TMI Blog2015 (4) TMI 885X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the ownership cannot be considered or taken into account to determine the character or nature of the activities carried on by the Corporation. In view of the foregoing discussions, we agree with the Ld CIT(A) in holding that the activities of the assessee are commercial in nature and hence would be hit by the proviso to sec. 2(15) of the Act. Funds claimed to have been received by the assessee on behalf of the Government of Maharashtra - Held that:- The assessee is raising the contention for the first time before us that it is carrying on the activities on its own account and also as agent of the Government of Maharashtra. There appears to be no reference in the orders of the tax authorities to the resolutions passed by the Government of Maharashtra. It is further contended that the assessee is following consistently taking the funds received on behalf of the State Government to the Balance Sheet as per the resolutions passed by the State Government. Since the assessee has submitted that it is also carrying out certain activities on behalf of the Government of Maharashtra and since the said claim of the assessee has not been examined by the tax authorities, we are of the view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emption u/s 11 of the Act. (b) the assessee is carrying on commercial activities and hence not eligible for exemption under section 11 of the Act. (c) the funds claimed to have been received on behalf of the Government of Maharashtra is taxable as income in the hands of the assessee. (d) the assessee is not eligible to claim set off of brought forward deficit and also the deduction of book depreciation. 3. The facts relating to the issues cited above are stated in brief. The assessee is a Statutory Corporation formed under Maharashtra Industrial Development Act, 1961 (MID Act). The assessee is engaged in development of industrial assets by providing basic infrastructure facilities like land, roads, street lights, water supply, drainage etc. The assessee is maintaining facilities such as water supply, drainage and also providing certain facilities to the occupants of the industrial assets and collects charges for the same. The industrial plots are allotted to the business people on receipt of lease premium, rent etc. It filed its return of income for the year under consideration claiming exemption u/s 11 of the Act, since it had been registered as a charitable organizat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hall be dissolved from such a date as may be specified in the notification. The ld. CIT(A), accordingly held that the provisions of section 58 of MID Act rendered the nature of the assessee as a revocable trust. b) The assessee is primarily engaged in such kind of activities which are in the nature of business, manufacture and commerce resulting in some kind of benefits to the industries/industrial development. Hence the activities are only very remotely connected with the development of the public at large. Hence, the proviso to section 2(15) is fully applicable to the assessee. 7. The ld. CIT(A) also rejected the claim of the assessee that the funds received by it by way of lease rent, development charges, interest on deposits etc belong to State Government on the reasoning that there is no such legal obligation existing in the MID Act. Accordingly, the ld. CIT(A) upheld the assessment of ₹ 1701.61 crores in the hands of the assessee. Aggrieved, the assessee has filed this appeal before us. 8. We heard the parties and perused the record. The first issue is about the eligibility of the assessee to claim exemption u/s 11 of the Act. Before us, the Ld A.R submitted th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Memorandum is expected to have such kind of clause. There should not be any dispute that Revocation and winding up have different meaning and purpose. A careful perusal of section 58 of the MID Act would show that the section prescribes a condition for dissolving the assessee, meaning thereby, the assessee cannot be dissolved at the sweet will of the State Government. Accordingly, we are not agreeable to the view of the Ld CIT(A) and accordingly set aside the same. 10. The second reasoning given by the assessing officer as well as Ld CIT(A) is that the activities carried on by the assessee are commercial in nature and the gross receipts has exceeded the prescribed limits. Accordingly he held that the assessee is hit by the proviso to sec. 2(15) of the Act and hence the activities of the assessee cannot be considered to be for charitable purpose. The Ld A.R, however, disputed the same and contended that the activities of the assessee cannot be considered to be in the nature of trade, commerce or business as contemplated in the proviso to sec. 2(15) of the Act. In this regard, he placed reliance on the decision of Hon'ble Supreme Court rendered in the case of Shri Ramt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oration consists of moneys received from the State Government, all fees, costs and charges received by the Corporation, all moneys received by the Corporation by way of rents and profits or in any other manner......The Corporation accepts deposits from persons, authorities or institutions to whom allotment or sale of land, buildings or sheds is made or is likely to be made in furtherance of the object of the Act...... These provisions in regard to the finance of the Corporation indicate the real role of the Corporation, viz., the agency of the Government in carrying out the purpose and object of the Act which is the development of industries. If in the ultimate analysis there is excess of income over expenditure that will not establish the trading character of the Corporation..... 