TMI Blog2021 (4) TMI 443X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 2(15) and declining the benefit of Section 11 to the assessee. We see no point in remitting the matter to the file 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. - Decided in favour of assessee. - ITA No. 445/AHD/2019 - - - Dated:- 23-3-2021 - SHRI MAHAVIR PRASAD, JUDICIAL MEMBER And SHRI WASEEM AHMED, ACCOUNTANT MEMBER For the Appellant : Rajdeep Singh, Sr. D.R. For the Respondents : Arti N. Shah, A.R. ORDER PER WASEEM AHMED, ACCOUNTANT MEMBER The captioned appeal has been filed at the instance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in appeal before us. 7. Both the Ld. DR and Ld. AR before us vehemently supported the order of the authorities below as favorable to them. 8. We have heard the rival contentions of both the parties and perused the materials available on record. At the outset we find that the identical issue has been decided in favour of the assessee in its own case bearing ITA No. 3297/Ahd/2016 for A.Y. 2012-13 vide order dated 16/11/2018. The relevant extract of the order is reproduced as below: 6. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of applicable legal position. 7. We find that the core issue that is really required to be adjudicated by us is whether construction and sale of dwelling units by the assessee, on the given facts, is an activity in the nature of trade, commerce or business or service thereto. As we have noted earlier, from the observations made by the Assessing Officer in the assessment order, the assessee has constructed 1,76,830 units out of which 23,364 are for slum dwellers, 49, 083 for economically weaker sections, 55,656 for lower income groups and 42,191 for middle income groups. E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allots the plots to the highest bidders. This, however, is because it is not desirable for the State to subsidise its businesses. A bidding process ensures transparency in the functioning of the trusts and therefore, it does not make the bidding process a commercial venture. Further the bids are invited only in the context of commercial units. Under the Rules there is a formula on the basis of which the price is worked out. The revenue did not deny the same but alleged that the profit motive is embedded in this formula as shown by the adjustments for various charges. 72. The Tribunal rightly rejected the contention that to fall within the ambit of the words advancement of any other object of general public utility the trust must necessarily be involved only in implementing poverty alleviation programs or doing other acts of charity. It is sufficient if it does precisely what the last category in Section 2(15) states namely being involved in activities for the advancement of an object of general public utility. They include a proper systematic development of certain areas. These activities are by virtue of the PTI Act undertaken by this assessee. 73. The Tribunal also ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to make provision for the improvement and expansion of towns in Punjab . The Act in general and Chapter-IV thereof in particular indicates the reason for and the basis of the establishment of the trust. Almost every section in the Chapter indicates clearly that the trust is established for the purpose of advancement of the object of general public utility . This is the predominant purpose of the trust. 78. The language of the provisions of the Act are self-explanatory in this regard. The trust must deal with the buildings unfit for human habitation, the danger caused or likely to be caused to the health of the inhabitants of the area on account of the congested conditions of streets or buildings or want of light, air, ventilation or proper conveniences in an area and sanitary defects. The trust is required to frame the street schemes to lay out new streets, thoroughfares and open spaces or alter existing streets whenever it appears to the trust that it is necessary to do so for the purpose of providing building sites or remedying defective ventilation or creating new or improving existing means of communication and facilities for traffic. 79. The trust must also prepar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rust of a given year entitled it to the benefit of the Income Tax Act. Mere profit making on account of certain incidental or ancillary activities of the trust do not disentitle it to the exemptions. The Trust constituted under the PTI Act is likely to make profit on account of its commercial or business activities such as when it acts pursuant to the power under section 28(2)(i) by disposing off its lands. That, however, does not take it out of the definition of 'charitable purpose' in Section 2(15). As we held earlier, trade, commerce and business in Section 2(15) must be such as to involve an element of profit. Profit, however, is not the predominant motive of such trusts. In our view considering the nature of the Act, selling of plots and premises by the trust is only incidental and ancillary to its main purpose which at the cost of repetition is town improvement in almost every respect. Even where the plots are developed and premises are constructed and sold at the market price, the activity is not commercial or business venture per se but one necessitated on account of the implementation of the provisions of the trust through statutory schemes. The main purpose of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... io; (v) the Chief Town planner or his representative, ex-officio; (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, ex-officio; 5[(vi-a) the Municipal Commissioner of the Municipal Corporation, if