AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2017 (7) TMI 811
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....'s appeal, negating the finding of the CIT [A] as well as the Assessing Officer denying the benefits of Section 11 and 12 of the Income Tax Act ?" [B] "Whether on the facts and in the circumstances of the case, the Appellate Tribunal is justified in giving the benefit of Section 11 and 12 which the Assessing Officer disallowed by invoking the provision of Section 2 [15] r.w.s 13 [8] of the Act ?" 3. Facts leading to the present Tax Appeal in nutshell are as under :- 3.1 That the respondent-assessee viz., Gujarat Industrial Development Corporation ["the Corporation" for brevity] is constituted under the provisions of the Gujarat Industrial Development Act, 1962 ["the Act" for short]. That, the assessee has been established under Section 3 of the Act for the purpose of securing and assisting rapid and orderly establishment and organization of industrial areas and industrial estates in the State of Gujarat, and for the purpose of establishing commercial centers in connection with establishment and organization of such industries. That, the Corporation shall consist of twelve Directors, out of which, three official Directors nominated by the State Government; one Director nominate....
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....f income for Assessment Years 2009-2010 to 2011-2012 by claiming itself as a "Charitable Institution" as per Section 2 [15] of the Income-tax Act, 1961 ["the IT Act" for short]. At this stage, it is required to be noted that the assessee has been recognized and granted Certificate under Section 12 [a] of the IT Act. That, the assessee was called upon to show cause as to why its income should not be assessed under Section 11 [4] of the IT Act. That, considering proviso to Section 2 [15] of the IT Act and after observing that the assessee is involved in commercial activities, and it also maintains its accounts in the spirit of a commercial organization and as the assessee is enjoying income from business of developing land for industrial purposes and allotting land to industrialists on lease and is also charging consideration for land transferred to them, the Assessing Officer held that the assessee cannot be said to be a "charitable institution" and/or its activities cannot be said to be for charitable purposes, as per Section 2 [15] of the I.T Act. 4. Feeling aggrieved and dissatisfied with the order passed by the Assessing Officer denying the exemption claimed by the assessee und....
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....ds, forests and wildlife] and preservation of monuments or places or objects of artistic or historic interest. It is submitted that the activities of the assessee are clearly defined in the Act. It is submitted that with these activities that the assessee had been recognized and granted registration under Section 12AA of the I.T Act. It is submitted that such registration was granted prior to the introduction of proviso to Section 2 [15] of the IT Act. It is submitted that considering the amended provisions, "advancement of any other object of general public utility" shall not be a charitable purpose; if, [a] it involves carrying on of any activity in the nature of trade, commerce or business; or [b] rendering any services 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 activities. 10.1 It is submitted that the learned appellate tribunal has ignored that the activities carried out by the assessee are in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trader, commerce or business for Cess or fee or....
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....ial centers in connection with the establishment and organization of such industries], there shall be established by the State Government by notification in the Official Gazette, a Corporation by the name of the Gujarat Industrial Development Corporation. (2) The Corporation shall be a body corporate with perpetual succession and a common seal, and may sue and be sued in its corporate name, and shall be competent to acquire, hold and dispose of property, both movable and immovable, and to contract, and do all things necessary, for the purposes of this Act. 13. The functions of the Corporation shall be- (i) generally to promote and assist in the rapid and orderly establishment, growth and development of Industries in the State of Gujarat, and (ii) in particular and without prejudice to the generality of clause (i) to- (a) establish and manage industrial estates at place selected by the State Government; (b) develop industrial area selected by the State Government for the purpose and make them available for undertakings to establish themselves; (c) develop land on its own account of for the State Government for the purpose of facilitating the location of industries 33[a....
