TMI Blog2019 (3) TMI 1300X X X X Extracts X X X X X X X X Extracts X X X X ..... n under section 12A of the Act since 26.03.2003 and that the assessee’s objects clause, i.e., section 14 of the BDA Act has not undergone any change or modification since its enactment; which is what must have prompted the Income Tax Department to take the view that it was charitable in nature. In other words, the Income Tax Department considered the assessee, ‘BDA’ to be covered by the provisions of section 2(15) of the Act. It is after the introduction of the proviso to section 2(15) of the Act that the Income Tax Department took a view that the activity of ‘BDA’ was in the nature of trade, commerce or business and cancelled the registration, granted under section 12A of the Act, vide order dated 08.11.2011. The assessee’s registration under section 12A of the Act however stood restored by a decision of the Co-ordinate Bench of this Tribunal vide order in [2015 (7) TMI 198 - ITAT BANGALORE]. In this prevailing factual matrix, there is no change in the objects and the only issue which apparently prompts Revenue to take the view it has taken, i.e., that the activity of the assessee is hit by the proviso to section 2(15) of the Act; is the fact that the activity of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 104/Bang/2017, 1087/Bang/2017 - - - Dated:- 22-3-2019 - Shri Jason P. Boaz, Accountant Member And Shri Laliet Kumar, Judicial Member For the Assessee : Shri. V. Chandrashekhar, Advocate For the Revenue : Ms. Susan D. George, CIT(DR) ORDER PER JASON P BOAZ, ACCOUNTANT MEMBER These are cross appeals by Revenue and the assessee, directed against the order of the CIT(A)-14, LTU, Bangalore, dated 28.02.2017 for Assessment Year 2012-13. 2. Briefly stated, the facts of the cases are as under: 2.1 The assessee, Bangalore Development Authority (BDA), a statutory body constituted under the State Government of Karnataka, filed its return of income for Assessment Year 2012-13 on 29.09.2012 declaring a loss of (-) ₹ 357,92,21,808/-, after claiming exemption under section 11 of the Income Tax Act, 1961 (in short the Act ). The return was processed under section 143(1) of the Act and the case was subsequently taken up for scrutiny for this Assessment Year. The assessment was concluded under section 143(3) of the Act vide order dated 31.03.2015, wherein the assessee s income was determined at ₹ 315,87,94,869/-. Aggrieved by the order of assessment for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s it is against the appellant is opposed to law, facts, equity and circumstances of the case. 2. The appellant denies itself liable to be assessed to tax on any amount over and above the declared loss of Rs.(- )357,92,21,808/- by it in the return of income on the facts and circumstances of the case. 3. The additions made by the learned Assessing officer in the assessment order and confirmed by the learned Commissioner of Income-tax (Appeals) mostly on the premise that the appellant is not having registration under section 12A of the Act and this Hon'ble Tribunal restored the registration under section 12A of the Act to the appellant and consequently the orders passed by the learned Assessing officer and the learned Commissioner of Income-tax (Appeals) are liable to be cancelled on the facts and circumstances of the case. 4. Grounds regarding Jurisdiction : a. The learned Additional Commissioner of Income-tax is not competent to assume jurisdiction and consequently the order is bad in law and requires to be quashed in toto for want of jurisdiction. b. The authorities below are not justified in holding that there is valid jurisdiction on the facts and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The learned Commissioner of Income-tax (Appeals) is not justified in law in not holding that the learned Assessing Officer ought not to have considered the starting point of computation of total income at Rs. (-)591,94,33,000/- on the facts and circumstances of the case. (e) The learned Commissioner of Income Tax (Appeals) is not justified in law in denying the exemption as a charitable institution for the reason that appellant is carrying on business. The inference drawn for holding that the appellants are doing business are purely arbitrary and purely on suspicion and surmise devoid of factual foundation. (f) The learned Commissioner of Income Tax (Appeals) ought not to have denied exemptions for charitable purpose as the Appellant do not fall under second proviso to section 2(15) of the Act. (g) The learned Commissioner of Income Tax (Appeals) ought to have taken into account the speech of the Finance Minister which indicate the object and drift of the amendment in as much as that genuine Charitable Trusts are not hit by the proviso to section 2(15) of the Act. (h) Without prejudice the authorities below ought to have granted exemption in respect of the other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and