TaxTMI 
TaxTMI 
2016 (5) TMI 1026
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....ion was filed on 27.1.2012 and ld.AO has rejected the application vide order dated 12.3.2012. This order was challenged before the CIT(A) in an appeal, but the appeal was dismissed vide order dated 21.2.2013. Hence, the assessee has impugned this order of the CIT(A) in ITA No.711/Ahd/2013. All these appeals have common issues. Therefore, we heard them together, and deem fit to dispose of them by this common order. 3. The grounds of appeal taken by the assessee in all these assessment years are identical in substance except variation in quantum. The facts on all vital points are common in these assessments. Therefore, for the facility of reference, we take up the facts mainly from the Asstt.Year 2009-10. The grounds in the Asstt.Year 2009-10 in ITA No.712/Ahd/2013 read as under: "1. Ld. CIT (A) erred in law and on facts in dismissing appeal of the appellant without considering and adjudicating each ground of appeal raised before him by concluding that all the grounds relate to section 11 & 12 of the Act. The order passed by Id. CIT (A) ignoring detailed submissions on various grounds is wholly unjust, erroneous and against the sanction of law. 2. Ld. CIT (A) erred in law an....
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....ing no revenue character were considered as income. Capital receipts are never treated as income even while computing income under normal provisions of section 28 to 44 of the Act as it is only net revenue surplus which could be brought to tax under those provisions. 10. Ld CIT (A) erred in law and on facts in confirming the action of AO in disallowing depreciation amounting to Rs. 38,59,02,000/- treating the appellant as AOP. 11. Ld CIT (A) erred in law and on facts in not allowing the carry forward of depreciation/ deficit of the earlier year as claimed by the appellant. 12. Ld CIT (A) erred in not considering the submissions based on the judicial pronouncements thought the copies of which were furnished before him, that even in case of absence of registration u/s 12A of the Act and benefit of s. 11 of the Act is not available to a charitable trust, capital receipts and grant cannot be brought to tax and that all expenses/ disbursement for objects of trust are required to be deducted. Ld CIT (A) erred in law and on facts in omitting to reproduce relevant observations of the case laws which were highlighted in the written submissions. 13. Levy of interest u/s 234A, 234....
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....h premium which indicated the profit motive even at the planning level. Therefore, he invited the explanation of the assessee as to why the deduction under section 11 of the Income Tax Act should not be denied to the assessee. Show cause notice was issued by the AO vide letter dated 22.12.2011. The relevant extract of the show cause notice issued by the AO on 22.12.2011 has been extracted in the assessment order in para 2.8. It reads as under: "2.8 Based on the above observations and legal provisions of the Act, a show cause notice was issued to the assessee on 22.12.2011, the relevant extract of which is reproduced here under: "You were asked to furnish the details of purchase and sale of land for A.Y. 2007-08, 2008-09, 2009-10 and 2010-11 by AUDA. Upon perusal of details furnished by you, it can be seen that you are charging very high premium on sale (lease) of land, which was purchased at a very nominal/ miniscule price. Apart from that at, the provision of the sale of land purchased for the town planning schemes at market rates is even mentioned in the Act of the AUDA. It shows that the charging of high premium is an inbuilt characteristic of AUDA, which reveals pro....
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....ct of general public utility" The activity of giving land on lease at premium is a business activity. The reasons for arriving at this conclusion are: • The plots of land have been acquired at a very nominal price in the name of town planning scheme, but have been given on lease at a very high premium by means of auction to the highest bidder. The land is given on lease not even at its jantri rate (stamp value), but at a commercial/ market rate. This virtue of the land transaction is very characteristic of commercial activity with a profit motive. • As is evident from the data in para 2.3.1, the majority of the land has been acquired by various companies (mainly construction companies), as mentioned in para 2.3.2. So, in the name of town planning the land belonging to ordinary people/ citizens has been systematically shifted to big corporate by charging premium. The land of common/ ordinary people is compulsorily acquired by the assessee (AUDA) in the name of land disposal policy and Gujarat Town Planning and Urban Development Act, and the same land is handed over to real estate companies at huge profits. By no stretch of imagination can such an activit....
