TaxTMI 
TaxTMI 
2019 (3) TMI 1300
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....essed under section 143(1) of the Act and the case was subsequently taken up for scrutiny for this Assessment Year. The assessment was concluded under section 143(3) of the Act vide order dated 31.03.2015, wherein the assessee's income was determined at Rs. 315,87,94,869/-. Aggrieved by the order of assessment for Assessment Year 2012-13 dated 31.03.2015, the assessee preferred an appeal before the CIT(A)-14, Bangalore, who disposed off the assessee's appeal vide the impugned order dated 28.02.2017, allowing the assessee partial relief. 3. Aggrieved by the order of CIT(A)-14, LTU, Bangalore, dated 28.02.2017 for Assessment Year 2012-13, both the assessee and Revenue have filed cross appeals before the Tribunal which will be disposed off hereunder in seriatim. Revenue's appeal in ITA No.1087/Bang/2017 4.1 In its appeal, Revenue has raised the following grounds: On Depreciation: 1. Whether in the facts and circumstances of the case and in law, the learned CIT(A) erred in allowing depreciation in respect of assets which have already been allowed as application of income in its entirety in earlier years. 2. Whether in the facts and circumstances of t....
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....rounds regarding Jurisdiction : a. The learned Additional Commissioner of Income-tax is not competent to assume jurisdiction and consequently the order is bad in law and requires to be quashed in toto for want of jurisdiction. b. The authorities below are not justified in holding that there is valid jurisdiction on the facts and circumstances of the case. c. The learned Commissioner of Income-Tax (Appeals) was not justified in not holding that the Assessing Officer who passed the assessment had no jurisdiction as once the registration u/s 12A is cancelled, the jurisdiction will vest with the regular circle and not the Trust circle on the facts and circumstance of the case. d. The learned Commissioner of Income Tax (Appeals) failed to appreciate that the order passed by the present assessing officer is void ab initio and without jurisdiction as once the exemption under section 12AA has been withdrawn by the Director of Income-tax (Exemptions) the file ought to have been transferred to the officer having jurisdiction and the assessing officer who has passed the order ceases to have jurisdiction and hence the impugned order is bad in law and liable ....
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.... (g) The learned Commissioner of Income Tax (Appeals) ought to have taken into account the speech of the Finance Minister which indicate the object and drift of the amendment in as much as that genuine Charitable Trusts are not hit by the proviso to section 2(15) of the Act. (h) Without prejudice the authorities below ought to have granted exemption in respect of the other limbs of charity by applying the principles of apportionment and ought to have granted proportionate relief in respect of the other limbs of charity being relief to the poor etc. on the facts and circumstance of the case. (i) Without prejudice, the learned Commissioner of Income Tax (Appeals) failed to appreciate that the appellant fall under first to fifth limb of the definition of charitable purpose on the facts and circumstances of the case. 8. Ground on the entire income not hit by the proviso to Section 2(15) of the Act: i. Without prejudice the authorities below failed to appreciate that the intention of the legislature is not to deny the entire income of the Appellant on the ground that some of the activities may attract the proviso to section 2(15) of the Act an....
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....change in accounting policy disallowed by the learned Assessing Officer a sum of Rs. 631,99,06,000/- and without prejudice the learned Commissioner of Income-tax (Appeals) is not justified in law in not granting relief to the appellant to the extent of Rs. 351,88,00,000/-which was claimed before the learned Assessing Officer during the course of assessment proceedings on the facts and circumstances of the case. c) The learned Commissioner of Income-tax (Appeals) is not justified in law in not allowing the claim of the appellant as revenue expenditure in view of adjustment on account of change in accounting policy which was approved by the State Government and accepted by the C 85 AG on the facts and circumstances of the case. d) The authorities below erred in adding entire sum of Rs. 631,99,06,000/- being the revenue expenditure claimed due to change in accounting policy and the learned Assessing Officer has erred in not considering the claim of Rs. 351,88,00,000/- by the appellant as against Rs. 631,99,06,000/- on the basis of expenditure on infrastructure projects treated as capital expenditure during the financial years 2008-09 to 2010-11and due to change in ac....
