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2020 (7) TMI 159
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....ll expenditure has been allowed in earlier years. ITA No.903/Bang/2017 "1. The order passed by the Hon'ble Commissioner of Income tax (Appeals) - 14, Bangalore to the extent prejudicial to appellant is bad in law and liable to be quashed. 2. The Hon'ble Commissioner of Income tax (Appeals) - 14, Bangalore has erred in concluding that the appellant is assessable in the status of 'Association of Persons'. The assessment made and the order passed on a wrong person i.e., under a different status, is bad in law and liable to be quashed. 3. The Hon'ble Commissioner of Income tax (Appeals) - 14, Bangalore has erred in concluding that the appellant is not eligible for exemption under section 11 of the Income Tax Act, 1961. 3.1 The Hon'ble Commissioner of Income tax (Appeals) - 14, Bangalore has erred in (a) concluding that the activities carried on by the appellant are commercial in nature with an intention to make profits; (b) concluding that the appellant is hit by the proviso to section 2(15) read with section 13(8) of the Act. (c) not appreciating that performance audit report is not an appropriat....
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....of Rs. 15,16,633/- as 'unaccounted water supply charges'. The addition towards water charges of Rs. 15,16,633/- made by the learned Assessing Officer for the reason that the same have been wrongly credited to KST tender / application account should be allowed as deduction in the year in which accounting entry has been rectified by the appellant. 7. The learned Assessing Officer and the CIT(A) have erred in making addition of Rs. 26,06,141/- under section 69A for the reason that the amounts have not been accounted in the books of account. 7.1 The learned Assessing Officer and the CIT(A) have erred in not appreciating that: (i) the appellant explained the nature of credits of Rs. 26,06,141; (ii) section 69A cannot be invoked if the nature of credits has been explained by the appellant; (ii) the amount of Rs. 26,06,141/- has been accounted as revenue items in the subsequent accounting period. 7.2 On facts and circumstances of the case, the addition of Rs. 26,06,141/- under section 69A is bad in law and should be deleted. If for any reason, the addition is sustained, the learned Assessing Officer should be directed to exclud....
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....outs with all infrastructure facilities for promotion of industries, acquired land on behalf of various State Government organisations for implementing their schemes. 4. Ld.AO observed that assessee has been engaged in advancement of any other object, but of general public utility, which involves carrying on any activity in the nature of trade, commerce or business, and accordingly amended definition of 'charitable purpose' inserted under section 2(15) was invoked to deny exemption under section 11 and 12, read with section 13(8) of the Act. Ld.AO noted that, assessee claimed exemption under Section 10 (20A) of the Act up to assessment year 2002-03. And subsequent to omission of section 10(20A), assessee obtained registration under section 12 A of the Act, and has been claiming exemption under Section 11 of the Act. Ld.AO treated Rs. 261,47,58,631/- as profits, in the hands of assessee, being excess of receipt over expenditure. Ld.AO also made further disallowances under various provisions of the Act. Assessment was completed at total income of Rs. 289,08,24,577/-, as against returned income at 'nil' by considering assessee as AOP. 5. At the outset, Ld.AR Submitted that, this....
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.... 19. He brought to our notice that in pursuance of the power vested under section 5 of the KIAD Act, the State Government has notified a Board called as the 'Karnataka industrial Area Development Board (Board in short) to achieve the objectives of the KIAD Act. The purpose of establishing the Board is provided under section 5(1) of the KI.AD Act, which provides: "Establishment and incorporation.' - For the purposes of securing the establishment of industrial areas in the State of Karnataka and generally for promoting the rapid and orderly establishment and development of industries and for providing industrial infrastructural facilities and amenity in industrial areas in the State of Karnataka, there shall be established by the State Government by notification a Board by the name of the Karnataka Industrial Area Development Board." 20. Karnataka Industrial Areas Development Board (KIADB) is a wholly owned infrastructure agency of Government of Karnataka. set up under Karnataka Industrial Areas Development Act of 1966. It is established through a State Government notification. The assessee is a creation of law. The law was enacted with certai....
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....wer to acquire land of its choice; develop it and then sell it: Under section 3 of KIAD Act, it is only the State Government which can declare any area as an Industrial area by a notification, and specify the limits of such area. Thus, the Board's acquisition powers are ring fenced by the State Government's authority. As per section 28 of KIAD Act, the State Government can acquire land, for the purpose of development, and pay compensation for such compulsory acquisition. The Board cannot decide what land to acquire and how much to compensate the land owners. It is only when an area is declared as an industrial area and the land is acquired under section 28 of MAD Act or transferred by the Government under section 32 of the KIAD Act, that the role of the Board begins. Restraint on expenditure from funds of the assessee 26. Section 23 stipulates that the assessee shall have the authority to spend such sums as it thinks fit for the purposes authorised under this Act from out of Board's funds, Every expense has to therefore pass the 'purpose test'. 27. It was argued by Id. counsel for the assessee that in the present case, the assessee is ....
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....tended to serve merely the interests of the members of the assessee. Advancement or promotion of trade, commerce and industry leading to economic prosperity ensures the benefit of the entire community. That prosperity would be shared also by those: who engage in trade, commerce and industry but on that account the purpose is not rendered any the less an object of general public utility. It may be remembered that promotion and protection of trade, commerce and industry cannot be equated with promotion and protection of activities and interests merely of persons engaged in trade, commerce and industry." 31. It was submitted that the AO in his order has observed that the assessee has carried out the activities/rendered services to industrialists/ entrepreneurs in lieu of which it collected/received consideration towards sale of industrial sites and fees for various services rendered thereof. These are not services rendered to specific industrialists/entrepreneurs. The objective is not 'service of individual industrial houses' but promotion of overall industrialization of Karnataka. An incidental benefit to some industrialists/entrepreneurs w....