circumstances of the case. 10. The learned Commissioner of Income Tax (Appeals) failed to appreciate the fact that as per section 40 and 41 of the BDA Act the receipts and income gets diverted by over riding title in favour of the Government and hence the question of taxing any part of the same under the Income Tax Act does not arise in the hands of the appellant on the facts and circumstances of the case. 11. Grounds on change of accounting Policy: a) The learned Commissioner of Income-tax (Appeals) is not justified in law in not accepting the change of accounting policy of the appellant on the facts and circumstances of the case. b) The learned Commissioner of Income-tax (Appeals) is not justified in law in confirming the adjustment on account of change in accounting policy disallowed by the learned Assessing Officer a sum of ₹ 631,99,06,000/- and without prejudice the learned Commissioner of Income-tax (Appeals) is not justified in law in not granting relief to the appellant to the extent of ₹ 351,88,00,000/-which was claimed before the learned Assessing Officer during the course of assessment proceedings on the facts and circumstances of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8,61,00,000/- made by the learned Assessing officer in respect of construction of grade separators, PRR bridges and other renovation and remodeling works treating them as capital expenditure on the facts and circumstances of the case. 16. The authorities below ought not to have disallowed expenses of ₹ 228,61,00,000/- incurred by the appellant for the construction of Grade Separators, PRR bridges and other renovation and remodeling works treating the same as capital expenditure. The authorities below has failed to appreciate that such expenditures are not capital in nature and are purely revenue expenditures incurred by the appellant under orders from the Government of Karnataka as public utility. The authorities below ought to have appreciated the fact that the appellant has changed the accounting policy during the FY 2011-12 to treat all such expenditures incurred for development of infrastructure project as revenue expenditure with the permission of the authority, the Govt. of Karnataka vide letter dt. 02.04.2014 has approved to treat all such expenditure on infrastructure projects as revenue expenditure and the same has been accepted by the Principal Accountant Gener ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e facts and circumstances of the case. 20. The authorities below ought not to have disallowed expenses of ₹ 29,97,42,000/- incurred by the appellant for development of lakes, construction of buildings and other structures including guest houses at Gandhi Bhavan, National Military Memorial at Bangalore including contribution of ₹ 15,12,62,510/- pertaining to deposit contribution towards construction of ROB-YPR-Tumkur South western railway under orders from the Government of Karnataka. a) The authorities below failed to appreciate that such expenditures are not capital in nature and are purely revenue expenditures incurred by the appellant under orders from the Government of Karnataka as public utility and preservation of environment. b) The authorities below ought to have appreciated the fact that the appellant has changed the accounting policy during the FY 2011-12 to treat all such expenditures incurred for development of infrastructure project as revenue expenditure with the permission of the authority. c) The authorities below ought to have appreciated that the Govt. of Karnataka vide letter dt. 02.04.2014 has approved to treat all such expenditur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ified in law in confirming the disallowance made by the learned Assessing Officer a sum of ₹ 2,36,86,000/- under section 43B of the Act in respect of workers welfare cess on the facts and circumstances of the case. 28. The authorities below erred in disallowing the sum of ₹ 2,36,86,000/-being the expenditure claimed towards workers welfare cess payable to Workers Welfare Board and the AO ought to have noted that the Section 43B of the IT Act, 1961 is applicable only in case of assessee whose income comes under the purview of Section 28 of the IT Act, 1961. The AO has erred in disallowing the claim for liability applying the provisions applicable to income assessable under the head profits and gains of business in case of appellant and the learned CIT (A) is erred in confirming the said disallowance on the facts and circumstances of the case. 29. The learned Commissioner of Income-tax (Appeals) is not justified in law in confirming the disallowance made by the learned Assessing Officer a sum of ₹ 33,47,000/- under section 43B of the Act in respect of unpaid service tax on the facts and circumstances of the case. 30. The authorities below were not jus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd and delete any of the above grounds of appeal. 