TMI Blog2017 (1) TMI 945X X X X Extracts X X X X X X X X Extracts X X X X ..... s conducting its affairs solely on commercial lines with a motive to earn profit. There is also no material brought on record which could suggest that the appellant company deviated from its objects for which it has been constituted. In our humble opinion and understanding of law, the proviso to Sec. 2(15) of the Act is not applicable on the facts of the case. - Decided in favour of assessee - ITA. Nos. 278 /AHD/2013, 493 & 2346 Ahd/2014 - - - Dated:- 10-1-2017 - Shri N. K. Billaiya, Accountant Member And Shri Mahavir Prasad, Judicial Member Appellant by : Shri S. N. Soparkar, P.M. Mehta Parin Shah, A.R. Respondent by : Shri G. C. Srivastava, CIT/ D.R. ORDER Per N. K. Billaiya, Accountant Member 1. ITA Nos. 278/Ahd/2013, 493 2346/Ahd/2014 are appeals by the assessee preferred against three separate orders of the ld. CIT(A), Gandhinagar, Ahmedabad pertaining to A.Y. 2009-10, 2010-11 2011-12. 2. Although the appeals of the assessee are against three separate orders, the underlying issues in all these appeals are identical and, therefore, all these appeals are disposed of by this common order for the sake of convenience. 3. We heard the appeal in I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 09 or not. The assessee has carried on the activities of acquiring, developing and leasing and selling land and structures, which generates surplus income. The activities are organized on a complete basis mould. Lands are being acquired and developed and leased out for which adequate consideration is obtained. The cash surplus generated in the process is invested in other income yielding assets. It has also invested in a number of companies and has also purchased bonds and fixed deposits. In the Income and Expenditure Account, the assessee has shown interest from investment and deposits with banks, companies etc. at ₹ 195,45,52,106/-. It has also income from rent and building, water charges etc. at ₹ 173,78,00,353/-. The total income as per Income Expenditure account arrives at ₹ 393,15,12,238/- and expenditure is shown at ₹ 228,09,47,407/-, leaving a net surplus of ₹ 165,05,64,831/-. 5.2 From the above description, it is clear that the assessee is involved in commercial activities only whether it is use of land as stock in trade or use of its movable assets. It also maintains its accounts in the spirit of a commercial organization. The assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng industrial estates and industry according to the mandate of the Government of Gujarat. (ii) It is not a trading corporation as defined under section 2(49) of the Companies Act and therefore, cannot be said to be engaged in business. It has to be understood that the revenue is not contending that the appellant is not engaged in activities whose object is of general public utility. However/there is no dispute that the purpose of the assessee is not amongst relief of the poor, education, medical relief, preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest. The contention of the AO and that from the side of the revenue raised through the specific show cause notice issued in the present proceedings is that its activities fall in first proviso to section 2(15) of the IT Act. The proviso reads as under: Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the activities of this assessee can be said to be governed by section 2(15) wherein an expression is any other object of general public utility . This expression would prima-facie include all objects which promote the welfare of the general public. One has to examine the primary purpose and the dominant object for which this corporation came into existence. Undisputedly it was formed to promote the welfare of the general public. As far as this aspect is concerned, we have nothing much to add but to follow the findings of Hon'ble Supreme Court pronounced in assessee's own case(supra) [227 ITR 414], The Hon'ble Apex Court has said that the appellant was created under the Gujarat Industrial Development Act, 1962. The appellant had the right to hold properties and the right to sue and be sued in its own name. Describing the functions of the Corporation, it was mentioned that proper planning is absolutely necessary for creation of an industrial Area. Such as, roads, sanitation, park, other amenities, etc. are to be provided in a planned manner in an industrial area. As per the Hon'ble Apex Court, even an educational institution may have to be provided in such industr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ature shall also be reckoned in business. There is no dispute about this primary argument because the word business connotes a large import. There are several decisions on the basis of which now it is settled that any activity of commerce and any adventure in the nature of trade does fall within this definition. At present, there is no necessity to exhaustibly deal with this definition and we are bound to accept that the assessee can be said to be an undertaking which has carried out an adventure in the nature of trade. Purchase of land and sale of land being the primary activity of this organization can be said to be a business activity (emphasis supplied) but merely by holding that the undertaking is a business undertaking whether the profits arising therefrom can be subjected to tax by invoking section 11(4) of the I.T. Act? ........ Applying this test on the present set of facts of the case, it is evident that though the Assessing Officer has computed the profits on transfer of land or plots but it was not the case that the profits so generated were not within the main provisions of section 11 of the l.T.Act. (emphasis supplied). Even if the assessee has earned premium pric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receive moneys for disposal of land, buildings and other properties and also that the Corporation would receive rents and profits in appropriate cases Clearly, the activities of the appellant fall 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. The activities of the appellant therefore, does not qualify to be considered as charitable under the provisions of section 2(15) read with the proviso. The following are the receipts of the appellant in the year: Sr No. Head Balance as on 31.03.2007 Balance as on 31.03.2008 Receipts during year (3- 4) 1 2 3 4 5 1 Premium price on lease of plot and land for sale as per Schedule-'G' '. 