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....premium is used for town planning, hence it cannot be considered as business income, or profit motive cannot be established. The two provisos were inducted in the definition of charitable purpose u/s 2(15) of the Act w.e.f A.Y. 2009-10, which are being reproduced here under: "Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of 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, for a cess or fee or any oilier consideration, irrespective of the nature of use or application, or retention, of the income from such activity:] Provided further that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is ten lakh rupees or less in the previous year;]" It is important to note from the said provisions of the Act that the application of income earned out of business activity pertaining to advancement of any other object of general public utility is not relevant The entire stress has beer, laid on the fact that the income....
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....n of increment (Section 78) and contribution towards cost of scheme (Section 79). The purpose of selling of small portion of land was for improving infrastructural facilities like roads, drainage for developing gardens, schools, other public services, etc. (b) that the manner in which the plots of land are sold out in Town Planning Scheme disposal of sub plots in a defined manner and purpose and utilization of proceeds for infrastructural development only and all these process are carried out without any intend of making any profit out of and therefore activities carried out cannot be termed as business or commercial activity. (c) with respect to proposed disallowance of deduction claimed u/s. 11, it was submitted that the assessee trust is duly registered u/s. 12AA of the Income-tax Act. It was further submitted that even the order cancelling the registration has been cancelled by the Hon'ble ITAT, Ahmedabad and thus the assessments are to be framed as per the provisions of Section 11, 12 & 13 of the Income-tax Act. (d) that the assessee has acted as a trustee in carrying all activities u/s. 23 of Gujarat Town Planning and Urban Development Act. The very motive is to ....
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....pport revenue's point that the assessee is not entitled to registration under Section 12AA. In support of his contention, he has also relied upon various decisions. However, the issue before us is not whether the assessee is entitled to registration or not because the assessee-institution is already registered vide order of the DIT(Exemption) under Section 12AA(1) dated 23-10-2003. The limited issue in this appeal before us whether the DIT(Exemption)was justified in canceling such registration by invoking the power under Section 12AA(3)." Further, according to the appellant, the power and functions of Urban Development Authority are as under: "[The powers and functions of] an urban development authority shall be: (i) To undertake the preparation of development plans under the provisions of this Act, for the urban development area; (ii) To undertake the preparation 3[and execution] of town planning schemes under the provisions of this Act, if so directed by the State Government; (iii) To carry out surveys in the urban development area for the preparation of development plans or town planning schemes; (iv) To guide, direct and assist the local authority or autho....
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....ghest bidder. The land is given on lease not even at its jantri rate (stamp value), but at a commercial/ market rate. This virtue of the land transactions is very characteristic of commercial activity with a profit motive. The said activity of the assessee can by no stretch of imagination be treated as charitable activity within the meaning of education, medical relief, relief of poor, and preservation of environment or reservation of monuments. The nature of the transactions carried out by the assessee clearly shows that the assessee is carrying on an activity which falls under the last limb of the definition of 'charitable activity' u/s 2(15) of the Act i.e 'the advancement of any other object of general public-utility'. Further, the fact that the plots of land were acquired from the public at nominal rates and sold to various commercial entities at market rate indicates that the assessee is involved in carrying on the activity which is in the nature of trade, commerce or business. Since the assessee has sold plots of land at a premium, to various commercial entities, with a motive to earn profit, it has been rightly treated as a business transaction by the AO. Th....
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....e applicable in the case of such person in the said previous year." The new sub-section (8) provides that the exemption under section 11 85 12 will not be available to a Trust, in a previous year, in which the proviso to section 2(15) becomes applicable, for that previous year. 4.5.7 Therefore, in the light of the provisions of Sec 13(8) of the Act, the assessee loses all the exemptions claimed u/s 11 & 12 of the Act. It is clear from the plain reading of the said provision that once proviso to Sec 2(15) becomes applicable to the facts of the case, all the exemptions otherwise allowable u/s 11 and 12 are not available to the assessee in that previous year. Therefore, the assessee is not eligible to any of the exemption claimed u/s 11 and 12 of the Act. Thus, the AO has rightly disallowed the various exemptions claimed u/s 11 & 12 of the act by the assessee mentioned in Para 6 of the assessment order. 4.5.8 Further following decisions may also be noted where in similar facts and circumstances the assessee were denied exemption claim u/s 11 & 12 of the act. The decisions are: (a) Jalandhar Development Authority v. CIT ITAT Amritsar Bench [2010],35 ....
