TaxTMI 
TaxTMI 
2023 (4) TMI 32
X X X X Extracts X X X X
X X X X Extracts X X X X
....he assessee has taken the following grounds of appeal: "1. Learned CIT (A) has erred in law and on facts in confirming the view taken by AO in holding that the activities carried out by the appellant were in the nature of business and confirmed computation of the excess of income over expenditure of previous year arising out of charitable activity of appellant as Income from business as per the manner prescribed u/s. 11(4) of the Act. Both the lower authorities have not appreciated the fact that the appellant has been granted registration u/s. 12A of the Act qualifying its income exempt from taxation as total expenditure (capital and revenue) incurred by the appellant is for "advancement of the object of general public utility". 2. Learned CIT (A) has erred in law and on facts in confirming the view taken by AO in holding that the appellant is covered by the first and the second proviso to Section 2(15) of the Act and hence, provisions of Section 13(8) would be applicable. 3. Learned CIT (A) has erred in law and on facts in upholding the contention of the AO that the activities carried out by the appellant are business in nature and erred further in not g....
X X X X Extracts X X X X
X X X X Extracts X X X X
....onsideration. Therefore, since the assessee has done advancement of object of general public utility in lieu of consideration, it is outside the purview of section 2(15) of the Act. According to the AO held that the assessee's income is therefore required to be assessed as regular business income and no deduction u/s 11 and 12 of the Act is allowable to the assessee. The AO made the following observations in the assessment order: "6.13. Thus, the submission of the assessee that, the assessee is carrying on the same nature of activity and same nature of income and therefore the income should be computed as per provisions of Section 11 to 13 of the I.T. Act is not acceptable since it is clearly evident that the assessee is engaged in the activity of earning profit from sale of plots/land, charging various fees for rendering services to the general public. The submission of the assessee is not relevant since the income earned is business income and the application of the said income is irrelevant in view of the first proviso to section 2(15) of the I.T. Act which is as under:- Provided that the advancement of any other object of general public utility shall not be a ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ove are disallowed and added back to the total income of the assessee. Penalty proceedings are initiated u/s 271(l)(c) of Income tax Act, 1961 for furnishing inaccurate particulars of income." 5. In appeal before Ld. CIT(Appeals), he dismissed the appeal of the assessee on ground that on similar issue for assessment year 2014-15, his predecessor Ld. CIT(Appeals) has dismissed the appeal of the assessee. The Ld. CIT(Appeals) made the following observations while dismissing the appeal of the assessee: "4.3 I have carefully considered the facts of the case, observation of the A.O and submission as well as the case laws relied upon by the appellant. On the similar issue for A.Y.2014-15, my predecessor by following the decision of the CIT(A), Gandhinagar for A.Y.2011-12 decided the issue as under:- .......CIT(A), Gandhinagar vide order No.CIT(A) GNR/383/2013-14 dated 7/5/2014 has dealt with the said issue. CIT(A), Gandhinagar has held as follows :- "6.1 I have considered the facts of the case, assessment order including submission of the Appellant and the observation of the AO in the light of the provisions of the Act as applicable for the year under consid....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eful consideration of details submitted by appellant along with audited accounts and Gujarat Maritime Board Act, 1981, it is observed that the main object of Appellant is to provide port service, which includes port infrastructure facilities and marine services, to the various business houses. None of the objects/activities of the Appellant falls within the-definition of (a) medical, (b) relief to poor; (c)education; and (d) preservation of monuments or places or objects of artistic or historic interest, Meaning thereby, the main object of the Appellant is of the advancement of object of general public utility. Further on perusal of the various schedules of income and expenditure accounts as reproduced by AO at para-5 and 9 of the assessment order, it is undisputed fact that income of Rs. 191,88,05,258 includes income from port infrastructure facilities, marine services, clearing, forwarding and stevedoring, storage rental, equipment rental, 'income from other port services and GoG Administrative charges, which suggests that Appellant is carrying out activity in the nature trade, commerce of business by charging cess or fees. Therefo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....and circumstances of the case, and shall not be taken as a precedent for charitable trusts doing business or trade under the garb of char/table activities. In view of these facts that the Appellant is carrying out activities in the nature of trade, commerce or business, as aforesaid, this decision is not applicable in its case. 6.7 In view of the aforesaid legal position, I am of the considered opinion that the activity of the Appellant is in the nature of advancement of other object of general public utility in the nature of trade commerce and business by charging fees and therefore is not in the nature of 'charitable purpose' as defined in Section 2(15) of the Act. I also rely on the decision of Hon'ble Andhra Pradesh High Court in case of Andhra Pradesh State Seeds Certification Agency v/s CCIT 212 Taxman 493 [2013] wherein petitioner was registered under Andhra Pradesh Public Societies Registration Act and was carrying on functions of certification agency under Seeds Act, 1966 and the Hon'ble High Court has held that as the assessee was rendering its services directly to clients/agents who were engaged in trading of certified seeds with profit motive he....