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....rnment. 24. (1) The Corporation shall have the authority to spend such sums as it thinks fit for the purposes authorized under this Act from out of the general fund of the Corporation referred to in section 19 or from the reserve and other funds referred to in section 23, as the case may be. (2) Without prejudice to the generality of the power conferred by sub-section (1), the Corporation may contribute such sums as it thinks fit towards expenditure incurred or to be incurred by any local authority or statutory public undertaking in the performance, in relation to any of its industrial estates or industrial areas, of any of the statutory functions of such authority or undertaking, including expenditure incurred in the acquisition of land. (3) No expenditure other than capital expenditure shall be incurred by the Corporation out of moneys borrowed or received by way of deposits. 26. (1) The Corporation shall maintain books of account and other books in relation to its business and transactions in such form and in such manner, as may be prescribed. (2) The accounts of the Corporation shall be audited by an auditor appointed by the State Government, in consultation with the ....
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....erties, funds and dues which are vested in, or realisable by, the Corporation shall vest in, or be realisable by, the State Government; and (b) all liabilities which are enforceable against the Corporation shall be enforceable against the State Government 14. As per the statement and object of GIDC Act, 1962, it has been enacted for 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 centres 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 aforesaid matters. 15. It cannot be said that the activities carried out by the assessee can be said to be for "advancement of any other object of general public utility". Considering the object and purpose for which the assessee has been established under the provisions of the Act and the activities carried out by the assessee, it cannot be said that the activities carried out by the assessee can be said to be either in the nature of trade, commerce or business, or rendering any serv....
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....y associated with the object of marking profit". 12.5 In the case of Institute of Chartered Accountants of India (supra) while considering the whether activities of Indian Trade promotion organization can be said to be in the nature of "business", despite the fact that the said organization was collecting rent for providing the space at trade, fair and exhibitions and though was receiving income by way of sale of tickets and income from tickets and sale in Pragati Maidan etc., after considering the various decisions of the Hon'ble Supreme Court as well as decisions of the other High Courts, it is held that activities of the said organization cannot be considered as "business". While holding so, Delhi High Court has observed and held as under: "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 a 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 ....
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....der charitable purpose. Obviously, this was not the intention of Parliament and, hence, I propose to amend the law to exclude the aforesaid cases. Genuine charitable organizations will not in any way be affected.' The expressions business, trade or commerce as used in the first proviso must, thus, be interpreted restrictively and where the dominant object of an organization is charitable any incidental activity for furtherance of the object would not fall within the expressions business, trade or commerce. 69. In the case of Addl. Commissioner of Income Tax v. Surat Art Silk Cloth Manufacturers : [1980] 121 ITR 1 (SC), the Supreme Court held as under: "The test which has, therefore, now to be applied is whether the predominant object of the activity involved in carrying out the object of general public utility is to sub-serve the charitable purpose or to earn profit. Where profit making is the predominant object of the activity, the purpose, though an object of general public utility would cease to be a charitable purpose. But where the predominant object of the activity is to any out the charitable purpose and not to earn profit, it would not lose its character of a char....
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.... Court was considering whether the activities of the Bureau of Indian Standards (supra) in granting licenses and trading certificates and charging amounted to carrying on business, trade or commerce and while considering the said question, it is observed as under: " In these circumstances,rendering any service in relation to trade, commerce or business cannot, in the opinion of the Court, receive such a wide construction as to enfold regulatory and sovereign authorities, set up under statutory enactments, and tasked to act as agencies of the State in public duties which cannot be discharged by private bodies. Often, apart from the controlling or parent statutes, like the BIS Act, these statutory bodies (including BIS) are empowered to frame rules or regulations, exercise coercive powers, including inspection, raids; they possess search and seizure powers and are invariably subjected to Parliamentary or legislative oversight. The primary object for setting up such regulatory bodies would be to ensure general public utility. The prescribing of standards, and enforcing those standards, through accreditation and continuing supervision through inspection etc., cannot be considered as ....
