TaxTMI 
TaxTMI 
2019 (11) TMI 924
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....the four appeals filed by the Revenue, all such appeals were heard together and disposed of by the common order. 3. We shall adopt the facts concerning AY 2009-10 in ITA No. 2425/Ahd/2017 for the purposes of deliberation on the issues involved for convenience purposes. ITA No. 2425/Ahd/2017-AY-2009-10 4. The substantive grounds of appeal raised by the Revenue read as under: "1. The Ld. CITCA) has erred in the law and on facts in considering the activity of the assessee as engaged in the development of urban area of Jamnagar which is in the nature of advancement of general public utility not hit by the newly introduced first and second proviso to sec.2(15)of the Act. 2. The Ld CIT(A) has erred in the law and on facts in allowing the benefit of exemptions u/s.11 without considering the fact that the assessee is involved in widespread commercial activities in nature of business and the activity of the assessee is covered under first and second proviso to sec.2(15) of the Act. 3. The Ld. CIT(A) has erred in the law and on facts in deleting the addition of Rs. 64,99,534/- made on account of receipt of infrastructure fund considering the capital receipts would be part of balance....
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.... u/s. 12A by the Commissioner of Income Tax, Jamnagar vide number CIT.J/Tech/12A(a)/66/2003-04/3484 on 17.03.2005. 5.3 The authority undertakes the following activities: * Preparation of development plans under the provisions of the Act for the development of area * Preparation and execution of town planning schemes under the provisions of the Act if so directed by the State Government * Carrying out surveys in the development area for the preparation of development plans or Town Planning Schemes * To levy and collect such fees for scrutiny of documents submitted to the appropriate authority for permission for development as may be prescribed by the Regulations. * To execute works in connection with supply of water, disposal of sewage and provision of other services and amenities * To levy and collect such fees for execution of works and for provision of other services and amenities as may be prescribed by regulation * To perform such other functions as are supplemental, incidental or consequential to the activities as mentioned hereinabove. 5.4 The AO while framing the assessment held that the nature of activity of authority is towards advancement of objects of gen....
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.... other consideration, as the assessee is collecting / recovering fees by performing duty under the provision of Gujarat Town Planning Act and therefore, whether second part of the proviso to Section 2(15) of the Act shall be applicable so as to deny the exemption claimed by the assesses, claim under Section 11 of the Act? 11. While considering the aforesaid questions, the relevant provisions of the Gujarat Town Planning Act, under which, the Assessee has been constituted as Urban Development Authority and powers and functions of the Assesses as an Urban Development Authority are required to be considered, so as to appreciate whether the activities of the Assessed being Urban Development Authority can be said to be in the nature of trade, commerce or business ? The relevant provisions of the Gujarat Town Planning Act, under which, the Assesses AUDA has been constituted as Urban Development Authority are as under: Section 2(viii): "Development", with all its grammatical variations and cognate expressions, means the carrying out of any building, engineering, mining, or other operations in, or over, or under land or the making of any material change in any building or land or in ....
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....n the urban development area, as may be nominated by the State Government: (iii)4[Three officials] of the State Government, to be nominated by that Government, exofficio; (iv) the Presidents of the district panchayats functioning in the urban development area, or, as the case may be, part thereof, exofficio: (v) the Chief Town planner or his representative, exofficio: (vi) the Chief Engineer or Engineers (Public Health) of the local authority or authorities functioning in the urban development area or his or their nominee or nominees, exofficio: 5[(via) the Municipal Commissioner of the Municipal Corporation, if any, functioning in the urban development area, exofficio:] (vii) a member secretary to be appointed by the State Government who shall also be designated as the Chief Executive Authority of the Urban Development Authority. (5) The provisions of subsections (5) to (12) of section 5 shall apply in relation to an urban development authority as they apply in relation to an area development authority, with the modification that references to an area development authority in the said subsection shall be construed as references to an urban development authority. Section 23. Powe....
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....on of this Act or any other law for the time being in force, the appropriate authority may make one or more town planning schemes for the development area or any part thereof, regard being had to the proposals in the final development plan,if any. (2) A town planning scheme may be made in accordance with the provisions of this Act in respect of any land which is(i) In the course of development; 1 [(ii) likely to be used for residential or commercial or industrial or for building purposes; or] (iii) Already built upon. Explanation: For the purpose of this subsection the expression "land likely to be used for building purposes" shall include any land likely to be used as, or for the purpose of providing, open spaces, roads, streets, parks, pleasure or recreation grounds, parking spaces or for the purpose of executing any work upon or under the land incidental to 3 town planning scheme, whether in the nature of a building work or not. (3) A town planning scheme may make provision for any of the following matters, namely:(a) The laying out or relaying out of land, either vacant or already built upon; (b) The filling up or reclamation of low lying, swampy or unhealthy areas, or leve....