20. The underlying concept of a trading Corporation is buying and selling. There is no aspect of buying and selling. There is no aspect of buying or selling by the Corporation in the present case. The Corporation carries out the purposes of the Act, namely, development of industries in the State. The construction of buildings, the establishment of industries by letting buildings on hire or sale, the ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . With regard to the contentions that the activities of the assessee are not in the nature of trade, commerce or business, the Ld A.R placed reliance on the following case law:- (a) Director of Income tax Vs. Sabarmati Ashram Gaushala Trust (2014)(362 ITR 539)(Guj), wherein it was held that the proviso to sec. 2(15) is not aimed at excluding genuine charitable trusts of general public utility but is aimed at excluding activities in the nature of trade, commerce or business for a cess, fee or any other consideration. (b) Indian Chamber of Commerce Vs. ITO (ITA No.1491/Kol/2012 1284/Kol/2012 dated 02-12-2014 of Kokatta bench of ITAT. In this case, it was held that, in the cases of institutions/associations whose main activity is not business the connected incidental or ancillary activities of sales carried out in furtherance of and to accomplish their main objects would not, normally, amount to business, unless an independent intention to conduct 'business' in these connected, incidental or ancillary activities is established by the revenue....the services rendered by a Chamber of commerce could not be held to be 'business' in the nature carried out with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as agencies of the State in public duties which cannot be discharged by private bodies. Following the above said decision, the Hon'ble High Court held that the ICAI cannot be said to be carrying on any business, trade or commerce. (e) Himachal Pradesh Environment Protection and Pollution Control Board Vs. CIT (2011)(9 ITR (Trib) 604)(Chandigarh). In this case, the Tribunal referred to the Circular No.11 dated December 19, 2008 (2009)(308 ITR (St.) 5) and observed as under:- As the above Central Board of Direct Taxes circular, which is binding on the Commissioner under section 119(1)(a) of the Act, aptly puts it, whether the assessee has, as its object, advancement of any other object of general public utility is essentially a question to be decided on the facts of the assessee's own case and where object of general public utility is only a mask or a device to hide the true purpose of trade, business or commerce, or rendering of any service in relation thereto, the assessee cannot be said to be engaged in a charitable activity within the meaning of section 2(15) of the Act. As a corollary to this approach adopted by the tax administration, in our considered view, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly, the Ld D.R submitted that there is drastic change in the approach and objective of the assessee and hence it can no longer be said that the assessee is existing with the object of general public utility. He also invited our attention to the news paper report dated Nov 5, 2014, wherein an article has been published under the heading Two flop actions prompt MIDC to mull change in IT park policy . The Ld D.R submitted that this news paper report shows that auctions conducted by the assessee for sale of industrial plots have failed, meaning that the activities of the assessee have become totally commercial in nature. 12. He submitted that the activities of the assessee came to be considered by the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) while considering the Stay application filed by the assessee and the CESTAT has expressed the view that the assessee is not performing any sovereign function, since the assessee is having its own identity distinct from the Maharashtra State Government and operates independently. Further the CESTAT noted down the fact that the receipts are credited to its own fund and not to the consolidated fund of the State. He further submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the State Government and hence its income cannot be considered to be the income of the State Government. 14. The Ld D.R submitted that the Hon'ble Supreme Court, in the case of Ramana Dayaram Shetty Vs. The International Airport Authority of India and Ors. (1979 AIR 1628; 1979 SCR (3) 1014), has laid down following parameters in order to determine whether a Corportation is an agency or instrumentality of Government:- (a) Whether there is any financial assistance given by the State, and if so, what is the magnitude of such assistance. (b) Whether there is any other form of assistance given by the State and if so, whether it is of usual kind or it is extraordinary. (c) Whether there is any control of management and policies of the Corporation by the State and what is the nature and extent of such control. (d) Whether the Corporation enjoys State Conferred or State protected monopoly status. And (e) Whether the functions carried out by the Corporation are public functions closely related to Governmental functions. The Ld D.R submitted that the assessee has not obtained any financial assistance from the State Government or any other form of assistance. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... He submitted that the Chandigarh bench of ITAT has also considered an identical issue in the case of Punjab Urban Planning and Development Authority Vs. CIT (2006)(156 Taxman 37)(Chd.) and it held that the assessee was not entitled for registration u/s 12A of the Act. He submitted that the decision rendered by the Tribunal in the case Jammu Development Authority (supra) is binding on this bench of Tribunal, since it has been upheld by the High Court and further the SLP has been dismissed by the Hon'ble Apex Court. Accordingly the Ld D.R submitted that the assessee herein is no longer carrying on any activity of general public utility and further it is operating with profit earning motive. Hence the assessee cannot be considered to be a charitable institution. Further, its activities are very much commercial in nature and hence it is hit by the proviso to sec. 2(15) of the Act also. The Ld D.R submitted that the assessee is taking two contradictory stands before the Tribunal. He submitted that the assessee, having filed return of income as an independent assessee, cannot claim at this stage as an agent of the State Government immune from taxation. 16. In the rejoinder, the L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee and submitted that the assessee is required to remit the proceeds to the State Government after recouping its expenses. The Ld A.R submitted that the assessee is acting as per the directions of the State Government only. He further submitted that the Allahabad bench of ITAT has held in the case of U.P. Forest Corporation (supra) that the decision rendered in the case of Ramatanu Co-operative Housing Society Ltd is not relevant since the U.P. forest corporation was clearly mentioned to be a commercial undertaking. The Tribunal further held that the decisions rendered in the case of Andhra Pradesh State Road Transport corporation (supra) and Ramana Daya Ram Shetty Vs. The International Airport was also held to be not applicable. Accordingly the Ld A.R submitted that the decision rendered in the case of U.P Forest Corporation (supra) is not applicable to the assessee herein. With regard to the reliance placed by Ld D.R on the order passed by the CESTAT, the Ld A.R submitted that it was an observation made in a Stay order and subsequently another order No.M/1895/14/CSTB/C-I dated 20.11.2014 was passed by the CESTAT against the miscellaneous petition filed by the assessee. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on in land. Power is therefore required for compulsory acquisition of land to achieve the purposes of the Act. At the same time, land owners are not to be derived of the legitimate benefit of reasonable increase in land values in a developing economy......The absence of amenities is envisaged and answered in the Act by empowering the Corporation to provide these essential amenities, facilities and conveniences. Thus, it can be seen that the Hon'ble Supreme Court has examined the provisions of the MID Act and the object/purpose sought to be achieved by formation of the assessee under the MID Act and accordingly rendered its decision upholding the validity of MID Act. Admittedly, the provisions of MID Act were not examined vis- -vis the Income tax provisions. Further, the Hon'ble Apex Court has examined the provisions of MID Act and not actual functioning of the assessee. 18. In the case with M.D., H.S.I.D.C (supra), following facts narrated by the Hon'ble Apex Court are relevant:- 4. Appellant-Corporation is public sector undertaking. Its principal function is allotment of industrial plots belonging to the State of Haryana. It was set up as a catalyst for prom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stablish industrial estates or may develop industrial areas......The Corporation is therefore established for carrying out the purposes of the Act. The pith and substance of the Act is establishment, growth and organisation of industries, acquisition of land in that behalf and carrying out the purposes of the Act by setting up the Corporation as one of the limbs or agencies of the Government. The powers and functions of the Corporation show in no uncertain terms that these are all in aid of the principal and predominant purpose of establishment, growth and establishment of industries. The Corporation is established for that purpose........ ........These features of transfer of land or borrowing of moneys or receipt of rents and profits will by themselves neither be the indicia nor the decisive attributes of trading character of the Corporation.......The functions and powers of the Corporation indicate that the Corporation is acting as a wing of the State Government in establishing industrial estates and developing industrial areas,..... Receipts of these moneys arise not out of any business or trade, but out of the sole purpose of establishment, growth and development of industr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rson having an independent existence. The legal status of the assessee is made clear in section 3(2) of MID Act, which reads as under:- (2) The said Corporation shall be a body corporate with perpetual succession and a common seal, and may sue and be sued in its corporate name, and shall be competent to acquire, hold and dispose of property, both the movable and immovable, and to contract and do all the things necessary for the purposes of this Act. Since the assessee is a separate personality, it alone is liable for its actions. The Ld A.R invited our attention to the Resolution No. IDC 1079/(1966)/IND.14 dated 11th September 1986, wherein it is stated that the assessee is undertaking the development work as an agency function on behalf of Government and further the Corporation will act as an agent of Government for development of industrial area and other infrastructural facilities under the provisions of the Maharashtra Industrial Development Act, 1961. In our view, the provisions of MID Act shall have supremacy over the resolutions passed by the Government of Maharashtra. We have already noticed that the Hon'ble Supreme Court has also considered various provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the corporation is its own master and is answerable as fully as any other person or corporation. It is not the Crown and has none of the immunities or privileges of the Crown. Its servants are not civil servants, and its property is not Crown property. It is as much bound by Acts of Parliament as any other subject of the King. It is, of course, a public authority and its purposes, no doubt, are public purposes, but it is not a government department nor do its powers fall within the province of government. These observations tend to show that a trading activity carried on by the corporation is not a trading activity carried on by the State departmentally, or is it a trading activity carried on by a State through its agents appointed in that behalf. The observations made by Lord Denning, viz., It is, of course, a public authority and its purposes, no doubt, are public purposes, but it is not a government department nor do its powers fall within the province of government are very much relevant here and, in our view, they squarely apply to the assessee herein. We notice that the Hon'ble Gujarat High Court in the case of Gujarat Industrial Development Corporation V/s C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evelopment of industrial estates, in our view, the said contention is bound to fail. 23. The next contention of the assessee is that the activities carried on by the assessee would not fall in the category of trade, commerce or business . Reliance was placed by Ld A.R on the decision of Hon'ble Supreme Court rendered in the case of Shri Ramtanu Co-operative Housing Society Ltd and Anr. (supra), wherein the Hon'ble Apex Court has held as under:- .....These features of transfer of land, or borrowing of moneys or receipt of rents and profits will by themselves neither be the indicia nor the decisive attributes of the trading character of the Corporation......Receipt of these moneys arise not out of any business or trade, but out of the sole purpose of establishment, growth and development of industries. It was submitted that the meaning of the term Commerce is the activity of buying and selling, especially on large scale or the exchange of goods and services on a large scale involving transportation between cities, states and nations. Accordingly, it was contended that the assessee is not carrying on any trade or business or commerce. 24. A perusal of paragrap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... volume, which would convert a trade into commerce. For the purpose of the first proviso to section 2(15), trade is sufficient, therefore, this aspect is not required to be examined in detail. The word business is the broadest term and is encompasses trade, commerce and other activities. Section 2(13) of the Income-tax Act defines the term business as under : 2. Definitions.-- (13) 'business' includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture. The word business is a word of large and indefinite import. Section 2(13) defines business to include any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture. The intention of the Legislature is to make the definition extensive as the term inclusive has been used. The Legislature has deliberately departed from giving a definite import to the term business but made reference to several other general terms like trade , commerce , manufacture and adventure or concern in the nature of trade, commerce and manufacture . In Black's Law Dictionary, Sixth Edition, the word business has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n and England it was explained that the said principle is applicable to Sales Tax, Value added tax, Excise duty etc. because these are not taxes on income but the taxable event occurs because of the economic activity involved. Even if a person/organization is carrying on trading/business on no loss no profit principle, it may be liable to pay taxes or comply with the statute when the charge, or incident of tax, is on the economic activity . The words trade, commerce and business are etymological chameleon and suit their meanings to the context in which they are found. Five tests propounded in Customs Excise Commissioner V/s Lord Fisher [1981] S.T.C. 238 and decision in Commissioner Of Sales Tax V/s Sai Publication Fund [2002] 252 ITR 70/122 Taxman 437 (SC) was quoted. 