TaxTMI 
TaxTMI 
2017 (1) TMI 945
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....stituted pursuant to the State Legislature Act namely the Gujarat Industrial Development Act, 1962. The preamble of the Act reads as under:- "An Act to make special provision securing the orderly establishment and organization of industries in industrial areas and industrial estates in the State of Gujarat and for the purpose of establishing Commercial Centers in connection with the establishment and organization of such industries and for that purpose to establish an Industrial Development Corporation, and for purposes connected with the matters aforesaid". 5. For the Assessment Year 2009-10, the appellant company filed return of income showing total deficit at Rs. 607.87 crores. In the statement of income, the assessee has shown gross total income at Rs. 393.15 crores. Total application of funds was shown at Rs. 1045.86 crores and total loss was worked out at Rs. 607.87 crores. The A.O. denied the claims made by the assessee by making the following observations. 5. It is further observed that the main objects of the assessee Company is to establish and manage industrial estates at places selected by State Government, to develop industrial areas selected by the government for....
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....s and allotting land to industrialists on lease and is also charging consideration for land transferred to them and is also claiming its income to be exempt u/s. 11 of the Act. Therefore, in my opinion its income is assessable u/s. 11(4) of the Act for A.Y. 2009-10. It is pertinent to note here that this view has been confirmed by ld. CIT(A) in the assessee's own case for the A.Y. 2006-07. 6. The assessee carried the matter before the ld. CIT(A) and reiterated its claim of exemption. Taking a leaf out of the observations of the A.O. discussed in Para 7 of the assessment order, the First Appellate Authority was of the strong belief that the proviso to Section 2(15) squarely apply on the facts of the case. The First Appellate Authority accordingly issued a specific show cause vide letter dated 28.09.2012 to show cause why consequent to the decision of the A.O. it should not be held that no income is even assessable u/s. 11(4), it was also required to show cause why GIDC should not be denied any benefit of Section 11 and, thereafter its income be not computed under the normal provisions of the Act. 7. The assessee requested to raise an additional ground challenging the applicability....
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....r 'the advancement of any other object of general public utility' 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. The definition is much broader than being engaged in trade or business. What it envisages and prohibits is even carrying out activities of that 'nature' for a cess or fee or any other consideration. Clearly, the legislation is excluding the carrying out of these activities (not only complete business or trade etc.) even though they may be for public utility, irrespective of the nature of use or application, or retention, of the income from such activity. The averment of the assessee that the profits though earned are for public use or may ultimately vest in the Government of Gujarat after the corporation is dissolved etc., therefore, does not make a difference, to the assessee's case Here, I would like to mention that the assessee is admittedly aphorized to develop land on its own account (refer to section 13 of the GID Act). Here, it would be worthwhile to reproduce some o....
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....ns 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.l0(20A) of the I.T. Act. The purpose of careful reading of this judgment is to ascertain the objects of the trust and also to verify whether such objects had fallen under the definition of section 2(15) of the I.T. Act. According to us, there should not be any dispute or misunderstanding that the objects of this, appellant are very much covered, as held above, under the definition of section 2(15) of the I.T. Act. 11...........This is the main cause of grievance that though the activity of the assessee is to promote industry for the benefit of public at large and the income so generated on leasing out of the plots/land, the same has also been exclusively utilized for those listed objects of the Institution, therefore, there was no scope to invoke section 11(4) of the I.T.Act. There is no allegation of the Revenue Department that any part of the income/of the GIDC was misappropriated or exploited other than the obj4cts of the Trust. Only under a deeming provision it was held so. The fallacy on the part of the Revenue in holding so, as p....
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....iness undertaking" but being no excess income was found utilised other than for the purposes of the object of the trust, hence, out of the ambits of the provision of section 11(4) of the l.T.Act. (emphasis supplied)" It is clear that the Hon'ble ITAT also considered the activities of the appellant to be 'business activity' but stated that the profits of business were utilized for the objects and in that year the charitable activity included business activities for the purpose of the general public utility also. The appellant has relied on the decision of the Hon'ble Supreme Court in the following cases: i) In the case of the Appellant itself i.e. GIDC & Ors v. CIT[227 ITR 414 (SC)] ii) Shri Ramtanu Co.Op. Housing Society Ltd. v. State of Maharashtra [(1970) AIR 1970 SC 1771] [(1970)-003)-SCC-0323-SC] Having gone through the judgments carefully, I find that these are of no help, to the assessee in the present context. The first judgment was given in the context of applicability of section 10(20A) of the IT Act. The question was whether the object of the assessee was urban and rural development or not. The issue is not disputed at all. The judgments of....
