TMI Blog2023 (6) TMI 1212X X X X Extracts X X X X X X X X Extracts X X X X ..... re dismissed as far as statutory Corporations/Boards - Decided in favour of assessee. - ITA No. 2434/Ahd/2017 And ITA No. 2378/Ahd/2017 - - - Dated:- 16-6-2023 - Shri Waseem Ahmed, Accountant Member And Shri T.R. Senthil Kumar, Judicial Member For the Assessee : Shri S.N. Soparkar, Sr. Adv. And Shri Parin Shah, A.R. For the Revenue : Shri Sudhendu Das, CIT-DR ORDER PER : T.R. SENTHIL KUMAR, JUDICIAL MEMBER:- These cross appeals are filed by the Revenue and Assessee as against the appellate order dated 28.08.2017 passed by the Commissioner of Income Tax (Appeals)-9, Ahmedabad arising out of the assessment order passed under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act ) relating to the Assessment Year (A.Y) 2014-15. 2. The brief facts of the case is that the Assessee trust is an autonomous body which is established under 5/2 of the Gujarat Town Planning and Urban Development Act, 1976 (XXVII of 1976) and Rules made there under carrying Planned Development of areas as defined and designed by the Government of Gujarat and also infrastructural activities relating thereto such as construction of roads, bridges, drainage ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ject 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 of the assessee can be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 organisations will not in any way be affected. The CBDT will, following the usual practise, 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 organisations rendering services to their members would not be affected by the amendment and their activities would continue to be regarded as advancement of any other object of general public uti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 which are masked as charitable purpose. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ide his impugned order dated 28-08- 201, following Gujarat High Court judgment in assessee s own case held that the assessee cannot be considered to cover by the proviso to section 2(15) of the Act. Thus the A.O. cannot withdraw the claim of exemption by invoking proviso to Section 2(15) r.w.s. 13(8) of the Act, that is the assessee cannot be assessed u/s. 28 to 44 of the Act and thus partly allowed the appeal observing as follows: ..4.4 Although hon'ble High Court of Gujarat has denied applicability of provisions of proviso to section 2(15) r.w.s. 13(8) to the appellant, the AO needs to be careful while computing the income of the appellant. There are issues with regard to maintenance of accounts and the appellant has treated the various grants received by it. There are issues with regard (a) to claim of accumulation@ 15% u/s 11(1)(a) of the Act; (b) to claim u/s 11(1)(d) of the act; (c) to claim of correct rate of depreciation; (d) to claim of income receipts being reflected in the balance sheet: (e) to claim of application of income from project specific grants; (f) to claim of capital expenses as application of income etc. As certain grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egoing discussion, and summary of conclusions the numerous appeals are disposed of as follows: (i) The revenue's appeals against the Improvement Trust, Moga, the Hoshiarpur Improvement Trust, Bathinda Improvement Trust, Fazilka Improvement Trust Sangrur Improvement Trust Patiala Improvement Trust Jalandhar Improvement Trust Kapurthala Improvement Trust, Pathankot Improvement Trust Improvement Trust, Hansi, and the Special Leave Petitions filed against the Gujarat Maritime Board and Karnataka Water Supply and Drainage Board are rejected. (ii) The revenue's appeals against Ahmedabad Urban Development Authority, the Gujarat Housing Board, the Gandhinagar Urban Development Authority, Rajkot Urban Development Authority, Surat Urban Development Development Authority, Jamnagar Area Development Authority, and the Gujarat Industrial Development Corporation are rejected. Likewise, the revenue's appeals against Agra Development Trust, UP Awas Evam Vikas Parishad, Raebarel, Development Authority, Rajasthan Housing Board, Mangalore Urban Development Authority; Mathura Vrindavan Development Authority, Meerut Development Authority, Belgaum Development Authority . Moradabad U ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollected for essential services, are included in the overall income as receipts as part of trade, commerce or business, the quantitative limit of 20% imposed by second proviso to Section 2(15) would be attracted thereby negating the essential general public utility object and thus driving up the costs to be borne by the ultimate user or consumer which is the general public. By way of illustration, if a corporation supplies essential food grains at cost, or a marginal mark up, another supplies essential medicines, and a third, water, the characterization of these, as activities in the nature of business, would be self-defeating, because the overall receipts in some given cases may exceed the quantitative limit resulting in taxation and the consequent higher consideration charged from the user or consumer. 185. As far as boards and corporations which are tasked with development of industrial areas, by statute, the judgments of this court, in Shri Ramtanu Cooperative Housing Society (supra) and Gujarat Industrial Development Corporation (supra) have declared that these bodies are involved in development and are not essentially engaged in trading. In Shri Ramtanu Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orporation shall have the authority to spend such sums out of the general funds of the Corporation or from reserve and other funds. The Corporation is to make provision for reserve and other specially denominated funds as the State Government may direct. 