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....changed the accounting policy during the FY 2011-12 to treat all such expenditures incurred for development of infrastructure project as revenue expenditure with the permission of the authority, the Govt. of Karnataka vide letter dt. 02.04.2014 has approved to treat all such expenditure on infrastructure projects as revenue expenditure and the same has been accepted by the Principal Accountant General of Karnataka vide letter dt.02.09.2014 on the facts and circumstances of the case. 17. The learned Commissioner of Income-tax (Appeals) is not justified in law in confirming the addition of Rs. 20,20,21,000/- made by the learned Assessing officer in respect of expenditure incurred towards BBMP works on the facts and circumstances of the case. 18. Without prejudice the authorities below erred in treating a sum of Rs. 20,20,01,000/- incurred by the appellant for carrying out the works like construction of underpass, bridges, flyover and other related works in the BBMP areas under the directions from the Government of Karnataka as capital expenditure. a) The authorities below ought to have appreciated the detailed submission made explaining that there is no cre....
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....uthorities below ought to have appreciated the fact that the appellant has changed the accounting policy during the FY 2011-12 to treat all such expenditures incurred for development of infrastructure project as revenue expenditure with the permission of the authority. c) The authorities below ought to have appreciated that the Govt. of Karnataka vide letter dt. 02.04.2014 has approved to treat all such expenditure on infrastructure projects as revenue expenditure and the same has been accepted by the Principal Accountant General of Karnataka vide letter dt.02.09.2014. 21. The learned Commissioner of Income-tax (Appeals) was not justified in law in confirming the disallowance of donation a sum of Rs. 2,38,63,558/- on the facts and circumstances of the case. 22. The authorities below were not justified in disallowing a sum of Rs. 2,38,63,558/- out of the total donation payment of Rs. 4,38,63,558/- on the ground that such donations do not fall under the recognition 80G of the Act and authorities below failed to appreciate that appellant is an authority setup by the Government of Karnataka and incurring such expenditure under directions from Governme authori....
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....learned CIT (A) is erred in confirming the said disallowance on the facts and circumstances of the case. 29. The learned Commissioner of Income-tax (Appeals) is not justified in law in confirming the disallowance made by the learned Assessing Officer a sum of Rs. 33,47,000/- under section 43B of the Act in respect of unpaid service tax on the facts and circumstances of the case. 30. The authorities below were not justified in disallowing the balance ascertained liability Rs. 33,47,000/- towards service tax payable by the authority and the AO ought to have noted that the Section 43B of the IT Act, 1961 is applicable only in case of assessee whose income comes under the purview of Section 28 of the IT Act, 1961. The AO has erred In disallowing the claim for liability applying the provisions applicable income assessable under the head profits and gains from business and the learned CIT (A) erred in confirming the said disallowance on the facts and circumstances of the case. 31. The learned CIT (A) erred in confirming the re-computation of depreciation by the learned Assessing Officer treating the revenue expenditure of Rs. 278,78,43,000/- as capital expendit....
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....the assessee the exemption claimed under section 11 of the Act and brought to tax the assessee's income from Assessment Year 2009-10 onwards. The learned AR of the assessee submitted at the Bar that the assessee is in appeal before the Tribunal for all these Assessment Years for which exemption under section 11 of the Act has been denied and all the appeals are yet to be heard / disposed off. We have taken up the appeal for Assessment Year 2012-13, which is before us for hearing the disposal as the same is a stay granted matter and its disposal cannot be kept in abeyance indefinitely. 5.2 The primary issue that requires to be adjudicated first is whether the proviso of section 2(15) of the Act is applicable to the facts and circumstances of the case on hand. The Assessing Officer (AO) passed the order of assessment for Assessment Year 2012-13 on the basic premise that that the assessee is hit by the proviso to section 2(15) of the Act. It is for this reason that the AO has denied the assessee the exemption it claimed under section 11 of the Act and proceeded to assess the entire income as "Income from Business". The assessee has raised several alternate grounds (supra) contendin....
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.... as under: (j) to promote and secure the development of the Bangalore Metropolitan Area and for that purpose the Authority shall have the power to acquire, hold, manage and dispose of movable and immovable property, whether within or outside the area under jurisdiction, (ii) to carry out building, engineering and other operations and generally to do all things necessary and expedient for the purpose of such development and for activities purposes incidental thereto. 5.3.4 At para 5.5 of the impugned order of assessment for Assessment Year 2012-13, the AO has extracted the Powers / Functions of the 'BDA' as per sections 15 & 16 of the Bangalore Development Act, 1976 as under:- (i) To undertake works and incur expenditure for development of the Bangalore Metropolitan Area by drawing up detailed schemes. (ii) To undertake from time to time any works for the development of the Bangalore Metropolitan Area and incur expenditure thereof and also for framing and execution of development schemes with the previous approval of the government. (iii) The acquisition of the land which will be necessary for or affected by the execution of the scheme....