any, functioning in the urban development area, ex-officio;] (vii) a member secretary to be appointed by the State Government who shall also be designated as the Chief Executive Authority of the Urban Development Authority. Thus, the constitution of the Urban Development Authority is subject to the control of the State Government. The powers and functions of the Urban Development Authority as contained in Section 23 are reproduced herein above. Considering Section 40 of the Town Planning Act, the Town Planning Scheme prepared by the Urban Development Authority which has been prepared subject to sanction by the State Government for development of the Urban Development Area, also provide for roads, open spaces, gardens, recreation grounds, schools, markets, green-belts, dairies, transport facilities, public purposes of all kinds; drainage, inclusive of sewerage, surface or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ots, 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 used for the development of the Urban Development Area. 12.1 At this stage decision of the Hon'ble Supreme Court in the case of Ahmedabad Green Belt Khedut Mandal (supra) is required to be referred to. Before the Hon'ble Supreme Court, it was contended on behalf of original land owners whose lands were included in the TP Scheme that by permitting the Area Development Authority/Urban Development Authority to sell 15% of the total area, by that the Urban Development Authority will be making profit, the Hon'ble Supreme Court has negatived the aforesaid and has observed that the activities of the Urban Development Authority/Area Development Authority while selling the land to the extent of 15% to the total area covered under the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter considering the various decisions of the Hon'ble Supreme Court as well as decisions of the other High Courts, it is held that activities of the said organization cannot be considered as business . While holding so, Delhi High Court has observed and held as under: An activity would be considered 'business' if it is undertaken with a profit motive, but in some cases, this may not be determinative. Normally, the profit motive test should be satisfied, but in a given case activity may be regarded as a business even when profit motive cannot be established/proved. In such cases, there should be evidence and material to show that the activity has continued on sound and recognized business principles and pursued with reasonable continuity. There should be facts and other circumstances which justify and show that the activity undertaken is in fact in the nature of business. 12.6 In the aforesaid decision, after considering the decision of the Hon'ble Supreme Court in the case of CST v. Sai Publication Fund [2002] 258 ITR 70/122 Taxman 437, it is held by the Delhi High Court that thus, if the dominant activity of the assessee was not business, then any inci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or commerce. 69. In the case of Addl. Commissioner of Income Tax v. Surat Art Silk Cloth Manufacturers Association [1980] 121 ITR 1 (SC), the Supreme Court held as under:-The test which has, therefore, now to be applied is whether the predominant object of the activity involved in carrying out the object of general public utility is to subserve the charitable purpose or to earn profit. Where profit-making is the predominant object of the activity, the purpose, though an object of general public utility would cease to be a charitable purpose. But where the predominant object of the activity is to any out the charitable purpose and not to earn profit, it would not lose its character of a charitable purpose merely because some profit arises from the activity.' 70. Although in that case the statutory provisions being considered by the Supreme Court were different and the utilisation of income earned is, now, not a relevant consideration in view of the express words of the first proviso to section 2(15) of the Act, nonetheless the test of dominant object of an entity would be relevant to determine whether the entity is carrying on business or not. In the present case, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atutory enactments, and tasked to act as agencies of the State in public duties which cannot be discharged by private bodies. Often, apart from the controlling or parent statutes, like the BIS Act, these statutory bodies (including BIS) are empowered to frame rules or regulations, exercise coercive powers, including inspection, raids; they possess search and seizure powers and are invariably subjected to Parliamentary or legislative oversight. The primary object for setting up such regulatory bodies would be to ensure general public utility. The prescribing of standards, and enforcing those standards, through accreditation and continuing supervision through inspection etc., cannot be considered as trade, business or commercial activity, merely because the testing procedures, or accreditation involves charging of such fees. It cannot be said that the public utility activity of evolving, prescribing and enforcing standards, involves the carrying on of trade or commercial activity. 12.8 Circular No. 11 of 2008 issued by the CBDT fell for consideration by the Delhi High Court in the case of G.S.I. India (supra). It is held that even as per the said circular, proviso to Section 2( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty into business, commerce or trade in the absence of contrary evidence. Quantum of fee charged, economic status of the beneficiaries who pay, commercial value of benefits in comparison to the fee, purpose and object behind the fee etc. are several factors which will decide the seminal question, is it business? 