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. A budget is prepared showing the estimated receipts and expenditure. The accounts of the Corporation are audited by an auditor appointed by the State Government. 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. There are various departments of the Government which may have excess of income over expenditure. ************** ******** ********* 20. The underlying concept of a trading Corporation is buying and selling. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 187. There is a two-fold distinction between the now-deleted Section 10(20A) and the newly added Section 10(46) (w.e.f. 01.06.2011). Firstly, that the erstwhile Section 10(20A) applied to a limited class of undertaking i.e., the bodies, or corporations, constituted by or under any law-confined to the planning and development of housing infrastructure. However, the newly added Section 10(46) is wider in comparison and the activities of any body or authority or board constituted by or under any central or State Act with the object of regulating or administering any activity for the benefit of the general public , has broader import. In a sense, the newly added Section 10(46), resembles a GPU category charity classified under Section 2(15). The second distinction is that Section 10(20A) did not bar any board, or corporations, etc. from indulging in commercial activities. However, sub-clause (b) of Section 10(46) imposes such a bar, and the concerned body cannot claim tax exemption if it engages in commercial activity. 188. The manner in which GPU charities has been dealt with under the definition clause, i.e., Section 2(15), indicates that even though trading or commercial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) Such statutory corporations, boards, trusts authorities, etc. may be involved in promoting public objects and also in the course of their pursuing their objects, involved or engaged in activities in the nature of trade, commerce or business. (iv) The determinative tests to consider when determining whether such statutory bodies, boards, authorities, corporations, autonomous or self governing government sponsored bodies, are GPU category charities: (a) Does the state or central law, or the memorandum of association, constitution, etc. advance any GPU object, such as development of housing, town planning, development of industrial areas, or regulation of any activity in the general public interest, supply of essential goods or services - such as water supply, sewage service, distributing medicines, of food grains (PDS entities), etc.; (b) While carrying on of such activities to achieve such objects (which are to be discerned from the objects and policy of the enactment; or in terms of the controlling instrument, such as memorandum of association etc.), the purpose for which such public GPU charity, is set-up - whether for furthering the development or a charitable ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated by the second proviso to Section 2(15)) the concerned statutory or government organisations can be characterized as GPU charities. It goes without saying that the other conditions imposed by the seventh proviso to Section 10(23C) and by Section 11 have to necessarily be fulfilled. (v) As a consequence, it is necessary in each case, having regard to the first proviso and seventeenth proviso (the latter introduced in 2012, w.r.e.f 01.04.2009) to Section 10(23C), that the authority considering granting exemption, takes into account the objects of the enactment or instrument concerned, its underlying policy, and the nature of the functions, and activities, of the entity claiming to be a GPU charity. If in the course of its functioning it collects fees, or any consideration that merely cover its expenditure (including administrative and other costs plus a small proportion for provision) - such amounts are not consideration towards trade, commerce or business, or service in relation thereto. However, amounts which are significantly higher than recovery of costs, have to be treated as receipts from trade, commerce or business. It is for those amounts, that the quantitative li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to such activities, should be conducted in the course of achieving the GPU object, and the income, profit or surplus or gains must, therefore, be incidental. The requirement in Section 11(4A) of maintaining separate books of account is also in line with the necessity of demonstrating that the quantitative limit prescribed in the proviso to Section 2015), has not been breached. Similarly, the insertion of Section 13(5), seventeenth proviso to Section 10(230) and third proviso to Section 143(3) (all w.r.e.f. 01.04.2009), reaffirm this interpretation and bring uniformity across the statutory provisions B. Authorities, corporations, or bodies established by statute B.I. The amounts or any money whatsoever charged by a statutory corporation. board or any other body set up by the state government or central governments, for achieving what are essentially 'public functions services' (such as housing. industrial development, supply of water, sewage management, supply of food grain, development and town planning, etc.) may resemble trade, commercial, or business activities. However, since their objects are essential for advancement of public purposes functions (and are a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ised by the Revenue becomes infructuous and academic. Hence the same does not require any adjudication and liable to be dismissed. 7. Per contra, the Ld. D.R. appearing for the Revenue supported the order of the Lower Authorities and could not sight any adverse inference in the judgment passed by the Hon ble Supreme Court. 