37. For the above and other grounds that may be urged at the time of hearing of the appeal the appellant prays that the appeal may by allowed and relief may be granted as prayed for the advancement of substantial cause of justice. 5.0 Ground No.7 Applicability of proviso to section 2(15) of the Act and related grounds 5.1 We will now proceed to deal with the case on hand, considering the facts and circumstances under which the order of assessment for this year came to be passed. Revenue, being of the view that the assessee s activities which earn income are hit by the proviso to section 2(15) of the Act, introduced w.e.f. 01.04.2009 by Finance Act, 2010, consequently denied the assessee the exemption claimed under section 11 of the Act and brought to tax the assessee s income from Assessment Year 2009-10 onwards. The learned AR of the assessee submitted at the Bar that the assessee is in appeal before the Tribunal for all these Assessment Years for which exemption under section 11 of the Act has been denied and all the appeals are yet to be heard / disposed off. We have taken up the appeal for Assessment Year 2012- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to carry out any activity in the nature of trade, commerce or business or (ii) were to carry on any activity of rendering service in relation to any trade, commerce or business. for a cess or fee or any other consideration, then irrespective of the nature of use or application or retention of the income from such activity, such activity shall not constitute activity / activities of charitable purpose or nature, despite the fact that the same are carried out or performed for the advancement of any object of general public utility. 5.3.3 The AO, in para 5.4 of the order of assessment, reproduced the objects of the assessee viz., BDA as per section 14 of the Bangalore Development Authority Act, 1976, which reads as under: (j) to promote and secure the development of the Bangalore Metropolitan Area and for that purpose the Authority shall have the power to acquire, hold, manage and dispose of movable and immovable property, whether within or outside the area under jurisdiction, (ii) to carry out building, engineering and other operations and generally to do all things necessary and expedient for the purpose of such development and for activities purposes incidental th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear that the objects and activities of the assessee do not fall under first five limbs of definition of charitable purposes as envisaged u/s 2(15). This is precisely because of the reason that as per the objects of the assessee as envisaged under section 14 of BDA Act 1976, there is no reference to objects such as; relief of poor, education, medical relief, preservation of monuments or places of objects of artistic or historic interest and preservation of environment (including water sheds, forests and wildlife). Further, as per section 15 and 16 of BDA Act 1976, by virtue of which assessee derives powers/ functions in order to achieve the objects, there is no mention about any functions relating to five limbs mentioned above. Also, it may be noted that the activities of the assessee do not include any direct activities in the nature of relief of poor, running educational institutions, hospitals etc. 5.8 At this juncture, it may be noted that the activity of allotment of sites and construction of houses for economically weaker sections doesn't come under the ambit of `relief of poor' inasmuch as such an activity is incidental to the main object of development of B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e manner of conduct of its activities with systematic commercial overtones gives enough indication that it is not merely an activity with business principles but a purely commercial activity akin to business. There is no charity involved either in its objective or in its functioning. Such activities fall within the second limb of the proviso to Sec.2(15) 5.5.1 What is now before us for consideration and adjudication is whether the AO and the CIT(A) have rightly come to the conclusion that the activities of this assessee, which are carried out for a cess or fee or other consideration, constitute activities which are in the nature of trade, commerce or business or services in relation to any trade, commerce or business. It is critically important to note the fact that two conditions need to be satisfied, if any activity is to be considered as an activity falling under the proviso to section 2(15) of the Act, namely (1) The activities are carried out for a fee or cess or other consideration, and (2) The activity is in the nature of trade, commerce or business and if the activity is in the nature of rendering service, then such service rendered is in relation to any trade ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax. On the other hand, the quantum of income generated, being large, by itself, also would not mean that the entity is an organization created for the purpose of making profits. 