19. The final and determining factors, it was observed was consequential profit motive or purpose behind the activity and when an activity is trade, commerce or business was elucidated in Institute of Chartered Accountants of India (supra) in the following words(page123): 'Section 2(15) defines the term charitable purpose. Therefore, while construing the term business for the said Section, the object ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce between the objectives while carrying on a pure business activity and charitable activity:- Business activity has an important pervading element of self interest, though fair dealing should and can be present, whilst charity or charitable activity is anti-thesis of activity undertaken with profit motive or activity undertaken on sound or recognized business principles. Charity is driven by altruism and desire to serve others, though element of self-preservation may be present. For charity, benevolence should be omnipresent and demonstrable but it is not equivalent to self sacrifice and abnegation. The antiquated definition of charity, which entails giving and receiving nothing in return is outdated. A mandatory feature would be; charitable activity should be devoid of selfishness or illiberal spirit. Enrichment of oneself or self-gain should be missing and the predominant purpose of the activity should be to serve and benefit others. A small contribution by way of fee that the beneficiary pays would not convert charitable activity into business, commerce or trade in the absence of contrary evidence. The quantum of fee charged, economic status of the beneficiaries who pay, co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... GE IN IT PARK POLICY Tushar Pawar, TNN / Nov 5, 2014, 04.08 AM IST NASHIK: Twice bitten, never shy. The Maharashtra Industrial Development Corporation (MIDC) looks determined to make the IT park project in its Ambad industrial estate a success. After two failed auction attempts, the MIDC is planning to change the reservation of the IT park following poor response from the industry. Around a decade ago, the state government had set up several state-of-the-art IT parks in some select cities across Maharashtra, including the one in Nashik. The IT park building, which was built by MIDC at ₹ 2.23 crore, was inaugurated in 2002. But since then, it has been lying idle because of poor response from industry. The MIDC tried to auction the IT park twice in the past one-and-a-half years, but failed miserably as not a single industry filed any bid on both the occasions. Speaking to TOI, a senior MIDC official said, There is no response from the industry to the IT park in the Ambad MIDC areas. In March last year, we had invited bids from industrial houses for the auction of shops at the IT park. But we did not receive a single bid. Our second attempt was in August this year. This t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence. In our view Ownership of the Corporation and activities of the Corporation are two different aspects and the ownership cannot be considered or taken into account to determine the character or nature of the activities carried on by the Corporation. 29. In view of the foregoing discussions, we agree with the Ld CIT(A) in holding that the activities of the assessee are commercial in nature and hence would be hit by the proviso to sec. 2(15) of the Act. 30. The next issue is with regard to the funds claimed to have been received by the assessee on behalf of the Government of Maharashtra. With the said contentions, the assessee did not disclose the funds received by way of lease premiums, interest on bank deposits etc. as its income in the Profit and Loss account, but shown as Liabilities in the Balance sheet as the amount due to paid to the State Government. However, the AO assessed the said receipts as income of the assessee and the Ld CIT(A) also confirmed the same. 31. Before us, the Ld A.R submitted that the assessee is carrying on its activities on its own account and also as agent of the Government of Maharashtra. The amount received from the activities carri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rdingly, it was contended that the funds received in respect of activities carried on behalf of the Government of Maharashtra cannot be considered as income of the assessee. In the alternative, it was contended that the corresponding expenditure relating to the said receipts should be allowed as deduction and only net income can be assessed as income. 32. The Ld D.R, on the contrary, placed strong reliance on the orders passed by Ld CIT(A). 33. We have considered rival contentions and perused record. We notice that the assessee is raising the contention for the first time before us that it is carrying on the activities on its own account and also as agent of the Government of Maharashtra. There appears to be no reference in the orders of the tax authorities to the resolutions passed by the Government of Maharashtra. It is further contended that the assessee is following consistently taking the funds received on behalf of the State Government to the Balance Sheet as per the resolutions passed by the State Government. Since the assessee has submitted that it is also carrying out certain activities on behalf of the Government of Maharashtra and since the said claim of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X
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