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....e 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 WP(C) 1872/13 Page 52 of 55 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. 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 ? 27. As observed above, fee charged and quantum of income earned can be indicative of the fact that the person is carrying on business or commerce and not charity, but we must keep in mind that charitable activities require operational/running expenses as well as capital expenses to ....
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....seen. If the dominant and prime objective of the WP(C) 1872/13 Page 54 of 55 institution, which claims to have been established for charitable purposes, is profit making, whether its activities are directly in the nature of trade, commerce or business or indirectly in the rendering of any service in relation to any trade, commerce or business, then it would not be entitled to claim its object to be a 'charitable purpose'. On the flip side, where an institution is not driven primarily by a desire or motive to earn profits, but to do charity through the advancement of an object of general public utility, it cannot but be regarded as an institution established for charitable purposes. 13. Applying the aforesaid decisions to the facts of the case on hand and with respect to the activities of the AUDA Ahmedabad Urban Development Authority under the provisions of the Gujarat Town Planning Act by no stretch of imagination, it can be said that the activities of the assessee (AUDA) can be said to be in the nature of trade, commerce or business and/or its object and purpose is profiteering. Merely because under the statutory provisions and to meet with the expenditure of Town Plann....
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.... of this Court i.e. whether while collecting the cess or fees, activities of the assessee can be said to be rendering any services in relation to any trade, commerce or business is concerned, for the reasons stated above, merely because the assessee is collecting cess or fees which is regulatory in nature, the proviso to Section 2(15)of the Act shall not be applicable. As observed herein above neither there is element of profiteering nor the same can be said to be in the nature of trade, commerce or business. At this stage, decision of the Division Bench of this Court in the case of Sabarmati Ashram Gaushala Trust (supra) is required to be referred to. In the case before the Division Bench, the assessee Trust Sabarmati Ashram Gaushala Trust was engaged in the activity of breeding milk cattle; to improve the quality of cows and oxen and other related activities. The Assessing Officer denied the exemption to the trust under Section 11 of the Act on the ground that considerable income was generated from the activities of milk production and sale and therefore, considering the proviso to Section 2(15) of the Act, the said Trust-assessee was denied the exemption under Section 11 of the ....
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....ir activities would continue to be regarded as advancement of any other object of general public utility. 7. In consonance with such assurance given by the Finance Minister on the floor of the House, CBDT issued a Circular No. 11 of 2008 dated 19th December 2008 explaining the amendment as under : 3. The newly inserted proviso to section 2 (15) will apply only to entities whose purpose is advancement of any other object of general public utility ie., the fourth limb of the definition of charitable purpose contained in section 2 (15). Hence, such entities will not be eligible for exemption under section 11 or under section 10 (23C) of the Act if they carry on commercial activities. Whether such an entity is carrying on any activity in the nature of trade, commerce or business is a question of fact which will be decided based on the nature, scope, extent and frequency of the activity. 3.1 There are industry and trade associations who claim exemption from tax under section 11 on the ground that their objects are for charitable purpose as these are covered under any other object of general public utility. Under the principle of mutuality, if trading takes place between persons wh....
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....he nature of trade, commerce or business which are masked as charitable purpose. 12. All these were the objects of the general public utility and would squarely fall under section 2 (15) of the Act. Profit making was neither the aim nor object of the Trust. It was not the principal activity. Merely because while carrying out the activities for the purpose of achieving the objects of the Trust, certain incidental surpluses were generated, would not render the activity in the nature of trade, commerce or business. As clarified by the CBDT in its Circular No. 11/2008 dated 19th December 2008 the proviso aims to attract those activities which are truly in the nature of trade, commerce or business but are carried out under the guise of activities in the nature of public utility. 15.1. Applying the aforesaid decision to the facts of the case on hand and the object and purpose for which the assessee is established / constituted under the provisions of the Gujarat Town Planning Act and collection of fees and cess is incidental to the object and purpose of the Act, even the case would not fall under second part of proviso to Section 2(15) of the Act. 15.2. Considering the aforesaid fa....