, in the case of Ahmedabad Urban Development Authorit y, the ITAT has given a judgment in the favour of the department. However, Hon'ble H.C. of Gujarat in the case of AUDA vs ACIT in ITA No. 423,424,425 of 2016 dtd. 02-05-2017 has given judgment in the favour of the assessee. It was stated that against the decision of Hon'ble Gujarat High Court, the department has preferred SLP before Hon'ble Supreme Court.
10.6 It was thus ultimatel y contended b y the learned DR for the Revenue that the decision of the C IT(A) is not proper on merits.
11. We have carefull y considered rival submissions and perused the orders of the lower authorities. The core controvers y placed before us is whether the assessee trust is entitled to exemption under s.11 & 12 of the Act on surplus arising from carrying out planned development of areas as defined and designed b y the Government of Gujarat and for carrying out infrastructural activities relating thereto such as construction of roads, bridges, drainage s ystems, water connection etc. for the benefit of publi c at large. It was the case of the assessee before the CIT(A) that the trust is registered under s.12AA of the Act and the objects of the trust are claimed to be advancement of general public utilit y but without an y profit motive and therefore the case falls outside the scope of exception carved out in Proviso to Section 2(15) of the Act. It is the case of the Revenue, on the other hand, before us that the activities of the trust are in the nature of advancement of general public utilit y in the nature of trade, commerce or business and the case of the assessee falls under I T A N o s . 2 3 8 9 t o 2 3 9 4 / Ah d / 1 7 [ D C I T ( E ) v s . R a j k o t U r b a n D e v e l o p m e n t Au t h o r i t y] A . Y s . 2 0 0 9 - 1 0 t o 2 0 1 4 - 1 5 - 37 -
Proviso to Section 2(15) of the Act and therefore the objects of the trust cannot be regarded to be for 'charitable purpose' as contemplated under s.2(15) of the Act. It is thus the case of the Revenue that the objects of the assessee trust not being charitable, the benefits of Section 11 & 12 of the Act cannot be availed. We find that the issue is no longer res integra. The Hon'ble Gujarat High Court in the case of AUDA itself has adjudicated the issue in favour of the assessee. The C IT(A) has taken cognizance of the binding decision of the Hon'ble Gujarat High Court in great length and has rightl y reversed the action of the AO and held that the assessee is entitled to the relief claimed. We find no error in the order of the CIT(A) in view of the decision rendered in AUDA b y the Hon'ble Gujarat High Court. We therefore decline to interfere with the order of C IT(A).
12. In the result, the appeal of the Revenue in ITA No. 2389/Ahd/2017 and all other captioned appeals of the Revenue are dismissed.
This Order pronounced in Open Court on 18/12/2019
Sd/- Sd/-
(MADHUMITA ROY) (PRADIP KUMAR KEDIA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad: Dated 18/12/2019
True Copy
S. K. SINHA
आदे श क त!ल"प अ#े"षत / Copy of Order Forwarded to:-
1. राज व / Revenue
2. आवेदक / Assessee
3. संबं*धत आयकर आयु,त / Concerned CIT
4. आयकर आयु,त- अपील / CIT (A)
5. 0वभागीय 3त3न*ध, आयकर अपील य अ*धकरण, अहमदाबाद / DR, ITAT, Ahmedabad
6. गाड9 फाइल / Guard file.
By order/आदे श से, उप/सहायक पंजीकार आयकर अपील य अ*धकरण, अहमदाबाद ।