TaxTMI 
TaxTMI 
TaxTMI 
2022 (6) TMI 1385
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....;the Act' for short] by invoking the first proviso to section 2(15) of the Act. 3. The assessees have raised following common additional ground in all the appeals:- "The lower authorities have failed to appreciate that the assessee being a State under Article 12 of the Constitution, is exempted from the levy of Union Tax under Article 289 of the Constitution." 4. In both the cases, the assessee filed petition for admission of additional grounds on the reason that these grounds are inadvertently missed out while filing the appeals before this Tribunal. In our opinion, these grounds are legal grounds and these grounds are very much necessary to adjudicate in the interest of justice. Accordingly, these grounds are admitted by placing reliance on the judgement of Hon'ble Supreme Court in the case of NTPC Vs. CIT 229 ITR 383 as there is no necessity of investigation of any fresh facts otherwise on record in all assessment years for adjudication. 5. In ITA No.948/Bang/2019 for the AY 2016-17, the assessee has raised a ground that AO erred in issuing notice u/s 143(2) of the Income-tax Act,1961 ['the Act' for short] dated 4.7.2017 without affixing the digital signature o....
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....aritable purpose". Such a claim, when made in respect of an activity carried out on commercial lines, is contrary to the intention of the provision. With a view to limiting the scope of the phrase "advancement of any other object of general public utility", it is proposed to amend section 2 (15) so as to provide that "the advancement of any other object of general public utility" shall not be a charitable purpose if it involves the carrying on of - (a) any activity in the nature of trade, commerce or business or, (b) any activity of rendering of any service in relation to any trade, commerce or business, for a fee or cess or any other consideration, irrespective of the nature of use or application of the income from such activity, or the retention of such income, by the concerned entity. 3.6 A reference may be made to Budget Speech of the Finance Minister on 29.02.2008, which reads as follows: 180. "Charitable purpose" includes relief of the poor, education, medical relief and 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 rela....
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.... Marketing Committee and State Agricultural Marketing Boards, had occasion to comment on the criticism levelled against the amendment to section 2 (15) in following words: 'I once again assure the House that genuine charitable organizations will not in any way be affected. The CBDT will, following the usual practice, issue an explanatory circular containing guidelines for determining whether any entity is carrying on any activity in the nature of trade, commerce or business or any activity 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 as "advancement of any other object of general public utility".' ......... 3.9 A reference may be made to Circular No. 11/ 2008, dated 19.12.2008, the CBDT has clarified as under: 3.2. In the final analysis, however, whether the assessee has for its object 'the advancement of any other object of general public utility' is a question ....
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.... exclude organizations which are carrying on regular business from the scope of "charitable purpose". In such a case, the object of 'general public utility' will be only a mask or a device to hide the true purpose which is trade, commerce or business or the rendering of any service in relation to trade, commerce or business. 3.12 A reference may made to relevant extracts from Principles of Statutory Interpretation, 10th Edition, authored by Justice G.P. Singh, which read as follows: When the material words are capable of bearing two or more constructions the most firmly established rule for construction of such words "of all statutes in general (be they penal or beneficial, restrictive or enlarging of the common law)" is the rule laid down in Heydon's case [(1584) 3 Co. Rep. 71, p. 7b: 76 ER 637] which has "now attained the status of a classic [Kanailal Sur v. Paramnidhi Sadhukhan AIR 1957 SC 907]. The rule which is also known as 'purposive construction' or 'mischief rule' [Anderton v. Ryan, (1985) 2 All ER 355, p.359 (HL)], enables consideration of four matters in construing an Act: (i) What was the law before the making of the Act, (ii) What was the mischief or defect for whi....
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....se of legislation and are prepared to look at much extraneous material that bears on the background against which the Legislation was enacted [Pepper v. Hart, (1993) 1 AL ER 42, p. 50 (HL)]. .............. Similarly, in another case Kanailal Sur v. Paramnidhi Sadhukhan AIR 1957 SC 907, Gajendragadkar, J. stated that the recourse to object and policy of the Act or consideration of the mischief and defect which the Act purports to remedy is only permissible when the language is capable of two constructions. But it has already been seen that for deciding whether the language used by the Legislature is plain or ambiguous it has to be studied in its context, and 'context' embraces previous state of the law and the mischief which the statute was intended to remedy. Therefore, it is not really correct to say that the rule in Heydon's case is not applicable when the language is not ambiguous. The correct principle is that after the words have been construed in their context and it is found that the language is capable of bearing only one construction, the rule in Heydon's case ceases to be controlling and gives way to the plain meaning rule. 3.13 In K.P. Varghese vs. ITO [1981] 131 ITR....
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....ion of the sale of property is for a much lower figure than what is actually received. The deed of registration mentions a particular amount; the actual money that passes is considerably more. It is to deal with these classes of sales that this amendment has been drafted. It does not aim at perfectly bonafide transactions ... but essentially relates to the day-to-day occurrences that are happening before our eyes in regard to the transfer of property. I think, this is one of the key sections that should help us to defeat the free play of unaccounted money and cheating of the Government." Now it is true that the speeches made by the Members of the Legislature on the floor of the House when a Bill for enacting a statutory provision is being debated are inadmissible for the purpose of interpreting the statutory provision but the speech made by the mover of the Bill explaining the reason for the introduction of the Bill can certainly be referred to for the purpose of ascertaining the mischief sought to be remedied by the legislation and the object and purpose for which the legislation is enacted. This is an accord with the recent trend in juristic thought not only in western countrie....
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...., the Hon'ble Karnataka High Court held that the Nirmithi Kendra is a State; d) When the Assessee functions as a State, it cannot be conceivably carrying the avowed mischief i.e. carrying on business under the mask of charity; e) The close control over the affairs of the Assessee by the officers of the Government will obviate even the remotest chance of occurrence of aforesaid mischief; Ld. A.R. relid on the decision in India Trade Promotion Organization vs. DGIT (Exemptions) [2015] 371 ITR 333 (Delhi) [Para 10]; f) The Commissioner has recognized the activity of the Assessee to be charitable after being satisfied with its objects and issued a registration certificate; 3.16 In the instant case, the State has a complete control over the activities of the Assessee with a view to see that there is no waste or misuse of public funds. The procedures adopted in allotment of work are explained as follows: 3.16.1 It is submitted that when project is undertaken at the instance of government department, on-site inspection report would be prepared detailing the estimate for cost of work to be carried out. The Assessee/ Board has to take into consideration, the rates as prescribed by....
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.... affirmed by the Tribunal that the assessee had absolutely no control over the fund created by the LIC for the benefit of the employees of the assessee and further all the contribution made by the assessee in the said fund ultimately came back to the Textool Employees Gratuity Fund, approved by the Commissioner with effect from the following previous year. Thus, the conditions stipulated in Section 36(1)(v) of the Act were satisfied. Having regard to the facts found by the Commissioner and affirmed by the Tribunal, no fault can be found with the opinion expressed by the High Court, warranting our interference. ∂ In PCIT vs. State Bank of India (2020) 420 ITR 376 (Bombay), it was held as follows: 8. The very purpose of insertion of sub-section (9) of section 40A thus was to restrict the claim of expenditure by the employers towards contribution to funds, trust, association of persons etc. which was wholly discretionary and did not impose any restriction or condition for expanding such funds which had possibility of misdirecting or misuse of such funds after the employer claimed benefit of deduction thereof. In plain terms, this provision was not meant to hit genuine expendi....
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.... to those taxpayers who had paid sales-tax within the statutory period prescribed for this payment, although the payment so made by them did not fall in the relevant previous year. This was because the sales-tax collected pertained to the last quarter of the relevant accounting year. It could be paid only in the next quarter which fell in the next accounting year. Therefore, even when the sales-tax had in fact been paid by the assessee within the statutory period prescribed for its payment and prior to the filing of the income-tax return, these assessees were unwittingly prevented from claiming a legitimate deduction in respect of the tax paid by them. This was not intended by section 43B. Hence the first proviso was inserted in section 43B. The amendment which was made by the Finance Act, 1987 in section 43B by inserting, inter alia, the first proviso, was remedial in nature, designed to eliminate unintended consequences which may cause undue hardship to the assessee and which made the provision unworkable or unjust in a specific situation. ∂ In UOI vs. Exide Industries Ltd [2020] 116 taxmann.com 378 (SC), it was held as follows: 21. Be it noted that the interpretation of....
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....ble in the instant case. When carrying out the statutory functions are not trade etc., it is axiomatic that the Provisos to section 2(15) should not simply apply. Ld. A.R. relied on the following cases: ∞ State of Tamil Nadu vs. Board of Trustees of the Port of Madras [1999] 114 STC 520 (SC); ∞ CIT (Exemptions) vs. National Internet Exchange of India (2019) 417 ITR 436 (Delhi); ∞ Bureau of Indian Standards vs. DGIT (E) [2013] 358 ITR 78 (Delhi); 3.20 Therefore, it is submitted the in the aforesaid background of the Assessee, the Assessee's case does not fall within the mischief of 1st proviso to section 2 (15) of the IT Act. Hence, the exemption under section 11 of the IT Act ought not to have been denied. 4. As regards the objectives of the Assessee do not involve carrying on any activity in the nature of trade, commerce or business or rendering any service in relation to any trade, commerce or business:[Ground Nos. 2.1, 2.5 & 2.10] 4.1 It is submitted that the Learned Commissioner (Appeals) has failed to appreciate that the objectives of the Assessee do not involve carrying on any activity in the nature of trade, commerce or business or rendering a....
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....executed by Building Centres, lobbying State governments for the award of projects to Building Centres, etc. The resources for the building centre movement were made available from the Govt. of India through its annual budgetary support, to the extent of Rs. 0.5 million per building centre from the MoU D & PA [Ministry of Urban Development and Poverty Alleviation] in urban areas and an enhanced grant of Rs. 1.5 million from the MoRD [Ministry of Rural Development]" 4.3 The Objects of the Assessee trust as per the Memorandum of Association (MOA) are as follows: Serve as a seminal Agency to generate and propagate innovative ideas on housing. * A clearing house of information and data bank on housing which would bring the fruits of research from lab to land. * A production centre to prefabricate standardized housing materials * A training house to impart skills to local workmen in innovative housing technique and create a cadre of trained workers in all blocks in the district. * A nodal agency to serve as a catalyst in the field of housing ensuring horizontal co-ordination in implementation of housing program. * A chain for retail outlets of housing material. * An agen....