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....section 12 shall operate so as to exclude any income from the total income of the previous year of the person in receipt thereof if the provisions of the first proviso to clause (15) of section 2 become applicable in the case of such person in the said previous year." Therefore, no income of the assessee for the previous year would be eligible to be excluded from the total income under the provisions of section 11 or section 12 of the IT Act. 9. Aggrieved by this, the assessee is before us. The ld. Senior Counsel vehemently submitted that the First Appellate Authority have grossly erred in not appreciating the facts of the case qua the decisions relied upon by the assessee before the First Appellate Authority. 10. It is the say of the ld. counsel that the Hon'ble Supreme Court in assessee's own case in 227 ITR 414 has categorically held that the assessee is not a trading corporation. The ld. counsel further relied upon the decision of the Hon'ble Supreme Court given in the case of Shri Ramtanu Cooperative Housing Society Ltd. and another vs. State of Maharashtra and Others 1970(3) Supreme Court Cases 323. It is say of the ld. Senior Counsel that the writ petitions challenging t....
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....hmir in Tax Appeal No. 164 of 2012. The ld. D.R. further relied upon the decision in the case of GIVE Foundation in ITA No. 1465 /Ahd/2013, Entertainment Society of Goa in ITA No. 90/Panj/2012 and Belgaum Urban Development Authority in ITA No. 214/Panj/2011. 13. Having heard rival contentions, we have carefully perused the orders of the authorities below and with the assistance of the ld. representatives of both sides; we have gone through the related documentary evidences brought on record in the form paper books in the light of rule 18(6) of the ITAT Rules. We have given a thoughtful consideration to the decisions relied upon by the rival representatives. 14. The bone of contention is the applicability of the proviso to Section 2(15) of the Act. Section 2(15) as it stood in the statute after the repeal of the 1922 Act read as under:- Section 2(15) - "Charitable purpose" includes relief of the poor, education, medical relief and the advancement of any other object of general public utility not involving the carrying on of any activity of profit. This provision remained unchanged till its amendment by the Finance Act, 1983 and with effect from 1.4.1984 "not involving the carr....
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....nd other buildings and makes them available for industries or class of industries; (i) "means of access" includes a road for any means of access, whether private or public, for vehicles or for pedestrians; (j) "premises" means any land or building or part of a building and includes- (i) the garden, grounds and out-houses, if any, appertaining to such building or part of a building; and (ii) any fittings affixed to such building or part of a building for the more beneficial enjoyment thereof; (k) "Prescribed" means prescribed by rules, made under this Act; (1) "regulation" means regulation made under section 54 (m) "relevant land acquisition law" means- (i) in the Bombay area of the Kutch area of the State of Gujarat, the Land Acquisition Act 1894 as in I of 1894. force in those areas; (ii) in the Saurashtra area of the State of Gujarat, the Land Acquisition Act, 1894 as applied to that area; and (iii) the Gujarat Land Acquisition (Industrial Areas) Act 1961; (n) the expression "land" and the expression "person interested" shall have the meanings respectively assigned to them in the relevant land acquisition law. ESTABLISHMENT AND CONSTITUTION OF THE CO....
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....y of its activities, and to lease, sell, exchange or otherwise transfer any property held by it on such conditions as may be deemed proper by the Corporation; (b) to purchase by agreement or to take on lease or under any form of tenancy any land, to erect such buildings and to execute such other works as may be necessary' for the purpose of carrying out its duties and functions; (c) to provide or cause to be provided amenities and common facilities in 5[industrial estates, commercial centres and industrial areas] and construct and maintain or cause to be maintained 6[works, buildings, amenities and common facilities] therefore; 7[(cc) to levy and collect development charges on the land which is not vested in or under the Control of the Corporation and which is benefited or likely to be benefited by the development or scheme or the work undertaken by the Corporation] (d) to make available buildings n hire or sale to industrialists or persons intending to start industrial undertakings '[or, commercial establishments or both the industrial undertakings and commercial establishments;] (e) to construct buildings for the housing of the employees if such industries, 2[....
