TMI Blog2018 (11) TMI 1121X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Assessing Officer for examination de novo, in the light of the above legal position-as was the decision of the coordinate bench in immediately preceding assessment year, since all the related facts are on record and, unlike in the immediately preceding assessment year, it is not a case of ex parte best judgment assessment order. Such an exercise will unnecessarily delay the matter reaching finality. In any case, no specific points, on which further examination is required, were pointed out to us. The grievances of the assessee are thus upheld and the Assessing Officer is directed to allow the benefits of exemption under section 11 to the assessee. The assessee gets the relief accordingly. - ITA No. 3297/Ahd/2016 - - - Dated:- 16-11-2018 - Mr P P Bhatt, President And Pramod Kumar, Vice President For The Appellant : Vijay Ranjan For The Respondent : Anshu Prakash ORDER 1. By way of this appeal, the assessee-appellant has challenged correctness of the order dated 14th September 2016, passed by the learned CIT(A)-9, Ahmedabad, in the matter of assessment under section 143(3) of the Income-tax Act, 1961, for the assessment year 2012-13. 2. Grievance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 55,656 Lower Income Group Units, 42,191 Middle Income Group Units, and 6,271 High Income Group Units. The Assessing Officer was of the view that houses constructed by the Gujarat Housing Board are sold to all types of income groups, including the high net worth individuals and large chunk of middle income group . The Assessing Officer was of the view that such an activity pursued by the assessee cannot be treated as a charitable activity. He referred to, and relied upon, decisions of this Tribunal in the cases of Jalandhar Development Authority Vs. CIT [(2010) 35 SOT 15 (Asr)], Punjab Urban Planning Development Authority Vs. CIT [(2006) 156 Taxman 37 (Mag)], Jammu Development Authority Vs. CIT [(2012) 23 taxmann.com 343 (Asr)] and Entertainment Society of Goa vs. CIT [(2013) 34 taxmann.com 210 (Panjim)]. He was thus of the view as follows:- 6. Thus, the submission of the assessee that, the assessee is carrying on the same nature of activity and same nature of income and therefore, the income should be computed as per provisions of Section 11 to 13 of the I.T Act is not acceptable since it is clearly evident that the assessee is engaged in the activity of earning profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... flects ail activities undertaken by the GHB are commercial in nature and are in the nature of trade, commerce or business or activities of rendering service in relation to any trade, commerce or business, for a cess or fee. GHB is not taking the responsibility of any cost on itself and is making the beneficiary of the housing unit to incur that cost. At the same time it is charging certain costs on the beneficiary in order to recover its own expenses. As discussed earlier at para 14 above the cost itself is inclusive of element of profit. Hence, GHB is not undertaking any charitable activities under the GHB Act. 16.1 There are many sections in the GHB Act that support the activities of GHB which are in the nature of trade, commerce or business or activities of rendering service in relation to any trade, commerce or business, for a cess or fee. U/s.65 of the GHB Act, GHB can borrow any sum from the market for the purpose of implementing housing scheme. It is a different matter that the GHB needs the permission of the State Government being an instrumentality of the State. Yet it cannot be denied that for undertaking its activity the GHB Act itself has given GHB freedom to borr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business principle but it does not mean that the provisions made through various sections of the GHB Act are misused in any manner under the garb of charity by making it a non tax payable organization. 16.5 The GHB Act has further stated that no suit can be filed against the decision taken for the actions of the GHB which has the approval of the State Government in Civil Courts. U/s.60 such powers of bar on jurisdiction of civil courts has been referred to. Further u/s.70 GHB has been given wide powers of entry for inspection, survey, measurement, valuation, digging etc. This provides GHB added advantage to carry out its activities that are in the nature of trade, commerce or business or activities of rendering service in relation to any trade, commerce or business, for a cess or fee. These powers have been given to GHB because the Govt. desires it to function in professional manner, increase its efficiency and should not be lagging behind in fulfilling its mandate under the GHB Act. Such authority has not been given to GHB because it is undertaking charitable work. 16.6 Throughout its submissions, the GHB has been mentioning that it is undertaking statutory functions. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal had held that such activities donot constitute business activities taking it out of ambit of Section 2(15), as follows: The Tribunal by the impugned order held that the stand of the authorities was unsustainable as even assuming that all the allegations of the Assessing Officer with respect to the profit motive in the activities of the assessee are correct, the same were carried out with the larger and predominant objective of general public utility. Relying upon the CBDT circular the Tribunal observed that it is only when the Assessing Officer finds that the income is from any other business which is not incidental to the attainment of the objectives of the trust or institution , that such an income will not be exempt from tax . The Tribunal noted that there is no finding to that effect by any of the authorities and that it is not even the case of the revenue that the activities of the trusts do not serve the objects of the general public utility. The Tribunal held that the activities of the trust fall within the category objects of general public utility . It was also held that separate books of account for the business activities were maintained. This was n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r object of general public utility in Section 2(15). The Tribunal, therefore, rightly directed the Assessing Officer to delete disallowance of exemption. 74. It cannot possibly be suggested that the Government of Punjab formed the trusts under the Punjab Town Improvement Act, 1922 because it wanted to carry on the business as colonizers or developers under the mask of the category objects of general public utility . 75. Section 28(2)(iii) of the Punjab Town Improvement Act, 1922 permits a scheme under this Act to provide inter alia for the disposal of the land vested in or acquired by the trust including by lease, sale and exchange thereof. This, however, is not the predominant activity or responsibility of the trust. Nor for this assessee is making profits from this activity its predominant motive. 