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....hods which bring Conservation and regeneration of resource base and Reduction of water wastage and energy conservation - Rainwater harvesting: stream based water treatment and pumping systems.; Photovoltaic cells-based solar pumps * Dug Well-based Water Supply - Eco friendly water supplying method; single piped water supply for the entire area, laying of pipeline and location of overhead tank and distribution pipe network. 4.6 The summary of various activities carried on in furtherance to the objects is as under: SI. No. Object Activity Page 1 To generate & propagate innovative ideas on housing State level skill upgradation training program was conducted for masons at the Assessee's premises. Participants were benefited from various cost-effective, alternative and eco-friendly technologies; 15 The training was conducted on different technologies including Brick Panel, slabs brick attic slabs. The masons were made to produce each product by themselves; 15 The Assessee had put up stalls exhibiting various models and products. Special arrangements were made to demonstrate the technologies to visitors who visits stalls; 16 "Hands on Training Program" was c....
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....ottle wall; R&D - Pet bottle lintel; R&D - Reinforced brick lintel; 74-77 Zero maintenance houses; 79-82 2 To bring the fruits of research from lab to land Ferro Cement Products; 47 Pre-Cast Concrete Products; 48-49 Earthen Products; 50 Model House & Demonstration Buildings; 51-52 Construction of skating track using Arch foundation technique; 57 Construction using antic materials; 58-59 Innovative works & wood houses; Dome construction; Polymer concrete; Pet bottle wall; Pet bottle lintel; Reinforced brick lintel; 68-70 Technical guidance for construction of individual houses; 74-77 Zero maintenance houses; 79-82 3 On Training to impart skills Training on Ferro-cement products; 10 Training on Funicular Shells and brick panel slabs; 11 The Assessee went to rural areas and conducted skill development program in various grama panchayats for the local masons and other general public; 12 State level skill upgradation training program was conducted for masons at the Assessee's premises. Participants were benefited from various cost-effective, alternative and eco-friendly technologies; 15 Mobile Training Unit was implemented to train the migrated....
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....e poor, education, medical relief, preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest, and the advancement of any other object of general public utility: Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service 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 activity: Provided further that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is twenty-five lakh rupees or less in the previous year; 4.10 The 1st proviso to section 2 (15) of the IT Act may be summarized as under: * 'advancement of any other object of general public utility' shall not be a charitable purpose if it involves the carrying on of- (a) any activity in the nature of trade, commerce or business; or (b) any activity of r....
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.... rational or logical construction; and its exact synonym may not be found in a single word.' ε Involves. A case cannot be said to involve a question unless its decision is necessary for the purpose of the case. 59 LW 533 : 1946 MWN 612 : (1946) 2 MLJ 245. ε The test to be applied to see whether the question in a case involves a substantial question of law or not is not merely the importance of the question but its importance to the case itself. If the rate of the case depends upon a consideration of that point, it will be deemed to be 'involved.' There must be a pressing necessity for the decision of the point. It, on the other hand, there is only a remote contingency of its being taken into consideration, it will not answer that test. 1944 A.L.W 477 (FB). ε The term 'involves' implies a considerable degree of necessity. The mere circumstance that a question of law is raised in a case would not justify the inference that the proposed appeal 'involves' a question of law as envisaged under Art. 133 unless it is necessary to decide the question of law for a proper decision of the case. Israr Ahmad v. State of U.P., AIR 1993 All 87, 89. [Constitution of In....
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....case that the purpose of the trust or institution does not involve the carrying on of an activity for profit, because promotion of sports can be done without engaging in an activity for profit. If this interpretation were correct, it would be the easiest thing for a trust or institution not to mention in its constitution as to how the purpose for which it is established shall be carried out and then engage itself in an activity for profit in the course of actually carrying out of such purpose and thereby avoid liability to tax. That would be too narrow an interpretation which would defeat the object of introducing the words "not involving the carrying on of any activity for profit". We cannot accept such a construction which emasculate these last concluding words and renders them meaningless and ineffectual. 4.17 In Yogiraj Charity Trust vs. CIT [1976] 103 ITR 777 (SC), the Supreme Court has held as follows: If the primary or dominant purpose of trust is charitable, another object which by itself may not be charitable but which is merely ancillary or incidental to the primary or dominant purpose would not prevent the trust from being valid charity. .......... 4.18 In CIT vs. ....
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....ointed out that if "the primary purpose be advancement of objects of general public utility, it would remain charitable even if an incidental entry into the political domain for achieving that purpose, e.g., promotion of or opposition to legislation concerning that purpose, was contemplated". .............. 10. It is clear on a plain natural construction of the language used by the Legislature that the ten crucial words "not involving the carrying on of any activity for profit" go with "object of general public utility" and not with "advancement". It is the object of general public utility which must not involve the carrying on of any activity for profit and not its advancement or attainment. What is inhibited by them in last ten words is the linking of activity for profit with the object of general public utility and not its linking with the accomplishment or carrying out of the object. It is not necessary that the accomplishment of the object or the means to carry out the object should not involve an activity for profit. That is not the mandate of the newly added words. What these words require is that the object should not involve in the carrying on of any activity for profit.....
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....bels or formulae; what is it precisely that they mean? Now there are two possible ways of looking at this problem of construction. One interpretation is that according to the definition what is necessary is that the purpose must be of such a nature that it involves the carrying on of an activity for profit in the sense that it cannot be achieved without carrying on an activity for profit. On this view, if the purpose can be achieved without the trust or institution engaging itself in an activity for profit, it cannot be said that the purpose involves the carrying on of an activity for profit. Take, for example, a case where a trust or institution is established for promotion of sports without setting out any specific mode by which this purpose is intended to be achieved. Now obviously promotion of sports can be achieved by organising cricket matches on free admission or no-profit no-loss basis and equally it can be achieved by organising cricket matches with the predominant object of earning profit. Can it be said in such a case that the purpose of the trust or institution does not involve the carrying on of an activity for profit, because promotion of sports can be done without en....
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....must have a purpose for which it is established and every purpose must for its accomplishment involve the carrying on of an activity. The activity must, however, be for profit in order to attract the exclusionary clause and the question, therefore, is when can an activity be said to be one for profit? The answer to the question obviously depends on the correct connotation of the proposition "for". This proposition has many shades of meaning but when used with the active participle of a verb it means "for the purpose of" and connotes the end with reference to which something is done. It is not, therefore, enough that as a matter of fact an activity results in profit but it must be carried on with the object of earning profit. Profitmaking must be the end to which the activity must be directed or, in other words, the predominant object of the activity must be making of profit. Where an activity is not pervaded by profit motive but is carried on primarily for serving the charitable purpose, it would not be correct to describe it as an activity for profit. But where, on the other hand, an activity is carried on with the predominant object of earning profit, it would be an activity for ....
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...., forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest, and the advancement of any other object of general public utility: Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service 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 activity: Provided further that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is twenty-five lakh rupees or less in the previous year; 4.23 It is our submission that the aforesaid declaration of law by Surat Arts Silks [supra] would continue apply to the legal position prevailing during impugned assessment year as well. The effect of words "not involving the carrying on of any activity for profit" existing before 1983 and the words of the First Proviso is in substance the same. 4.24 In this regard, reliance is placed....
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....ature intended the latter part of the proviso to apply to the word "advancement" as well and not merely to the words "object of general public utility", it would have worded the amendment entirely differently. The proviso would have expressly been made applicable to the advancement as well as to the object of general public utility. That the legislature did not do so is an indication that it accepted the interpretation of the Supreme Court of Section 2(15) as it originally stood and retained the effect of the section in that regard in the 2009 amendment. The ratio of the judgment in Surat Art Silk's Cloth Mfgs. Assn. case (supra), in this regard, therefore, remains the same. 41. Further, the amendment also indicates that the legislature accepted the observations in Surat Art Silk Cloth Mfgs. Assn's. case (supra), to the effect that the purpose of the enacting section 2(15) in 1961 was to overcome the decision of the Privy Council in the Tribune's case. While the legislature in the 1984 amendment which continued up to the year 2009 altered this position by deleting the words "not involving the carrying on of any activity for profit", it reintroduced an exclusionary cla....
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....ns) [2015] 371 ITR 333 (Delhi) it was held as follows: 3. It is not disputed that the petitioner was engaged in socially and economically desirable activities relating to the promotion of Indian trade and that the activities of the petitioner fell within the ambit of the expression "the advancement of any other object of general public utility" as appearing in Section 2(15) of the said Act. But, because of the new proviso to Section 2(15), the petitioner's objects were not regarded as charitable purposes. ........ 10. It was also pointed out that the respondent, in its order dated 23.02.2012, had not taken into account the fact that the petitioner was a Government of India undertaking incorporated under section 25 of the Companies Act, 1956 in accordance with the decision of the Cabinet. The petitioner functions under the administrative control of the Department of Commerce under the Ministry of Commerce and Industries and all the fairs of the petitioner are held by the Government of India or its nominees. The affairs of the petitioner are managed by the Board of Directors headed by the Chairman and Managing Directors nominated by Government of India on rotation basis from ....
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.... of dividends is prohibited. If a literal interpretation is to be given to the proviso, then it may be concluded that this fact would have no bearing on determining the nature of the activity carried on by the petitioner. But, he felt that in deciding whether any activity is in the nature of trade, commerce or business, it has to be examined whether there is an element of profit making or not. Similarly, while considering whether any activity is one of rendering any service in relation to any trade, commerce or business, the element of profit making is also very important. 58. In conclusion, he said that the expression "charitable purpose", as defined in Section 2(15) cannot be construed literally and in absolute terms. It has to take colour and be considered in the context of Section 10(23C)(iv) of the said Act. It is also clear that if the literal interpretation is given to the proviso to Section 2(15) of the said Act, then the proviso would be at risk of running fowl of the principle of equality enshrined in Article 14 of the Constitution of India. In order to save the Constitutional validity of the proviso, the same would have to be read down and interpreted in the context of....
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....etention of income from such activities would not be relevant. Under the circumstances, the important elements of application of proviso are that the entity should be involved in carrying on the activities of any trade, commerce or business or any activities of rendering service in relation to any trade, commerce or business, for a cess or fee or any other consideration. ................ 11. Ld. AR was wholly in agreement with the view of the Tribunal. The objects of the Trust clearly establish that the same was for general public utility and where for charitable purposes. The main objectives of the trust are - to breed the cattle and endeavour to improve the quality of the cows and oxen in view of the need of good oxen as India is prominent agricultural country; to produce and sale the cow milk; to hold and cultivate agricultural lands; to keep grazing lands for cattle keeping and breeding; to rehabilitate and assist Rabaris and Bharwads; to make necessary arrangements for getting informatics and scientific knowledge and to do scientific research with regard to keeping and breeding of the cattle, agriculture, use of milk and its various preparations, etc.; to establish other all....