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....(1) Wherever any land is required by the Corporation for any purpose in furtherance of the objects of the Act, but the Corporation is unable to acquire it by agreement, the State Government may, upon an application of the Corporation in that behalf, order proceedings to be taken under the relevant land acquisition law for acquiring the same o n behalf of the Corporation as if such lands were needed for a public purpose within the meaning of the relevant land acquisition law. (2) The amount of compensation awarded and all other charges incurred in the acquisition of any such land shall be forthwith paid by the Corporation and thereupon the land shall vest in the Corporation. (32) (1) For the furtherance of the objects of this Act, the State Government may, upon such conditions as may be agreed upon between it and the Corporation, place at the disposal of the corporation any lands vested in the State Government. (2) After any such land has been developed by, or under the control and supervision of the Corporation, it shall be dealt with by the Corporation in accordance with the regulations made, and directions given by the State Government in this behalf. (3) If any land plac....
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....he claim of exemption u/s. 10(20A) of the Act. The relevant observations of the Hon'ble Supreme Court reads as under:- 7. The Division Bench of the High Court while agreeing that 'industrial activity is one of the facets of general development' adopted a reasoning that since development of an area would require roads, buildings, sanitation, parks, sports, educational institutions and several other amenities 'a city or town or village could be well developed without any industry'. The Division Bench posed a question and answered it in the following manner: "The question, therefore, is whether when a particular Corporation is established for the purpose of developing or establishing industries in any particular area, can any one say that it is for the purpose of planning, developing or improving a particular city, town or village or a particular area ? One may establish an industry in a given area. That area for the purpose of industry may develop. But it does not necessarily mean that particular area develops by that industry alone. There may be advantages and disadvantages. On the one hand, because there are industrial activities in the area, some trade and comm....
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....t has said in Shri Ramtanu Co-operative Housing Society Ltd .v. State of Maharashtra [1 970] 3 SCC 323 : "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, acquiring property for those purposes, constructing building, allotting buildings, factory sheds to industrialists or industrial undertakings. It is obvious that the Corporation will receive moneys for disposal of land, buildings and other properties and also/that the Corporation would receive rents and profits in appropriate cases. 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. The Corporation has to provide amenities and facilities in industrial estates and industrial areas. Amenities of road, electricity, sewerage and other facilities in industrial estates and industrial areas are within the programme of the work of the Corporation." 12. The scheme of the Gujarat Act, as is seen from a survey of the relevant provisions referred to above, would indicate that the Corporation set up thereund....
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....e Hon'ble Supreme Court by a writ and the Hon'ble Apex Court dismissed the writ petition. The relevant observations of the Hon'ble Supreme Court reads as under:- 3. The true character, scope and intent of the Act is to be ascertained "with reference to the purposes and the provisions of the Act. The Act is one to make a special provision for securing the orderly establishment in industrial areas and industrial estates of industries in the State of Maharashtra, and to assist generally in the organisation thereof, and for that purpose to establish an Industrial Development Corporation, and for purposes connected with the matters aforesaid. 4. The Corporation is established for the purpose of securing and assisting the rapid and orderly establishment and organisation of industries in industrial areas and industrial estates in the State of Maharashtra. The Corporation consists of 8 members two of whom are nominated by the State Government of whom one shall be the Financial Adviser to the Corporation, one member nominated by the State Electricity Board, one member nominated by the Housing Board and three members nominated by the State Government, from amongst persons appearing to Go....
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....table persons in industrial estates established or developed by the Corporation and to lease, sell, exchange or otherwise transfer any property held by the Corporation on such conditions as may be deemed proper by the Corporation. 9. The development of industrial areas and industrial estates is intended to serve two objects. In the first place, there is to be an orderly establishment and growth of industries in the Bombay Poona sector. The second object is to secure dispersal of industries from the congested areas of the Bombay Poona sector to the underdeveloped parts of the State. The industrial areas are broadly classified into two categories, namely, first, those meant for engineering and other industries which are not obnoxious and secondly those meant for chemical industries. The establishment and growth of industries in the State is inextricably bound up with availability of land. Available land is limited. Such limited supply leads to speculation in land. Power is therefore required for compulsory acquisition of land to achieve the purposes of the Act. At the same time, land owners are not to be deprived of the legitimate benefit of reasonable increase in land values in a ....
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....are residing or carrying on business or other activities on any such land shall, if they desire to obtain accommodation on land belonging to the Corporation and are willing to comply with any requirements of the Corporation as to its development and use, have an opportunity to obtain thereon accommodation suitable to their reasonable requirements on terms settled with due regard to the price at which any such land has been acquired from them. 16. The petitioners contended that the Corporation was a trading one. The reasons given were 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. Reliance was placed on the report of the Corporation and in particular on the income and expenditure of the Corporation to show that it was making profits. 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 Directo....