8. We have perused the materials available on record and the judgments passed by the Hon ble Supreme Court and the High Court of Gujarat respectfully following the same, we hold that the activities of the assessee for advancement of any other object of General Public Utility for charitable purpose and therefore the assessee corporation shall be entitled to exemption u/s. 11 of the Act. It is further clarified by the Hon ble Suprme Court in the very same case of ACIT vs. Ahmedabad Urban Development Authority reported in [2022] 144 taxmann.com 78 (SC) wherein it has been clearly held that the Revenues Appeals are dismissed as far as statutory Corporations/Boards observing as follows: .3. It was urged on behalf of the revenue, that the clarification it seeks is necessary, because in Para 253H and in Para 254, it has been precluded from examining the fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iled by the Assessee in ITA No. 2378/Ahd/2017 reads as under: 1 Ld. CIT (A) erred in law and on facts directing AO to verify compute the income of appellant as per guidelines narrated by him though holding the activities of assessee authority not covered by proviso to Sec. 2(15) of the Act following judgment of Hon'ble Gujarat High Court. 2 Ld. CIT (A) erred in law and on facts holding that grants received by the appellant for generic purpose or which are not project specific then these grants are to be considered in the nature of voluntary donation and are to be included as income of the appellant u/s 12 (1) of the Act. 3 Ld. CIT (A) erred in law and on facts in holding that the appellant will not be eligible to claim accumulation @ 15% u/s 11(1)(a) of the Act on grants received for a specific purpose or a project that is capital in nature since these receipts are capital receipts and do not form part of the income. 4 Ld. CIT (A) further erred in law and on facts in holding that the appellant cannot claim capital expenditure made out of these specific grants for asset creation as application of income towards its objects. 5 Ld. CIT (A) erred in law an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... justified. 11. At the outset the Ld.Senior Counsel Shri S.N. Soparkar appearing for the assessee submits that ground no. 1 2 is covered in favour of the assessee by the Hon ble Supreme Court judgment in assessee s own case reported in 449 ITR 1 (SC). Regarding Ground nos. 3, 4, 6, 7 12 the same are consequential and covered in favour of the assessee pursuant to the Supreme Court Judgment in assessee s own case (cited supra), hence the same are not pressed. Ld. D.R. could not dispute the above submission thus the Ground No. 1 2 is allowed in favour of the assessee and Ground Nos. 3, 4, 6, 7 12 are dismissed as not pressed. 12. Ground Nos. 5 claim of depreciation on fixed assets created out of grant given for specific purpose as application of income. This issue is also covered in favour of the assessee by Hon ble Supreme Court in the case of CIT Vs. Rajasthan Gujarati Charitable Foundation Poona reported in 402 ITR 441 (SC). Per contra, the Ld. D.R. appearing for the Revenue could not bring any contra decision on this issue, therefore he supported the order passed by the Lower Authorities. 13. We have given our thoughtful consideration and perused the materials ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y following the above judicial precedent, we hold that the assessee is entitled to claim the depreciation as plant and machinery as the assessee in promoting public objects which are activities in the nature of trade, commerce or business but without commercial motive. Thus the ground no. 8 raised by the Assessee is hereby allowed. 17. Ground no. 9 namely the application of income shall precede accumulation by directing A.O. to allow accumulation u/s. 11(1)(a) of the Act, from income remaining after deducting amount applied for the objects of the assessee trust. 17.1. In this connection, Ld. Counsel drawn our attention to the decision of the Co-ordinate Bench in the case of Gnyan Dham Vapi Charitable Trust Vs. DCIT (Exemptions) in ITA No. 2208/Ahd/2018 dated 19-08-2020 observing as follows: 8.1 Under s.11 of the Act, income derived from property held under trust wholly for charitable or relates purposes shall not be included in the total income subject to certain conditions. On a combined reading of Section 11(1)(a) and Section 11(2) of the Act, it emerges that the trust is allowed to accumulate 15% of its income without any time limit and balance 85% can be set apart ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... envisaged in law. The law applicable to accumulation of income cannot be extended to application thereof. Where an assessee trust has made excess application of its income, the option or entitlement vested upon an assessee to accumulate 15% for indefinite period in our view cannot operate as an obligation enforceable against it in the absence of accumulation. The method of computation of deficit to be truncated artificially 15% based on an entitlement (opposed to an obligation) as suggested by first appellate authority is totally devoid of any logic. This would tantamount to application of concession conferred on assessee in a reverse manner and thus put the assessee in a worser position in the event of accelerated application of receipts for salutary purposes. The action directed by CIT(A) has the effect of deprivation of concession granted and is repugnant to the intended outcome. The Pune Bench of Tribunal in Maharshi Karve Stree Shikshan Samstha Karvenagar vs. ITO 174 ITD 591 (Pune) has also essentially held that relaxations conferred under s. 11(1)(a)/(b) r.w. Section 11(2) of the Act to the extent of 15% of income would not nullify the entitlement of such absolute nature by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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