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....e, commerce or business to earn profits. The Revenue has not shown how even in the absence of profit motive, the activity of obtaining milk and selling the same would still be an activity of trade, commerce or business. In the alternative, Mr. Malhotra submitted that the proviso to Section 2(15) of the Act would apply even if it is not trade, commerce or business but only in its nature. However, how and why the activity of selling milk obtained incidentally while taking care of the cows, is in the nature of trade, business or commerce is not shown. Admittedly, in the present facts, the dominant activity carried out by the respondent assessee's Trust for over 130 years is to take care of old, sick and disabled cows. In these circumstances, an incidental activity of selling milk which may result in receipt of money, by itself would not make it trade, commerce or business nor an activity in the nature of trade, commerce or business to be hit by the proviso to Section 2(15) of the Act. Θ In Bureau of Indian Standards vs. DGIT (E) [2013] 358 ITR 78 (Delhi), it was held as follows: 13. In view of the above discussion, it cannot be said that the BIS is involved in any carryi....
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....first proviso) is intended to catch with its ambit any and all commercial activity, except what falls within the second proviso (which bars application of the exception in cases where the aggregate value of the receipts from the activities mentioned therein is less than ten lakh rupees in the relevant previous year). The Bureau, it would appear at the first blush, renders service in relation to trade, commerce or business by granting certification/quality marks in return of license fee. Apparently, Parliament intended to clarify that not all activities of State agencies (some of which might be set up to carry on trading and commercial activities) can be considered charitable. ............. 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 r....
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....nless there is some intention to carry on business, trade or commerce on a permanent basis or with a reasonable continuity. .............. Θ In NEIA Trust vs. JDIT (E) [2019] 104 taxmann.com 16 (Mumbai - Trib.), it was held as follows: 8. ............ Undoubtedly the dominant and prime object is required to be seen. ........... 9. The facts of the present case is quite similar to the facts of the case titled as India Trade Promotion Orgaization (supra). Therefore finding of the said cases is quite applicable to the facts of the present case. Since the dominant and prime object of the assessee is not to earn the profit in relation to trade, commerce and business, therefore, the exemption u/s.11 & 12 is not liable to be declined. Accordingly, we set aside the finding of the CIT(A) in this issue and allowed the claim of the assessee. 4.28 Therefore, it is submitted that exemption under section 11 of the IT Act cannot be denied by invoking 1st proviso to section 2 (15) if the primary/ dominant objects are not (a) in the nature of trade, commerce or business; or (b) rendering any service in relation to any trade, commerce or business. 4.29 It is reiterated that the Asse....
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....ies, the aforesaid proviso is attracted. In other words, it is only when it is impossible to pursue the main object/s without carrying out such activities, the aforesaid proviso is attracted. Hence, it is submitted that the Learned Assessing Officer cannot deny exemption under section 11 on the basis of projects undertaken by the Assessee for the Government. Carrying out these projects are not the objects of the Assessee. 6.8 a) The main object of Dakshina Kannada Nirmithi Kendra were assimilation and dissemination of information pertaining to innovative ideas in housing. It is submitted that the Learned Assessing Officer having noted the objects of the Assessee, ought to have taken his conclusion to a logical end. The main object does not involve carrying on of any activity in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business. 6.8 d) Now let us analyze the actual work carried out by Dakshina Kannada Nirmithi Kendra ........... All of these activities/ functions are akin to the activities carried out by a private contractor / developer on a commercial basis. It is submitted that projects undertake....
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.... above, it is proved without any shadow of doubt that the actual activities carried out by the assessee are in nature of pure commercial activity out by any contractor. The actual activities carried out by the Assessee are essentially two fold: a) Activities in pursuance to objects of the Assessee [as demonstrated in paragraph 4.6] b) Fund raising activities of the Assessee by carrying out project works for the Government. The Learned Assessing Officer has misconstrued the objects, activities and the scheme of the Act. 6.10 Without prejudice to the above, it is also clearly seen that in the entire year the assessee has not carried out any activity as envisaged in the Objects of its MOA .......... It is submitted that in paragraph 4.6, it is demonstrated how these objects are carried out. Hence, the said statement of the Learned Assessing Officer is perverse and contrary to the facts. 4.33 Without prejudice to the fact that Assessee carried out its main objects, the Learned Assessing Officer has returned the following findings: 6.8 (n) The commercial activity authorised by the Object of the Assessee Trust/ Society are (a) Production of Pre Fabricated Housing Material - C....
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....view to earn profit, such employment not being in the nature of a learned employment not being in the nature of a learned profession or agriculture must be regarded as engaging, in "trade" within the meaning of Art 276 of the constitution. A skilled occupation which involves the application of manufacturing processes to a commodity submitted to the person carrying on the occupation must be regarded as trade. Municipality of Chopda v. Motilal Manakchand, AIR 1958 Bom 487, 489. [Constitution of India, Art 276] * A privately owned convalescent hospital conducted for private profit was not a "trade" within the meaning of the Local Government Act, 1919 (NSW), S. 309 (Hornsby Shire Council v. Salmar Holdings, (1972) 46 ALJR). * It is not essential to a "trade" that the persons carrying it on should make, or desire to make, a profit (per Coleridge C.J. Re, Law Reporting Council, 22 QBD 279) * As per the Webster's New Twentieth Century Dictionary (2nd edition), the term "Trade", means amongst others, "a means of earning one's living, occupation or work". * In Black's Law Dictionary, trade means a business which a person has learnt or he carries on for procuring su....
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....a view to profit. In fact, the words 'trade' and 'industry' are also used interchangeably many times. It all depends upon the context in which the words occur. In Words and Phrases Legally Defined, 3rdEdn., (Vol. 4; R-Z) by John B. Saunders, the word 'trade' is explained as: "'Trade' in its primary meaning is the exchange of goods for goods or goods for money and in a secondary meaning it is any business carried on with a view to profit, whether manual or mercantile, as distinguished from the liberal arts, or learned professions and from agriculture. However, the word is of very general application, and must always be considered in the context in which it is used. As used in various revenue Acts, 'trade' is not limited to buying and selling, but may include manufacture. In the expression 'restraint of trade' the word is used in its loosest sense to cover every kind of trade, business, profession or occupation." 69. In Skinner v. Jack Breach Ltd., Lord Hewart, C.J. has observed: "No doubt in a great many contexts the word 'trade' indicates a process of buying and selling, but that is by no means an exhaustive definition o....
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....per Advance Law Lexicon, 3rd Edition authored by P Ramanatha Aiyar the term 'Commerce' means as follows: o "COMMERCE" means the carrying of any trade, business or profession, sale or exchange of goods of any type whatsoever and includes the running of with a view to make profits, hospitals or nursing homes, infirmaries, educational institutions, and also includes hotels restaurants and boarding houses not attached to educational institutions and the expression 'commercial' shall be construed accordingly. [Punjab Regional and Town Planning and Development Act (11 of 1995), S. 2 (k)]. o "An interchange or mutual change of goods, wares, productions or property of any kind, between nations or individuals, either by barter or by purchase and sale; trade; traffic'. (Webster Dict.) "Interchange of goods, merchandise or property of any kind; trade; traffic; used more especially of trade on a large scale" o "Commercial action" includes any cause arising out of the ordinary transactions of merchants and traders, and without prejudice to the generality of the foregoing words, any cause relating to the construction of a mercantile document, the export or import of merchandise, affreigh....
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....13) of the IT Act, which defines the term 'Business' reads as follows: "Business" include any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture. * As per the Black's Law Dictionary, 6th Edition the term 'Business' means as under: o Employment, occupation, profession, or commercial activity engaged in for gain or livelihood, Activity or enterprise for gain, benefit, advantage or livelihood. o Dogget Vs Burnet, 62 App. 103, 65 F. 2d 191, 194. That which habitually busies or occupies or engages the time, attention, labor, and effort of persons as a principal serious concern or interest or for livelihood or profit. o The word "business" is defined as meaning almost anything which is an occupation as distinguished from a pleasure - anything which is an occupation or duty which requires attention as a business. In Bouriers law Dictionary "business" means that which occupies the time, attention and labour of men for the purpose of livelihood or profit, but it is not necessary that it should be the sole occupation or employment. It embraces everything about which a person can be employed. It is a word of much indefini....
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....tivity. Business is defined as an active occupation continuously carried on. Business vocation connotes some real, substantive and systematic course of activity or conduct with a set purpose. Second essential characteristic is profit motive or capable of producing profit. To regard an activity as business, there must be a course of dealings continued, or contemplated to be continued, normally with an object of making profit and not for sport or pleasure [Bharat Development (P.) Ltd vs. CIT [1980] 4 Taxman 58 / 133 ITR 470 (Delhi)]. The third essential characteristic is that a business transaction must be between two persons. Business is not a unilateral act. It is brought about by a transaction between two or more persons. And lastly, the business activity usually involves a twin activity. There is usually an element of reciprocity involved in a business transaction. * In Institute of Chartered Accountants of India (ICAI) vs. DGIT (E) [2012] 347 ITR 99 (Delhi), it was held as follows: 29. It may be, however, pointed out that the term "profit motive" is not only the sole or relevant consideration that has to be kept in mind. It is one of the aspects. Normally intention to earn p....
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....satisfied but in a given case activity may be regarded as 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 principles, and pursued with reasonable continuity. There should be facts and other circumstances which justify and show that the activity undertaken is infact in the nature of business. The test as prescribe in Raipur Mfrs. Co.'s case (supra) and Sai Publications Fund's case (supra) can be applied. The six indicia stipulated in Lord Fisher's case (supra) are also relevant. Each case, therefore, has to be examined on its own facts. * In Improvement Trust vs. CIT [2014] 41 taxmann.com 403 (Amritsar-Trib.)/[2014] 62 SOT 121 (Amritsar - Trib.)(URO), it was held as follows: 15. As per the amended definition of charitable purpose under Section 2(15) of the Act, w.e.f. 01.04.2009, advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activities in the nature of trade, commerce or business, or any activity of rendering any service in relation to any....