5.6.2 The submissions of the assessee in support of its contention that sale of sites ought not to be treated as an activity which is in the nature of trade, commerce or business, are extracted hereunder: n) The treatment of sale of sites by public auction (Rule 3 of the Bangalore Development Authority (Disposal of Corner Sites and Commercial sites) Rules, 1984) is not in the nature of trade commerce or business. The activity is pursuant to a statue and the rules framed under the same. The same cannot be given in contravention of the rules framed and this aspect cannot form pan of any remote connection with business. o) Allotment of sites in the normal course is governed by Sections of the BDA (Allotment of Sites), Rules, 1984. Accordingly, BDA has to allot a certain percentage of sites to persons belonging to different categories of society including Economically Weaker Sections (EWS) of the society, etc. at far below the normal allotment rates. Allotment of sites is done on a no profit no l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon'ble Finance Minister observed .. . The memorandum explaining the provisions of Finance Bill is to a similar effect. While replying in to a debate on the Finance Bill, the Finance Minister assured that genuine charitable institutions would not be brought within the ambit of Section 2(15). r) It is relevant to point out that the statement made by the mover of the Finance bill can be used for demonstrating the objects of the amendment. (Reliance is placed on the decision of the apex court in the case of K.P.Vargheese 131 ITR Page _597. It is also well settled law that circulars issued by the Board are binding on the revenue and for this proposition there is no need to multiply authorities as right from the case of Naveneet Lal Jhavaeri upto the recent decision of Kurien Abraham, 303 ITR 284 the view of the courts is that the circulars of the Board are binding on the revenue. s) The definition of Charitable purpose under the erstwhile law also referred to four limbs of charitable activities. Under the residuary limb of the definition, there was a qualifying condition. The object of general public utility to be regarded as charitable in nature was not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eveloped a particular locality or area, they do not carry out another development in the same area, unlike private entrepreneurs, who will not cease to do business as long as there exists a market and scope for real estate development in the said area. 5.6.4 It is further submitted that there are restrictions to whom BDA can allot sites to. For example; an important restriction is that the applicant for a site should not be an owner of any other residential site or house property at the time of submitting the application. This critical / important restriction itself demonstrates that BDA is allotting sites to those who do not have a residential site or house. No private real estate developer would impose such restrictions on himself / itself. The restrictions imposed in the process of allotment of sites ensures the very important social objective of the State which is Housing for All . 5.6.5 One important issue that has prompted the AO to hold that the activity of sale of corner sites is commercial in nature is the sale of corner sites by the BDA through the process of auction. In this regard, the learned AR submits that this is done as a policy and rule in order to en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... velopment Fund as mandated by Section 55 of the BDA Act . (xii) As per Section 65 of the BDA Act, the state government has the power to issue directions to the BDA and it is the duty of BDA to comply with such directions. (xiii) As per the mandate of Section 69 of the BDA Act, the power to make rules vests only with the State Government. (xiv) As per Section 74 of the BDA Act, the power to remove any difficulty vests with the State Government. (xv) In terms of section 75 of the BDA Act on dissolution, all the assets and liabilities of BDA vests with the State Government. 