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....f objectionable uses of lands in any area in specified periods, parkings space and loading and unloading space for any building and the sizes or locations of projections and advertisement signs; (I) the suspension, so far as may be necessary, for the proper carrying out of the scheme, of any rule, byelaw, regulation, notification or order mode or issued under any Act of the State Legislature or any of the Acts which the State Legislature is competent to amend: Provided that any suspension under this clause shall cease to operate in the event of the State Government refusing to sanction the preliminary scheme, or in the event of the withdrawal of the scheme under section 66, or on the coming into force of the final scheme; (m) such other matters not inconsistent with the objects of this Act as may be prescribed. Section 91: Fund Of The Appropriate Authority : (1) An appropriate authority shall have and maintain its own fund to which shall be credited(a) All moneys received by the authority by way of grants, loans, 1 [advances, fees, development charges or otherwise:} (b) All moneys derived from its undertakings, projections and other sources; fc) Such amount of contributions fro....
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.... Urban Development Authority under the provisions of Section 22 of the Town Planning Act. The purpose and object of constitution of the Urban Development Authority is proper development or redevelopment of urban area. Even Urban Development Authority consists of (i) a Chairman to be appointed by the State Government; (ii) such persons, not exceeding [four in number] who are members of the local authority or authorities functioning in the urban development area, as may be nominated by the State Government; (iii) Three officials of the State Government, to be nominated by that Government, exofficio; (iv) the Presidents of the district panchayats functioning in the urban development area, or, as the case may be, part thereof, exofficio; (v) the Chief Town planner or his representative, exofficio; (vi) the Chief Engineer or Engineers (Public Health) of the local authority or authorities functioning in the urban development area or his or their nominee or nominees, exofficio, 5[(via) the Municipal Commissioner of the Municipal Corporation, if any, functioning in the urban development area, exofficio;] (vii) a member secretary to be appointed by the State Government who shall also be des....
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.... it is required to be noted the entire amount realized by the assessee being Urban Development Authority either by selling plots or by recovery of some fees / charges, Urban Authority is required to use only for the purpose of development in the Urban Development Area and not for any other purpose. The learned Tribunal has observed and held that as the assessee is selling the plots, to the extent of 15% of total area, by public auction and gets maximum amount, it amounts to profiteering and therefore, the activities of the -Assesses can be said to be in the nature of business. However, while holding so, learned Tribunal has not properly appreciated the object and purpose of permitting the Urban Development Authority to sale the plots, maximum to the extent of 15% of the total area i.e. to meet with the expenditure for providing them infrastructural facilities like gardens, roads, lighting, water supply, drainage system etc. The learned Tribunal has also not properly appreciated the reasons for selling the plot by holding public auction i.e.; (1) to avoid any further allegation of favoritism and nepotism and (2) so that maximum market price can be fetched, which can be used for the ....
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....Bros reported in 1964(5) STC 644 (SC) while considering the word "business", the Hon'ble Supreme Court has held that "the word "business" was of indefinite import and in a taxing statute, it is used in sense of an occupation, or profession which occupies time, attention or labour of a person, and is clearly 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....
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....any other object 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 purposes would also fall under 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 organisation 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 Tan v. Surat Art Silk Cloth Manufacturers Association: [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 subserve the charitable purpose or to e....
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....h not conclusive, docs indicate that the petitioner is not carrying on any business " 12.7. Identical question came to be considered by the Delhi High Court, in the case of Bureau of India Standard vs. Director General of Income Tax (Exemptions) reported in (2013) 212 Taxman 210 (Delhi). In the said decision, the Delhi High 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....
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....ment of self interest, though fair dealing should and can be present, whilst charity or charitable activity is antithesis of activity undertaken with profit motive or activity undertaken on sound or recognized business principles. Charity is driven by altruism and desire to serve others, though element of self preservation may be present For charity, benevolence should be omnipresent and demonstrable but it is not equivalent to self sacrifice and abnegation. The antiquated definition of charity, which entails giving and receiving nothing in return is outdated. A mandatory feature would be; charitable activity should be devoid of selfishness or illiberal spirit. Enrichment of oneself or self gain should be missing and the predominant purpose of the activity 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 de....