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....ofit and whether or not any gain or profit accrues therefrom; and any transaction in connection with, or incidental or ancillary to, such trade, commerce, manufacture, adventure or concern. 4.46 Section 2 (17) (a) of the GST Act provides that 'business' includes any trade, commerce, manufacture, profession, vocation, adventure, wager, or any other similar activity, whether or not it is for a pecuniary benefit. 4.47 It may be noted that the use of phrases i.e. "whether or not any gain or profit accrues therefrom" under Karvat Act and "whether or not it is for a pecuniary benefit" convey that even if there is no profit or gain or pecuniary benefit, aforesaid activities qualify to be regarded as 'business'. 4.48 The Explanation to section 2 (31) of the IT Act reads as follows: Explanation.-For the purposes of this clause, an association of persons or a body of individuals or a local authority or an artificial juridical person shall be deemed to be a person, whether or not such person or body or authority or juridical person was formed or established or incorporated with the object of deriving income, profits or gains; 4.49 It may be noted from the aforesaid Explanation, the ....
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....be carried on in advancement of the charitable purpose of the trust or institution. Where an activity is carried on as a matter of advancement of the charitable purpose or for the purpose of carrying out the charitable purpose, it would not be incorrect to say as a matter of plain English grammar that the charitable purpose involves the carrying on of such activity, but the predominant object of such activity must be to subserve the charitable purpose and not to earn profit. The charitable purpose should not be submerged by the profit-making motive; the latter should not masquerade under the guise of the former. The purpose of the trust, as pointed out by one of us (Pathak, J.) in Dharmadeepti v. CIT (supra), must be "essentially charitable in nature" and it must not be a cover for carrying on an activity which has profit making as its predominant object." ∗ In Commissioner of Sales Tax vs. Sai Publication Fund [2002] 258 ITR 70 (SC), it was held as follows: 10. ............. From the facts of the present case, the sole object of the assessee-trust is to spread the message of Saibaba of Shirdi. It is also not disputed that the books and literature, etc., containing the m....
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.... We have stated above that the main and dominant activity of the trust in furtherance of its object is to spread message. Hence, such activity does not amount to 'business'. Publication for the purpose of spreading message is incidental to the main activity which the trust does not carry as business. In this view, the activity of the trust in bringing out publications and selling them at cost price to spread message of Saibaba does not make it a dealer under section 2(11) of the Act. 17. ............ It may be stated that the question of profit motive or no profit move would be relevant only where person carries on trade, commerce, manufacture or adventure in the nature of trade, commerce, etc. On the facts and in the circumstances of the present case irrespective of the profit motive, it could not be said that the trust either was 'dealer' or was carrying on trade, commerce, etc. The trust is not carrying on trade, commerce, etc., in the sense of occupation to be a 'dealer' as its main object is to spread message of Saibaba of Shirdi as already noticed above. Having regard to all aspects of the matter, the High Court was right in answering the question re....
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....", "commerce" and "business" as occurring in the first proviso to section 2(15) of the Act must be read in the context of the intent and purport of section 2(15) of the Act and cannot be interpreted to mean any activity which is carried on in an organised manner. The purpose and the dominant object for which an institution carries on its activities is material to determine whether the same is business or not. ............ 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". 71. Although, it is not essential that an activity be carried on for profit motive in order to be considered as business, but existence of profit motive would be a vital indicator in determining whether an organisation is carrying on business or not. .............. ∗ In The Tribune Trust vs. CIT (2017) 390 ITR 547 (P&H), it was held as follows: 44. The second sentence is important while considering the meaning of the words "trade, commerce or bus....
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.... out by this court in Surat Art Silk Cloth Manufacturers Association's case [1980] 120 ITR 1 (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. " ∗ In the case of GS1 India vs. DGIT (E) [2014] 360 ITR 138 (Delhi), the Hon'ble Delhi High Court has held as follows: "22. Business activity has an important pervading element of self- interest, though fair dealing should and can be present, whilst charity or charitable activity is anti-thesis 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 s....
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.... gain, benefit, advantage, livelihood or profit The works which are incidental to the primary objects undertaken by the Assessee are in the nature of infrastructure development which are towards the betterment of public. The project activities are fund raising activities for pursuing objects. Hence, the same are not undertaken for provide gain. 3 Whether activity is undertaken with profit motive or capable of producing profit The Assessee does not have any discretion in fixing the price. The rates are prescribed by PWD or Engineering department of Zilla Panchayath. The traits of free trade of fixation of price are absent. Project activities are monitored by KARNIK; There is all pervasive state control in the project activities The Assessee does not have any discretion to utilize the funds. 4 Whether activity conducted regularly on sound and recognized business principles It is submitted that there is subtle difference between the phrase 'carrying on activities in the nature of business' and 'carrying on activities on business principles'. The former refers to activity itself assuming the character of business and the latter refers to activity carried on for a differ....
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....8 (Delhi), it was held as under: "13. In view of the above discussion, it cannot be said that the BIS is involved in any carrying on trade, commerce or business. BIS is a statutory body established under the BIS Act and was brought into existence "for the harmonious development of the activities of standardisation, marking and quality certification of goods". This was, and has been, its primary and pre-dominant object. Even though it does take license fee for granting marks/certification, the same cannot be said to be done for the purpose of profit. If any profit/revenue is earned, it is purely incidental. The BIS performs sovereign and regulatory function, in its capacity of an instrumentality of the state. Therefore, this Court has no doubt in holding that it is not involved in carrying any activity in the nature of trade, commerce or business. 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 ....
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....nature of trade, commerce, or business etc. 9.2. Further, we find that even after the amendment has been made under the law, by inserting proviso to section 2(15), the position of law, as was laid down by Hon'ble Supreme Court in the case of Sai Publication Fund, (supra), remains the same. In support of our view, we rely upon the judgment of Hon'ble Delhi High Court in GS1 India v. DGIT (Exemptions) [2014] 360 ITR 138/[2013] 219 Taxman 205/38 taxmann.com 364, wherein it was held that the proviso to second limb will not apply in the case of a rendition of a service per se, for a cess, fee or any other consideration, or to a trade, commerce or business, but that this clause can come into play for the purpose of excluding an assessee "who carries on business, trade or commerce to feed the charitable activities". In other words, the scope of second limb, as held by High Court, extends only to such cases in which a business is carried out to feed the charitable activities. It would thus follow that even for invoking second limb of first proviso to Section 2(15), it is sine qua non that the assessee has extended services to business, trade or commerce and such services have be....
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....there was no motive to earn profit. These crucial facts have not been controverted by the Ld. Assessing Officer in his assessment order or by the Ld. DR before us. 4.61 In the following cases, the Courts have held that organisations carrying on activities like development of township and industries do not fall within the ambit of proviso to section 2 (15) of the IT Act: * * In CIT vs. Bagalkot Town Development Authority (2015) SCC Online Kar. 6951, it was held as follows: 3. ............... There is no dispute with regard to the fact that the respondent was getting funds from the Government to carry out certain public works such as Rehabilitation & Resettlements of persons Displaced during the construction of Almatti Dam. Respondent had applied and obtained registration under Section 12-AA of the Act and it was considered as an Institution for charitable purposes. Consequently, assessee income was exempt from Income Tax under Section 11 of the Act. 7. Careful consideration of the rival contentions and perusal of material papers lead us to following irrefutable inferences:- (i) Respondent/assessee is a statutory authority created under Karnataka Improvement Boards Act....
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.... a statutory authority constituted under the provisions of KUDA 1987. In the circumstances, it is held that despite the insertion of the proviso, the assessee was entitled to continue the Certificate of Registration under section 12A of the Act, as even though the objects of the assessee fall within the limit of any other object of general public utility, but, having regard to the aforesaid dicta, it is held that its activity is not for of a commercial nature for the purpose of earning profit, but being statutory body its objects are to ensure orderly development of urban areas of HubballiDharwad. In the circumstances, substantial question of law No.1 is answered against the Revenue. * * In The Belgaum Urban Development Authority vs. CIT ITA No. 5020/2012, dated 19.02.2019 (Kar. HC), it was held as follows: This appeal was admitted on 31.07.2013 to consider the following substantial questions of law raised in the memorandum of appeal: "i) Whether in law, the finding arrived at by the Tribunal is perverse and contrary to the facts and circumstances in as much as whether the activity carried on by the assessee would amount to an activity in the nature of trade, commerce or b....
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.... Act. The activity of the assessee comes within the scope and ambit of the expression "the advancement of any other object of general public utility". The activity carried on by the assessee does not involve an activity which is in the nature of trade, commerce or business so as to come within the mischief of proviso to Section 2(15). As already noted, the assessee is a statutory authority constituted under the provisions of KUDA Act, whose object is to establish and develop urban areas in an orderly fashion. Even though the assessee Development Authority may be involved in developing various residential or commercial areas and thereby preparing house sites or commercial sites and even alienating such sites through auction or through allotting to eligible persons, the said activity cannot be held to be profit motive so as to come within the mischief of the expression trade, commerce or business. The upshot of the aforesaid discussion is that the assessee is a statutory Authority created under the Karnataka Urban Development Authorities Act, 1987. The purpose and intent of creation of the assessee Authority is to establish urban areas in Belgaum in a planned manner. The assessee bei....
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....ssessee. Rather the purpose for which the Assessee was created is to regulate and develop drinking water and drainage facilities in the urban areas of the State of Karnataka and for matters connected therewith. This makes it clear that any income generated by the Assessee does not find its way into the pockets of any individuals or entities. It is to be utilized fully for the purposes of the petitioner ........... 49. Keeping in mind the above factual aspects and the provisions of the KIDA Act, and principle laid down in the aforesaid decision of the Hon'ble Delhi High Court in the case of India Promotion Organization (supra), in our view, will clearly show that the Assessee does not driven primarily by desire or motive to earn profits but to do charity through advancement of an object of general public utility. The assessee is operating on no profit basis. This is substantiated by the actual income received on operations of the Assessee and the expenditure incurred set out in the earlier paragraphs of this order. The proviso to Sec.2(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 ....
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.... tender forms etc.). If interest, rent and other income are excluded and compared with the expenditure on operations incurred by the Assessee, it becomes clear that the Assessee does not have profit motive. The proviso to Sec.2(15) of the Act is therefore not applicable to the case of the Assessee. He therefore hold that the Assessee is entitled to the benefits of Sec.11 of the Act for the impugned assessment years. 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, he 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." * * In Bangalore Development Authority (BDA) vs. Addl. CIT (2019) 104 taxmann.com 266 (Bengaluru), it was held as follows: 2.1 The assessee, Bangalore Development Authority (BDA), a statutory body constituted under the State Government of Karnataka, filed its return of income for Assessment Year 2012-13 on 29.09.2012 declaring a loss of (-) Rs.357,92,21,808/-, after clai....