18,82,06,90,986 23,06,58,35,738 424,51,44,752 2 Recovery towards factories sheds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -dominant object of making profit; therefore, proviso to Section 2(15) of the Act does not apply. Reliance was placed on the decision of the Hon ble Delhi High Court in the case of ICAI 35 taxmann.com 140 and 13 taxmann.com 175. Reliance was also placed on the decision of the Hon ble Delhi High Court in the case of GS1 India 38 taxmann.com 364, Hon ble Gujarat High Court in the case of Sabarmati Ashram Gaushala Trust 44 taxmann.com 141. 12. The ld. Special Counsel Shri G.C. Srivastva representing the revenue drew our attention to the legislative intent. It is the say of the ld. D.R. that earlier there was a specific provision to section 10(20A) in the statute by which such corporation (like the assessee) were given blanket exemption under the Income Tax Act. It is the say of the ld. D.R. that this specific exemption was later on withdrawn with effect from 01.04.2003 which means that it was never a legislative intent to treat such institutions (like assessee) as charitable institution. The ld. D.R. further drew our attention to the provisions of Section 10(20) of the Act which contains definition of local authority and stated that even under this provision, the assessee does not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purview of the proviso to Section 2(15) of the Act. Let us now consider the relevant provisions of the Gujarat Industrial Development Act, 1962 and the same reads as under:- 2. In this Act, unless the context otherwise requires,- (a) amenity includes road, supply of water or electricity, street lighting, drainage, sewerage, conservancy and such other convenience as the State Government may, by notification in the Official Gazette, specify to be an amenity for the purposes of this Act; (b) building means any structure or erection, or part of a structure or erection, which is intended to be used for residential, industrial, commercial or other purposes, whether in actual use or not; (c) Collector means the Collector of a district, and includes any officer specially appointed by the State Government to perform the functions of a Collector under this Act; 3[(ca) commercial centre in relation to any industrial area or industrial estate means any site selected by the State Government where the Corporation builds shops and other buildings and makes them available for any commercial activity,] (d) Corporation means the Gujarat Industrial Developme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion with the establishment and organization of such industries], there shall be established by the State Government by notification in the Official Gazette, a Corporation by the name of the Gujarat Industrial Development Corporation. (2) The 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 movable and immovable, and to contract, and do all things necessary, for the purpose of this Act. FUNCTIIONS AND POWERS OF THE CORPORATION 13. The functions of the Corporation shall be- (i) generally to promote and assist in the rapid and orderly establishment, growth and development of Industries in the State of Gujarat, and (ii) in particular and without prejudice to the generality of clause (i) to- (a) establish and manage industrial estates at place selected by the State Government; (b) (b) develop industrial area selected by the State Government for the purpose and make them available for undertakings to establish themselves; (c) (c) develop land on its own account or for the State Government for the pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... strial areas developed by the Corporation: 3[(ia) to allot shops and other buildings to suitable persons in commercial centres established by the Corporation;] (ii) to modify or rescind such allotments, including the right and power to evict the allottees concerned on breach of any of the terms or conditions of their allotment; (h) to constitute committees from amongst its 4[Directors] to perform any of its functions; (i) to engage suitable consultants or persons having special knowledge or skill to assist the Corporation in the performance of its functions; (j) 5 [********] [to delegate any of its powers generally or specially to any of its committees or officers and to permit them to re-delegate specific powers to their subordinates; (k) to enter into and perform all such contracts as it may consider necessary or expedient for carrying out any of its functions; and; (l) to do such other things and perform such acts as it may think necessary or expedient for the proper conduct of its business and the carrying in to effect the purposes of this Act. Finance, Accounts and Audit 18. All property funds and other assets vesting in the corpora ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the disposal of the State Government upon such terms and conditions as the State Government may after consultation with the Corporation determine. 41. All sums payable by any person to the Corporation or recoverable by it by or under this Act and all charges or expenses incurred in connection therewith shall, without prejudice to any other mode or recover, be recoverable as an arrears of land revenue on the application of the corporation. 48(1) (1) The State Government if satisfied that the purposes for which the Corporation was established under this Act has been substantially achieved so as to render its continuance unnecessary, it may by notification in the official Gazette declare that the Corporation shall be dissolved with effect from such date as may be specified in the notification, and thereupon the Corporation shall stand dissolved accordingly. (2) From the said date- (a) all properties, funds and dues which are vested in, or realizable by, the Corporation shall vest in or be realisable by State Government; and (b) all liabilities which are enforceable against the Corporation shall be enforceable against the State Government. 