27. As observed above, fee charged and quantum of income earned can be indicative of the fact that the person is carrying on business or commerce and not charity, but we must keep in mind that charitable activities require operational/running expenses as well as capital expenses to be able to sustain and continue in long run. The petitioner has to be substantially self-sustaining in long-term and should not depend upon government, in other words taxpayers should not subsidize the said activities, which nevertheless are charitable and fall under WP(C) 1872/13 Pages 53 of 55 the residuary clause-general public utility. The impugned order does not refer to any statutory mandate that a charitable institution falling under the last clause should be wholly, substantially or in part must be funded by voluntary contributions. No such requirement has been pointed out or argued. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hed for charitable purposes. 13. Applying the aforesaid decisions to the facts of the case on hand and with respect to the activities of the AUDA - Ahmedabad Urban Development Authority under the provisions of the Gujarat Town Planning Act by no stretch of imagination, it can be said that the activities of the assessee (AUDA) can be said to be in the nature of trade, commerce or business and/or its object and purpose is profiteering. Merely because under the statutory provisions and to meet with the expenditure of Town Planning Scheme and/or providing various services under the Town Planning Scheme, such as road, drainage, electricity, water supply etc. if the assessee is permitted to sale the plots (land) to the extent of 15% of the total area under the Town Planning Scheme and while selling the said plots they are sold by holding the public auction, it cannot be said that activities of the assessee is profiteering, to be in the nature of trade, commerce and business. 13.1 In the case of Lucknow Development Authority, Gomti Nagar (supra), it is held by the Allahabad High Court that the activities of the authority cannot be said to be in the nature of trade, commerce or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red to. In the case before the Division Bench, the assessee Trust-Sabarmati Ashram Gaushala Trust was engaged in the activity of breeding milk cattle; to improve the quality of cows and oxen and other related activities. The Assessing Officer denied the exemption to the trust under Section 11 of the Act on the ground that considerable income was generated from the activities of milk production and sale and therefore, considering the proviso to Section 2(15) of the Act, the said Trust-assessee was denied the exemption under Section 11 of the Act. While holding that the activities of the assessee trust still can be said to be for charitable purpose within the meaning of Section 2(15) of the Act and same cannot be said to be in the nature of trade, commerce or business for which proviso to Section 2(15) of the Act is required to be applied. In paras 6, 7, 8 and 12, it is observed and held as under: 6. The legal controversy in the present Tax Appeal centers around the first proviso. In the plain terms, the proviso provides for exclusion from the main object of the definition of the term Charitable purposes and applies only to cases of advancement of any other of general general p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act if they carry on commercial activities. Whether such an entity is carrying on any activity in the nature of trade, commerce or business is a question of fact which will be decided based on the nature, scope, extent and frequency of the activity. 3.1 There are industry and trade associations who claim exemption from tax under section 11 on the ground that their objects are for charitable purpose as these are covered under any other object of general public utility. Under the principle of mutuality, if trading takes place between persons who are associated together and contribute to a common fund for the financing of some venture or object and in this respect have no dealings or relations with any outside body, then any surplus returned to the persons forming such association is not chargeable to tax. In such cases, there must be complete identity between the contributors and the participants. Therefore, where industry or trade associations claim both to be charitable institutions as well as mutual organizations and their activities are restricted to contributions from and participation of only their members, these would not fall under the purview of the proviso to se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tivities which are truly in the nature of trade, commerce or business but are carried out under the guise of activities in the nature of public utility. 15.1 Applying the aforesaid decision to the facts of the case on hand and the object and purpose for which the assessee is established/constituted under the provisions of the Gujarat Town Planning Act and collection of fees and cess is incidental to the object and purpose of the Act, even the case would not fall under second part of proviso to Section 2(15) of the Act. 10. In view of the above discussions, as also bearing in mind entirety of the case, we deem it fit and proper to hold that the authorities below were in error in invoking proviso to Section 2(15) and declining the benefit of Section 11 to the assessee. We see no point in remitting the matter to the file 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 wil ..... X X X X Extracts X X X X X X X X Extracts X X X X
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