TMI Blog2023 (8) TMI 142X X X X Extracts X X X X X X X X Extracts X X X X ..... and allow the claim of the assessee as per the above directions. Entitlement to depreciation on fixed asset created out of such funds - HELD THAT:- As assessee fairly conceded that w.e.f. assessment year 2015-16, the law has undergone a change and accordingly depreciation would not be allowed on such assets purchased after 01-04-2015. However, the counsel for the assessee submitted that in the interest of justice, the matter may be set aside to the file of Assessing Officer to check the applicability of provisions of section 11(6) of the Act to the extent, the assessee has not claimed such depreciation on fixed assets created out of grant given for a specific purpose. Depreciation as plant and machinery - HELD THAT:- As assessee is entitled to claim depreciation as plant and machinery since the assessee is promoting public objects which are activities in the nature of trade, commerce or business but without a commercial motive. Whether assessee is not entitled to exemption u/s 11 and 12 of the Act since it is covered by first and second proviso to section 2(15)? - This issue has been settled by the Hon ble Supreme Court in assessee s own case ACIT (E) vs. Ahmedab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Income Tax, CIT(A)-9, Ahmedabad, in proceeding u/s. 250 vide order dated 11/10/2019. 2. The assessee has taken the following grounds of appeal:- 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 directing AO to treat grants received by the appellant which were not project specific or were given for generic purpose then to consider the same in the nature of voluntary donation to be included as the income of the appellant u/s 12 (1) of the Act. 3. Ld. CIT (A) erred in law and on facts holding the appellant as not entitled to claim (i) accumulation @ 15% u/s 11(l)(a) of the Act on specific grants (ii) claim capital expenditure out of these grants as application of income (iii) claim depreciation on fixed assets created out of grants received for a specific purpose of for specific project as application of income. 4. Ld. CIT (A) erred in law and on facts directing AO to treat funds rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... denying deemed application u/s. 11 (1) of the Act; (b) Rs.25,51,23,392/- denying accumulation under section 1 l(l)(a) of the Act. iii Whether, on the facts an in the circumstances of the case and in law, it is correct on the part of the learned Commissioner (Appeals) in directing the Assessing Officer not to consider the receipts shown under capital receipts (general); capital receipts (drainage), capital receipts (EWS), capital receipts (water supply), capital receipts (township), capital receipts (vambay), funds received from Gujarat Municipal Finance Board, funds from Ministry of Urban Development and premium on lease/ sale of plots/ shops/ flats as revenue receipts. We shall first take up the assessee s appeal for assessment year 2016- 17. 4. Before us, the counsel for the assessee submitted that he shall not be pressing for ground nos. 1 to 5. Accordingly, ground nos. 1-5 of the assessee s appeal are dismissed as not pressed. Ground No. 6 (i) (ld. CIT(A) erred in holding that the assessee is not entitled to accumulation @ 15% u/s. 11(1)(a) of the Act. 5. Before us, the counsel for the assessee submitted that this issue has been decided in favour of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dicial 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 for specified peri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 way of reduction in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been accepted by the Department as capital in nature and hence not forming part of the taxable income of the assessee then the assessee is not eligible to claim corresponding expenditure incurred in relation thereto, against the same. However, if any item reflected as a capital receipt in the balance sheet is treated as having been earned on revenue account, then the assessee would be eligible to claim corresponding expenditure against the same as well in accordance with law. The Ld. A.O. may carry out the necessary verification and allow the claim of the assessee as per the above directions. 11. In the result, Ground No. 6(ii) of assessee s appeal is allowed for statistical purposes. Ground No. 6 (iii) ld. CIT(A) erred in holding that the assessee is not entitled to claim depreciation on fixed asset created out of such funds 12. Before us, at the outset, the counsel for the assessee fairly conceded that w.e.f. assessment year 2015-16, the law has undergone a change and accordingly depreciation would not be allowed on such assets purchased after 01-04-2015. However, the counsel for the assessee submitted that in the interest of justice, the matter may be set aside to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se. 15. The Ld. D.R. appearing for the Revenue could not bring any contra decision, thereby supported the order passed by the Ld. CIT(A). 16. We have given our thoughtful consideration and perused the materials available on record. The Co-ordinate Bench of the Tribunal held that the fixed assets served some special purpose of the working of the assessee and thereby considered as plant and machinery in the working process of the assessee. The Ld. CIT(A) has not justified in holding that the income of exempt person has to be calculated on the basis of normal commercial principles and by Rule of accountancy. 16.1. Respectfully 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. 20. Respectfully following the aforesaid decision passed by ITAT in assessee s own case for A.Y. 2014-15, we hold that assessee is entitled to claim depreciation as plant and machinery since the assessee is promo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elopment 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 Urban Development Authority, Yamuna Expressway Industrial Development Authority, Greater Noida Industrial Development Authority, New Okhla Industrial Development Authority and Karnataka Industrial Areas Development Board are rejected. 