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....iedly endorsed by the CIT(A) in the impugned appellate order, i.e., that (iii) "The assessee is not applying the huge amount of profit generated from the activities towards any charitable activities such as relief of poor, education, medical relief and other objects of advancement of general public utility and such surplus is being invested in fixed deposits in order to earn interest income" is also not correct in as much as it is evident from the financial statements of this year 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 ....
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....stood restored by a decision of the Co-ordinate Bench of this Tribunal vide order in ITA No.12/Bang/2012 dated 10.04.2015. In this prevailing factual matrix, there is no change in the objects and the only issue which apparently prompts Revenue to take the view it has taken, i.e., that the activity of the assessee is hit by the proviso to section 2(15) of the Act; is the fact that the activity of the assessee has resulted in huge surplus or profits. In our view, the fact of surplus or shortfall is not to be reckoned as the test for applicability of the proviso to section 2(15) of the Act; but rather, whether the activity is embarked upon solely with the view to earn profit or not; which the AO and CIT(A) have not done. 5.10.4 Ld. A.R. find that the aforesaid judicial 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, he find that in the case of Ahmedabad Development Authority (supra) the Hon'ble Gujarat High Court has upheld the appeal of the assessee, by overruli....
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....ion 2(15) of the Act. Having held so, he direct the AO to allow the assessee the benefits of section 11 of the Act while giving effect to this order. Consequently, grounds raised by the assessee on this issue are allowed. * * In CIT vs. Gujarat Industrial Development Corporation [2017] 83 taxmann.com 366 (Gujarat), it is held as follows: "17. Applying the aforesaid decision to the facts of the case on hand and the objects and purpose for which the assessee-Corporation is established and constituted under the provisions of the Gujarat Industrial Development Act, 1962 and collection 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 IT Act. As the activities of the assessee is for advancement of any other object of general public utility, the same can be for "charitable purpose" and therefore, the assessee Corporation shall be entitled to exemption under Section 11 of the Act. No error has been committed by the learned Tribunal in holding so. We are in complete agreement with the view taken by the learned Tribunal" * * In Himachal Pradesh Environment Protection an....
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....cularly with a view to provide shelter to economically weaker sections of society. ......... 7. We find that the core issue that is really required to be adjudicated by us is whether construction and sale of dwelling units by the assessee, on the given facts, is an activity in the nature of trade, commerce or business or service thereto. ............. The assessee is a trust set up under the State Government legislation and is doing commendable work in the field of providing affordable accommodation. ...... 8. Viewed thus, merely the fact that the assessee has constructed and sold the dwelling units does not make it a business venture as long as predominant object, which is what the trust set up by the State Government is pursuing, is implementation of the provisions of the trust through various schemes. What has been said in the context of the aforesaid case is equally applicable on the present set of facts. There is no dispute that the objects of the Trust are covered by the objects of general public utility and the registration granted to the assessee trust is still valid. Clearly, therefore, pursing these valid objects of general public utility through lawful statutory sche....
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.... and funds, which are received from the State Government. Petitioner, given the regulatory and administrative functions performed is required and charges fee, cost and consideration in the form of rent and transfer of rights in land, building and movable properties. Similarly payments have to be made for acquisition of land, creation and construction of infrastructure and even buildings. Carrying out and rendering the said activities is directly connected with the role and statutory mandate assigned to the petitioner. It has not been asserted and alleged that these activities were or are undertaken on commercial lines and intent. Petitioner does not earn profits or income from any other activity unconnected with their regulatory and administrative role. Income in the form of taxes, fee, service charges, rents and sale proceeds is intrinsically, immediately and fundamentally connected and forms part of the role, functions and duties of the petitioner. * * In ITO vs. Moradabad Development Authority [2017] 159 ITD 971 (Delhi Trib), it was held as follows: 9. We have heard both the parties and perused all the records. The status of the assessee in the earlier years was accepted ....
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....h is the object of the assessee since the beginning. Thus, the CIT(A) was correct in partly allowing the appeal of the assessee. * * In Moradabad Development Authority vs. ACIT (Exemption) in ITA No. 4631 & 4632/ Del/2017, dated 04.01.2018, it was held as follows: "3. We have heard both the sides and gone through the relevant material on record. It is seen, as is evident from para 4.1 of the impugned order itself, that the assessee was allowed exemption u/s 11 of the Act by the Tribunal for the assessment years 2008-09 and 2009-10. It is an admitted position that the regular assessment for the assessment years 2010-11 and 2011-12 was not taken up and the claim for exemption u/s 11 of the Act got automatically allowed. We have gone through the lead order passed by the Tribunal for the assessment year 2009-10, whose copy is available on page 75 of the paper book. In this order, the Tribunal considered the effect of proviso to section 2(15) and, thereafter, held that the activities of the assessee of construction and sale of plots were incidental to the main object of town planning and, hence, exemption u/s 11 was to be granted. The said order of the Tribunal was challenged by....
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....ssee is the development of the specified area of the district by providing housing, roads, development and maintenance of roads, parks sewerage system and plantation of the specified area and all these activities are being carried out for the welfare of the pupil of the specified area with the charitable purposes for development of infrastructure facilities of general public utility without any profit motive therefore it was held that the predominant object of the authority created under UPUPDA Act, 1973, is not profit earning therefore it was held that it is entitled for registration of under section 12A of the Act. We further observed that the ld CIT DR has not disputed this factum that the provisions of UPUPDA, Act 1973 are paremateria to the provisions of UPIDA Act, 1976 and thus ratio of the decision of Hon'ble Jurisdictional High Court in the case of Lucknow Development Authority (supra) and order of the tribunal in the case of Haridwar Development Authority (supra) are applicable in favour of the assessee. 40. On the basis of forgoing discussion, we reach to a logical conclusion that the CIT (E) dismissed application of assessee for grant of registration under section ....
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....t the hands of the assessee, the payments received were utilized to defray the expenses met to perform the task of cooking and supplying the meals as directed by the State government. It is also not the case of the revenue that the assessee was in any manner free to utilize either the materials supplied to it or food cooked by it, as per it's own wish/discretion. The assessee appears to have acted merely as an agent of the State. 30. Therefore, on the basis of findings recorded by the Tribunal and the material examined by the Commissioner it would be wrong to conclude that because there existed a contract between the assessee & the government therefore the assessee was not pursuing a "charitable purpose". On the other hand the activity performed by the assessee clearly appears to be inseparably linked to the 'charitable purpose' of providing mid-day meals at village schools. Also, admittedly, the total receipts of the assessee were below the limit of Rs. 10,00,000/- as stipulated under the second proviso to Section 2(15) of the Act. 31. In that view of the matter, the Tribunal has rightly concluded that the restriction created by the first proviso to Section 2(15) o....
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.... Security Council of India [2017] 82 taxmann.com 281 (Delhi - Trib.), it was held as follows: (A) The main objects of the assessee includes:- (1) To promote, encourage, support data protection and information security, maintenance of data privacy of any kind in India carrying out research, dissemination of information, setting of standards, for members providing education, training, conducting meetings, seminars, workshops, conferences interacting with government or non-government bodies, agencies, companies or any other person, taking appropriate legal or any other action by itself or on behalf of its members. (2) No objects of the company will be carried by the company without obtaining prior approval/no objection certificate from concern authority (if any). 3. ........... He noted that during the year under consideration, the assessee had received income under the following heads:- Sl. No. Heads Amount (in Rs.) 1 Donation 2,00,00,000 2 Grants Apportioned 1,21,87,672 3 Participation Fees 3,86,799 4 Membership Fees 6,81,250 5 Sponsorship Fees 1,03,90,522 6 Interest from bank and on refund 1,60,223 14. I have considered the submissions of both the par....
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....ause some sponsorship was accepted from a private company in respect of Asian games and Youth Olympic games. * In PCIT (Exemptions) vs. Animal Breeding Research Organisation (India) [2018] 95 taxmann.com 226 (Gujarat), it was held that assessee-society, established with a view to undertake and promote activities connected with development of cattle and buffaloes being covered by section 2(15), income earned by it from sale of semen was eligible for exemption 4.62 It is submitted that Courts in several cases have held that even the cricket association are not carrying on activities in the nature of trade, commerce or business, hence not hit by proviso to section 2 (15). It is submitted that where Courts have taken a view that the activities carried on by the cricket association are not in the nature of trade, commerce or business, in no manner the activities of the Assessee could be regarded to be in the nature of trade, commerce or business. The following are such cases; * Gujarat Cricket Association (2019) 419 ITR 561 Gujarat HC; * Tamil Nadu Cricket Association vs. DIT (Exemptions) and others [2014] 360 ITR 633 (Mad. - HC); * Mumbai Cricket Association vs. Addl. DIT 201....
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....e allotted by KARNIK for promoting the objectives for which Assessee is set up. The primary objective of carrying out various civil works is for propagation of low-cost technology, environmental friendly, pre-cast technologies to general public and to develop skilled workforce and artisans to use such technologies in building/housing and allied activities. The activities are carried out to promote the objectives for which the Assessee is set up. * The Assessee is a State under Article 12 as held in Waman Rao Deshpande vs. Chairmen, Nirmithi Kendra & Others, in WP No. 11674/ 2005 (S-DIS), dated 17.03.2010 and hence cannot be compared with a private contractor; * The activity of infrastructure development - roads, museums, roads, water facilities, community asset buildings etc. squarely falls within the domain of List II of (State List) of Seventh Schedule of the Constitution of India. * The Assessee does not have Capital funds of its own. The projects are undertaken based on advance granted by the Department of State Government. * The Assessee does not have any discretion in fixing the price. The rates are prescribed by PWD or Engineering department, of Zilla Panchayath. The....
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....s as under: 4.63.3.1 As per Section 2 (6) of the Karvat Act, the term "Business" is defined as follows: (6) "Business" includes.- a. any trade, commerce, manufacture or any adventure or concern in the nature of trade, commerce or manufacture, whether or not such trade, commerce, manufacture, adventure or concern is carried on in furtherance of gain or profit and whether or not any gain or profit accrues therefrom; and b. any transaction in connection with, or incidental or ancillary to, such trade, commerce, manufacture, adventure or concern. 4.63.3.2 The definition of "business" given in section 2(5A) of the KVAT Act even without profit-motive is wide enough to include any trade, commerce or manufacture or any adventure. The context in which business is understood under the Incometax Act is not the same as KVAT Act as explained in aforesaid paragraphs. 4.64 Therefore, it is submitted that the proviso to section 2 (15) does not get attracted to the case of the Assessee. 5. As regards activities carried on by the Assesseefalling within the domain of the State Government under List II (State List) of the Seventh Schedule of the Constitution of India and within Part IV o....