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....mated 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. 19. There are two provisions of the Act which are not to be found in any trading Corporation. In the first place, the sums payable by any person to the Corporation are recoverable by it under this Act as an arrear of land revenue on the application of the Corporation. 'Secondly on dissolution of the Corporation the assets vest in and the liabilities become enforceable against the State Government. 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....
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....ble purpose includes relief of the poor, education, medical relief and any other objects of general public utility. These activities are tax exempt as they should be. However, some entities carrying on regular trade, commerce or business or providing services in relation to any trade, commerce or business and earning incomes have sought to claim that their purpose would also fall under "charitable purpose". Obviously, this was not the intention of the Parliament and hence, I propose to amend the law to exclude the aforesaid cases. Genuine charitable organizations will not in any way be affected. 17. Thus the intention of the Hon'ble Finance Minister was only to exclude from exemption, entities carrying on business and earning incomes for which exemption was claimed on the basis that the purpose would fall under charitable purpose. 18. The CBDT Circular No. 11/2008 dt. 19.12.2008 has explained the implications arising from the amendment brought to the provisions of Sec 2(15) of the Act. The CBDT clarifies that the newly inserted proviso to Sec. 2(15) will not apply in respect of the first three limbs of Sec. 2(15) i.e. relief of the poor, education or medical relief. Consequen....
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....as mentioned in the first proviso to Sec. 2(15) would be satisfied if profit making is not the real object. The Hon'ble Delhi High Court in the case of ICAI Vs Director General of Income Tax (Exem) 347 ITR 99 had the occasion to consider the grievance of the ICAI which was denied exemption u/s. 10(23C)(iv) of the Act because in the opinion of the DGIT (Exem.) the institute was holding coaching classes and therefore was not an educational institution, consequently the institute was covered under the last limb of charitable purpose i.e. advance of any other object of general public utility in the light of the amendment brought o Sec. 2(15) of the Act as the institute was charging fees for conducting coaching clauses and making huge money in a systematic and organized manner. Considering the facts in the light of the amended provisions of Sec. 2(15), the Hon'ble Delhi High Court held that the order denying the exemption was not valid. 22. The Tribunal in the case of Sabarmati Ashram Gaushala Trust (supra), on identical facts has held that the assessee was not conducting its affairs on commercial lines with a motive to earn profits or has deviated from its objects as detailed ....
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....on'ble Calcutta High Court has held that - "such interim order is binding upon the parties to the proceedings but the law is equally settled that by mere passing of an interim order staying the operating of a judgment with certain further conditions, the existence of the said judgment is not wiped out and at the same time, for such interim orders inter parties, the authority of a decision as a precedent is never undermined". 27. Rebutting to the afore-stated submissions of the ld. D.R., the ld. Senior Counsel referred to the decision of the Hon'ble Supreme Court given in the case of Shree Chamundi Mopeds Ltd. vs. Church of South India Trust Association in Civil Appeal No. 2553 of 1991 (1992) 3 Supreme Court cases 1. 28. The ld. Senior Counsel referred to the following observations of the Hon'ble Supreme Court in the said order:- While considering the effect of an interim order staying the operation of the order under challenge, a distinction has to be made between quashing of an order and stay of operation of an order. Quashing of an order results in the restoration of the position as it stood on the date of the passing of the order which has been quashed. The stay of operati....
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....above and also drawing support from the speech of the Hon'ble Finance Minister and subsequent clarifications issued by the CBDT within the frame work of the amended provisions of Sec. 2(15) of the Act, in our considered view, there was no material which may suggest that the appellant company was conducting its affairs solely on commercial lines with a motive to earn profit. There is also no material brought on record which could suggest that the appellant company deviated from its objects for which it has been constituted. In our humble opinion and understanding of law, the proviso to Sec. 2(15) of the Act is not applicable on the facts of the case. 30. Accordingly, we hold that the order of the First Appellate Authority is erroneous and bad in law. The appellant succeeds. 31. We direct the A.O. to decide the claim of deductions made by the assessee in the light of our finding that the proviso to Section 2(15) of the Act does not apply in the case of the assessee. We direct accordingly. 32. Before parting, the ld. D.R. heavily relied upon another amendment in the Act by way of introduction of section 13(8) which came through Finance Act of 2012 with retrospective effect from....