5.6.7 Thus, according to the learned AR, in view of the rules and regulations under which the allotment of sites and flats take place and in view of the restrictive clauses contained in the Bangalore Development Authority Act, 1976, the main details of which have been laid out above, BDA discharges virtually the function of the State and every rupee in the said Bangalore Development Fund is to be applied only on the general or specific orders of the state government. It is contended that the said clauses are reasons enough for concluding that BDA is neither established with the intention of maki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A) states that she is unable to accept the argument of the assessee that the activities undertaken by it related to the development of parks, lakes and greenery come under the first four limbs of the definition as per section 2(15) of the Act and not the fifth limb. She was of the view that the development of lakes, parks and greenery have been undertaken only as part of layout development and could be considered for enhancing the commercial value of the layouts developed by the assessee. We observe from the financial statements of the assessee for the impugned Assessment Year, that it has expended an amount of ₹ 2095.24 lakhs on planting of one crore seedlings in the green belt area for improvement of the environment. Further, it is also seen that the assessee has expended a sum of ₹ 2997.42 lakhs towards development of lakes. In the light of the above facts on record, the contentions of the AO and CIT(A) that the assessee has not carried out any of the activities specified / contained in the first five limbs of section 2(15) of the Act is not correct. The assessee has definitely carried out the activity of preservation of environment and water bodies. In our view, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (A) in the impugned appellate order, i.e., that (iii) The assessee is not applying the huge amount of profit generated from the activities towards any charitable activities such as relief of poor, education, medical relief and other objects of advancement of general public utility and such surplus is being invested in fixed deposits in order to earn interest income is also not correct in as much as it is evident from the financial statements of this year that the assessee has spent an amount of ₹ 278,78,43,000/- (disallowed by the AO para 15.20 of Assessment Order and reflected int eh computation of total income) on activities that fall under the head Advancement of General Public Utility like construction of grade separators, PRR Bridges on Flyovers, renovation and remodeling works, Maintenance of BBMP facilities, Development of Lakes, etc. Be that as it may, if one were to peruse the object for which the assessee, viz., BDA was constituted, it is clear that the intent and purpose is for planned urban development of Bangalore City and not with the purpose of profit making; i.e., the activity of formation of layouts and allotment of sites is only carried out with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n is, what the intent and purpose of starting such activity is. In the case on hand, the BDA s embarkation of the activity of setting up of residential layouts, including the activity of sale of sites and flats, is definitely not with a view to earn profit, but to ensure planned urban development and also to accomplish a social objective of providing an opportunity to economically weaker sections of society to be able to own a residence on their own. 5.10.1 We find that the view of the AO in (iv) of para 6.20 of the order of assessment and which is impliedly endorsed by the CIT(A) in the impugned order; i.e., that (iv) The activities of the assessee and the generation of profits on account of the same are akin to the activities carried on by real estate companies, property developers, infrastructure firms, etc., and therefore, the activities of the assessee squarely fall under the ambit of activities which are in the nature of trade, commerce and business. Accordingly the activities of the assessee are hit by the first proviso to section 2(15) ; is in our opinion rather superfluous in nature. No doubt, it is a fact that one will see a lot of similarities in the activity of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT (Exemptions) (2017) 396 ITR 323 (Guj.); (ii) Jaipur Development Authority Vs. CIT (2014) 52 taxmann.com 25 (Jaipur Trib.) (iii) Haridwar Development Authority Vs. CIT (2015) 57 taxmann.com 6 (Dlehi Trib.) (iv) CIT Vs. Lucknow Development Authority (2013) 38 taxmann.com 246 (Allahabad) (v) CIT Vs. Jodhpur Development Authority (2017) 79 Taxmann 361 (Raj.). 5.10.4 We find that the aforesaid judicial pronouncements relied upon by the assessee are those of other urban development authorities, in whose cases also the AO has taken the view that the activities of city development are hit by the proviso to section 2(15) of the Act. Referring to the above cited cases, we find that in the case of Ahmedabad Development Authority (2017) 396 ITR 323, the Hon ble Gujarat High Court has upheld the appeal of the assessee, by overruling therein the decision of the Ahmedabad Tribunal in that case. In the case of Lucknow Development Authority (2018) 39 taxmann.com 246, the Hon ble Allahabad High Court has upheld the decision of the Lucknow Bench of ITAT which was in favour of the assessee. We find that in the above judicial pronouncements cited by the assessee, the facts are ide ..... X X X X Extracts X X X X X X X X Extracts X X X X
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