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....using for all' removes inequalities in status among citizens to considerable extent. The objective of the State to follow the "Principles of Directive Policy" in Part IV of Constitution of India, both in the matter of administration as well as making of laws. 5.6 Articles 36 & 37 read as follows: 36. In this Part, unless the context otherwise requires, "the State" has the same meaning as in Part III. 37. The provisions contained in this Part shall not be enforceable by any court, but the principles therein laid down are nevertheless fundamental in the governance of the country and it shall be the duty of the State to apply these principles in making laws. 5.7 The Article 38 reads as follows: (1) The State shall strive to promote the welfare of the people by securing and protecting as effectively as it may a social order in which justice, social, economic and political, shall inform all the institutions of the national life. (2) The State shall, in particular, strive to minimise the inequalities in income, and endeavour to eliminate inequalities in status, facilities and opportunities, not only amongst individuals but also amongst groups of people residing in different a....
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.... a State subject and States Legislatures pass legislations suitable in their context. 5.14 The functions of self-government and schemes for economic development and social justice included in the Eleventh Schedule to Constitution are as under: 1. Agriculture, including agricultural extension. 2. Land improvement, implementation of land reforms, land consolidation and soil conservation. 3. Minor irrigation, water management and watershed development. 4. Animal husbandry, dairying and poultry. 5. Fisheries. 6. Social forestry and farm forestry. 7. Minor forest produce. 8. Small scale industries, including food processing industries. 9. Khadi, village and cottage industries. 10. Rural housing. 11. Drinking water. 12. Fuel and fodder. 13. Roads, culverts, bridges, ferries, waterways and other means of communication. 14. Rural electrification, including distribution of electricity. 15. Non-conventional energy sources. 16. Poverty alleviation programme. 17. Education, including primary and secondary schools. 18. Technical training and vocational education. 19. Adult and non-formal education. 20. Libraries. 21. Cultural activities. 22. Markets....
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....w-cost technologies in building houses. This has visible impact in improving standard of living of artisans. 5.18 As explained earlier, Assessee has fostered the development of construction of community asset buildings, roads, drinking water facilities, development of tribal colonies, development of parks, rain water harvesting, solarization works, rain water channel at road, digging work of public well, fly mast lightning system, erection of brass idol, public stadium, development work in sanctuaries. 5.19 It is submitted that in the Assessee carries out activities at the instance of Government Department and strictly at the prescribed rates fixed by PWD or Engineering department, of Zilla Panchayath as the case may be. 5.20 It is submitted that neither the State Government nor the Assesseeengaged in fulfilling the obligations of the State Government under the Constitution of India can be said to be involved in carrying on any activity in the nature of trade commerce or business as envisaged in the proviso to section 2 (15) of the Act. 5.21 As submitted earlier, the activities carried on by the Assessee are incidental to the attainment of primary/ dominant objects of the A....
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.... small and marginal farmers, indigent artisans or senior citizens in need of aid. ............. 6.4 In Bangalore Development Authority (BDA) vs. Addln. CIT (2019) 104 taxmann.com 266 (Bengaluru), it was held as follows: 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 also includes providing them things at a concessional rate. The question that arises for consideration is which of those sections of society can be said to be 'poor' as per section 2(15) of the Act. Whether the word poor can mean only those who are below the official poverty line or does it include all those who are economically weaker, but not necessarily below the poverty line. 5.9.2 In this context, if one were to observe the activities of Educational and Medical institutions, which in the eyes of law, are considered as charitable institutions, it is not necessary that educational / medical assistance is to be given free only to those below the poverty line. It will suffice if education / med....
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.... at lower prices with the support of subsidy being provided by the then Government of Andhra Pradesh. Without the subsidy the Corporation cannot survive. The sale price is less than the procurement price. This activity no way can be considered as trading activity. Whereas in the case of a trader or an ordinary business man sale price generally will be more than cost and there cannot be rate fixed by government. Therefore, calling the activities of the assessee in the nature of an 'ordinary business man does' is totally incorrect and without any evidentiary value. Thus, the activities of the assessee are unlike an ordinary business man or trader but can be considered in the nature of relief to the poor and therefore "charitable" and eligible for exemption of income u/s 11 of the Act. 6.7 In Centre For Rural Reconstruction vs. CIT 2018TIOL-122-ITAT-VIZAG it was held that micro finance activity of borrowing and lending, for purpose of providing relief to the poor people, comes within the purview of 'charitable activity'. 6.8 In the instant case, it is submitted that the Assessee is a State Agency established under Building Center Movement to bring 'affordable hou....
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....tha Aiyar, reads as follows: π "Cess" is "An assessment; tax; levy; specifically; (a) A rate or local tax............(b) In Scotland, the land tax. (c) In India, a tax for a special object; as, a road cess'. (Webster) π "Cess" defined. Burma Act II of 1880, S, 6 - The remuneration that is payable to the patwari or a lambardar does not fall under the head of cesses. AIR 1937 Nag 21. π The word "cess" is used in Ireland and is still in use in India although the word rate has replaced it in England. It means a tax and is generally used when the levy is for some special administrative expense which the name (health cess, education cess, road cess, etc.) indicates. When levied as an increment to an existing tax, the name maters not for the validity of the cess must be judged of in the same way as the validity of the cess must be judged of the tax to which it is an increment - Guruswamy and Co. v. state of Mysore, AIR 1967 SC 1512, per dissenting judge and India cement Ltd. v. state of T.N., AIR 1990 SC 85. π The word 'cess' has a definite legal connotation, indicating tax allocated to a particular thing, not forming part of the general fund. The word 'cess' is only t....
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....7, defines the term 'cess' meaning the goods and services tax compensation cess levied. 7.7 In Vijayalashmi Rice Mill v. CTO (2006) 6 SCC 763, it was held that 'cess' is also a tax, but is a special kind of tax. Generally tax raises revenue which can be used generally for any purpose by the State. 7.8 In State of W.B. v. Kesoram Industries Ltd., (2004) 10 SCC 201, it was held that the term cess is commonly employed to connote a tax with a purpose or a tax allocated to a particular thing suggested by the name of the cess, such as health cess, education cess, road cessetc. This is a well-settled position of law. However, it also means an assessment or levy. Depending on the context and purpose of levy, cess may not be a tax; it may be a fee or fee as well. It is not necessary that the services rendered from out of the fee collected should be directly in proportion with the amount of fee collected. It is equally not necessary that the services rendered by the fee collected should remain confined to the persons from whom the fee has been collected. Availability of indirect benefit and a general nexus between the persons bearing the burden of levy of fee and the services rendered ou....
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....essee do not fall within the meaning of 'cess' or 'fee'. 7.12 It is submitted that the phrase "any other consideration" is placed next to the terms 'cess' and 'fee', the same has to be interpreted by applying the principles of "Nositur a Sociis" and "ejusdem generis". It is submitted that the Nositur a Sociis means that when two words are capable of being analogously defined, then they take colour from each other. The term ejusdem generis is a facet of Nositur a Sociis. The aforesaid principle means that the general words following certain specific words would take colour from the specific words. Reliance is placed on the following decisions: σ State of Karnataka vs. Jyothi Gas (P) Ltd. [2010] 31 VST 289 (Karn) HC; [Paras 19 to 24] σ CIT vs. McDowell & Co. Ltd. [2009] 180 Taxman 514 (SC); [Paras 10 to 17] σ Grasim Industries Ltd vs. Collector of Customs, Bombay (2002) 128 STC 349 (SC); [Para 11] σ CIT vs. Shree WarnaSahakariSakharKarkhana Ltd., (2002) 253 ITR 226 (Bombay); [Page 230] 7.13 It is submitted that applying the aforesaid principle of interpretation, the phrase "any other consideration" shall take the colour from the specific terms 'ces....
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.... ∗ Delhi Bureau of Text Books vs. DIT [2017] 394 ITR 387 (Delhi); ∗ DIT (Exemptions) vs. Escorts Cardiac Diseases Hospital Society [2008] 300 ITR 75 (Delhi); ∗ OTC Exchange of India vs. Asst. DIT (Exemption) [2017] 85 taxmann.com 329 (Mumbai - Trib.); ∗ DIT (Exemptions) vs. Dalmia Shiksha Prathishthan [2008] 305 ITR 327 (Delhi); 6.2 On the contrary, Ld. D.R. submitted as follows:- III. Applicability of Proviso to sec.2(15) of the I.T.Act: 6.3 During the course of hearing on 24/5/2022, the ld. AR mentioned that since the Assessee has carried out the objects of the trust he is not hit by Proviso to Section 2(15) of the Act even if he carries out other civil works. The Ld.AR is under the misconception that once the Trust carries out the Objects of the Trust, then it is eligible for deduction u/s.11 of the Act for entire income even when it carries out other activities which are not as per the objects of the trust. This argument is not acceptable as it is totally against the law as provided by Proviso to Section 2(15) of the I.T. Act For ready reference Section 2(15) is reproduced as under: "(15)"Charitable Purpose" includes relief of the poor,....
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....o why the Assessee is carrying out such activity. The argument of the AR that the assessee is carrying out civil works for the purpose of fund raising is not relevant for deciding the nature of activity under taxation laws. In view of the above, the Assessee is clearly hit by Proviso to Section 2 (15) of the I.T. Act. 6.6 According the Ld. D.R., the arguments of Ld. A.R. on general terms of the society without giving any specific evidence to prove his point. Therefore, it is requested that the Assessment Order may be upheld as the Assessing Officer has based his decision after examination of the works executed by the Assessee in the light of law and has rightly held that there is no charitable purpose carried out by the Assessee and the Assessee is hit by Proviso to Section 2(15) of the I.T.Act. Further the Assessee is not eligible for the relaxation provided under Clause (i) of Proviso to sec.2(15) of the Act, as he has not satisfied the condition mentioned in Clause (ii) thereof. 6.7 In view of the above, Ld. D.R. prayed that the Assessment order may be upheld in the interest of Justice, fairness and Equity. Further, in support of his arguments, the following case laws are reli....
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....ked into. Sub-section (4A) provides that exemption shall not be applied in relation to any income of any trust or institution, being profits and gains of business, unless the business is incidental to attaining of the objectives of the assessee or as the case may be, institution, and books of account are maintained by such Trust or institution in respect of such business. The Tribunal found that during the assessment year under consideration, the assessee had undertaken construction activities as well as sale of material to the public out of the funds provided by MPs, MLAs and local bodies and maintained separate accounts for the above business activities. Now the question is whether carrying on of such activities is a business incidental to the advancement of any of the objects of the assessee or not. By any stretch of imagination, it is not possible to hold that the business carried on by the assessee is incidental to the objects mentioned in the Memorandum of Association. On the other hand, it is a pre-dominant activity carried on by the assessee. In other words, 'incidental' is an offshoot of the 'main activities', inherent bye-product of pre-dominant activities....