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....ic utility, provisos to section 2(15) are applicable as the appellant is carrying out activities in the nature of trade, commerce or business and receipts from such trade/commerce/business exceeds the prescribed limit of 10 lakhs. Since the provisos to section 2(15) is "applicable, section 13(8) gets invoked. As a result of section 13(8) the appellant losses all the benefits u/s 11 8s 12 of the act as was rightly concluded by the AO. 4.5.10 In view of the above discussions, I am of the view that AO was right in withdrawing the benefit of sec 11 & 12 to the appellant. Since all the grounds relate to section 11 & 12, same are therefore dismissed. The claim of depreciation is not allowable as appellant is now treated as AOP. Other grounds relating to chargeability of interest u/s 234A, B & C are also dismissed as it is mandatory to charge the interest. 5. In the result, the appeal is dismissed." 9. Before we take note of the arguments of the respective parties and embark upon an inquiry on the facts and law brought to our notice, we would like to observe that though the assessee is enjoying registration of a charitable institution, contemplated under section 12AA of the Incom....
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....counsel for the assessee drew our attention towards assessment orders in order to buttress his contention. In the Asstt.Year 2007-08, the AO did not accept the contentions of the assessee, however, when the dispute travelled upto the Tribunal, then, vide order passed in ITA No.1835/Ahd/2010, the Tribunal has accepted the status of the assessee as a "charitable institution". It set aside the assessment order and directed the AO to frame the assessment in accordance with the provisions of sections 11, 12 and 13 of the Income Tax Act. Similarly, in the Asstt.Year 2008-09, the dispute travelled upto the Tribunal, and the Tribunal in ITA No.1682/Ahd/11 directed the AO to accept the assessee as a "charitable institution" and directed him to grant benefit under sections 11, 12 and 13 of the Income Tax Act. The orders of the Tribunal in both these assessment years have been placed at page nos.19 to 23, 35 to 39 of the paper book. Thus, according to the ld.counsel for the assessee, right upto the assessment year 2008-09, the assessee was allowed the benefit of "charitable institution" and its income has been assessed under sections 11, 12 and 13 of the Income Tax Act. He further contended t....
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....lause shall not be changed by variation of scheme for the purpose other than public purpose. This amendment was inserted in T.P. Act in 1986. Vires of these were challenged before the Hon'ble Gujarat High Court and the Hon'ble High Court has upheld the amendment carried out in the Act in the judgment of the Hon'ble Gujarat High Court in the case of Ahmedabad Green Belt Khedut Mandal Vs. State of Gujarat, is reported in 2001(1) GLR 888. Copy of this judgment has been placed on the record. The ld.counsel for the assessee, in this way, emphasized that the assessee does not purchase land. The large piece of land is made available to the assessee under the T.P.Act, which is expected to be sold to raise fund. In given cases, where the land is not covered by T.P.Scheme, the same is acquired under the Land Acquisition Act, but then, the same is never sold. The activity of the sale of land to the extent of 15% of the land, referred for the benefit of the assessee in order to enable it to raise funds to carry out development activity. In fact, this is the object for which amendment was made to the T.P. Act. Thus, the assessee does not indulge into purchase and sale of the land. According the....
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....he corporation, the assets would vest along with liabilities in the State Government would take away the status of the assessee from a trading corporation. 16. Shri G.C. Srivastava, the ld.counsel for the Department, while giving reply to the contentions of the ld.counsel for the assessee, would submit the background and frame work of the law, governing the taxability of alleged "charitable institutions". He contended that Parliament always believe that the business and charity cannot be mixed and go together. Hence, the definition of 'charitable purpose" contained in section-2(15) originally enacted was circumscribed by the expression 'any other object of general public utility not involving carrying on any activity for profit." This expression had created various difficulties to certain institutions. The restrictions provided in the phrase "not involving carrying on any activity for profit' was omitted by the Finance Act, 1983 w.e.f. 01.04.1984, but another restrictions was imposed on the business activities carried out by any "charitable institution". These restrictions were introduced by way of subsection (4A) of section 11 of the Act. The assessee, who was in business also has....
