TaxTMI 
TaxTMI 
2015 (4) TMI 885
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....re stated in brief. The assessee is a Statutory Corporation formed under Maharashtra Industrial Development Act, 1961 (MID Act). The assessee is engaged in development of industrial assets by providing basic infrastructure facilities like land, roads, street lights, water supply, drainage etc. The assessee is maintaining facilities such as water supply, drainage and also providing certain facilities to the occupants of the industrial assets and collects charges for the same. The industrial plots are allotted to the business people on receipt of lease premium, rent etc. It filed its return of income for the year under consideration claiming exemption u/s 11 of the Act, since it had been registered as a "charitable organization" by the DIT (Exemption) u/s 12AA of the Act, vide registration No.TR-37971 dated 1.4.2002. The AO noticed that, in the immediately preceding year, the assessee was not held to be a valid trust by him and hence it was held to be not eligible for exemption u/s 11 of the Act. Following the said decision, the AO held that the assessee is not a valid trust for the year under consideration also and accordingly he held that it is not eligible for exemption u/s 11 of ....
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.... the development of the public at large. Hence, the proviso to section 2(15) is fully applicable to the assessee. 7. The ld. CIT(A) also rejected the claim of the assessee that the funds received by it by way of lease rent, development charges, interest on deposits etc belong to State Government on the reasoning that there is no such legal obligation existing in the MID Act. Accordingly, the ld. CIT(A) upheld the assessment of Rs. 1701.61 crores in the hands of the assessee. Aggrieved, the assessee has filed this appeal before us. 8. We heard the parties and perused the record. The first issue is about the eligibility of the assessee to claim exemption u/s 11 of the Act. Before us, the Ld A.R submitted that the assessee was formed with the objective of orderly development of Industrial areas and Industrial estates in the State of Maharashtra. The assessee is a body corporate and it is being controlled by the State Government. If the assessee is dissolved, all the assets would go to the State Government. Further the assessee has been granted registration u/s 12A of the Act by the Ld DIT (exemption), who normally examines about the validity of the trust/institution. Hence the a....
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....0. The second reasoning given by the assessing officer as well as Ld CIT(A) is that the activities carried on by the assessee are commercial in nature and the gross receipts has exceeded the prescribed limits. Accordingly he held that the assessee is hit by the proviso to sec. 2(15) of the Act and hence the activities of the assessee cannot be considered to be for charitable purpose. The Ld A.R, however, disputed the same and contended that the activities of the assessee cannot be considered to be in the nature of "trade, commerce or business" as contemplated in the proviso to sec. 2(15) of the Act. In this regard, he placed reliance on the decision of Hon'ble Supreme Court rendered in the case of Shri Ramtanu Co-operative Housing Society Ltd and Anr. Vs. State of Maharashtra & Ors (1970)(3 SCC 323). We notice that the Hon'ble Apex Court, in the above cited case, has considered the writ petition filed by the appellant therein, wherein the vires of the Maharashtra Industrial Development Act, 1961 and also the nature of activities of the assessee herein were questioned. The Hon'ble Supreme Court has held as under:- "....The corporation (i.e., the assessee herein) is th....
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....on 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..... 20. The underlying concept of a trading Corporation is buying and selling. There is no aspect of 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 the 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 estates 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 hardcore of trading Corporation is its commercial character. Commerce connotes transactions of purchase and sale of commodi....
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....ness for a cess, fee or any other consideration. (b) Indian Chamber of Commerce Vs. ITO (ITA No.1491/Kol/2012 & 1284/Kol/2012 dated 02-12-2014 of Kokatta bench of ITAT. In this case, it was held that, in the cases of institutions/associations whose main activity is not "business" the connected incidental or ancillary activities of sales carried out in furtherance of and to accomplish their main objects would not, normally, amount to business, unless an independent intention to conduct 'business' in these connected, incidental or ancillary activities is established by the revenue....the services rendered by a Chamber of commerce could not be held to be 'business' in the nature carried out with a profit motive.......The issue whether a professional institution is not hit by the proviso to section 2(15) of the Act will essentially depend upon the individual facts of the case of the institutions wherein discussing the nature of the individual activities it will have to be decided whether the same form incidental, ancillary and connected activities and whether the same were carried out predominantly with a profit motive. (c) GS1 Vs. DGIT (Exemptions) (2014)(360 ITR....