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....assessee's case. Respectfully following the aforesaid decision, we uphold the order of the CIT(A) and find no grounds to interfere in the order of CIT(A). 15. In the result, appeal by the assessee is dismissed." 8. Further, similar issue came for consideration before Cochin Bench in the case of Nirmithi Kendra reported in 174 ITD 177, wherein it was held as under:- 7. "We have heard the rival submissions and perused the record. The main objectives of the assessee for which the Trust was formed are as follows: 1. To serve as seminal agency to generate and propagate innovative ideas on housing. 2. A production centre to prefabricate standardized housing materials including rubble filler blocks, hollow bricks, sanitary wares, electrical fittings, tiles, allied house materials, etc. 3. A nodal agency to serve as a catalyst in the field of housing ensuring horizontal co-ordination in implementation of housing programmes. 4. A chain for retail outlets of housing materials, and such other objectives. 7.1 During the year under consideration, the assessee had undertaken construction activities as well as sale of materials to the public. In the account statements submit....
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....iso shall not apply if the aggregate value of the receipts from the activities referred to therein is Rs. 25 Lakhs or less in the previous year. Thus, provisions of sec.2(15) are abundantly clear and does not require any interpretation. 7.4 The activities carried on by the present assessee cannot be considered as activities of medical relief or education or relief to the poor. The correct way to express the nature of activities carried on by the assessee is to say that the assessee is carrying on "advancement of any other object of general public utility". When that is the ease, the assessee is hit by the proviso to sec. 2(15) of the I.T. Act. The proviso reads that "advancement of any other object of general public utility" shall not be a charitable purpose, if its involving carrying on any activity in the nature of trade, commerce or business, or any activity of rendering any service relating to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the application of money. Therefore, we find that the case of the assessee is hit by the proviso to section 2(15) of the I.T. Act and the assessee is not entitled for the benefit of section 1....
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....e Department that the application of income generated by the business is not relevant consideration and what is relevant is whether the activity is so inextricably connected or linked with the objects of the trust that it could be considered as incidental to those objectives. 9. It was contended by the Ld. AR, that the surplus funds generated from the construction business was spent towards charitable activities and therefore, the assessee is entitled for exemption u/s. 11(4) of the I.T. Act. 'We are unable to accept this. contention. Initially, the assessee carried on the business itself which is not at all property held under trust. This activity is a business activity and the provisions of section 11(4A) of the Act is applicable. 10. It was contended that if the profits of the business carried on by the trust are utilized by the trust for the purposes of achieving the objectives of the trust, then the business should be considered to be incidental to the attainment of the objects of the trust as observed by the Supreme Court in the case of Asstt. CIT v. Thanthi Trust [2001] 247 ITR 785/115 Taxman 126 which is as under: "As it stands, all that it requires for the bus....
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.... assessees' appeals. 10. With regard to common additional ground in all the appeals regarding failure of lower authorities to appreciate that the assessee being a State under Article 12 of the Constitution, is exempted from the levy of Union Tax under Article 289 of the Constitution, the Ld. A.R. submitted as follows:- 2. As regards the Assessee being State under Article 12 of the Constitution and thereby exempt from taxation under Article 289 of the Constitution: [Additional Ground No. 2.9] 2.1 Article 12 of the Constitution of India reads as under: "In this Part, unless the context otherwise requires, "the State'' includes the Government and Parliament of India and the Government and the Legislature of each of the States and all local or other authorities within the territory of India or under the control of the Government of India." 2.2 Thus, the aforesaid Article defines the expression 'State' to include the Government and Parliament of India and the Government and the Legislature of each of the States and all local or other authorities within the territory of India or under the control of the Government of India. 2.3 Articles 36 and 37 read as under: 36. In this P....
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.....T. Manipal * Lead Bank (Syndicate Bank) District Manager, Mangalore * Managing Director, SCDCC Bank Mangalore-3 * Chief Planning Officer, DKZP, Mangalore * The Chief Officer, T.M.C. Udupi * Secretary, Nirmithi Kendra * Two representatives from the category of * Individual members to be nominated by the Chairman 2.6.6 The Assessee's Board consists of officials, all of whom are government officials / Public Authorities. The term of the members of governing body is limited to 3 years. The member-Secretary shall be Ex-Officio Treasurer and will be appointed by Chairman in consultation with Nodal agency [i.e., KARNIK]. The aforesaid Public Authorities hold respective public offices and by virtue of which can, they hold office in the Governing Body.Therefore, their tenure as members of the Board runs parallel with the office held by them in the capacity of Public Authorities. 2.7 The functioning, administration & operation of the Assessee are as under: 2.7.1 The Assessee is set up for propagation of low-cost technology in entire spectrum of building / housing in order to provide assistance to economically weaker sections to adopt such innovative technologies in const....
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....rse, within the limits of its economic capacity and development. The object of the Assessee is propagation of low cost technology in entire spectrum of building / housing to provide assistance to economically weaker sections to adopt such innovative technologies. This is otherwise the duty of the State. 2.9 The objective is to promote low-cost technologies, environmental friendly, pre-cast technologies etc. and to reach public at large in order to gain their acceptability of these options for implementing in construction of houses. 2.10 The Assessee is an implementing agency of the State sector schemes in relation to carrying out of promotion of technologies for low cost construction of buildings under the Chairmanship of Deputy Commissioner and the objectives are State driven. 2.11 In substance, right from the birth (i.e. the creation or formation of the Assessee) till completion of works, everything is for the purpose of State. The Assessee is administered, controlled and monitored by the State. 2.12 The objects of the Assessee are not chosen by the Assessee but are completely guided by the Guidelines issued by Ministry of Urban Development, Government of India vide "Nati....
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....The activities of Assessee create balance between the objectives for which it is set up and judicial utilization of public funds by utilizing the low-cost technologies in creation of public assets. 2.13.10 The private contractors can also take up the civil work which the Assessee does. However, it would not be possible to impose restrictions as to the price and technology to be used. It is not possible to exercise control over the materials, technologies and pricing mechanism of private contractors. The private contractors can be only induced to apply low cost technologies, the success of which goes to the Building Centers movement. The twin objective of application of low cost technology and complete price control is possible because Assessee is mere an extension of State agency. Further, any surplus earned by the Assessee is used in pursuance of its main objects. 2.14 A reference may be made to the decision of the Honourable Supreme Court in the case of Air India Corporation v. Union of Labour [1997] 9 SCC 37 93, which refers to various other co-ordinate bench decisions, in respect of the meaning of 'State' in Article 12 of the Constitution of India: 2.14.1 Rajasthan SEB v.....
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....ernment is transferred to a corporation, it would be a strong factor supportive of the inference of the corporation being an instrumentality or agency of Government 2.15 From the principles held in above cases, the Supreme Court in the case of Air India Statutory Corporation (AISC) observed as under: 2.15.1 The constitution of the corporation or instrumentality or agency or corporation aggregate or corporation sole is not of sole material relevance to decide whether it is by or under the control of the appropriate Government under the Act 2.15.2 If it a statutory corporation, it is an instrumentality or agency of the State. If it is a company owned wholly or partially by a share capital, floated from public exchequer, it gives indication that it is controlled by or under the authority of the appropriate Government. 2.15.3 Even when a corporation established by or under the control of the appropriate Government having protection under Article 14 and 19(2), carries on commercial activities it is an instrumentality or agency of the State. 2.15.4 The State acts through its instrumentalities, agencies or persons - natural or juridical. 2.15.5 The governing power, wherever lo....
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....undertaken to raise fund to be deployed in pursuance of main objects are in the nature of infrastructure development for the public benefit; 2.16.5 The functioning of the Assessee is administered, controlled and monitored by the State; 2.17 From the above, it is submitted that the Assessee is formed under the policy of the Government of Karnataka and is under the control of Government of Karnataka. Therefore, the Assessee falls under the expression 'other authority' as defined under Article 12 of the Constitution of India. Hence, the Assessee is a 'State' as per Article 12 of the Constitution of India. 2.18 In Waman Rao Deshpande vs. Chairmen, Nirmithi Kendra & Others, in WP No. 11674/ 2005 (S-DIS), dated 17.03.2010, the Honourable Karnataka High Court has accepted the Nirmithi Kendra as a State and invoked Article 311 of the Constitution. 2.19 Certain observations of the Hon'ble Court are as follows: 1. The Petitioner was initially appointed as a Project Manager in the Nirmithi Kendra, Gulbarga, which is a society registered under the Societies of Registration Act, 1960 which is controlled by the State of Karnataka, Department of Housing and Development and it is a State....
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.... realised and it became necessary to forge new problems. (d) It was in these circumstances and with a view to supplying this administrative need that the corporation came into being as the third arm of the Government and over the years it has been increasingly utilised by the Government for setting up and running public enterprises and carrying out other public functions. (e) It is fundamental rights along with the directive principles constitute the life force of the Constitution and they must be quickened into effective action by meaningful and purposive interpretation. (f) If a corporation is found to be a mere agency or surrogate of the Government, "in fact owned by the Government, in truth controlled by the Government and in effect an incarnation of the Government", the Court must not allow the enforcement of fundamental rights to be frustrated by taking the view that it is not the Government and therefore not subject to the constitution limitations. 2.22 In Sukhdev Singh v. Bhagatram [1975] 1 SCC 421, [5 Member Bench], the Honourable Supreme Court held as under: (a) A company makes rules and regulations in accordance with the provisions of the Companies Act. A statu....
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...., the Honourable Constitution Bench [7 member], observed the following principles: (a) The tests formulated in Ajay Hasia v. Khalid Mujib Sehravardi (1981) 1 SCC 722 are not a rigid set of principles so that if a body falls within any one of them it must, ex-hypothesis, be considered to be a State within the meaning of Article 12. (b) The question in each case would be - whether in the light of the cumulative facts as established, the body is financially, functionally and administratively dominated by or under the control of the Government. (c) Such control must be particular to the body in question and must be pervasive. If this is found, then the body is a State within Article 12. On the other hand, when the control is merely regulatory whether under statute or otherwise, it would not serve to make the body a State. (d) Dr. B.R. Ambedkar explaining the scope of Article 12 and reason why this Article was placed in the Chapter on Fundamental Rights so spoke in the Constitution Assembly: "The object of the fundamental rights is two-fold. First, that every citizen must be in a position to claim those rights. Secondly, they must be binding upon every authority I shall presen....