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.... with this situation, Parliament intervened again and introduced proviso to section 2(15) of the Finance Act, 2008 w.e.f. 1.4.2009. This proviso provides that "advancement of any other object of general public utility" shall not be a charitable purpose, if it involves the carrying on any activity in the nature, trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business, for a cess, fee or any other consideration, irrespective of the nature or application of such income. It was also provided by the Finance Act, 2010 with retrospective effect from 1.4.2009 that the first proviso shall not apply if the receipts from such activities did not exceed Rs. 25 lakhs in the previous year. Similarly, in 2012 one more amendment was carried out w.e.f. 1.4.2009. This amendment provided that benefit of section 11 or 12 would not be available, if the receipt from the activity in the nature of trade or business exceeds the threshold provided for in the proviso to section 2(15) of the Act. Taking us through section 13(8) of the Income Tax Act, he contended that application of this section is depended upon the receipts in a given year from activ....
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....n the nature of trade, commerce and business. We deem it appropriate to take note of the written submissions, which reads as under: "I. The constitution of Urban Development Authorities in the state of Gujarat is governed by chapter III of Gujarat Town Planning and Urban Development Act of 1976. The powers and functions of Urban Development Authority are defined in Section 23 and clause (VII) of the said section gives the assessee, Ahmedabad Urban DevelopmentAuthority, the power to "Acquire, hold, manage and dispose off property, movable or immovable, as it may deem necessary". Section 40(3) of Chapter V provides the earmarking of the land acquired and it provides that 15% be provided for roads, 5% for parks, gardens, etc, 5% for social infrastructure such as schools, dispensaries and another 15% is earmarked for sale by AUDA for residential, commercial, or industrial use. II. Thus, by virtue of the above provisions 15% of the total notified area is sold by the appellant and from such sale huge profits are derived. The acquisition and sale of this land is in the nature of a trade or business and the activity is not different from a normal purchase or sale activity by a real e....
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....h land is only a part of the total amount payable by the authority. viii. In the final scheme of things, the Authority does incur a cost for such land which may be adjusted against the recoveries due to the appellant or against the amount payable for the area by way of compensation. It may be submitted that mode of payment of cost of acquisition whether by cash or by way of adjustment against the value of final plot to be allotted to the original owners will not alter the fact that the land is acquired for a cost. ix. As a matter of fact and from the financials of the assessee it is seen that the cost for the land has been incurred and has been capitalized as cost of acquisition. The practice is followed from year to year. 23.The appellant has, thus, become entitled to sell 15% of the land by virtue of the provisions of the scheme. This entitlement comes for a cost and has resulted in huge profits. 24.The activity in respect of 15% of the land sold by the appellant, thus, is in the nature of trade or business. The first limb of the proviso to section 2(15) is satisfied. 25.The Authority is also required to make a planned development of the city under a scheme approve....
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....nt area already declared as such under section 3 or not, will be best served by entrusting the work of development or redevelopment thereof to a special authority, instead of to an area development authority, the State Government may, by notification, declare such area to be an urban development area and constitute an authority for such area to be called the urban development authority of that area, and thereupon all the powers and functions of an area development authority relating to the development or redevelopment of a development area under the Act shall, in relation to such urban development area, be excercised and performed by such urban development authority. " 30.The object of the proper development or redevelopment of any urban area is of the state government and the choice of either constituting an authority for the development or entrusting it to a third party is of the Government. 31.The object of the urban development is of the State Government. The Authority is only carrying out and executing the state's object. If similar activity done bya infrastructure company is in the nature of business, it cannot be said that since the activity is carried by an author....
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.... or historic interest, and the advancement of any other object of general public utility: Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of 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, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity: Provided further that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is twenty-five lakh rupees or less in the previous year;" 19. If the activity of the assessee are looked into, in the light of the above provision, then, it would reveal that the assessee's case would fall in the category of "advancement of any other object of general public utility" provided in the last limb of the provision. The Hon'ble Delhi High Court while expounding the meaning of expression "charitable purpose" employed in main section has observed that there are four main factors viz. (i) activity should be for adva....
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....institution is engaged in trade or commerce. In that situation, there was no need to use expression "the activity in the nature .........". The interpretation given by the assessee totally makes the word "activity" obsolete or otiose. The ld.counsel for the Revenue emphasised that, if the "trade, commerce or business" only was required to be considered, then, what is the need to use expression "activity" ?. It was also pointed out that the expression "activity in the nature of " should be considered keeping in mind historical development of introduction of this clause in the proviso coupled with the circumstances that the applications of income for charitable work is irrelevant. Meaning thereby that if intention to earn profit is to be considered as embedded in the "activity" and conjointly attached with expression "trade, commerce or business" then user on nonapplications of income for charitable purposes, again would be of no use, institution would be absolved from the applicability of proviso at the threshold. 22. We have duly considered rival contentions and stand of both the sides. We have gone through the decision of the Hon'ble Delhi High Court, where the Hon'ble Court ha....
