TMI Blog2020 (10) TMI 567X X X X Extracts X X X X X X X X Extracts X X X X ..... 1.0. Heard Mr. Manish Bhatt, learned Senior Advocate assisted by Mrs. Mauna Bhatt, learned advocate for the appellant revenue. 2.0. By this appeal under Section 260-A of the Income Tax Act, 1961 (hereinafter referred to as the Act for the sake of brevity) the appellant Revenue has challenged the order dated 15.11.2019 passed by the Income Tax Appellate Tribunal, b Bench, Ahmedabad in ITA No.2425/AHD/2017 for AY 2009-10. 3.0. The following noteworthy facts emerge from the record of the appeal. 3.1. That the respondent assessee filed it return of income for the Assessment Year 2014-15 on 23.3.2010 and declared total income as NIL. On assessment being made under Section 143(3) of the Act, the Assessing Officer by its order dated 28.12.2016 assessed the total income of the respondent assessee at ₹ 3,56,16,270/-. The AO came to the conclusion that assessee was engaged in the Area Development and Town Planning and carrying out the activity of general public utility. According to the AO, the respondent assessee was not carrying out any charitable activities and was squarely covered by proviso 1 2 to Section 2(15) r/w Section 13(8) of the Act and ultimately came ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital expenditure without appreciating the fact that the assessee is covered by the provisions of Section 2(15) r.w 13(8) of the Act ? 4. The case put forward and substantial questions of law raised in this appeal are squarely covered by the judgment in case of Ahmedabad Urban Development Authority vs. Assistant Commissioner of Income Tax (Exemption) reported in 396 ITR 323 (Guj). Before adverting to the substantial question of law raised in this appeal, it would be appropriate to refer to relevant provisions of the Gujarat Town Planning and Urban Development Act, 1976 (hereinafter referred to as the Town Planning Act ). The respondent-assessee is an Urban Development Authority constituted under Section 5 of the Town Planning Act, which reads as under: 5. Constitution Of Area Development Authority :- (1) As soon as may be after the declaration of a development area under section 3, the State Government shall, by notification, constitute an authority for such area to be called the area development authority of that development area for the purpose of carrying out the functions assigned to an area development authority under this Act. (2) Every area developm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... become vacant. (7) In the event of a vacancy occurring in the office of any member of an area development authority, the vacancy shall be filled by the State Government as soon as possible after the vacancy has occurred by nomination or appointment,4 [ as the case may be.] (8)(i) An area development authority shall meet at such time and place as the Chairman may determine and may, subject to the provisions of this sub-section make regulations for regulating the procedure and conduct of its business at its meetings. (ii)The Chairman, and in his absence, any other member chosen by the members present from amongst themselves shall preside at a meeting of the area development authority. (iii)All questions at a meeting of the area development authority shall be decided by a majority of votes of the members present and voting and in the case of equality of votes, the persons presiding shall have a casting vote. (9)(i) An area development authority may, with the previous sanction of the State Government, associate with itself or consult such persons whose assistance or advice it may desire for the purpose of performing any of its functions under this Act and such persons m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity for such area to be called the urban development authority of that area, and thereupon all the powers and functions of an area development authority relating to the development or redevelopment of a development area under this Act shall, in relation to such urban development area, be exercised and performed by such urban development authority1***. (2) Every notification issued under sub-section (1) shall define the limits of the area to which it relates. 2[(2A) The State Government may, by notification in the Official Gazette, include in or exclude any area from an urban development area, amalgamate two or more urban development areas into one urban development area, sub-divide any urban development area into different urban development areas and include such sub-divided urban development area in any other urban development area.] (3) Every urban development authority constituted under subsection (1) shall be a body corporate by the name aforesaid, having perpetual succession and a common seal, with power to acquire, hold and dispose of property, both movable and immovable, and to contract, and by the said name sue and be sued. (4) The urban development auth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e nature of trade, commerce and business and hence it could not be regarded as activity for charitable purpose in view of proviso to Section 2(15). This Court in the case of Ahmedabad Urban Development Authority (supra) has extensively considered the provisions of the Town Planning Act and has observed thus: 11. While considering the aforesaid questions, the relevant provisions of the Gujarat Town Planning Act, under which, the Assessee has been constituted as Urban Development Authority and powers and functions of the Assessee as an Urban Development Authority are required to be considered, so as to appreciate whether the activities of the Assessee being Urban Development Authority can be said to be in the nature of trade, commerce or business ?? The relevant provisions of the Gujarat Town Planning Act,under which, the Assessee AUDA has been constituted as Urban Development Authority are as under: Section 2(viii): Development , with all its grammatical variations and cognate expressions, means the carrying out of any building, engineering, mining, or other operations in, or over, or under land or the making of any material change in any building or land or in the use of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rban development area, as may be nominated by the State Government; (iii)4[Three officials] of the State Government, to be nominated by that Government, exofficio; (iv) the Presidents of the district panchayats functioning in the urban development area, or, as the case may be, part thereof, exofficio; (v) the Chief Town planner or his representative, exofficio; (vi) the Chief Engineer or Engineers (Public Health) of the