54.(1) The C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ution and several other problems. Apart from that, the question which is required to be considered is as to whether the purpose of the corporation or the object of the corporation is to develop any city, any town or any particular area. The answer would be in the negative. 8. The Gujarat Act was enacted 'to make special provision for securing the orderly establishment of industries in industrial areas and industrial estates in the State of Gujarat, and to assist generally in the organization thereof, and for that purpose to establish an Industrial Development Corporation and for purposes connected with the matters aforesaid' as can be discerned from the preamble thereof. 9. Section 2(g) of the Act defines 'industrial area1 as any area declared to be an industrial area by the State Government by notification in the Official Gazette which is to be developed and where industries are to be accommodated. Section 2(h) defines 'industrial estate' as any site selected by the State Government where the Corporation builds factories and other buildings and makes them available for any industries or class of industries. Section 13 of the Gujarat Act enumerates th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es which may locate in cities or towns or villages. Such schemes would normally involve planning and development of such areas. 13. The word 'development' in section 10(20A) should be understood in its wide sense. There is no warrant to exclude all development programmes relating to any industry from the purview of the word 'development' in the said sub-section. There is no indication in the Act that development envisaged therein should confine to non-industrial activities. Development of a place can be accelerated through varieties of schemes and establishment of industries is one of the modes of developing an area. One of the reasons for incorporating a specific provision of exemption from income-tax such as section 10(20A) is to protect public bodies created under law for achieving the purpose of developing urban or rural areas for public good. When the object is such, an interpretation which would preserve it should be accepted even if the provision is capable of more than one interpretation. That principle of interpretation is very much applicable to fiscal statutes also, [vide State of Tamil Nadu v. M.K. Kandaswami 1976 (1) SCR 38]. This Court has re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in industry or trade or finance or who are in the opinion of the Government capable of representing the interest of persons engaged or employed therein, and the Chief Executive Officer of the Corporation, who shall be the Secretary of the Corporation. 7. We have referred to these expressions, industrial area , industrial estate , development and amenity in order to appreciate the general powers of the Corporation to discharge the functions of the Corporation in regard to the establishment, growth and development of industries in the State. These powers are to acquire and hold property, movable and immovable for the performance of any of its activities, and to lease, sell, exchange or otherwise transfer any property held by the Corporation on such conditions as may be deemed proper by the Corporation and also to purchase by agreement or to take on lease or under any form of tenancy any land, to erect such buildings arid to execute such other works as may be necessary for the purpose of carrying out its duties and functions, to provide or cause to be provided amenities and common facilities in industrial estates and industrial areas and construct and maintain or cause to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n in regard to the establishment, growth and development of industries in the State are first to establish and manage industrial estates at selected places and secondly to develop industrial areas selected by the State Government. When industrial areas are selected the necessity of acquisition of land in those areas is apparent. The Act, therefore, contemplates that the State Government may acquire land by publishing a notice specifying the particular purpose for which such land is required. Before the publication of the notice, the owner of the land is given an opportunity to show cause as to why the land should not be acquired. After considering the cause shown by the owner the State Government may pass such orders as it deems fit. When a notice is published for acquisition of land, the land shall, on and from the date of such publication, vest absolutely in the State Government free from all encumbrances. Where the land has been acquired for the Corporation or any local authority, the State Government shall, after it has taken possession of the land, transfer the land to the Corporation or that local authority, for the purposes for which the land has been acquired subject to suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation set up by the shareholders carries on business and is intended for making profits. When profits are earned by such a Corporation they are distributed to shareholders by way of dividends or kept in reserve funds. In the present case, these attributes of a trading corporation Corporation are absent. The Corporation is established by the Act for carrying out the purposes of the Act. The purposes of the Act are development of industries in the State. The Corporation consists of nominees of the State Government, State Electricity Board and the Housing Board. The functions and powers of the Corporation indicate that the Corporation is acting as a wing of the State Government in establishing industrial estates and developing industrial areas, acquiring property for those purposes, constructing buildings, allotting buildings, factory sheds to industrialists or industrial undertakings. It is obvious that the Corporation will receive moneys for disposal of land, buildings and other properties and also that the Corporation would receive rents