2010 (12) TMI 672 - AT - Income Tax

Tribunal Rules Income of Statutory Body Non-Taxable as Business Income

The Tribunal ruled in favor of the assessee, a statutory body, holding that its income was not taxable as business income under Section 11(4) of the ... Exemption u/s 11 - As per Assessing Officer, since the assessee has enjoyed income from the business of developing of land for industrial purposes and allotted the land to industries on lease as well as charging consideration in case of transfer of land, therefore, not entitled for the deduction u/s. 11 of the Act - This section, prohibits the exclusion of the business income though there may be difference of opinion about the computation of such a business income between the Trustee and the Assessing Officer - this is merely a machinery section through which a computation is to be made in respect of the income which is excessive and earned from business activity and not meant for the purposes of the trust and on the basis of such a finding the same can be deemed to be a taxable income - Since the income of the assessee is subject to tax under IT Act and do not fall under the exempted clauses of Article 289(1) of Indian Constitution, therefore, the case law cited by the Revenue is not of much assistance whether the activities of this assessee can be said to be governed by section 2(15) wherein an expression is “any other object of general public utility - Describing the functions of the Corporation, it was mentioned that proper planning is absolutely necessary for creation of an Industrial Area - held that such authorities being constituted by law for facilitating all kinds of development of cities, towns and villages for public purposes, therefore should not be subjected to the liability to pay income tax, hence, entitled to exempt from tax u/s.10(20A) of the I.T.Act - it was held that such authorities being constituted by law for facilitating all kinds of development of cities, towns and villages for public purposes, therefore should not be subjected to the liability to pay income tax, hence, entitled to exempt from tax u/s.10(20A) of the I.T.Act - Decided in favour of the assessee whether there was any implication or importance of granting registration u/s.12AA of the I.T.Act to this assessee - it is evident that though the Assessing Officer has computed the profits on transfer of land or plots but it was not the case that the profits so generated were not within the main provisions of section 11 of the I.T.Act - it is also worth to note that the surplus, if any, remained with the assessee has to be invested as per the guidelines and the norms set out under GID Act - Appeal is allowed Regarding premium price on lease of plot, recoveries made towards factory shed and workers’ quarters - there is no scope to invoke the provisions of section 11(4) on the net profit so calculated by the Assessing Officer - Held that: the profit so computed by the Assessing Officer cannot be said to be an excessive income not meant or utilized for the object of the trust for the purpose of invocation of section 11(4) of the I.T.Act - Decided in favour of the assessee Regarding subsidy - A categorical findings was given that the appellant is a channelizing agency and the subsidy so received were meant for specific purpose, therefore, not to be taxed in the hands of the assessee - it is also worth to note that, in case, subsidy so received is not utilized, then it is also subject to refund back to sanctioning authority - Held that: subsidy in question is not subject to tax in the hands of the assessee Issues Involved:1. Applicability of Section 11(4) of the Income Tax Act, 1961.2. Classification of income as business income.3. Inclusion of premium price on lease of plot and land, recovery towards factory sheds, and workers' quarters as business income.4. Inclusion of deposits obtained in connection with allotment of land or structure as business income.5. Disallowance of unpaid amounts under Section 43B.6. Taxability of subsidies received by the assessee.Detailed Analysis:1. Applicability of Section 11(4) of the Income Tax Act, 1961:The primary issue was whether the income of the assessee, a statutory body established under the Gujarat Industrial Development Act, 1962, is assessable as business income under Section 11(4) of the Income Tax Act, 1961. The assessee argued that its activities were for the general public utility and thus, charitable in nature, qualifying for exemption under Section 11. The Tribunal noted that the assessee was registered under Section 12AA, indicating that its activities were considered charitable. The Tribunal emphasized that the application of Section 11(4) requires a conclusive finding that the undertaking in question is a business undertaking and that the excess income has not been utilized for charitable purposes. The Tribunal concluded that the assessee's activities were for the public benefit and not for profit, and thus, the provisions of Section 11(4) were not applicable.2. Classification of Income as Business Income:The Assessing Officer classified the receipts from 'Premium Price on Lease of Plot' and 'Land for Sale' as revenue income, determining the income as business income. The Tribunal examined whether the activities of the assessee constituted a business. It was held that even if the activities could be considered a business undertaking, the income generated was utilized for the charitable purposes of the trust. Therefore, the income should not be taxed under Section 11(4).3. Inclusion of Premium Price on Lease of Plot and Land, Recovery Towards Factory Sheds, and Workers' Quarters as Business Income:The Tribunal addressed the inclusion of Rs. 168,27,39,482/- as premium price on lease of plot and land, Rs. 1,37,66,123/- as recovery towards factory sheds, and Rs. 15,87,963/- as recovery towards workers' quarters in the income of the assessee. The Tribunal held that these amounts were not excessive income not meant or utilized for the object of the trust. Therefore, the inclusion of these amounts as business income was reversed.4. Inclusion of Deposits Obtained in Connection with Allotment of Land or Structure as Business Income:The Tribunal found that the deposits shown under the head 'Current Liabilities & Provisions' in the balance sheet, related to allotment of land or structure, should not be added to the income as business income. The Tribunal concluded that these deposits were part of the assessee's activities for public utility and not for profit generation.5. Disallowance of Unpaid Amounts Under Section 43B:The Tribunal addressed the disallowance of Rs. 5,37,26,241/- for unpaid amounts and Rs. 4,67,46,181/- for unpaid leave encashment under Section 43B. Since the assessee's income was held to be exempt, these grounds became redundant, and the disallowances were reversed.6. Taxability of Subsidies Received by the Assessee:The Revenue challenged the deletion of the addition made on account of subsidies received by the assessee. The Tribunal upheld the CIT(A)'s finding that the subsidies were not voluntary contributions but were received as a channelizing agency for specific purposes. The subsidies were not free for the assessee's use and were subject to refund if not utilized. Therefore, the subsidies were not taxable in the hands of the assessee.Conclusion:The Tribunal allowed the assessee's appeal, holding that the income was not taxable under Section 11(4) and that the various amounts included as business income were not justified. The Revenue's appeal was dismissed, affirming that the subsidies received were not taxable.