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....ve the objects, there is no mention about any functions relating to five limbs mentioned above. Also, it may be noted that the activities of the assessee do not include any direct activities in the nature of relief of poor, running educational institutions, hospitals etc. 5.8 At this juncture, it may be noted that the activity of allotment of sites and construction of houses for economically weaker sections doesn't come under the ambit of `relief of poor' inasmuch as such an activity is incidental to the main object of development of Bangalore Metropolitan Area and also on the ground that the assessee is not allotting sites to such sections of society free of cost and sale price fixed thereof is not affordable to the poor and needy. 5.9 As such, the main activities of the assessee are proper planning and development of Bangalore Metropolitan Area by way of acquisition of land and develop the same into layouts/ construction of houses and sale of the same to the general public and development of infrastructure facilities such as; flyovers, ring roads, grade separators etc. as a general public utilities. Accordingly, the activities of the assessee would fall ....
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....tivities which are in the nature of trade, commerce or business or services in relation to any trade, commerce or business. It is critically important to note the fact that two conditions need to be satisfied, if any activity is to be considered as an activity falling under the proviso to section 2(15) of the Act, namely (1) The activities are carried out for a fee or cess or other consideration, and (2) The activity is in the nature of trade, commerce or business and if the activity is in the nature of rendering service, then such service rendered is in relation to any trade or commerce or business. Therefore, it is not enough that the activity is carried out or the service is rendered for a fee or cess or other consideration; the activity must also be an activity which is in the nature of trade, commerce or business and if such activity is in the nature of service rendered, then such service must have been so rendered in relation to any trade or commerce or business. 5.5.2 It now needs to be seen as to whether the activities of the assessee which are rendered for a fee or cess or other consideration are in the nature of trade or commerce or business. The A....
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.... business. The activity is pursuant to a statue and the rules framed under the same. The same cannot be given in contravention of the rules framed and this aspect cannot form pan of any remote connection with business. o) Allotment of sites in the normal course is governed by Sections of the BDA (Allotment of Sites), Rules, 1984. Accordingly, BDA has to allot a certain percentage of sites to persons belonging to different categories of society including Economically Weaker Sections (EWS) of the society, etc. at far below the normal allotment rates. Allotment of sites is done on a no profit no loss basis. Auctioning of sites is done after they are fully developed over a period of 10-15 years after the layout is formed which requires their upkeep, security and maintenance, proportionate administrative expenses, etc. Realizations from auctioning of sites are also meant/ applied for developmental works including creation of infrastructure works in Bangalore Metropolitan Area as per directions of the Government etc. The substance of the object of the Bangalore Development Authority is the functionality of the State and by no stretch of imagination the activities can be treated ....
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.... _597. It is also well settled law that circulars issued by the Board are binding on the revenue and for this proposition there is no need to multiply authorities as right from the case of Naveneet Lal Jhavaeri upto the recent decision of Kurien Abraham, 303 ITR 284 the view of the courts is that the circulars of the Board are binding on the revenue. s) The definition of "Charitable purpose" under the erstwhile law also referred to four limbs of charitable activities. Under the residuary limb of the definition, there was a qualifying condition. The object of general public utility to be regarded as charitable in nature was not to involve the carrying on of any activity for profit. In other words, profit making was a condition to deny exemption to the relevant organization..........." 5.6.3 In the course of hearings, the learned AR for the assessee submitted that the primary objective of 'BDA' was to ensure that the city of Bangalore is developed in an organized manner so as to make it planned and the development people friendly. In 1976, when BDA was constituted, Bangalore, at that point in time, was a much smaller city than what it is now. The city planners, i....
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....cal / important restriction itself demonstrates that 'BDA' is allotting sites to those who do not have a residential site or house. No private real estate developer would impose such restrictions on himself / itself. The restrictions imposed in the process of allotment of sites ensures the very important social objective of the State which is "Housing for All". 5.6.5 One important issue that has prompted the AO to hold that the activity of sale of corner sites is commercial in nature is the sale of corner sites by the 'BDA' through the process of auction. In this regard, the learned AR submits that this is done as a policy and rule in order to ensure transparency in allotment of corner sites. It is a well known and accepted fact that corner sites have better value than other sites and are generally sought after. This rule was brought in to ensure that officials who are in-charge of allotment of sites, do not have any discretion in allotment of corner sites and hence the process of auction. The process of auctioning of corner sites in fact supports the stand that 'BDA' is an organization which does not have profit making as its objective and at the same time to ensure that the pu....