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....tivity of rendering any service in relation to any trade, commerce or business for a cess or fee or any other consideration. In both the activities, in the nature of trade, commerce or business or the activity of rendering any service in relation to any trade, commerce or business, the dominant and the prime objective has to be 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 pro....
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....2(15)of the Act shall not be applicable so far as assessee is concerned and therefore, the assesses is entitled to exemption under Section 11 of the Income Tax Act. Therefore, the question no.1 is to be held in favour of the assessee and against the revenue. 15. Now, so far as another question which is posed for the consideration 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 activi....
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....ctivity of rendering any service in relation to any trade, commerce or business. Whether the purpose is a charitable purpose will depend on the totality of the facts of the case. Ordinarily, Chambers of Commerce and similar organizations rendering services to their members would not be affected by the amendment and their activities would continue to be regarded us 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 freq....
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....ose if it is engaged in any activity in the nature of trade, commerce or business or renders any service in relation to trade, commerce or business for a cess, fee and/or any other consideration. It is not aimed at excluding the genuine charitable trusts of general public utility but is aimed at excluding activities in the 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....
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....m of correct rate of depreciation; (d) to claim of income receipts being reflected in the balance sheet; (e) to claim of application of income from project specific grants, (f) to claim of capital expenses as application of income etc. As certain grounds of appeal pertain to these issues, the relevant discussion in subsequent paras has been made. 5.5 With reference to treatment of specific project grants, Hon'ble High Court of Delhi has held in the case of DIT vs Society for Development Alternatives 18 taxman.com 364 that grants with specific directions from the Govt. cannot be treated as income. These grants will have to be spent as per the conditions and purpose laid down by the donor. As per sec.12(1) any voluntary contribution received by a trust/institutions created fully for charitable or religious purpose shall for purposes of sec. 11 be deemed to be income derived from property held by said trust/institutions and sec.13 shall apply accordingly. However Sec.12(1) has made an exception to the voluntary contributions as deemed income of the trust or institution if such contribution has been made with a specific direction Further sec.11(1)(a) states: '(a) Income deriv....
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....table or religious activities, then such an income falls u/s.11(1)(d) and is not liable to tax. In many other cases various High Courts have held that any receipt of capital nature cannot be treated as income and hence it was outside the purview of sec 12. 5.6 It would be pertinent here to refer to Accounting Standard (AS) 12 that deals with the accounting for Govt. Grants. According to the clause-4 AS-12 the receipt of Govt. Grants by an enterprise is significant tor preparation of the financial statements for two reasons. Firstly, if the Govt. Grant has been received an appropriate method of accounting therefore is necessary. Secondly, it is desirable to give an indication to the extent to which the enterprise has benefitted from such grant during the reporting period. Para-5 of AS-12 deals with the treatment of Govt. Grants, It is reproduced below for the sake of convenience :- "Accounting Treatment of Government Grants 5. Capital Approach versus Income Approach 5.1 Two broad approaches may be followed for the accounting treatment of government grants: the 'capital approach', under which a grant is treated as part of shareholders' funds, and the 'income a....
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....penses are taken to income in the same period as the relevant expenses. 6. Further para-8 deals with the presentation of grants related to specific fixed assets The rnlnvnnt pnrnr, i.e. pnra 8.1 to 8.3 are reproduced below fui the sake of convenience :- "8. Presentation of Grants Related to Specific Fixed Assets 8.1 Grants related to specific fixed assets are government grants whose primary condition is that an enterprise qualifying for them should purchase, construct or otherwise ncquitv sur/j asse/s. Other conditions may also be attached restricting the type or location of the assets or the periods during which they are to be acquired or held. 8.2 Two methods of presentation in financial statements of grants (or the appropriate portions of grants) related to specific fixed assets are regarded as acceptable alternatives. 8.3 Under one method, the grant is shown as a deduction from the gross value of the asset concerned in arriving at its book value. The grant is thus recognised in the profit and loss statement over the useful life of a depreciable asset by way of a reduced depreciation charge. Where the whole, or virtually the whole, of the cost of the asset, the asset....
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.... to depreciable fixed assets may be treated as diverted income which should be recognized in the P & L A/c. on a systematic and rational basis over the useful life of the asset. 9. Based on above referred discussion, the AO is directed to verify and compute the income of appellant as per the following guidelines: (i) Appellant might have shown certain grants which are not projects specific grants or the grants given for generic purpose. The donor allows appellant to apply these funds for any of its objects. If such grants are received by the appellant which does not have any specific direction for the purpose, then it will have to be considered as voluntary donation and will be included as the income of the appellant u/s.12(1) of the Act. Even if appellant has shown such grants in the balance sheet then the appellant (a) would be eligible to claim expenses out of them as application of income and if the appellant creates fixed assets out of such grants, appellant (b) would be eligible to claim capital expenditure as application of its income and (c) would be eligible to claim depreciation on such fixed assets as application of income. Reliance placed on the judgment of Hon....