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....as under:- "As the above Central Board of Direct Taxes circular, which is binding on the Commissioner under section 119(1)(a) of the Act, aptly puts it, whether the assessee has, as its object, advancement of any other object of general public utility is essentially a question to be decided on the facts of the assessee's own case and where object of general public utility is only a mask or a device to hide the true purpose of trade, business or commerce, or rendering of any service in relation thereto, the assessee cannot be said to be engaged in a charitable activity within the meaning of section 2(15) of the Act. As a corollary to this approach adopted by the tax administration, in our considered view, it cannot be open to the learned Commissioner to contend that where an object of general public utility is not merely a mask to hide the true purpose or rendering of any service in relation thereto, and where such services are being rendered as purely incidental to or as subservient to the main objective of "general public utility", the carrying on of bona fide activities in furtherance of such objectives of "general public utility" will also be hit by the proviso to section....
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....d by the assessee for sale of industrial plots have failed, meaning that the activities of the assessee have become totally commercial in nature. 12. He submitted that the activities of the assessee came to be considered by the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) while considering the Stay application filed by the assessee and the CESTAT has expressed the view that the assessee is not performing any sovereign function, since the assessee is having its own identity distinct from the Maharashtra State Government and operates independently. Further the CESTAT noted down the fact that the receipts are credited to its own fund and not to the consolidated fund of the State. He further submitted that the various case laws relied upon by the assessee have been rendered in a different context (For example, in the case of Ramatanu Co-op Housing Society, the vires of the MID Act was challenged under 44 of List-I Union list under Seventh Schedule (Article 246) of the constitution), more particularly with regard to the power of the assessee to acquire the lands, and not in the context of the Income tax Act and hence the assessee could not derive support from them. ....
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....ce given by the State, and if so, what is the magnitude of such assistance. (b) Whether there is any other form of assistance given by the State and if so, whether it is of usual kind or it is extraordinary. (c) Whether there is any control of management and policies of the Corporation by the State and what is the nature and extent of such control. (d) Whether the Corporation enjoys State Conferred or State protected monopoly status. And (e) Whether the functions carried out by the Corporation are public functions closely related to Governmental functions. The Ld D.R submitted that the assessee has not obtained any financial assistance from the State Government or any other form of assistance. The State Government has given land for development and also provided loan to it. It is pertinent to note that the State Government is charging interest on the loan so given. The Ld D.R submitted that, in general practice, no interest shall be charged on the amount given to an agent. He submitted that the assessee is an autonomous corporation, a separate Body Corporate, being managed by the Board members. The assessee does not enjoy monopoly status and its functions are not clo....
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....een dismissed by the Hon'ble Apex Court. Accordingly the Ld D.R submitted that the assessee herein is no longer carrying on any activity of general public utility and further it is operating with profit earning motive. Hence the assessee cannot be considered to be a charitable institution. Further, its activities are very much commercial in nature and hence it is hit by the proviso to sec. 2(15) of the Act also. The Ld D.R submitted that the assessee is taking two contradictory stands before the Tribunal. He submitted that the assessee, having filed return of income as an independent assessee, cannot claim at this stage as an agent of the State Government immune from taxation. 16. In the rejoinder, the Ld A.R submitted that the assessee is not taking any contradictory stand as canvassed by Ld D.R. He submitted that the assessee is carrying its activities on its own account and also as an agent of the Government of Maharashtra. He submitted that the section 32 of the MID Act provides that the State Government shall acquire the land and transfer the same to the assessee and the same shall be dealt with by the assessee in accordance with the provisions of sec. 43-1A of MID Act.....
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....learly mentioned to be a commercial undertaking. The Tribunal further held that the decisions rendered in the case of Andhra Pradesh State Road Transport corporation (supra) and Ramana Daya Ram Shetty Vs. The International Airport was also held to be not applicable. Accordingly the Ld A.R submitted that the decision rendered in the case of U.P Forest Corporation (supra) is not applicable to the assessee herein. With regard to the reliance placed by Ld D.R on the order passed by the CESTAT, the Ld A.R submitted that it was an observation made in a Stay order and subsequently another order No.M/1895/14/CSTB/C-I dated 20.11.2014 was passed by the CESTAT against the miscellaneous petition filed by the assessee. In the second order, the absolute stay was granted by CESTAT. Accordingly, he submitted that the observations made in the order of the CESTAT should not be relied upon. 17. We have heard the rival contentions and perused the record. The main contention of the assessee was that it is an agent or instrumentality of Government of Maharashtra Government, since it is performing Sovereign functions of development and allotment of industrial plots for public purposes. Accordingly, i....