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he Act. As the appellant is being treated as AOP and taxed as per the provisions of section 28 to 44 of the Act, the appellant cannot claim expenditure on fixed assets as application of income. As far as ground no. 3 is concerned, the income of the appellant would be computed as per the provisions of section 28 to 44 of the Act. Accordingly, appellant would eligible to claim depreciation on the block of assets. The AO is directed to calculate the'same and allow the depreciation. The quantum spent on fixed asset would be capitalized. Accordingly, the ground of appeal Nos. 1, 2 & 3, are hereby dismissed. " 4.4 Since the ground.nos.1 to 2 of appeal and the submission^ made thereon are very much identical to those raised in the appeal for the A.Y.2013-14 which have been covered by the decision of my predecessor for A.Y.2013-14 who followed the decision of the CIT(A), Gandhinagar for A.Y.2011-12. Therefore, following the findings in respect of these identical grounds raised through appeals for A.Ys.2011-12 and 2013-14, the ground nos.1 & 2 are dismissed." 6. The assessee is in appeal before us against the aforesaid order passed by Ld. CIT(Appeals) dismissing the appeal o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nt of Gujarat Maritime Board, staff of the board, property and contract works and services to be provided at miner ports by the board, imposition and recovery of rates at ports, borrowing power of board, revenue expenditure, supervision and control of state government, penalties, miscellanous etc. After perusal of the various provisions of the Gujarat Maritime Board Act, 1981, it is observed that management and control of the assessee trust was with the state government and there was no profit motive which is categorically clear from the provision of section 73, 74 and 75 of the Gujarat Maritime Board Act, 1981. We have also gone through the judicial pronouncements referred by the ld. counsel on the issue in the appeal. In the case of the assessee itself, the Co-ordinate Bench of the ITAT vide ITA No. 2933/Ahd/2009 for assessment year 2003-04 adjudicated on 27th April, 2016 held that assessee is a charitable trust engaged in the advancement of any other object of general public utility enumerated in section 2(15) of the Income Tax act, is not business undertaking. The relevant part of the decision of the Co-ordinate Bench of the above referred case is reproduced as under:- ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....se u/s. 2(15) has been amended therefore the assessee has not carried out the activity as per the definition of "charitable purposes". This very issue has already been dealt with by the Respected Benches, therefore respectfully following these decisions we hereby reverse the view taken by the ld. Commissioner and direct not to cancel the registration u/s. 21AA(3) of the I. T. Act. Grounds raised by the assessee are hereby allowed." We have also gone through the decision of Hon'ble Gujarat High Court Vide 83 taxman.com 366 (Guj) CIT vs. Gujarat Industrial Development Corporation dated 28th June, 2017 wherein after following decision of Ahmedabad Urban Development Authority vide 83 taxman.com 78 it is held that claim of fees or cess is incidental to the object and purpose of the act and even the case would not fall under the second part of proviso to section 2(15) of the act. It is further held that as the activities of the assessee is for advancement of any other object of general public utilities, the same can be of or charitable purpose and therefore the asssessee corporation shall be entitled to exemption u/s. 11 of the act. In the case of the Ahmedabad Urban Develop....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rried out by the assessee is for advancement of any other object of general public utility without any intention of the profit motive after considering the provision of the Gujarat Maritime Board Act, 1981 and fact of the case, it cannot be said that the activities carried out by the assessee are in the nature of trade commerce or business. It is observed that predominant object of the assessee is to administer control on miner ports in the State of Gujarat and there is no profit motive as demonstrated by the provision of section 73, 74 and 75 of the Gujarat Maritime Board Act, 1981. The Gujarat Maritime Board is under legal obligation to apply the income which arises directly and substantially from the business held under trust for the development of minor ports in the state of Gujarat. Further after following the decision of Hon'ble Gujarat High Court in the case of AUDA and GIDC, the fees collected by the assessee is incidental to the object and purpose of attainment of the main object for development of mining ports as enumerated in the provision of the Gujarat Maritime Board Act, 1981,therefore, we consider that activity of the assessee is for advancement of any other obje....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ppealing for the Revenue and Mr. G.H. Virk, the learned counsel appearing for the respondent-assessee. 3. All the three questions, referred to above, as proposed by the Revenue are no longer re integra in view of the judgment of this High Court rendered in Tax Appeal No. 157 of 2020 and allied appeals, decided on 20th September, 2020. 