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....ual Accounts. There are many other issues on which 'Audit' wing had been raising audit objection with regard to classification of receipts. Be as it may, as far as Audit objections are concerned. Here, we are concerned with computation of income under the Income Tax Act. b) It is a matter of fact that Appellant has received these funds as per the provisions of GTPUD Act. The GTPUD Act authorizes the appellant to receive funds under various categories such as Development Charges, Betterment charges, Impact fees, Amenities fees, Scrutiny fees, Zoning fees "etc. These fees/funds or the sources of receipts have been received by the appellant during the discharge of its functions. These are recurring and operational receipts of the appellant. The appellant is required to apply these receipts towards its objects. I am of the considered opinion that a capital expenditure by a person need not be a capital receipt of the person receiving that amount. Therefore, A.O. is directed to consider all these receipts as the income of the appellant irrespective of the fact that it has treated them as balance sheet item. (c) The appellant has to keep in mind that if these receipts are co....
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..... In that year, the AO shall not allow any accumulation u/s.11(1)(a) of the Act @ 15%. (For example; If appellant earns Rs. 100 and applies Rs. 110 then Rs. 10 would be allowed to be carried forward as deficit and there will be no accumulation u/s.11(1)(a).) In an immediate subsequent year, AO will allow, firstly, the set off of the deficit carried forward from earlier year. Then, AO shall reduce the amount applied during the year. If, after the adjustments of carried forward deficit and application of income, the appellant has any surplus of income over the expenditure then the appellant would be eligible to accumulate to the extent of 15% u/s.11(1)(a) from the income. (For example: If appellant earns Rs. 100 in immediate succeeding year and applies Rs. 80 then Rs. 90, i.e. Rs. 10 as earlier year deficit and Rs. 80 being current years application, would be allowed against income of Rs. 100. The remaining Rs. 10 will be allowed to be accumulated u/s 11(1)(a).) And, if there happens to be still any excess income left over, then remaining amount shall be allowed by the A.O. to be accumulated u/s. 11 (2) of the Act and according to the stipulations mentioned therein i.e. filing of For....
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....es have been incurred from the operational income or the generic grants received by the appellant, then only A.O is directed to allow the expenditure on addition to fixed assets and project expenses as application of income. Therefore, subject to the verification of facts by the A.O, the ground of appeal is allowed for statistical purpose. 10.3 Ground of appeal nos.6, 7 & 9 relates to claim of accumulation at the rate of 15% u/s.11(1)(a) and u/s.11(2). The appellant would be eligible to claim the benefit u/s.11 of the Act. A.O is directed to allow the accumulations u/s.11(1)(a) and 11(2) of the Act. However, during the appellate proceedings and as per the discussions with the A.R, the appellant has filed the revised computation of income The A.O is directed to follow the directions given at para-9(i) to para-9(viii) and accordingly allow the quantum of accumulation u/s.11(1)(a) and 11(2) of the Act. The appellant has been claiming the various operational receipts as capital receipts in the balance sheet. However, as mentioned at para-9(iii), I am of the considered opinion that these cannot be the capital receipt but will have to be considered as income from the property held by t....
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....c. The first issue that the object of the assessee authority is to engage in advancing of objects of public utility is not in dispute. The dispute relates to the second limb i.e. whether such object of advancement of general public utility also acquires the character of trade, commerce or business with commercial intent or whether the authority exists solely for advancement of object of public utility and do not exist with a motive to make profit in a commercial spirit. As observed, the assessee is a Government agency and is engaged in co-ordinate and planned development of Jamnagar region which is pre-dominant object of the authority. The authority has been granted registration under s.12A of the Act for claiming deduction/exemption under s.11 of the Act. On similar facts, the Hon'ble Gujarat High Court in Ahmedabad Urban Development Authority vs. ACIT (2017) 83 taxmann.com 78 (Guj) held that general public utility services and amenities provided by such authorities would fall within the meaning of 'charitable purposes' as contemplated under s.2(15) of the Act and consequently, the assessee is entitled to claim exemption of income under s.11 of the Act. The issue has already been ....