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.... (xv) In terms of section 75 of the BDA Act on dissolution, all the assets and liabilities of 'BDA' vests with the State Government. 5.6.7 Thus, according to the learned AR, in view of the rules and regulations under which the allotment of sites and flats take place and in view of the restrictive clauses contained in the Bangalore Development Authority Act, 1976, the main details of which have been laid out above, BDA discharges virtually the function of the State and every rupee in the said Bangalore Development Fund is to be applied only on the general or specific orders of the state government. It is contended that the said clauses are reasons enough for concluding that 'BDA' is neither established with the intention of making profit nor are its activities embarked upon with a view to make profit and therefore the assessee cannot be equated with a private real estate developer, as has been erroneously and superfluously done by the AO and CIT(A). 5.7 The learned DR for Revenue placed strong reliance on the findings rendered by the authorities below in the impugned orders on this issue. It was reiterated that the assessee's activities which earn income are squarely hi....
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....ue of the layouts developed by the assessee. We observe from the financial statements of the assessee for the impugned Assessment Year, that it has expended an amount of Rs. 2095.24 lakhs on planting of one crore seedlings in the green belt area for improvement of the environment. Further, it is also seen that the assessee has expended a sum of Rs. 2997.42 lakhs towards development of lakes. In the light of the above facts on record, the contentions of the AO and CIT(A) that the assessee has not carried out any of the activities specified / contained in the first five limbs of section 2(15) of the Act is not correct. The assessee has definitely carried out the activity of preservation of environment and water bodies. In our view, the conclusion of the CIT(A) that the developments on these fronts are done only to enhance the commercial value of the layout developed is untenable in the light of the facts of the case on hand. 5.9.1 The question of whether allotment of sites and flats to the economically weaker sections of society constitutes relief for the poor is perhaps a debatable issue. Relief for the poor does not necessarily mean giving something free of cost to the poor. It ....
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....ear that the assessee has spent an amount of Rs. 278,78,43,000/- (disallowed by the AO - para 15.20 of Assessment Order and reflected int eh computation of total income) on activities that fall under the head 'Advancement of General Public Utility' like construction of grade separators, PRR Bridges on Flyovers, renovation and remodeling works, Maintenance of BBMP facilities, Development of Lakes, etc. Be that as it may, if one were to peruse the object for which the assessee, viz., BDA was constituted, it is clear that the intent and purpose is for planned urban development of Bangalore City and not with the purpose of profit making; i.e., the activity of formation of layouts and allotment of sites is only carried out with the primary and main object to ensure planned development of Bangalore City and not with the intention to make profits. 5.9.4 The Hon'ble Apex Court in the case of Barendra Ray and Others Vs. ITO (1981) 129 ITR 295 has held that the word "business" implies commercial transactions with a view of making profits and gains therefrom. Therefore, carrying on business connotes some substantial, systematic and organized activity with the object of making gain and p....
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.... 5.10.1 We find that the view of the AO in (iv) of para 6.20 of the order of assessment and which is impliedly endorsed by the CIT(A) in the impugned order; i.e., that (iv) "The activities of the assessee and the generation of profits on account of the same are akin to the activities carried on by real estate companies, property developers, infrastructure firms, etc., and therefore, the activities of the assessee squarely fall under the ambit of activities which are in the nature of trade, commerce and business. Accordingly the activities of the assessee are hit by the first proviso to section 2(15)"; is in our opinion rather superfluous in nature. No doubt, it is a fact that one will see a lot of similarities in the activity of the assessee vis-à-vis that of a real estate developer. However, the issue to be considered is, not whether the activity of the assessee is similar to that of the private real estate developer or not, but whether the underlying purpose of the activity is the same as that of the private real estate developer, i.e., making and maximization of profit. In the case of this assessee; viz., BDA, the underlying motive / objective is not making and maximiz....
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....icial pronouncements relied upon by the assessee are those of other urban development authorities, in whose cases also the AO has taken the view that the activities of city development are hit by the proviso to section 2(15) of the Act. Referring to the above cited cases, we find that in the case of Ahmedabad Development Authority (2017) 396 ITR 323, the Hon'ble Gujarat High Court has upheld the appeal of the assessee, by overruling therein the decision of the Ahmedabad Tribunal in that case. In the case of Lucknow Development Authority (2018) 39 taxmann.com 246, the Hon'ble Allahabad High Court has upheld the decision of the Lucknow Bench of ITAT which was in favour of the assessee. We find that in the above judicial pronouncements cited by the assessee, the facts are identical to that of the assessee in the case on hand; that the AOs in these cases have taken a view that the activity is in the nature of trade, commerce or business and hit by the proviso to section 2(15) of the Act and the assessees have got relief at the higher appellate forums, viz., the Hon'ble High Courts and / or Tribunals. 5.10.5 In support of the view / contention that the activities of the assessee are ....