and profits in appropriate cases. Receipts of these moneys arise not out of any business or trade but out of sole purpose of establishment, growt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... struction of buildings, the establishment of industries by letting buildings on hire or sale, the acquisition and transfer of land in relation to establishment of industrial estate or development of industrial areas and of setting up of industries cannot be said to be dealing in land or buildings for the obvious reason that the State is carrying out the objects of the Act with the Corporation as an agent in setting up industries in the State. The Act aims at building an industrial town and the Corporation carries out the objects of the Act. The hard core of a trading Corporation is its commercial character. Commerce connotes transactions of purchase and sale of commodities, dealing in goods. The forms of business transactions may be varied but the real character is buying and selling. The true character of the Corporation in the present case is to act as an architectural agent of the development and growth of industrial towns by establishing and developing industrial estates and industrial areas. We are of opinion that the Corporation is not a trading one. 18. In the light of the aforementioned judicial decisions of the Hon ble Supreme Court, it is settled that the assessee is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tution is relief of the poor, education or medical relief, it will constitute charitable purpose, even if it is incidentally involves the carrying on of commercial activity. The Board further clarified that the newly inserted proviso to Sec. 2( 15) will apply only to entities whose purpose is advancement of any other object of general public utility i.e. 4lh limb of the definition of the charitable purpose contained in Sec. 2(15). The Circular further clarified in the final analysis, whether the assessee has for its objects the advancement of any other object or 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 that its object is charitable purpose. In such a case, the object of general public utility will be only a mask or device to hide the true purpose which is trade 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 generalization is possible. 19. Thus, even the CBDT does not lay down ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee. The proviso to Sec. 2(15) was not applicable. 23. The reliance by the Ld. DR on the decision of the Tribunal in the case of Amritsar Bench in the case of Improvement Trust (supra) by the Ld. DR is misplaced inasmuch as in that case the dominant activity of the trust was to purchase land at nominal cost, then level and clear it. cut into plots and sell at much higher prices. On this, the Tribunal has held that the activities of the assessee are aimed at earning profits. Similar were the facts before the Hon'ble High Court of Jammu and Kashmir in the case of Jammu Development Authority (supra). 24. The DR has also relied upon the decision of the Tribunal Panaji Bench in the case of Belgaum Urban Development Authority Vs CIT(supra). However, we find that in that case the Tribunal was referring to the registration certificate issued u/s. 12A to Belgaum Urban Development Authority by the DIT (Exem) Bangalore and while referring to the said certificate, the Tribunal observed that while granting registration, the CIT had no chance to examine the newly inserted proviso to Sec. 2(15) of the Act and the Tribunal was not aware what happened subsequently in that case after the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order does not, however, lead to such a result. It only means that the order which has been stayed would not be operative from the date of the passing of the stay order and it does not mean that the said order has been wiped out from existence. This means that if an order passed by the Appellate Authority is quashed and the matter is remanded, the result would be that the appeal which had been disposed of by the said order of the Appellate Authority would be restored and it can be said to be pending before the Appellate Authority after the quashing of the order of the Appellate Authority. The same cannot be said with regard to an order staying the operation of the order of the Appellate Authority because in spite of the said order, the order of the Appellate Authority continues to exist in law and so long as it exists, it cannot be said that the appeal which has been disposed of by the said order has not been disposed of and is still pending. We are, therefore, of the opinion that the passing of the interim order dated February 21, 1991 by the Delhi High Court staying the operation of the order of the Appellate Authority dated January 7, 1991 does not have the effect of reviving t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m 01.04.2009 which provided that the benefit of Section 11 or Section 12 would not be available if the receipts from the activity in the nature of trade or business exceeded the threshold provided for in the proviso to Section 2(15) of the Act. Section 13 (8) of the Act reads as under:- [(8) Nothing contained in section 11 or section 12 shall operate so as to exclude any income from the total income of the previous year of the person in receipt thereof if the provisions of the first proviso to clause (15) of section 2 become applicable in the case of such person in the said previous. ] 33. A perusal of the aforementioned section shows that it would be applicable if the provisions of the first proviso to clause 15 of Section 2 become applicable. Since, we have held that the first proviso to Section 2(15) is not applicable in the case of the assessee on the facts of the case. 34. As mentioned elsewhere, the facts of ITA No. 493/Ahd/2014 for A.Y. 2010- 11, ITA No. 2346/Ahd/2014 for A.Y. 2011-12 are identical to the facts of the appeal decided by us in ITA No. 278/Ahd/2013 for A.Y. 2009-10, for assessment year 2010-11 2011-12. We hold accordingly with similar directions to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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