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....able for land acquisition and development expenditure thereon. Total pricing of land would primarily include cost of land acquisition and total development cost and 12.75% interest for one year along with Establishment & Board Service Charges towards maintenance of the Board. The computation of total cost of acquisition and development is tabulated below: Computation of total cost of acquisition and development (A) Land compensation payable to owners (B) Compensation for cost of structures, wells etc on the land (A+B) Cost of land (C) Establishment charges at 11% on (A+B) (D) Interest at 12.75% p.a on (A+B) (E) Total cost of acquisition (A+B+C+D) (F) Development cost for formation of layout (road, drainage, water supply, parks etc) (G) Board service charges at 10% on (F) (I) Interest charged by the Board at 12.75% p.a on (F) (J) Total cost of development (F+G+I) (K) Total cost of acquisition and development [(E)+(J)] 36. Once the total cost is so computed, it is allocated to the allotable extent of the land (generally around 65 to 70% of land). Thereafter allotment of plots is carried on to the entreprene....
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....port of business kind efficiency in carrying out activities. It is an evidence of being organized and carrying on activities in a structured and efficient manner, 40. Mere adoption of 'business principles' does not transform a charitable institution into a business entity. The Apex Court has echoed similar view in the case of CIT v Andhra Pradesh State Road Transport (1986) 159 ITR I (SC) wherein he Court observed as under: "No activity can be carried on efficiently, properly, adequately or economically unless it is carried on business principles. If an activity is carried on business principles, it would usually result in profit, but, as pointed out by this court in Surat Art Silk Cloth Manufacturers Associations case (1980) 120 ITR ('SC'), it is not possible so to carry on a charitable activity in such a way that the expenditure balances the income and there is no resultant profit, for, to achieve this, would not only be difficult of practical realisation but would reflect unsound principles of management." (emphasis supplied) 41 In the present case, the assessee has carried on its activities on business principles and sound pri....
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....anization (supra) was that the Assessee in that case enjoyed the benefit of exemption u/sJ0(23C)(iv) of the Act. Sec.10(23C)(iv) provides any income received by any person on behalf of any other fund or institution established for charitable purposes which may be approved by the prescribed authority, having regard to the objects of the fund or institution and its importance throughout India or throughout any State or States, shall not form part of the total income under the Act. The prescribed authority withdrew the approval granted to the Assessee consequent to the insertion of the proviso to Sec.2(15) of the Act., on the ground that the Assessee was deriving rental income from letting out space for rent during trade fairs and exhibitions, was deriving income from sale of tickets and income from food and beverage outlets. The said withdrawal was challenged by the Assessee before the Hon'ble Delhi High Court. The Hon'ble Delhi High Court had to go into the question as to the scope of the proviso to Sec.2(15) of the Act, The Hon'hle Delhi High Court has laid down the following very important principles as to how the proviso to Sec.2(15) of the Act has to be interpreted- ....
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.... State or States. (iv) Merely, because an institution derives income out of activities which may be commercial, that does, in any way, affect the nature of the Institution as a charitable institution if it otherwise qualifies for such a character. (v) Merely because a fee or some other consideration is collected or received by an institution, it would not lose its character of having been established for a charitable purpose. If the dominant activity of the institution was not business, trade or commerce, then any such in dental or ancillary activity would also not fall within the categories of trade, commerce or business. If the driving force is not the desire to earn profits but to do charity, the exception carved out in the first proviso to Section 2(15) of the said Act would not apply. (vi) If a literal interpretation were to be given to the said proviso, then it would risk being hit by Article 14 (the equality clause enshrined in Article 14 of the Constitution). Courts should always endeavour to uphold the Constitutional validity of a provision and, in doing so, the provision in question may have to be read down, as pointed Out above. (vii) ....
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....ture Account for the year ended 31.12009 of the Assessee. The income side of the Account shows that the main component of income of the Assessee is derived in the form of interest of Rs. 13117 crores. Schedule "Pa to the Income and Expenditure Account shows the breakup of the interest receipt by the Assessee. The interest on Fixed deposits is Rs. 120.90 Crores. The Earnest Money Deposit given by the allottees are parked by the Assessee in fixed deposit and those deposits has earned the aforesaid interest income. Therefore there can be no profit element in earning this interest income. Besides the above, the other components of interest are interest from Allottees, penal interest from Allottees, interest on staff loan, interest from SB and others, interest on seed money, dividend received and interest on income tax refund. The other component of income is gain on disposal of land, sale of application forms, recoveries of fines and penalties, interest, other receipts, rent, forfeiture of deposits, water supply charges. The income from sale of land is Rs. 18.69 Crores. The expenditure incurred by the Assessee comprises of repairs and maintenance, administrative expenses, water and ele....
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.... the Assessee and the expenditure incurred set out in the earlier paragraphs of this order. The proviso to Sec2(15) of the Act is therefore not applicable to the case of the Assessee. We therefore hold that the Assessee is entitled to the benefits of Sec.11 of the Act. The AO has not disputed the conditions necessary for allowing exemption u/s.11 of the Act, except the applicability of proviso to Sec.2(15) of the Act. In view of our conclusions that the said proviso is not applicable to the case of the Assessee, we hold that the Assessee's income is not includible in-the total income and therefore the income returned by the Assessee is directed to be accepted." 10. We find from the submissions of assessee recorded by Ld.CIT(A) in impugned order that, facts for year under consideration as well as preceding and succeeding assessment years are same and therefore respectively following the reasoning of this Tribunal in asst. year 2009-10, we are of the opinion that, provisions of section 2 (15) of the Act are not applicable in the case before us. We therefore hold that income of assesseee will be eligible to claim exemption under section 11. Accordingly Ground 2-3 stands allo....