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....nd "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. Johnson 18 Cal 2d 275. Enterprise in which person engaged shows willingness to invest time and capital on future outcome. Doggett v. Burnet 62 App DC 103 ; 65 F. 2D 191. That which habitually busies or occupies or engages the time, attention, labour and effort of persons as a principal serious concern or interest or for livelihood or profit." According to Sampath Iyengar's Law of Income Tax (9th edition), a business activity has four essential characteristics. Firstly, a business must be a continuous and systematic exercise of activity. Business is defined as an active occupation continuously carried on. Business vocation connotes some real, substantive and systematic course of activity or conduct with a set purpose. The second essential characteristic is profit motive or capable of producing profit. To re....
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....s) Delhi & Ors. (Supra) in the following words: 33. 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 a given case activity may be regarded as 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 infect in the nature of business. The test as prescribe in Raipur Manufacturing Company (supra) and Sai Publications Fund (supra) can be applied. The six....
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....roving breeding of milch cows, and therefore, it was held as non-commercial activity. 24. On an analysis of Town Planning Act, activities and objects of the assessee, we find that whenever a town planning scheme is conceived, then the land belonging to various persons/entities are put into a common pool, and thereafter, the scheme in a planned way is drawn. The role of the assessee came to execute scheme. From reading of section 40(jj)(a) of the Town Planning Act would suggest that 40% of the land would be taken from the land owners. It will be used as per this section viz. (i) fifteen per cent for roads, (ii) five per cent for parks, play grounds, gardens and open space, (iii) five per cent for social infrastructure such as school, dispensary, fire brigade, public utility place as earmarked in the Draft Town Planning Scheme, and (iv) fifteen per cent for sale by appropriate authority for residential, commercial or industrial use depending upon the nature of development. 15% land would vest in the assessee. This was not free of cost. The cost is incurrence of expenditure on the development of remaining 85% of the land. The land owners have sacrificed their 40% land, the potentia....
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....e needy persons/institutions by draw of lots. Instead of this, the assessee has fixed a base price, and thereafter, put the land on auction. It allotted the land to the highest bidder. It has sold the land keeping in view the profit in mind. 26. The ld.counsel for the Revenue has pointed that huge profits have been made by the assessee in these years. If that be so, where is the element of charity? The activity of developing roads, park or laying of sewerage land are not to be seen representing a charitable act. These are just to demonstrate that the assessee shall perform the activity of advancement of any other objects of general public utility. But auction of land to the highest bidder is an activity, which is specifically, keeping in view, the profit in mind. As far as other circumstances are concerned, we are in agreement with the contentions of Shri G.C. Srivastava, which have been noticed by us by taking cognizance of the written submissions filed by the Revenue in para 16 of this order. There are surplus and reserves which are continuously swelling. These are generated by the assessee by way of this activity sale/lease of land and charging fees. The assessee has not been....
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....ing the disallowance Rs. 60 crores claimed by the assessee under section 11(2) of the Act. Since, we have already held that the assessee is not entitled for benefit of section 11, therefore, it is precluded to raise any such issue. This ground is also rejected. 33. Ground no.12 is again general ground, which is just argument. Hence, it is rejected. 34. The ground no.13. In this ground, the assessee has challenged levy of interest under sections 234(A), 234(B), 234(C) and 234(D) of the Act. The levy of interest is consequential in nature. Hence, it is rejected. 35. In ground no.14, the assessee has challenged initiation of penalty under section 271(1)(c) of the Act. It is a premature ground. The issue with regard to levy of penalty is yet to be decided. Hence, this ground does not emerge out from the record, accordingly, rejected. 36. Ground nos.8, 9, 10 and 11. These grounds are in respect of quantification of income of the assessee. According to the ld.counsel for the assessee, the ld.AO has not properly computed the income, even by treating the assessee as business entity. The AO has disallowed depreciation. He has made addition of capital expenditure, and thereafter ....