4. In view of the aforesaid, this tax appeal fails and is hereby dismissed." 7.2 Respectfully following the order of the Ahmedabad ITAT and Gujarat High Court in assessee's own case for assessment year 2014-15, ground Numbers 1 to 3 of assessee's appeal are allowed. 8. In the result, ground Numbers 1 to 3 of the assessee's appeal are allowed. Ground number 4: Ld. CIT(Appeals) erred in holding that the assessee has violated section 11(2)(b) r.w.s. 11(5) of the Act 9. The brief facts in relation to this ground of appeal are that during the course of assessment proceedings, the AO observed that the investments were made by the assessee in number companies which did not comply with the provisions of section 11(5) of the Act as these companies were not "public sector companies" as defined in section 2(36A) of the Act. The AO h....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssee in companies which were not "public sector companies" as defined in section 2(36A) of the Act, this would not disentitle the assessee the complete benefit of section 11 and 12 of the Act as per the provisions of section 13(1) of the Act and the disallowance of benefit should be on that part of the income which has forfeited investments in terms of section 11(5) of the Act and benefit of section 11 & 12 cannot be denied on the entire income of the assessee trust. In response, DR relied upon the observations made by the Ld. CIT(Appeals) and AO in their respective orders. 12. We have heard the rival contentions and perused the material on record. Section 13(1)(d) provides that exemption from tax to charitable or religious trust / institution will be forfeited if any funds of the trust / institution are invested or deposited, otherwise than in any one or more of the forms or modes specified therein. We observe that the Karnataka High Court, in the case of CIT Vs Fr. Mullers Charitable Institutions [2014] 363 ITR 230 (Karn) held that perusal of section 13(1)(d) of the Act makes it clear that it is only the income from such investment or deposit, which has been made in violation ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he CIT(A) as well as Tribunal. 6. Even otherwise, the law on the subject is also well settled. In the case of Fr. Mullers Charitable Institutions (supra) the Karnataka High Court has held that a perusal of section 13(l)(d) of the Income-tax Act, 1961 makes it clear that it is only the income from such investment or deposit which has been made in violation of section 11(5) of the Act that is liable to be taxed and violation under section 13(l)(d) does not result in denial of exemption under section 11 to the total income of the assessee and that where the whole or part of the relevant income is not exempted under section 11 by virtue of violation of section 13(l)(d) of the Act, tax shall be levied on the relevant income or part of the relevant income at the maximum marginal rate. Therefore, we do not see any reason in interfering with the impugned orders. 7. In the premises aforesaid, question raised in the present appeals is answered in favour of assessee and against the revenue. Appeals stand dismissed accordingly." 12.1 In view of the aforesaid legal precedents, in our considered view, only the relevant income falling within the mischief of section 13(1)(d) o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ication purposes. 18. In the result, ground number 5 of the assessee's appeal is allowed. Assessee's appeal in ITA number 88/Ahd/2020for assessment year 2016- 17 19. The assessee has taken the following grounds of appeal: "1. Ld. CIT(A) erred in law and on facts in confirming addition of Rs. 45,32,39,598 being Tax deducted at source being amount rightly deducted by appellant from the income available for purposes of application. Tax Effect Rs. 15,68,20,901/- 2. Ld. CIT(A) erred in law and on facts in wrongly interpreting applicability of section 13(l)(d) of the Act by observing that investment in various public sector corporations is in violation of provisions of section 11(5) of the Act. N. A. being Technical Ground 3. Ld. CIT(A) erred in law and on facts in directing AO to allow TDS credit of Rs. 45,31,14,864/- if it appears in 26AS statement in relation to receipts credited Profit & Loss Account ignoring fact the appellant is a State Government entity -Local Authority and C&AG of India has not disputed such issue with regard to mismatch of TDS and corresponding income and accordingly Ld. CIT(A) ought to have allowed the same ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of the Assessing officer denying the benefits of section 11 and 12 of the Act by invoking proviso to section 2(15) of the Act? 2. Whether on the facts and in the circumstances of the case, the Ld. Commissioner of Income Tax (Appeals) is justified in allowing the accumulation of 15% without appreciating the fact that once the provisions of section 2(15) is applicable to the assessee, the assessee forfeits all the exemptions u/s. 11 and 12 of the Act in view of provisions of section 13(8) of the Act? 3. Whether, on the facts and in the circumstances of the case, the Ld. Commissioner of Income Tax (Appeals) is right in allowing depreciation on assets, full cost of which was already allowed as application in earlier years. The ratio of decision of the Supreme Court in Rajasthan and Gujarati Charitable Foundation is not applicable in the present case as in that case exemption under section 11 and 12 was available to the assessee, whereas in the present case, the exemption under section 11 and 12 is not available to the assessee as per the stand of the department. Therefore an AOP cannot be granted benefit of both depreciation and capital expenditure in accordance with....