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....xamined the provisions of the MID Act and the object/purpose sought to be achieved by formation of the assessee under the MID Act and accordingly rendered its decision upholding the validity of MID Act. Admittedly, the provisions of MID Act were not examined vis-à-vis the Income tax provisions. Further, the Hon'ble Apex Court has examined the provisions of MID Act and not actual functioning of the assessee. 18. In the case with M.D., H.S.I.D.C (supra), following facts narrated by the Hon'ble Apex Court are relevant:- "4. Appellant-Corporation is public sector undertaking. Its principal function is allotment of industrial plots belonging to the State of Haryana. It was set up as a catalyst for promoting economic growth and accelerating the pace of industrialization. It not only provides financial assistance to the industrial concerns by way of term loans; it also develops infrastructure for setting up of industrial units. The Corporation also invests money in developing the industrial estates at strategic locations. In exercise of its functions, it also allots industrial plots to entrepreneurs for setting up their industries on "no profit no loss" basis. The ent....
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....hese are all in aid of the principal and predominant purpose of establishment, growth and establishment of industries. The Corporation is established for that purpose........ ........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 trading character of the Corporation.......The functions and powers of the Corporation indicate that the Corporation is acting as a wing of the State Government in establishing industrial estates and developing industrial areas,..... Receipts of these moneys arise not out of any business or trade, but out of the sole purpose of establishment, growth and development of industries." It can be noticed that the Hon'ble Apex Court has made all the above said observations, mainly, taking into account the purpose and object of the Act, viz., establishment, growth and organisation of industries. Since the State Government has to take the initiative for the same and since the assessee was incorporated with the said purpose, the Hon'ble Apex Court has observed that the real role of the Corporation was to act as "Agency of the Government i....
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....assessee is a separate personality, it alone is liable for its actions. The Ld A.R invited our attention to the Resolution No. IDC 1079/(1966)/IND.14 dated 11th September 1986, wherein it is stated that the assessee is undertaking the development work as an agency function on behalf of Government and further the Corporation will act as an agent of Government for development of industrial area and other infrastructural facilities under the provisions of the Maharashtra Industrial Development Act, 1961. In our view, the provisions of MID Act shall have supremacy over the resolutions passed by the Government of Maharashtra. We have already noticed that the Hon'ble Supreme Court has also considered various provisions of the MID Act only in the case of Shri Ramatanu Co- operative Housing Society Ltd (supra). Hence, we are of the view that the resolutions passed by the State Government should not be considered to determine the status of the assessee. The Ld D.R has already placed reliance on the decision of Hon'ble Supreme Court rendered in the case of Ramana Dayaram Shetty Vs. The International Airport Authority of India Ltd (supra), wherein the Hon'ble Apex Court has listed....
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.... fall within the province of government." These observations tend to show that a trading activity carried on by the corporation is not a trading activity carried on by the State departmentally, or is it a trading activity carried on by a State through its agents appointed in that behalf." The observations made by Lord Denning, viz., "It is, of course, a public authority and its purposes, no doubt, are public purposes, but it is not a government department nor do its powers fall within the province of government" are very much relevant here and, in our view, they squarely apply to the assessee herein. We notice that the Hon'ble Gujarat High Court in the case of Gujarat Industrial Development Corporation V/s CIT [1985] 151 ITR 255 (Guj) has considered an identical issue and has held as under: "11. Having considered as to whether the assessee--Gujarat Industrial Development Corporation, Ahmedabad--is entitled or is not en titled to exclude its income from liability under the 1922 Act, we are clearly of the opinion that from their total income, no exclusion could be made on the ground that it is a State, as contemplated by article 289(1). The State is entirely different fr....
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....se 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......Receipt of these moneys arise not out of any business or trade, but out of the sole purpose of establishment, growth and development of industries." It was submitted that the meaning of the term "Commerce" is the activity of buying and selling, especially on large scale or the exchange of goods and services on a large scale involving transportation between cities, states and nations. Accordingly, it was contended that the assessee is not carrying on any trade or business or commerce. 24. A perusal of paragraph 16 of the decision rendered in the case of Shri Ramtanu Co-operative Housing Socieity Ltd and Anr. (supra) would show that the petitioners contended that the assessee Corporation was a trading one for the reasons that the Corporation could sell property, namely, transfer land; that the Corporation had borrowing powers, and that the Corporation was entitled to moneys by way of rents and profits. Thus, it can be seen that the claim of the petitioners was that the asses....
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....e or concern in the nature of trade, commerce or manufacture." The word "business" is a word of large and indefinite import. Section 2(13) defines business to include any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture. The intention of the Legislature is to make the definition extensive as the term "inclusive" has been used. The Legislature has deliberately departed from giving a definite import to the term "business" but made reference to several other general terms like "trade", "commerce", "manufacture" and "adventure or concern in the nature of trade, commerce and manufacture". In Black's Law Dictionary, Sixth Edition, the word "business" has been defined as under : "Employment, occupation, profession or commercial activity engaged in for gain or livelihood. Activity or enterprise for gain, benefit, advantage or livelihood. Union League Club V/s Johnson 18 Cal 2d 275. Enterprise in which person engaged shows willingness to invest time and capital on future outcome. Doggett V/s Burnet 62 App DC 103 ; 65 F. 2D 191. That which habitually busies or occupies or engages the time, attention, labour and effort of per....