local authority or authorities functioning in the urban development area or his or their nominee or nominees, exofficio; 5[(via) the Municipal Commissioner of the Municipal Corporation, if any, functioning in the urban development area, exofficio;] (vii) a member secretary to be appointed by the State Government who shall also bedesignated as the Chief Executive Authority of the Urban Development Authority. (5) The provisions of subsections (5) to (12) of section 5 shall apply in relation to an urban development authority as they apply in relation to an area development authority, with the modification that references to an area development authority in the said subsection shall be construed as references to an urban development authority. Section 23: Powers A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of this Act or any other law for the time being in force, the appropriate authority may make one or more town planning schemes for the development area or any part thereof, regard being had to the proposals in the final development plan, if any. (2) A town planning scheme may be made in accordance with the provisions of this Act in respect of any land which is (i) In the course of development; 1 [(ii) likely to be used for residential or commercial or industrial or for building purposes; or] (iii) Already built upon. Explanation: For the purpose of this subsection the expression land likely to be used for building purposes shall include any land likely to be used as, or for the purpose of providing, open spaces, roads, streets, parks, pleasure or recreation grounds, parking spaces or for the purpose of executing any work upon or under the land incidental to a town planning scheme, whether in the nature of a building work or not. (3) A town planning scheme may make provision for any of the following matters, namely: (a) The laying out or relaying out of land, either vacant or already built upon; (b) The filling up or reclamation of lowlying, swampy or unhealthy areas, or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nuance of objectionable uses of lands in any area in specified periods, parkings space and loading and unloading space for any building and the sizes or locations of projections and advertisement signs; (l) the suspension, so far as may be necessary, for the proper carrying out of the scheme, of any rule, byelaw, regulation, notification or order made or issued under any Act of the State Legislature or any of the Acts which the State Legislature is competent to amend: Provided that any suspension under this clause shall cease to operate in the event of the State Government refusing to sanction the preliminary scheme, or in the event of the withdrawal of the scheme under section 66, or on the coming into force of the final scheme; (m) such other matters not inconsistent with the objects of this Act as may be prescribed. Section 91: Fund Of The Appropriate Authority :(1) An appropriate authority shall have and maintain its own fund to which shall be credited (a) All moneys received by the authority by way of grants, loans,1[advances, fees, development charges or otherwise;] (b) All moneys derived from its undertakings, projections and other sources; (c) Such amount of contribut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ituted as Urban Development Authority under the provisions of Section 22 of the Town Planning Act. The purpose and object of constitution of the Urban Development Authority is proper development or redevelopment of urban area. Even Urban Development Authority consists of (i) a Chairman to be appointed by the State Government; (ii) such persons, not exceeding [four in number] who are members of the local authority or authorities functioning in the urban development area, as may be nominated by the State Government; (iii) Three officials of the State Government, to be nominated by that Government, exofficio; (iv) the Presidents of the district panchayats functioning in the urban development area, or, as the case may be, part thereof, exofficio; (v) the Chief Town planner or his representative, exofficio; (vi) the Chief Engineer or Engineers (Public Health) of the local authority or authorities functioning in the urban development area or his or their nominee or nominees, exofficio; 5[(via) the Municipal Commissioner of the Municipal Corporation, if any, functioning in the urban development area, exofficio;] (vii) a member secretary to be appointed by the State Government who shall al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c auction. It is required to be noted the entire amount realized by the assessee being Urban Development Authority either by selling plots or by recovery of some fees / charges, Urban Authority is required to use only for the purpose of development in the Urban Development Area and not for any other purpose. The learned Tribunal has observed and held that as the assessee is selling the plots, to the extent of 15% of total area, by public auction and gets maximum amount, it amounts to profitering and therefore, the activities of the Assessee can be said to be in the nature of business. However, while holding so, learned Tribunal has not properly appreciated the object and purpose of permitting the Urban Development Authority to sale the plots, maximum to the extent of 15% of the total area i.e. to meet with the expenditure for providing them infrastructural facilities like gardens, roads, lighting, water supply, drainage system etc. The learned Tribunal has also not properly appreciated the reasons for selling the plot by holding public auction i.e.; (1) to avoid any further allegation of favoritism and nepotism and (2) so that maximum market price can be fetched, which can be us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry 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 against the revenue. 15. Now, so far as another question which is posed for the consideration of this Court i.e. whether while collecting the cess or fees, activities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 relationto 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 and similar organizations rendering services to their members would not be affected by the amendment and their activities would continue to be regarded as advanceme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at 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 consideration. It is not aimed at excluding the genuine charitable trusts of general public utility but is aimed at excluding activities in the nature of trade, commerce or business whic ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