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....is not a 'State', the observations and principles ruled therein would make the Assessee a 'State'. 2.27 The meaning of governmental functions as per Black's Law Dictionary is as under: "The functions of a municipality which are essential to its existence, in the sense of serving the public at large, and are distinguished from those which are private, which are not necessary to its existence and which ensure to the advantage of its inhabitants. City of New Rochelle, Claimant, v. State 34 Misc.2d 454, 228 N.Y.S.2d 279, 282. Activities which are carried on by a city, pursuant to state requirement, in discharge of the state's obligation for the health, safety or general welfare of the public generally, or which are voluntarily assumed by city for the benefit of the public generally rather than for its own citizens, are performed in a governmental capacity and as a governmental function. Sarmiento v. City of Corpus Christi, Tex.Civ.App., 465 S.W.2d 813, 816, 818" 2.28 The meaning of governmental functions as per RamanthaAiyer's law lexicon is as under: "A government agency's conduct that is expressly or impliedly mandated or authorized by constitution, statute, or other law ....
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....e activities of these 30 district NirmithiKendras in Karnataka. 10.3 From the above, it is clear that it is a society and hence it is to be assessed as an AOP/ Trust and not as a State. Further it is to be noted that the scheme envisages patronage of prominent local architects, engineers, entrepreneurs, industry associations and NGOs in providing greater status and popular acceptability of such bodies in the society (Ref: Para 5 in internal page 8 of Activity Book and Page 225 of the Paper Book dtd. 10-092020.) Further internal page 13 of the Activity Book (Pg 230 of Paper Book) mentions about Role of State Governments and Agencies. It is clearly mentioned that the State Governments may consider taking up of certain supporting actions in the interest of achieving the technology transfer objectives of National Housing Policy i.e. From Lab to Land. Nowhere it is mentioned that the Nirmiti Kendra is established by the Statute and it functions like a State Department, to accept the contention of the assessee. 10.4 According to Ld. D.R., the ld. AR has not provided any specific evidence to show that the Assessee is a State. His arguments are based on the Activity Book produced by him ....
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.... is appropriate to take note of the exact words used by the Hon'ble Supreme Court, which are as under:- "8. A mere perusal of Article 289(1) discloses that a claim of exemption under it must proceed on the foundation that the exemption is claimed in respect of property and income of a State. Once it is held that the property and such extent as Parliament may by law provide, in respect of a trade or business of any kind carried on by, or on behalf of, the Government of a State, or any operation connected therewith. Thus, even the income of the State within the meaning of Clause (1) of Article 289 may be taxed by law made by the Parliament, if such income is derived from a trade or business of any kind carried on by or on behalf of the Government of a State or any operations connected therewith. Clause (1) of Article 289, therefore empowers Parliament to frame law imposing a tax on income of a State which is earned by means of trade or business of any kind carried by or on behalf of the State Government. 9. It is true, as submitted by Sri Venugopal, that Clause (2) of Article 289 empowers the Parliament to make a law imposing a tax on income earned only from trade or busines....
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....ll devolve upon the State." 10.9 Thus, in our opinion, the assessees Dakshina Kannada Nirmithi Kendra & Udupi Nirmithi Kendra are separate entities and distinct from state, having its own legal identity. It could sue or be sued in its own name. It has its own assets & liabilities. But only when the State Government decides that purpose of Nirmithi Kendra has been achieved and there is no need to continuation of this Nirmithi Kendra, then it may pass the order of dissolution of the same. In that event, the income, assets, liabilities of the Nirmithi Kendra will be vested with the State Government and not otherwise. Thus, it is apparent from the record that the Hon'ble Supreme Court has already dealt with this matter and we are completely agreeing with the argument of Ld. D.R. and the Article 289 of the Constitution cannot be applied to the assessee's case. Accordingly, this additional ground of the assessee is dismissed. 11. In the assessment year 2013-14 in ITA No.2089/Bang/2018 the assessee has raised ground with regard to the depreciation. 11.1 In this regard assessee through his written submissions, submitted as follows:- 9. As regards depreciation denied on the basis that....
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....anasangha in ITA No.220/Bang/2011, ITAT- Bangalore Bench; CIT vs. Market Committee, Pipli (2011) 330 ITR 16 (Punjab & Haryana) (HC); 9.5 Without prejudice to the above, it is submitted that the Finance (No. 2) Act, 2014 has amended section 11 by way of insertion of sub-section (6). Section 11(6) reads as under: (6) In this section where any income is required to be applied or accumulated or set apart for application, then, for such purposes the income shall be determined without any deduction or allowance by way of depreciation or otherwise in respect of any asset, acquisition of which has been claimed as an application of income under this section in the same or any other previous year. 9.6 The Circular No. 1/ 2015 dated 21.01.2015 explains the rationale behind amendments made to the IT Act by the Finance (No. 2) Act, 2014. The relevant extract is as under: 7.5 The second issue which had arisen was that the existing scheme of section 11 as well as section 10(23C) of the Income-tax Act provided exemption in respect of income when it is applied to acquire a capital asset. Subsequently, while computing the income for purposes of these sections, notional deduction by wa....
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....ing double deduction was misconceived. Section 11(6) of the Act was prospective in nature and operated with effect from April 1, 2015. The Appellate Tribunal was right in holding that depreciation was allowable under section 11 of the Act and that there was no double claim of capital expenditure." 11.4 Respectfully following the above judgement, we allow the ground taken by the assessee. 12. The next ground in ITA No.2089/Bang/2018 for the AY 2013-14 is with regard to disallowance u/s 43B of the Act. The AO disallowed an amount of Rs.4,98,427/- in respect of expenditure claimed towards labour cess outstanding as on 31.3.2013. 12.1 Ld. A.R. submitted as follows:- 10. As regards disallowance of expenses claimed as labourcess under the provisions of section 43B of the Act: {Ground No. 4.1 & 4.2} [For the AY 2013-14] 10.1 It is submitted that assessee claimed deduction of labourcess amounting to Rs. 4,98,427/- which was incurred but outstanding as on 31.03.2013. The said liability was paid to the credit of Central Government on 21.03.2014. 10.2 It is submitted that Learned Assessing Officer denied expenses claimed towards labourcess outstanding as on 31.03.2013 by invoking th....
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....r otherwise. It should be noted, in this connection, that the amounts so added back will become chargeable to tax under section 11(3) to the extent that they represent outgoings for purposes other than those of the trust. The amounts spent or applied for the purposes of the trust from out of the income, computed in the aforesaid manner, should be not less than 75 per cent of the latter, if the trust is to get the full benefit of the exemption under section 11(1). 10.9 He relied on the following decisions: * CIT vs. Society of the Sisters of St. Anne [1984] 146 ITR 28 (Kar.-HC); * DDIT vs. Cutchi Memon Union, [2013] 38 taxmann.com 276 (Bang.-ITAT), The above said decision was relied in the case of Karnataka State Muslim Federation vs. DIT 2013-TIOL-973-ITATBang; * CIT vs. Institute of Banking Personnel Selection (IBPS) [2003] 264 ITR 110 (Bom.-HC); * CIT vs. Shri Gujrati Samaj, [2012] 204 Taxman 151 (MP)(Mag.); 10.10 It is submitted that provisions of section 11, 12 & 13 fall under Chapter III which deals with incomes which do not form part of total income subject to certain conditions. The provisions of section 43B fall under chapter IV-D which deals with computation ....
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....trust for the purpose of s. 11 which excludes that income from the computation of total income. The view that he has taken above is also consistent with the circular of the Central Board of Direct Taxes dated 19thJune, 1968, reproduced in V.S. Sundaram's Law of Income Tax in India, 11thEdn., p. 798. The result is that the first question is answered as follows: The income from the properties held under trust would have to be arrived at in the normal commercial manner without reference to the provisions which are attracted by s. 14. Twenty-five percent. thereof will have to be ascertained and if the assessee had accumulated more than twenty-five per cent., then the consequences contemplated by s. 11 will follow. The remand made by the Tribunal will, therefore, have to stand and the ITO will compute the income in the light of the above." 10.13 In ITO vs. Mother Theresa Educational Society [2016] 158 ITD 473 (Visakhapatnam - Trib.), it was held as follows: "In the present case on hand, the income of the assessee is eligible for exemption under sec. 11 of the Act by virtue of registration under sec. 12A. The income of any trust/society, enjoying exemption u/s 11, is exempt fro....
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....e ground raised by the assessee on this issue for the respective assessment years under appeal are accordingly allowed. 10.15 Explanation 3 to section 11 (1) as inserted by Finance Act, 2018 coming into effect from 01.04.2019 (i.e. AY 2019-20) provides that for the purposes of determining the amount of application under section 11 (1) (a) or 11 (1) (b), the provisions of sections 40 (a) (ia) and 40A (3) and 40A (3A), shall, mutatis mutandis, apply as they apply in computing the income chargeable under the head "Profits and gains of business or profession. This provision does not relate to computation of income but only determination of amount of application. As held in CIT vs. Rajasthan And Gujarati Charitable Foundation (2018) 402 ITR 441 (SC) there is a difference between computation of income and application of income. 10.16 Even otherwise, the aforesaid Explanation does not deal with section 43B. Further, the said Explanation is effective only from AY 2019-20 onwards. In this regard, He relied on the decision in CIT & another vs. Sri AdichunchanagiriShikshana Trust ITA No. 209 of 2010/ TS-56-HC-2019(KAR), dated 07.01.2019." 12.2 The Ld. D.R. relied on the order of the lowe....
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....ing securities and negotiable instruments and maintain buildings including the right to alter and improve them and to equip them suitably to manage, sell transfer or otherwise dispose for deal with property of any kind belonging to the Kendra to enter into contracts for or in connection with any of the purpose of the Kendra and on its behalf to raise moneys and funds in such manner as may be deemed fit for on behalf of the Kendra and 9. To do all such things and to perform all such acts as may be necessary or appropriate for the achievement of any of all the above objects." 13.2 However, the assessee carried out the activities in the field of civil contract, where the assessee has undertaken following activities:- 1. Concretizing of Roads 2. Road repairs 3. Fixing of interlock blocks 4. Repairs to Footpath & Drainage 5. Building repairs 6. Tiles fixing 7. White Washing &colour painting 8. Construction of Compound wall 9. Blocked Drainage repairs 10. Construction of commercial buildings (Schools, Library, Commercial complex, etc) 11. Doing fencing work for forest department etc. 13.3 This is with reference to the Dakshina Kannada Nirmithi Kendra. Similar is....