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....ce and business are etymological chameleon and suit their meanings to the context in which they are found. Five tests propounded in Customs & Excise Commissioner V/s Lord Fisher [1981] S.T.C. 238 and decision in Commissioner Of Sales Tax V/s Sai Publication Fund [2002] 252 ITR 70/122 Taxman 437 (SC) was quoted. 19. The final and determining factors, it was observed was consequential profit motive or purpose behind the activity and when an activity is trade, commerce or business was elucidated in Institute of Chartered Accountants of India (supra) in the following words(page123): 'Section 2(15) defines the term charitable purpose. Therefore, while construing the term business for the said Section, the object and purpose of the Section has to be kept in mind. We do not think that a very broad and extended definition of the term business is intended for the purpose of interpreting and applying the first proviso to Section 2(15) of the Act to include any transaction for a fee or money. 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 ....
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....may be present. For charity, benevolence should be omnipresent and demonstrable but it is not equivalent to self sacrifice and abnegation. The antiquated definition of charity, which entails giving and receiving nothing in return is outdated. A mandatory feature would be; charitable activity should be devoid of selfishness or illiberal spirit. Enrichment of oneself or self-gain should be missing and the predominant purpose of the activity should be to serve and benefit others. A small contribution by way of fee that the beneficiary pays would not convert charitable activity into business, commerce or trade in the absence of contrary evidence. The 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? 26. Now, let us discuss about the facts prevailing in the case under consideration. When the assessee corporation was originally incorporated, the activity of promotion of industrialization all over the State of Maharashtra should have been the avowed objective of the State Government. Hitherto, the....
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....s in some select cities across Maharashtra, including the one in Nashik. The IT park building, which was built by MIDC at Rs. 2.23 crore, was inaugurated in 2002. But since then, it has been lying idle because of poor response from industry. The MIDC tried to auction the IT park twice in the past one-and-a-half years, but failed miserably as not a single industry filed any bid on both the occasions. Speaking to TOI, a senior MIDC official said, "There is no response from the industry to the IT park in the Ambad MIDC areas. In March last year, we had invited bids from industrial houses for the auction of shops at the IT park. But we did not receive a single bid. Our second attempt was in August this year. This time, we had reduced the minimum bid rate by 10% from Rs. 24,530 per Sq. m to Rs. 22,300 per Sq. mt keeping in minds demands from the industry. Nevertheless, we did not receive any response from the industries. We are now planning to change the reservation of the IT park and allot the shops to industrial houses from other sectors. We are preparing the proposal for the change of IT reservation of the park, which will be sent shortly to our head office in Mumbai for approval.....
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....sue is with regard to the funds claimed to have been received by the assessee on behalf of the Government of Maharashtra. With the said contentions, the assessee did not disclose the funds received by way of lease premiums, interest on bank deposits etc. as its income in the Profit and Loss account, but shown as "Liabilities" in the Balance sheet as the amount due to paid to the State Government. However, the AO assessed the said receipts as income of the assessee and the Ld CIT(A) also confirmed the same. 31. Before us, the Ld A.R submitted that the assessee is carrying on its activities on its own account and also as agent of the Government of Maharashtra. The amount received from the activities carried on behalf of the State Government was directly taken to the Balance sheet, since the assessee, as an agent, is liable to hand over the said proceeds to the State Government. He further submitted that the assessee has been consistently following this accounting system and this method of accounting followed has been accepted by the Comptroller and Audit General of India also. He further submitted that the nature of these amounts and also the relationship between the assessee and ....
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....ntions and perused record. We notice that the assessee is raising the contention for the first time before us that it is carrying on the activities on its own account and also as agent of the Government of Maharashtra. There appears to be no reference in the orders of the tax authorities to the resolutions passed by the Government of Maharashtra. It is further contended that the assessee is following consistently taking the funds received on behalf of the State Government to the Balance Sheet as per the resolutions passed by the State Government. Since the assessee has submitted that it is also carrying out certain activities on behalf of the Government of Maharashtra and since the said claim of the assessee has not been examined by the tax authorities, we are of the view that this issue requires fresh examination at the end of the assessing officer. Accordingly, we set aside the order of Ld CIT(A) on this issue and restore the same to the file of the assessing officer with the direction to examine the same afresh by duly considering all the documents and explanations that may be furnished by the assessee before him in order to substantiate its contentions. The assessee is also dir....