28. The relevant operative portion of the Hon ble Supreme Court judgment are as follows: ..D. What kinds of income or receipts may not be characterized as derived from trade, commerce, business or in relation to such activities, for a consideration (i) Statutory corporations, authorities or bodies 176. It would be essential now to deal with certain kinds of receipts which GPU charities, typically statutory housing boards, regulatory authorities and corporation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Cooperative Housing Society (supra) this court, by a five judge bench, held that the Maharashtra Industrial Development Corporation is not a trading concern, and observed as follows: These features of transfer of land, or borrowing of moneys or receipt of rents and profits will by themselves neither be the indicia nor the decisive attributes of the trading character of the Corporation. Ordinarily, a Corporation is established by shareholders with their capital. The shareholders have their Directors for the regulation and management of the Corporation Such a Corporation set up by the shareholders carries on business and is intended for making profits. When profits are earned by such a Corporation they ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rporation 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. There is no aspect of buying or selling by the Corporation in the present case. The Corporation carries out the purposes of the Act, namely, development of industries in this State. The construction 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry 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 activity or service in relation to trade, commerce or business appears to be barred nevertheless the ban is lifted somewhat by the proviso which enables such activities to be carried out if they are intrinsically part of the activity of achieving the object of general public utility. Furthermore, in the case of GPU charities there is a quantified limit of the overall receipts, which is permissible from such commercial activity. In the case of local authorities and corporations covered by Section 10(46) no such activities are seemingly permitted. 189. As was observed in the earlier part of this judgment while considering whether for the period 01.0.2003 - 31.05.2011, statutory boards, corpora ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest, 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 object or for carrying on trade, business or commerce or service in relation to such trade, etc.; (c) Rendition of service or providing any article or goods, by such boards, authority, corporation, etc., on cost or nominal mark-up basis would ipso facto not be activities in the nature of business, trade or commerce or service in relation to such business, trade or commerce; (d)where the controlling instrument, particularly a statute imposes certain responsibilities or duties upon the concerned body, such as fixation of rates on pre-determined statutory basis, or based on formulae regulated by law, or rules having the force of law, setting apart amenities for the purposes of development, charg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 limit in proviso (ii) to Section 2(15) applies, and for which separate books of account will have to be maintained under other provisions of the IT Act. IV. Summation of conclusions 253. In view of the foregoing discussion and analysis, the following conclusions are recorded regarding the interpretation of the changed definition of charitable purpose (w.e.f. 01.04.2009), as well as the later amendments, and other related provisions of the IT Act. General test under Section 2(15) A.1 . It is clarified that an assessee advancing general public utility cannot engage itself in any trade, commerce or business, or provide service in relation thereto for any consideration ( cess, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 accordingly restrained by way of statutory provisions), such receipts are prima facie to be excluded from the mischief of business or commercial receipts. This is in line with the larger bench judgments of this court in Ramtanu Cooperative Housing Society and NDMC (supra). B.2. However, at the same time, in every case, the assessing authorities would have to apply their minds and scrutinize the records, to determine if, and to what extent, the consideration or amounts charged are significantly higher than the cost and a nominal mark-up. If such is the case, then the receipts would indicate that the activities are in fact in the nature of trade, commerce or business and a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... venue receipts 33. Before us, it was argued that the Hon ble Gujarat High Court in the case of CIT vs. Gujarat Safai Kamdar Vikas Nigam in ITA 1934 of 2009 held that grant received by Government of Gujarat for implementation of certain Government Schemes to uplift the living condition of manual scavengers and other Safai Kamdars involved in similar activities would qualify as capital receipts, even though the exact words may not have been used that funds made available are directed to form corpus of the assessee corporation and funds were to be used for such performance of such functions only. In deciding whether the income would qualify as capital or revenue receipt, the entire purport of the claim has to be gathered. Accordingly, the Gujarat High Court held that aforesaid amount received by the assessee should be treated as capital receipt of the assessee. Further, the counsel for the assessee submitted before us that in all fairness if the aforesaid receipts are treated a capital receipts, the corresponding expenditure should also be disallowed in the assessee s hands being capital in nature. 34. In view of the above discussion, we are of the considered view that ld. C ..... X X X X Extracts X X X X X X X X Extracts X X X X
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