76. The power of the assessee to dispose of land conferred by Section 28(2)(iii) is not an absolute or independent power. It is conferred upon the assessee in the discharge of its statutory duties imposed on it by the PTI Act of framing schemes. Sub-section (1) of Section 28 entitles the assessee to combine the various schemes referred to in Chapter-IV. Sub-section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cent thereto within the local area of such trust prepare an expansion scheme . The development scheme, therefore, is for the public purpose of development of any locality and an expansion scheme is also prepared when it is expedient and for the public advantage as opposed to a mere personal advantage as in the case of private developers or the colonizers. The two cannot possibly be compared. These schemes do not contemplate mere development of the plots and the construction of the premises for sale. The Trust must under the Act adopt a holistic approach for the betterment and advantage of the entire area within its jurisdiction. 80. Section 25 which provides for a housing accommodation scheme to be framed is similar. The trust is required to frame such a scheme if it is of the opinion that it is expedient and for the public advantage to provide housing accommodation for any class of inhabitants within its local area. The trust is, therefore, to be motivated not by personal but by public benefit. Such activities clearly fall within the last category of cases in the proviso to Section 2(15) as it stood at the relevant time, namely, advancement of an object of general public u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the aforesaid case is equally applicable on the present set of facts. There is no dispute that the objects of the Trust are covered by the objects of general public utility and the registration granted to the assessee trust is still valid. Clearly, therefore, pursing these valid objects of general public utility through lawful statutory schemes cannot be considered as business activity, and, as a corollary thereto, exemption under section 11(2) cannot be declined by invoking proviso to Section2(15) which can only come into play in the event of the assessee pursuing the activities in the nature of trade, commerce or business or services thereto. The case of the revenue does not, therefore, derive any strength from the judicial precedents relied upon, in view of subsequent rulings by higher judicial forums. The action of the authorities below cannot, therefore, meet our judicial approval. 9. While on the issue, we may also refer to Hon ble jurisdictional High Court s judgment in the case of Ahmedabad Urban Development Authority Vs PCIT [(2017) 396 ITR 323 (Guj)] wherein, in materially similar circumstances, Their Lordships have, inter alia, observed as follows: . The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said purposes certain percentage of total area covered under the 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, roads, gardens, 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 allegation of favoritism and nepotism, the plots are sold by public auction. It is required to be noted the entire amount realized by the assessee being Urban Deve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 profiter 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 in the first proviso to Section 2(15) of the Act, few decisions of the Hon'ble Supreme Court as well as other High Courts are required to be referred to at this stage. 12.3 In the case of Khoday Distilleries Ltd. v. State of Karnataka [1995] 1 SCC 574, the Hon'ble Supreme Court had an occasion to consider the word 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 State of Andhra Pradesh v. Abdul Bakhi and Bros. [1964] 5 STC 644 (SC) while considering the word business , the Hon'ble Supreme Court has held that the word b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions 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 on its 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 understood from the Budget Speech of the Finance Minister while introducing the Finance Bill 2008. The relevant extract to the Speech is as under:- Charitable purpose includes relief of the poor, education, medical relief and any other object of general public utility. These activities are tax exempt, as they should be. However, some entities carrying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not. In the present case, the petitioner has submitted figures to indicate that expenditure on salaries 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 business though extensively used a word of indefinite import, in taxing statutes it is used in the sense of an occupation, or profession 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 actually continued or contemplated to be continued with a profit motive, and not for sport or pleasure. (Underlining added) 72. There is nothing on record to 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 Iden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 G.S.I India (supra), in paras 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 activity is business, trade or commerce. The court further held:- 22. 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 busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Section 2(15) cannot be construed 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 said Act, then the proviso would be at risk of running fowl of the principle of equality enshrined in Article 14 of the Constitution India. In order to save 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 interpretation. The correct interpretation of the proviso to Section 2(15) of the said Act would be that it carves out an exception from the charitable purpose of advancement of any other object of general public utility and that exception 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry 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 total area covered under the Town Planning Scheme) is required to be used only for the purpose to carry out the object and purpose of Town Planning Act and to meet with expenditure while providing general utility service to the public such as electricity, road, drainage, water etc. and even 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 Section 2(15)of the Act shall not be applicable so far as assessee is concerned and therefore, 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 agains ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g 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 retention of income from such 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 statutory amendment was explained by the Finance Ministers speech in the Parliament. Relevant portion of which reads as under : I once again assure 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 activity in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business. Whether the purpose is a charitable purpose will depend on the totality of the facts of the case. Ordinarily, Chambers of Commerce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 a 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. 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 rendering of any service in relation 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 charitable 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 considerati ..... X X X X Extracts X X X X X X X X Extracts X X X X
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